
New York Fed Adds $115.14B in Short-Term Liquidity to Markets - spking
https://www.wsj.com/articles/new-york-fed-adds-115-14-billion-in-short-term-liquidity-to-markets-11573141440?mod=rsswn
======
bransonf
Based on these comments, it seems like a lot of misunderstanding is being
proliferated.

I’m not an expert on the subject, but I’d like to dismiss the criticisms of
the fed that many are making.

These cash injections give banks short term liquidity, which means that banks
can complete transactions. These moves are not at all synonymous of a
government bailout. The repo market is what is at concern here. In short,
relatively safe financial institutions will loan money for very short term (a
single day, for example) in return for a small percentage of interest.
Trillions of dollars are moved in this market on a daily basis. When market
trust lowers (or demand increases, but this is less likely. But, one example
is quarterly taxes coming due), rates can increase. Repo rates are supposed to
be low for the market to function properly.

The broader reason for this occurring is that the Fed post 2008-crisis
requires banks to maintain higher relative liquidity. On the Feds view, they
would rather continue to inject cash than allow banks to maintain pre-crisis
levels of liquidity. At least in my opinion, requiring banks to maintain
higher liquidity is a smart move.

As far as what this signals economically, I’ve yet to hear any credible
answers. Certainly the banks will say regulation is the problem and the fed
will respond that we can’t trust the banks that much.

~~~
privateSFacct
The issue is that this removes an important signal to the market. If trust is
down, rates will go up, because if you can't clear your own transactions you
depend on borrowing to clear transactions. This is a sign that should maintain
greater cover yourself.

Of course, if fed steps in to subsidize the market - which is what this does
by holding rates extremely low despite the potentially systemic risks posed by
the market - then you can keep pushing for every fraction of a point. But if
the repo market goes down that is going to be very serious - and so there
should be a bit more cost in the market to reduce the reliance on it.

~~~
bransonf
This is a very good point.

My take is that the Fed is trying to be vigilant amidst indicators of a
looming recession. If the repo market rate is too high, banks will hoard cash.
Hoarding cash will devalue the banks, and we know that'll likely trigger a
definitive recession.

~~~
privateSFacct
No question - but why not have some of these banks pay some high overnight
rates? They have the money to do so.

This push to squeeze every nickle of profit out leaves almost no margin if
stress hits. The repo market is huge. If there ever is a real scare and people
are used to be able to get free money (or expect the fed to step in) the fed
will have to step in on a HUGE basis.

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i_am_nomad
We were told back in September that the liquidity injection then was a one-off
response to a freak occurrence, nothing to worry about, won’t happen again.

~~~
dfcagency
Right. What is going on here? Really hope someone on HN can explain this in a
succinct way.

~~~
henryw
There's an explanation here: [https://wolfstreet.com/2019/11/06/whats-behind-
the-feds-bail...](https://wolfstreet.com/2019/11/06/whats-behind-the-feds-
bailout-of-the-repo-market/) &
[https://www.youtube.com/watch?v=ORGFtWowKKM](https://www.youtube.com/watch?v=ORGFtWowKKM)

Basically there are actors borrowing at the low repo rates and using it on
higher rate government backed mortgage products. Banks with money don't want
to lend to these actors, hence the repo rate hike.

~~~
nostrademons
I'd bet more on the European carry trade, with various financial firms attempt
to arbitrage the difference between negative interest rates in Europe and
positive rates in the U.S. That creates a natural demand for short-term dollar
loans:

[https://news.ycombinator.com/item?id=21478251](https://news.ycombinator.com/item?id=21478251)

------
throwaway8291
A shot in the dark: It's European capital buying US dollar denominated
securities en masse, as Europe is couple of basis points less attractive than
the US at the moment. Strong dollar as side effect, which started at around
Spring 2018.

People get all jazzed up about the Fed, but Banks have to play along Basel
III.

Not saying a new crack will not break the system in 2020, but the Fed
injection is somehow a side twist in this play.

~~~
yasp
What's the connection between European capital buying US dollar denominated
securities and stress in the repo market?

~~~
throwaway8291
If I ask to convert my EUR into USD, the US bank will hold more EUR, less USD.
Less USD decreases my liquidity, which is what's on one end of the table in
the repo market, no?

~~~
qeternity
They don’t hold EUR, just EUR denominated assets. But irrespective of what
currency you’re repoing, USD balances go down...that’s the whole point.
They’re lending. That’s how lending works.

~~~
nostrademons
If it's actually European firms participating in the carry trade, then yes it
would be EUR. When you decide to sell your S&P 500 index fund for Bitcoin, you
don't actually directly exchange your USD-denominated assets for Bitcoin. Last
I checked Vanguard was not willing to service redemptions in crypto. Rather,
you sell the fund, receive USD for it, and then use the USD to purchase
Bitcoin.

Same goes for ordinary foreign currency transactions. If you want to short
negative-yielding Eurozone bonds and buy positive-yielding US treasuries, you
borrow the bonds and sell them, receiving EUR in the process. Then you
transfer the EUR to a US bank and receive dollars. Then you use the dollars to
buy US bonds. Your European counterparty is now long European bonds and short
euros. Your U.S. banking partner receives the euros you got from them and
gives you currency. You give the currency to the U.S. government and buy the
bond. To make the currency transactions net out, the U.S. government then
needs to give currency to the bank to replace the reserves you took out to buy
the bonds.

