NYFED: Excess Reserves Funding Purchases of Treasuries and Agencies

The President of the NY Federal Reserve states they're using "excess reserves" to fund the purchase of U.S. Treasuries and Agency Securities (i.e. Fannie/Freddie MBS). Can this be right? Does the video below contain the statement by the President of the NYFED that the NYFED is engaged in the largest carry trade in history with money it doesn't "own"? Are our ears deceiving us?



It's bad enough they're monetizing the debt. Now they're engaged in a carry-trade. What's worse is the money flow. Here are steps we mapped out. Maybe we're wrong, but we're just trying to make sense of it.

1. To "avert a depression", the Federal Reserve ballons its balance sheet and issues $700B to the big banks.
2. The big banks are afraid they'll lose the money if they lend it to the public, so instead they park the $700B at the NYFED as "excess reserves" for an overnight interest rate of 0.15%.
3. The NYFED takes (a portion?) of the $700B and uses it to purchase Treasury and Agency debt, thus holding down long-term interest rates (plus picking up some interest payments).
4. Thus, the NYFED has borrowed-short from big banks, and lent-long to the gov't and GSEs, with money that it created out of thin air.
   

This can't possibly be right. Why doesn't Dudley's assertion show up plainly in the Fed's statistics? Does anybody know what's going on with the Fed's handling of the bank's excess reserves? (By the way, excess reserves are traditionally parked in a vault, not "re-invested" by the vault owner). If there were ever a reason to audit the Fed, this is as good as any one. This must be explained!

More:
- This Should End Semantic Debate Over Whether Fed is Monetizing The Debt