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New York Fed Adds $115.14B in Short-Term Liquidity to Markets
- i_am_nomad 7y agoWe 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 7y agoRight. What is going on here? Really hope someone on HN can explain this in a succinct way.
- whb07 7y agoIt means that the individual banks don’t trust each other and are leery to provide credit to each other literally “over night”. So they aren’t willing to provide liquidity to each other because they fear they will not pay back. Remember that banks have fractional deposits, so they might be left without money throughout the night and then have to literally be insolvent the following morning. So the Fed steps in to cover these situations. This is important because the economy and the system in general is supposed to be doing “just swell” when there are symptoms of a disease
- aalleavitch 7y agoSo there’s a ton of money in the economy but no way to actually make it liquid short term short of the fed, indicating that maybe the money on the books has a better chance of suddenly vanishing into thin air than anyone is comfortable with? Where have I heard this before?
- whb07 7y agoWell if it’s all loaned out and invested away you can’t exactly conjure it back home every night. But yeah, essentially the Fed is trying to stay ahead of this issue they were the cause of.
- henryw 7y agoThere's an explanation here: https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-the-repo-market/ https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bail... & 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.
- ChainOfFools 7y agois this to support specifically the emerging non-QM product ($20-ish BN so far in 2019) sector?
- tryitnow 7y agoWow. This is an interesting take. I didn't know higher risk firms like hedge funds, PE firms, and REITs are borrowing so heavily in the repo market. So basically, this is the Fed just handing out cheap money to these firms. It's socialism for the super-rich.
- nostrademons 7y agoI'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
- 0x00000000 7y agoLow key quantitative easing
- rdtwo 7y agoIt is QE
- 0x00000000 7y agoIt’s really funny how insistent the Fed is on it not being QE so they don’t scare anyone. “Powell has been adamant in pointing out that the T-bill purchases, though aimed at expanding the Fed's balance sheet and, correspondingly, bank reserves, this should not be confused with the quantitative easing that occurred during and after the financial crisis.“ https://www.cnbc.com/2019/10/11/the-fed-is-extending-its-overnight-funding-operations-through-january-2020.html https://www.cnbc.com/2019/10/11/the-fed-is-extending-its-ove...
- thoughtstheseus 7y agoMy understanding: Demand > supply for short term high quality, liquid financial assets. The ny fed provides a lower bound of sorts for yields in this market, they need to provide huge amounts of liquidity right now to prevent ST yields from spiking.
- 4ntonius8lock 7y agoI can't say about the exact details, but this is what I understand: We live in a fiat system; money is literally created out of nothing. When money is created, it then needs to be injected into the system (economy) This could be done any number of ways. The more transparent and straightforward though, the less of an advantage to the insider parties and the more meritocratic. So an extremely complex, byzantine and opaque system has been created. People who are in this system will be happy to go into the many, many details of it. But they won't ever tell you why, it just is. When I think of modern finance, I think of medieval Europe. Plenty of reasons were given as to why one person ranked above the other. Why one had access to certain things while others didn't. But in general, byzantine structures benefit the insiders at the expense of the outsiders. It's designed to be anti-meritocratic without having to claim being a decedent of the sun god. I really fail to see why, other than avoiding meritocratic distribution, the fed doesn't open it's own lending window directly to the public. They fret that lowering interest rates won't increase economic activity. I dare them to open those rates to the public and not see an increase in economic activity.
- ChainOfFools 7y ago> We live in a fiat system; money is literally created out of nothing. not out of nothing, all value is created out of shared assumptions about the future. money merely quantizes these assumptions.
- xtacy 7y agoOne of the best explanations I've read on this is here: https://www.reddit.com/r/Economics/comments/d6e8qv/the_fed_pumps_another_75_billion_into_markets_its/ https://www.reddit.com/r/Economics/comments/d6e8qv/the_fed_p.... Although, I must admit I don't understand the carry-trade dynamics that much. I hope someone else can throw some light on that!
- XnoiVeX 7y agoAnother explanation here. https://www.washingtonpost.com/business/the-repo-markets-a-mess-whats-the-repo-market/2019/09/28/e8fd43b2-e1d8-11e9-be7f-4cc85017c36f_story.html https://www.washingtonpost.com/business/the-repo-markets-a-m...
- deleted 7y ago[deleted]
- ralphington 7y ago[citation needed]
- savethefuture 7y agoIt won't happen again again /s
- freejulian85 7y agoThe dishonesty and irresponsibility of the fed is going to end in disaster - disaster, in this case, being destruction of the currency.