(In reality, the Fed doesn't have to make the transactions net out, because it
can adjust the money supply. But if it wants to maintain the current interest
rate in the face of strong demand for dollars to arbitrage away interest rate
differences, it needs to hand out a lot of dollars.)

------
XnoiVeX
Why isn't anyone talking about the liquidity squeeze?

The Fed has said nothing about which entities had trouble borrowing in the
repo market. It has only discussed a couple of suggestions why banks might
have refused to lend to the repo market, and has said that it is still
investigating why banks had refused to lend to it. The whole thing is still
shrouded in mystery, and speculation is all around it.

[https://wolfstreet.com/2019/11/06/whats-behind-the-feds-
bail...](https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-
the-repo-market/)

~~~
XnoiVeX
I found a convincing answer here connected to delays in raising the debt
ceiling among other things like corporate tax payments in Sep.

[https://www.ibtimes.com/new-york-fed-steps-market-move-
inter...](https://www.ibtimes.com/new-york-fed-steps-market-move-interest-
rates-2828111)

------
npollock
On a per capita basis, it's as if everyone in the US lent $350 to the banks.
(115B/327M)

~~~
hbosch
Do these "loans" ever get paid back?

~~~
qeternity
If these loans didn’t get paid back, we’d have another crisis.

~~~
the-dude
[https://www.federalreserve.gov/monetarypolicy/bst_recenttren...](https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm)

From 870 billion in 2008 to 4 trillion now.

------
akvadrako
One thing to keep in mind is the fed used to do this all the time before 2008.
It is considered normal monetary policy then and now again.

More details: [https://www.fisherinvestments.com/en-
us/marketminder/everyth...](https://www.fisherinvestments.com/en-
us/marketminder/everything-you-never-wanted-to-know-about-the-repo-market)

------
jdhn
This whole situation really makes me wish that there was more transparency at
the Fed. I want to know why they're doing this, because if some of the linked
articles in this thread are correct, it amounts to nothing more than a bailout
of people with ridiculously leveraged bets.

------
rdtwo
One thing to keep in mind is that some of the assets being used as repo
collateral may be negative interest government bonds. In that case it’s
possible that other banks may not want that as collateral thereby locking up a
lot of supposedly very liquid assets

------
XnoiVeX
Repo market overview -
[http://people.stern.nyu.edu/jcarpen0/courses/b403333/08repo....](http://people.stern.nyu.edu/jcarpen0/courses/b403333/08repo.pdf)

------
naringas
I understand very little about this subject. So here are some questions...

the fed issues treasury bonds (am I right?) then some bank buys them, i.e. the
bank gives the fed money and the fed pays it back with interest until the
bond's maturity (because that is what bonds are, right?)

then the bank can do whatever it wants with the bonds. As far as I undestand
"bond securities", whoever holds the security (bond) recieves the interest
from the issuer (this is an assumption, is it correct?)

but now, the fed buys the bonds back (?) through the repo (repurchase
agreement), which means that whomever sold them will buy them back from the
fed in a few days?

So the fed will (temporarily) owe itself the interest? what!? needless to say,
I am slightly confused..

~~~
chews
You don’t know about the overnight borrow market and the capitalization
requirements banks must keep to to cover their leveraged position. There are
layers to this problem.

------
18monthsin
How do i start a bank and get in on the action?

~~~
ycombonator
Pay off your local congressman.

~~~
18monthsin
Excellent idea, he's frequently in the news being accused of all kinds of
nefarious acts. Donyou want in?

------
the-dude
How many WeWork's is that?

~~~
arthurcolle
Just crunched the numbers. If they had actually gone public at a valuation of
$47b, that would be 2.45 WeWorks. At their current valuation of ~8 billion,
its a much more reasonable 14.4 WeWorks.

Better yet, you can just opt to buy 67.7 Adam Neumanns! What a steal.

~~~
the-dude
The Saudis invested $400M in Travis Kalanick's new startup. Asuming we could
get about the same for Adam, we would end up with over 27 billion!

That is a steal. Count me in.

~~~
cylinder
Omg. I can't speak further, but this startup and Kalanick are really awful.
This is shockingly stupid.

~~~
ur-whale
In this particular case, I'm seeing a bunch of bad actors shooting each other
in the foot, so no that awful in practice ...

------
ur-whale
An entire flock of canaries has died at this point.

Last chance to rush for the exit.

The question is of course: where do you park your money before the big one
hits so as to minimize the damages.

Cash?

High-tech stocks?

Real estate?

Cryptos?

Bonds [lol]?

Art?

[edit] : not sure why the downvotes, this is a legitimate question: if you
anticipate a recession in the next 2 years (I do) how do you structure your
portfolio to minimize the damage?

~~~
jayalpha
Big farm. No kidding.

~~~
short_sells_poo
Actually this is the only sensible advice in this thread.

The one asset in limited supply is land, and the one commodity that we all are
fundamentally dependent upon is food and water. Both require the appropriate
land.

