New York Fed Again Upsizes Liquidity Plans for Turn of the Year • Hacker News Board

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#51

Post by dopamean » Wed, Dec 18, 2019, 6:41 PM UTC

AnimalMuppet wrote: post #16

> The $2.93 trillion that the New York Fed will funnel to Wall Street over the next month consists of up to $120 billion each weekday in overnight loans through January 14 and $440 billion in term loans ranging from 3-days to 32 days. We're talking about an overnight loan of $120 billion (that is, a loan that is paid back the next morning, lent again the next night, paid back in the morning, etc. This article is trea…

I cant get to the article right now but is this not just how commercial paper works?

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#52

Post by [deleted] » Wed, Dec 18, 2019, 6:42 PM UTC

AnimalMuppet wrote: post #49

jstewartmobile wrote: post #40

Earlier quoted context omitted.

If it is propaganda, who does it serve? And BTW, where's my $120B overnight loan?

It serves those who wish to paint the Fed as totally irresponsibly flooding money into financial assets. Why? Because they think it serves whatever axe they have to grind. Anti-Wall-Street? Anti-Fed? I suspect the former, given the publication, but I'm not sure. Where's your $120B overnight loan? Well, I'm pretty sure these loans aren't free. Where's your $7 million to pay the interest? [Edit: And even if you have $7…

[deleted]

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#53

Post by PeterStuer » Wed, Dec 18, 2019, 6:43 PM UTC

joering2 wrote: post #43

PeterStuer wrote: post #35

In case like me you wondered "Why would anyone need money overnight? (or just for a second, actually)" EDIT: As the commenter below points out, it is actually over very short periods to even out a 2 week average period, but the mechanic is indeed as explained AFAIK the "overnight loans" are a vehicle to dodge the reserve requirements for banks. In theory the bank is not allowed to fall below a certain reserve thresho…

Thank you. This is actually first comment that explains whats going on. Now since my understanding is that this is something relatively new (in terms of volume pumped in) can someone explains WHY this is happening? Why banks need to dip below the line so often these days. And is this behaviour can come eventually with some negatvie consequences to banks or individuals holding loans, stocks etc?

I would speculate that as this regulation dodge vehicle is being increasingly needed to be invoked, that means that the regulation is being skirted to a higher degree than in the past.

Since the regulation was introduced to reign in irresponsible freewheeling and extreme risk taking by banks, the logical conclusion must be that the banks despite the regulation that was intended to keep them into a position that was in line with their public responsibility are at it again.

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#54

Post by MichaelApproved » Wed, Dec 18, 2019, 6:45 PM UTC

ww520 wrote: post #46

jstewartmobile wrote: post #40

Earlier quoted context omitted.

If it is propaganda, who does it serve? And BTW, where's my $120B overnight loan?

When you have $120B asset, the FED will gladly lend you the money. These are collateralized loans.

"asset"

Who values what the asset is worth? That was the key issue with the 2008 crash. Banks were making up what the assets were worth and rating agencies were rubber stamping them. When the music stopped, people realized those assets were garbage.

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#55

Post by apacheCamel » Wed, Dec 18, 2019, 6:48 PM UTC

PeterStuer wrote: post #35

In case like me you wondered "Why would anyone need money overnight? (or just for a second, actually)" EDIT: As the commenter below points out, it is actually over very short periods to even out a 2 week average period, but the mechanic is indeed as explained AFAIK the "overnight loans" are a vehicle to dodge the reserve requirements for banks. In theory the bank is not allowed to fall below a certain reserve thresho…

Why would the Fed allow this? Who created the regulation saying they needed a threshold and why aren't they putting more teeth into it? It seems silly to me to have a regulation without proper enforcement and it seems insane to me that the Fed is complicit.

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#56

Post by JumpCrisscross » Wed, Dec 18, 2019, 6:49 PM UTC

harmmonica wrote: post #30

JumpCrisscross wrote: post #21

Earlier quoted context omitted.