- icebraining 7y agoBy when? It's easy to predict the destruction of the currency without setting a period.
- SCAQTony 7y ago$100-billion handed over to banks for overnight loans! The top 15 largest banks now hold a combined total of $13.7 trillion in assets. Like they really needed it. Congress did not okay this, nor did the Fed need any permission due to their autonomy. I believed they infused over $200-billion this year. That is equal to giving $1-million in startup capital to 20,000 startups.
- qeternity 7y ago20k * $1m does indeed equal $200b...but they are most definitely not the same thing.
- hiram112 7y ago20k * $1M is $20B, not $200B.
- thoughtstheseus 7y agoThis is not an equity investment, those 20,000 startups would need to return the money the next day.
- bransonf 7y agoAssets don’t equal cash. Cash is liquidity. Without it, banks can’t make transactions. And due to post 2008-crisis rules, banks have to maintain a higher percentage liquidity. In the view of the fed, they would rather inject cash than return this requirement to pre-crisis levels. This isn’t the fed giving away money, it’s nothing at all like startup capital. Economics are complex. Don’t be outraged that the fed is trying to maintain a stable economy.
- JMTQp8lwXL 7y agoDid the Fed state that, or was it just the general interpretation?
- the-dude 7y agoHow many WeWork's is that?
- arthurcolle 7y agoJust 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 7y agoThe 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.
- ur-whale 7y agoAn 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?
- magashna 7y agoCurious about this as well.
- arthurcolle 7y agoCryptos and big tech companies.
- mbillie1 7y agoThose famously stable cryptos sound perfect yeah.
- arthurcolle 7y agohttps://www.youtube.com/watch?v=B-bSSCWVNUg https://www.youtube.com/watch?v=B-bSSCWVNUg
- jacquesm 7y agoReal estate works well if you don't need to liquidate in a hurry at some point. You can't time the market, the stock market or the real estate market it makes no difference. But real estate will at least generate some income (though it is not easy money).
- the-dude 7y agoFor most people this is not a question at all, because they hardly have money. But hey, you are a whale. Need to park your money? I have plenty of room!
- throwaway8291 7y agoA 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 7y agoWhat's the connection between European capital buying US dollar denominated securities and stress in the repo market?
- throwaway8291 7y agoIf 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 7y agoThey 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 7y agoIf 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.)
- 18monthsin 7y agoHow do i start a bank and get in on the action?
- ycombonator 7y agoPay off your local congressman.
- deleted 7y ago[deleted]
- 18monthsin 7y agoExcellent idea, he's frequently in the news being accused of all kinds of nefarious acts. Donyou want in?
- npollock 7y agoOn a per capita basis, it's as if everyone in the US lent $350 to the banks. (115B/327M)
- hbosch 7y agoDo these "loans" ever get paid back?
- nostrademons 7y agoYes, the next day. Sometimes they get rolled over, but that's why you watch the trend in the repo market over time.
- qeternity 7y agoIf these loans didn’t get paid back, we’d have another crisis.
- the-dude 7y agohttps://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... From 870 billion in 2008 to 4 trillion now.
- Ancalagon 7y agoWow thats a crazy way to look at it...
- tryitnow 7y agoAccording to this article, it's worse than that, we're lending money not to banks, but to hedge funds, PE firms, and REITs: https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-the-repo-market/ https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bail... These firms than use the cheap money (interest rate < 3%) to make leveraged bets on risky assets (mortgage backed securities, CMOs, etc).
- jayalpha 7y ago
- rdtwo 7y agoOne 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
- jdhn 7y agoThis 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.
- bransonf 7y agoBased 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 7y agoThe 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 7y agoThis 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.
- XnoiVeX 7y agoRepo market overview - http://people.stern.nyu.edu/jcarpen0/courses/b403333/08repo.pdf http://people.stern.nyu.edu/jcarpen0/courses/b403333/08repo....
- naringas 7y agoI 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 7y agoYou 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.
- XnoiVeX 7y agoWhy 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-bailout-of-the-repo-market/ https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bail...
- XnoiVeX 7y agoI 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-interest-rates-2828111 https://www.ibtimes.com/new-york-fed-steps-market-move-inter...
- akvadrako 7y agoOne 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/everything-you-never-wanted-to-know-about-the-repo-market https://www.fisherinvestments.com/en-us/marketminder/everyth...