
Why I'm Worried About the Repo Market - yasp
https://www.bloomberg.com/opinion/articles/2019-09-25/why-i-m-worried-about-the-repo-market
======
freejulian85
It’s essentially QE4. Fed’s balance sheet is increasing (even if for a short
duration). Make no mistake - this results in lower return on cash for savers.
At a time when big banks call 0.05% “high yield”, this is the last thing we
need. If banks are short on reserves they should be increasing interest rates
to attract new deposits and maybe selling some of those foreclosed homes
they’ve been holding onto for an eternity.

The banks have completely failed as a business and the fed is enabling their
incompetence. How many stories do we need of money laundering, market
manipulation, fraud, until we say enough?

The best part of all this? We don't even get to know the real reason there's a
liquidity crisis. Obviously the "it's investors buying treasuries and
corporations paying taxes!" explanation was BS.

~~~
undefined3840
Who are you referring to when you refer to “savers”? Interest rates have been
basically 0 for a very long time for retail bank customers.

~~~
quaquaqua1
Have been getting 1% monthly uncapped for almost 8 years now on my checking
account.

~~~
undefined3840
That is an exception, not the rule. If you have Chase, Citi, BofA, etc. it’s
been like .01% for 10 years.

~~~
basementcat
If you're willing to move your funds to another institution, check out
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much you could be earning with your money.

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MR4D
The Fed created this problem. Yet he wonders why.

It’s reasons like this that cause people like Ron Paul to think the Fed is
dangerous - they don’t understand their own creations.

Kocherlakota doesn’t understand it either.

The repo market explanation is simple: the IOER rate is higher than fed funds,
but with the Fed reducing their balance sheet (QT) by $800 billion, there are
going to be unusual effects. This is one of them.

~~~
MR4D
For anyone who would like further reading on this, there is a great (readable)
article here:

[https://www.advisorperspectives.com/articles/2019/09/25/unde...](https://www.advisorperspectives.com/articles/2019/09/25/understanding-
the-great-repo-fiasco)

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33MHz-i486
Without Fed intervention, the repo market is just big banks lending to each
other overnight, using mostly risk-free assets as collateral.

Why wouldn't this market clear at a large spread above the fed funds rate? ...
either a majority of banks are too low on capital reserves to participate in
some lucrative low-risk loans, OR one or more unknown participants are close
to insolvent and the others don't want counterparty exposure. Either way it's
a dangerously close to a systemic liquidity crisis and the Fed is completely
behind the ball.

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larzang
Oh it's the _regulation_ that's the problem, not the inability of banks to not
overleverage themselves.

~~~
marcrosoft
Overleverage == self regulation

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coliveira
The reason why we start to see problems in the repo market is clear: the FED
is paying banks to keep their money in a safe place, being rewarded for taking
no risk! Why would a bank ever lend money to others if they see any problem
whatsoever appearing in the horizon? In the next recession, you will see that
ALL banks will stop lending to each other and let their excess reserves safe
and sound receiving interest for doing nothing. The FED has created the very
conditions for a sure repetition of what happened in 2008.

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cm2187
That’s only one consequence of the regulations taken after 2008 (the leverage
capital requirements forcing banks to shrink their repo book, reducing
liquidity in the repo market).

Tighter rules on capital requirements for holding many other asset classes,
bonds in particular will also reduce a lot the capacity of banks to make a
market for these instruments in bad times, resulting in more volatility.

None of that is new, banks have been warning about that for years. But it will
only become visible in a sharp market downturn.

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michalu
Noob question: does this have something to do with inverted yield curve? Isn't
it simply more useful/profitable for banks to finance their operations with
short term debt right now?

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marcrosoft
This article is unreadable on mobile with popups and scroll injection.

~~~
AlEinstein
Looks fine on my iPhone.

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markus_zhang
Isn't this just a short-term shortage of credit? We have experienced similar
things on different levels many times. Or did I miss any thing?

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WaxProlix
Outline to the rescue [https://outline.com/DuqfDW](https://outline.com/DuqfDW)

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NTDF9
Let banks fail? Arrest the execs and bankers who can't keep enough reserves?

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AlexTWithBeard
Arresting someone is always a good thing to do. They tried it in the Soviet
Union in 1937. Worked like a charm.

I have a question though: do we arrest everyone who fail to perform, or only
bankers?

For example, our county recently had to pay 16 million to the family of the
guy who was killed because of a faulty traffic light. Should our county
executive go to prison?

Also my train was late this morning by 40 minutes due to what they called
"equipment failure". Should a person responsible for maintaining the equipment
be arrested as well, or execution in front of the passengers would be a better
measure here?

~~~
kadoban
There's a difference between failing to perform and specifically making
choices that hurt others.

If the county executive knowingly chose faulty traffic lights, yeah they
should go to prison.

The bankers aren't bumfuzzled or victims of circumstance, they're just not
optimizing for public good or the stability of the system, because why should
they? They have no incentive to. If shit goes sideways, they'll just get
bailed out.

So how do we change the incentives? Not sure personal liability is the answer,
but it's not the worst idea in at least some cases. (Though in this specific
case, as much as I even understand what's going on, the answer is probably
just standard regulation on the banks themselves)

~~~
basementcat
> The bankers aren't bumfuzzled or victims of circumstance, they're just not
> optimizing for public good or the stability of the system

Even with all the nonidealities of the USA financial system, it is still
pretty darn stable. If you've visit other parts of the world, it is apparent
that the USA financial system (and political system, notwithstanding media
reports) is among the most stable in the world. This is why companies around
the world seek financing in the USA and want to float their shares on NYSE and
NASDAQ.

Is there room for improvement? Absolutely.

~~~
sroussey
It’s stable until it’s not.

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