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Statement Regarding Repurchase Operations

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Re: Statement Regarding Repurchase Operations

#121

Post by colechristensen »

JumpCrisscross wrote: post #74
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.

Why can't I lend banks money overnight for 9% or 8 or 7 or 6.

There wouldn't be a liquidity problem if the market for the overnight funds wasn't restricted in the layers and layers of abstraction of the financial systems.

Re: Statement Regarding Repurchase Operations

#122

Post by beezle »

DebtDeflation wrote: post #109
beezle wrote: post #85

Earlier quoted context omitted.

This isn't about counterparty issues. That was Lehman in 2008. This is a systemic liquidity shortage.

>This is a systemic liquidity shortage. That seems to be the consensus, but I'm not convinced. $75B is tiny compared to the amount of excess reserves in the banking system and compared to the size of the overall repo market. Yet the Fed is treating this as an urgent matter. My guess is that there is a single (or a small number) of banks that are having a liquidity problem and the Fed is trying to stop it from becomin…

I think we would have other information (rumors, etc) if there were a large bank in trouble and, AFAIK, most repo is tri-party reducing risks further.

Another reason I feel this is not a single name problem is that the spread of FF to IOER had been rock stead until 2018 when FF began to trend from -15bp to parity/+5bp. So this pressure has been around awhile now.

Re: Statement Regarding Repurchase Operations

#123

Post by o-__-o »

azernik wrote: post #63
o-__-o wrote: post #57

Earlier quoted context omitted.

>Couldn't be stuff like a $500m personal loan to a startup CEO, secured by said CEOs stock in a private company that has negative cash flow and no real assets, which he also happens to control? Surely there is no reason to doubt the quality of collateral like that. As a startup CEO with available stock, an actual positive cash flow and no _real_ assets.. please tell me where I can apply for this type of loan? Because…

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…

This isn’t just Elon, Oracles Founder did the same thing. Except they actually have a company with assets. So I don’t get what OP was rambling on about “non real assets”. A fucking manufacturing plant is an asset. My servers are not. Looks like the financial world is working as it should...

Re: Statement Regarding Repurchase Operations

#124

Post by cloakandswagger »

anon1m0us wrote: post #118
TheAlchemist wrote: post #108

Earlier quoted context omitted.

That's true. But another way to look at it (not necessarily good), it's like the water in desert. You are in the middle of the desert and you need water - you ask a guy - lend me some water please, I will buy you back the same amount once we are home. Technical speaking, the amount you get and the amount you give back is the same. What happened during the last crisis is also a great illustration - many banks took tax…

You don't have to short it, however, would it make sense to start selling things? Where should money be right now or where should it start going if it is about to hit the fan?

If there truly is a cash shortage to the point that it is threatening bank liquidity, the Fed's likely response would be dropping rates and increasing the money supply with another round of QE.

If that happens, you should be buying, not selling, since QE basically acts as a subsidy for equities as institutions seek yield with cheap money.

Re: Statement Regarding Repurchase Operations

#125

Post by o-__-o »

motohagiography wrote: post #60
o-__-o wrote: post #57

Earlier quoted context omitted.

>Couldn't be stuff like a $500m personal loan to a startup CEO, secured by said CEOs stock in a private company that has negative cash flow and no real assets, which he also happens to control? Surely there is no reason to doubt the quality of collateral like that. As a startup CEO with available stock, an actual positive cash flow and no _real_ assets.. please tell me where I can apply for this type of loan? Because…

https://www.bloomberg.com/news/articles/2019-09-19/neumann-s...

Are you telling me the assets that WeWork owns are not real assets? Well, then, if real estate is not an asset then what qualifies as assets?

Re: Statement Regarding Repurchase Operations

#126

Post by motohagiography »

haidut wrote: post #87
omegaworks wrote: post #86

Earlier quoted context omitted.

Hong Kong

Thanks. There could be others. The bombing of Saudi Arabian oil fields and a war with Iran comes to mind. Let's see what the OP had in mind. Maybe it is something else entirely.

It's orthogonal and I'd rather not clutter or derail one of the most interesting threads I've seen on HN, wrt these details of repo operations.

I'm still of the mind that liquidity in effect means, "no buyers or participants," because banks have doubt about the stability of their counterparties - with the possibility that liquidity just isn't available at a suppressed interest rate. Even though the Fed rate and the overnight rate are different beasts, I'm asking by assertion whether the Fed rate is affecting the overnight rate, which is causing the liquidity problem because of the underlying idea banks are worried about what's on their counterparties balance sheets and they aren't compensated for it in the overnight rate.

I shouldn't have included the startup joke, as I think that clouded it.

I'm suggesting the liquidity problem is an unexpected knock on effect of the fed rate suppression due to the geo issue that forced their hand on low rates. The geo issue I was thinking of has been deferred for the moment, but for this discussion, the real question is whether there is a domestic issue where the banks are worried about each others stability.

If competent people are sure it's just Q3 taxes and an artifact of the business cycle, this thread is still really valuable.

To say it's a play by Mnuchin to kick start another round of QE would be consistent with the geo issue, but we're well into wagging the dog conspiracy stuff at that point.

Re: Statement Regarding Repurchase Operations

#127

Post by driverdan »

colechristensen wrote: post #121
JumpCrisscross wrote: post #74

Earlier quoted context omitted.

> 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.

Why can't I lend banks money overnight for 9% or 8 or 7 or 6. There wouldn't be a liquidity problem if the market for the overnight funds wasn't restricted in the layers and layers of abstraction of the financial systems.

If you had billions to lend you could get access to the market too.

Re: Statement Regarding Repurchase Operations

#128

Post by driverdan »

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.

I downvoted you because that's not what's happening here at all. These are all short term loans, mostly overnight. No one is giving away money.

Re: Statement Regarding Repurchase Operations

#129

Post by shitgoose »

TheAlchemist wrote: post #108
ww520 wrote: post #58

One thing to note is that $100B is created everyday but the $100B is destroyed the next day. It's not like $100B created everyday for the next month.

That's true. But another way to look at it (not necessarily good), it's like the water in desert. You are in the middle of the desert and you need water - you ask a guy - lend me some water please, I will buy you back the same amount once we are home. Technical speaking, the amount you get and the amount you give back is the same. What happened during the last crisis is also a great illustration - many banks took tax…

"otherwise none of the banks we know would exist today"

isn't that a good thing? otherwise they will never learn.

Re: Statement Regarding Repurchase Operations

#130

Post by JumpCrisscross »

colechristensen wrote: post #121
JumpCrisscross wrote: post #74

Earlier quoted context omitted.

> 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.

Why can't I lend banks money overnight for 9% or 8 or 7 or 6. There wouldn't be a liquidity problem if the market for the overnight funds wasn't restricted in the layers and layers of abstraction of the financial systems.

> Why can't I lend banks money overnight for 9% or 8 or 7 or 6

There are two kinds of money: central bank money and private money. Central bank money consists of accounts at the Federal Reserve and hard cash. (Your checking account contains private money.)

The repo market concerns itself with borrowing and lending central bank money (a/k/a "reserves"). Given the only way you could do this is with hard cash, and given borrowing and lending hard cash is quite expensive to manage, particularly overnight, you aren't in a competitive position to participate in this market.

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