4 ms·

Well, I guess it would be high on a typical loan. On an overnight loan, the difference between 9% APR and 1% APR is the difference between paying 0.0236% in in

by SilasX 7y ago

Well, I guess it would be high on a typical loan. On an overnight loan, the difference between 9% APR and 1% APR is the difference between paying 0.0236% in interest for the loan and paying and 0.00273% [1]. Why do banks need special assistance in that situation? If you depend on your input prices not going up by that much for a short period, you're hosed anyway... [1] 1.09^(1/365) - 1 vs 1.01^(1/365) - 1

whatok 7y ago
No one is saying that paying more for a short period of time is going to destroy the financial system. However, if this does continue for a longer period of time, many cannot afford to finance at these rates and it also shows that the Fed has lost control of things.
teej 7y ago
Very few things can survive a 10x increase in costs.
JackFr 7y ago
They're financing on the order of a trillion dollars. It makes a difference.
ivalm 7y ago
because with ~1e12 in financing this ends up being a cool $209.7M.
- SilasX 7y ago
  Distributed over numerous billion-dollar businesses will annual profits in billions.
nickles 7y ago
> Well, I guess it would be high on a typical loan. On an overnight loan, the difference between 9% APR and 1% APR is the difference between paying 0.0236% in interest for the loan and paying and 0.00273% As a rates trader, your positions are denominated in the millions of dollars. Some back of the envelope math: 1mm of 10y treasuries (repo'd at EOD) is roughly $1k of risk (dv01 -- if rates move by 1bp, your pnl fluctuates by $1k). To finance that position, you're paying $236 at 9% vs $27 at 1%. Now say you've got 1mm of 2y treasuries. That's roughly $0.2k dv01. Unless 2y rates move 1.25bp overnight, you're losing money just financing the position. In short, there's a massive difference between paying 2.3bps and paying 0.27bps.
- SilasX 7y ago
  So your business collapses when you have to temporarily pay $236 for something that normally costs $27?
  - nickles 7y ago
    > So your business collapses when you have to temporarily pay $236 for something that normally costs $27? No, think of it as paying $236,000 for something that normally costs $27,000. You can think of this business as providing banking services to large corporations, who aren't able to simply put money in a savings account at their local credit union. It's doesn't collapse in the short run, but it can harm the ability of these corporations to access their funds. Short term financing disruptions can have major impacts across all markets. Show me a business where a sudden 10x increase in costs isn't painful...
    - SilasX 7y ago
      >No, think of it as paying $236,000 for something that normally costs $27,000. While dealing with assets in the billions and lending out at higher interest all the time. >Show me a business where a sudden 10x increase in costs isn't painful... All the ones where one input went up 10x temporarily and survived, or just the most characteristic examples?
      - nickles 7y ago
        > While dealing with assets in the billions Yes, those costs were computed on a book long 1 billion dollars of notional. There's a difference between notional and risk though. 1 billion dollars of 10y treasuries will be ~1mm dv01. Both matter. > lending out at higher interest all the time This isn't how rates trading works. Entering positions costs money. You're not making loans. If you hold treasuries, you're earning the coupon on them for the period that you own them. It gets more complicated when you factor in repo, but typically you pay GC repo when you're long.
        7y ago

by SilasX 7y ago

whatok 7y ago

No one is saying that paying more for a short period of time is going to destroy the financial system. However, if this does continue for a longer period of time, many cannot afford to finance at these rates and it also shows that the Fed has lost control of things.

teej 7y ago

Very few things can survive a 10x increase in costs.

JackFr 7y ago

They're financing on the order of a trillion dollars. It makes a difference.

ivalm 7y ago

because with ~1e12 in financing this ends up being a cool $209.7M.

SilasX 7y ago
Distributed over numerous billion-dollar businesses will annual profits in billions.

nickles 7y ago

> Well, I guess it would be high on a typical loan. On an overnight loan, the difference between 9% APR and 1% APR is the difference between paying 0.0236% in interest for the loan and paying and 0.00273% As a rates trader, your positions are denominated in the millions of dollars. Some back of the envelope math: 1mm of 10y treasuries (repo'd at EOD) is roughly $1k of risk (dv01 -- if rates move by 1bp, your pnl fluctuates by $1k). To finance that position, you're paying $236 at 9% vs $27 at 1%. Now say you've got 1mm of 2y treasuries. That's roughly $0.2k dv01. Unless 2y rates move 1.25bp overnight, you're losing money just financing the position. In short, there's a massive difference between paying 2.3bps and paying 0.27bps.

SilasX 7y ago
So your business collapses when you have to temporarily pay $236 for something that normally costs $27?
- nickles 7y ago
  > So your business collapses when you have to temporarily pay $236 for something that normally costs $27? No, think of it as paying $236,000 for something that normally costs $27,000. You can think of this business as providing banking services to large corporations, who aren't able to simply put money in a savings account at their local credit union. It's doesn't collapse in the short run, but it can harm the ability of these corporations to access their funds. Short term financing disruptions can have major impacts across all markets. Show me a business where a sudden 10x increase in costs isn't painful...
  - SilasX 7y ago
    >No, think of it as paying $236,000 for something that normally costs $27,000. While dealing with assets in the billions and lending out at higher interest all the time. >Show me a business where a sudden 10x increase in costs isn't painful... All the ones where one input went up 10x temporarily and survived, or just the most characteristic examples?
    - nickles 7y ago
      > While dealing with assets in the billions Yes, those costs were computed on a book long 1 billion dollars of notional. There's a difference between notional and risk though. 1 billion dollars of 10y treasuries will be ~1mm dv01. Both matter. > lending out at higher interest all the time This isn't how rates trading works. Entering positions costs money. You're not making loans. If you hold treasuries, you're earning the coupon on them for the period that you own them. It gets more complicated when you factor in repo, but typically you pay GC repo when you're long.
      - 7y ago