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Statement Regarding Repurchase Operations

newyorkfed.org

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Re: Statement Regarding Repurchase Operations

#71

Post by SilasX »

whatok wrote: post #68
SilasX wrote: post #35

Earlier quoted context omitted.

The relevant figure to look at is borrowing costs per dollar borrowed against typical return on capital. 0.36% shouldn't make a big difference there.

Your last sentence leads me to believe that you are unfamiliar with the normal operations of firms involved in these markets. There is a lot of leverage in repo financed trades and 36bps absolutely does make a difference.

Then maybe you could use your superior understanding to convey the relevant insights, rather than just assert that they exist.

Re: Statement Regarding Repurchase Operations

#72

Post by simplecomplex »

opportune wrote: post #34
situational87 wrote: post #29

Could you even imagine what we could do with $100B every day? My god. They just sit down at the keyboard and print money out of thin air and electrons and give it to any of the 20 biggest banks who ask for it. We could literally solve every single problem.

Well part of the idea is that they get it back pretty quickly. If the fed just gave it all away it would rapidly expand the monetary supply and cause a lot of inflation Though there is something to be said for longer term QE operations only going through banks rather than through citizens

They did rapidly expand the monetary supply and it did cause inflation. Assets are sky high (stocks and real estate). Properties are priced 10-20x cash flow. Stocks are similarly trading at absurd earnings ratios.

Does anyone remember https://en.wikipedia.org/wiki/Japanese_asset_price_bubble ?

Massively expanding credit to the point where money is free .... reduces the value of money. But denial is a helluva drug.

Re: Statement Regarding Repurchase Operations

#73

Post by arez »

LocalTrust wrote: post #9

Wow this is not good. Repo market is the market of overnight debt between banks. Banks lend money to each other to cover their collateral needs/exposures at the end of each day. If banks lose confidence in each other, they start demanding more collateral from each other in the overnight market, which means the overnight rate goes up. The NYFed is trying to keep interest rates down and is having trouble doing it. As a…

nobody is loosing trust, where are you getting that from? There's just not enough cash at hand so the fed is injecting some. People see doomsday scenarios where there is none

Re: Statement Regarding Repurchase Operations

#74

Post by JumpCrisscross »

SilasX wrote: post #12

To retry my earlier comment[1]: The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%. Over three weeks. That means banks are, at most, saved from having to pay an (extra) interest charge of $3.6 million per 1 billion (revolving) dollars borrowed. [2] That ... still seems like a rounding error against their typical quarterly profits, considering it's a one-tim…

> The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%

Lender of last resort is one of the most essential roles of the Federal Reserve. Banks borrowing against Treasuries is almost entirely dictated by liquidity, not solvency.

Re: Statement Regarding Repurchase Operations

#75

Post by JumpCrisscross »

SilasX wrote: post #39
toomuchtodo wrote: post #15

Earlier quoted context omitted.

It’s to prevent a cascading failure due to a rapid loss in confidence requiring even greater action from the Fed (such would occur if interbank lending dries up because of counterparty risk [perceived or actual]). Disclaimer: I work in financial services, but am not involved in these operations.

So, banks don't trust each other's collateral, but the Fed does, and that judgment is more correct?

> banks don't trust each other's collateral, but the Fed does, and that judgment is more correct?

The collateral is Treasuries. Nothing exotic.

Re: Statement Regarding Repurchase Operations

#76

Post by azernik »

one2zero wrote: post #67
azernik wrote: post #63

Earlier quoted context omitted.

This is a reference to Elon Musk's financial strategy, specifically https://www.reuters.com/article/us-tesla-offering-banks/elon... Essentially, he has almost nothing in cash, and instead of selling stock to raise cash he borrows money with his stock as collateral. This is why he's so monomaniacally focused on his stock value and public image. For a more professional, but login-walled, overview, see https://www.econo…

Ahh the paywall. Let me keep reloading and smash esc until i get it to load without the paywall.

It's only loginwalled; if you're okay with them having your e-mail, you can read several articles a month.

Re: Statement Regarding Repurchase Operations

#77

Post by eternalny1 »

hsnewman wrote: post #45
opportune wrote: post #25

Earlier quoted context omitted.

Why is there such a liquidity crunch though? And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only expl…

I read that the cause was that companies were taking money out to pay their quarterly taxes.

That seems like a good, easily digestible bit of news to send to the public "ah, got it, I understand paying taxes".

However, this doesn't happen every year, or even every quarter ... so ...

Re: Statement Regarding Repurchase Operations

#78

Post by beezle »

ww520 wrote: post #62
SilasX wrote: post #12

To retry my earlier comment[1]: The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%. Over three weeks. That means banks are, at most, saved from having to pay an (extra) interest charge of $3.6 million per 1 billion (revolving) dollars borrowed. [2] That ... still seems like a rounding error against their typical quarterly profits, considering it's a one-tim…

The 2.25% overnight funding rate is the basis for a lot of other rates out there, like the loans the banks lending to the public. The Fed doesn't care about saving the banks a few millions. The Fed cares about setting the short term interest rate for the whole economy.

The target range is now 1.75-2.00 and the Fed also lowered the IOER (interest on excess reserves) 30bp to 1.80%, theoretically to keep the fed funds rate from moving out of the top of the range as happened earlier in the week (fed funds != repo)

Personally, I think they need to return to the days when excess reserves were paid no interest at all. Unfortunately that would remove order 40B in free money money center banks have been booking the past few years.

Re: Statement Regarding Repurchase Operations

#79

Post by CyanLite4 »

Hoping to clear up some FUD here:

1) This is the financial equivalent of taking a sledgehammer to squash a bug. Financial markets operate largely on confidence, and especially the rule that the Fed is the lender of last resort at their specified Fed Funds Rate (now 25 basis points lower as of Wednesday).

2) This isn’t $165b. It could be the same $75b used every day.

3) No, this isn’t a sign of a healthy market, but bond prices especially in Europe have gone bananas the past few months and we could be in the biggest bond bubble of our generation. This was evident in negative yields as also a very quick yield curve inversion in the U.S. for 2y10s.

4) I personally believe some banks were over levered as bond prices began to unwind this week and got caught with their pants down.

5) I think the Fed is using this sledgehammer approach to allow some banks to unwind and de-lever their bond positions safely and orderly over the next 2 weeks.

6) I said #5 about 11 years ago, but I believe “this time it’s different.”

Re: Statement Regarding Repurchase Operations

#80

Post by SilasX »

JumpCrisscross wrote: post #75
SilasX wrote: post #39

Earlier quoted context omitted.

So, banks don't trust each other's collateral, but the Fed does, and that judgment is more correct?

> banks don't trust each other's collateral, but the Fed does, and that judgment is more correct? The collateral is Treasuries. Nothing exotic.

Then why are banks not trusting that as collateral?
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