> is it possible that the institutions borrowing these funds are actually using those funds not for relatively low-risk purposes (e.g., paying taxes), but instead to trade "overnight"? Yes. That's the purpose. You want banks repo'ing Treasuries so they don't dump them (or their mortgages) to pay taxes (or employees or creditors). Repos finance the asset side of the borrower's balance sheet. Tying fungible dollars to…

Helpful info and I understand repo predates QE, but could you shed some light on why this came about unexpectedly, why you think the funds dried up all of a sudden (and caused the repo rate (rates?) to skyrocket), and why the fed said, when it first started injecting funds, that it was a temporary measure (which is what all the pundits also said when it first started), but now is stretching the definition of temporar…

> could you shed some light on why this came about unexpectedly

There are hypotheses. The involve post-crisis capital-requirement rules making banks more conservative with their cash interacting with unexpected demand for cash from tax payers. (There is another around carry trades [1].)

At the end of the day, this is all speculation. Predicting demand for cash is difficult. It's also the Fed's job. That we can complain about an overnight rate spiking for a few hours is, itself, a luxury.

> as I understand it if the fed hadn't stepped in the repo rate would've been high single digits and things would've ground to a halt

Probably. Liquidity crises in leveraged markets force selling, which lowers collateral values, which forces selling, et cetera.

The Panic of 1907 is one of the clearer cases of an unregulated money market turning a liquidity crisis into a solvency crisis [2]. This is a known market failure for which a lender of last resort is a solution.

[1] https://news.ycombinator.com/item?id=21827998

[2] https://en.wikipedia.org/wiki/Panic_of_1907

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#57

Post by tboyd47 » Wed, Dec 18, 2019, 6:51 PM UTC

funemployed wrote: post #13

If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? The linked discussion about cumulative liquidity seems completely full of FUD and designed to obfuscate rather than illuminate its readers. Less of this and more links to Matt Levine please.

> If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars?

If I plan on bailing out his broke ass for the next 5 days, then I have to set aside $50 to do so regardless of whether or not he actually repays me on time. This is closer to the actual situation at hand.

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#58

Post by panarky » Wed, Dec 18, 2019, 6:51 PM UTC

AnimalMuppet wrote: post #16

> The $2.93 trillion that the New York Fed will funnel to Wall Street over the next month consists of up to $120 billion each weekday in overnight loans through January 14 and $440 billion in term loans ranging from 3-days to 32 days. We're talking about an overnight loan of $120 billion (that is, a loan that is paid back the next morning, lent again the next night, paid back in the morning, etc. This article is trea…

Alternate headline, equally true:

"Wall Street Banks Will Funnel $2.93T to the New York Fed over the Next Month"

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#59

Post by NovemberWhiskey » Wed, Dec 18, 2019, 6:54 PM UTC

AnimalMuppet wrote: post #16

> The $2.93 trillion that the New York Fed will funnel to Wall Street over the next month consists of up to $120 billion each weekday in overnight loans through January 14 and $440 billion in term loans ranging from 3-days to 32 days. We're talking about an overnight loan of $120 billion (that is, a loan that is paid back the next morning, lent again the next night, paid back in the morning, etc. This article is trea…

That's either incredibly stupid, or propaganda. My money is on propaganda.

It seems every single article on that entire site (wallstreetonparade.com) is one part relevant fact, then one part unrelated fact with plenty of innuendo to invite you to draw spurious linkages between those.

There's a fantastic amount of noise that various large banks are major shareholders of the NY Fed, for example.

This despite the fact that being a shareholder of one of the Federal Reserve Banks gives no control over it; or that being a shareholder is effectively required by law. The overwhelmingly vast majority of Fed 'profits' are required by law to be returned to the Treasury rather than distributed as dividends.

Similarly there's a lot of hullaballoo that James Gorman (CEO Morgan Stanley) is on the board of directors, despite the fact his bank is overseen by the NY Fed. OK, sure, but Class A directors (elected by the banks, and required to be bank representatives!) are only a third of the board and cannot participate in regulatory decisions.

Re: New York Fed Again Upsizes Liquidity Plans for Turn of the Year

#60

Post by PeterStuer » Wed, Dec 18, 2019, 6:54 PM UTC

funemployed wrote: post #13

If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? The linked discussion about cumulative liquidity seems completely full of FUD and designed to obfuscate rather than illuminate its readers. Less of this and more links to Matt Levine please.

More apt illustration:

Your friend is a reckless speculator. He lends $10 with you as an underwriter and your wife says it's fine, but I'm going to check every evening he has at least $1 so we at least know he hasn't lost it all.

So every night just before your wife goes to check, you run ahead and lend him quickly the difference between what he still has and the $1 he needs. Your wife checks, he shows her the $1 in his wallet, she leaves and he pays you back the loan you made him a minute before.