6 ms·

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

whb07 7y ago
It 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 ago
  So 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 ago
    Well 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 ago
There'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 ago
  is this to support specifically the emerging non-QM product ($20-ish BN so far in 2019) sector?
- tryitnow 7y ago
  Wow. 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 ago
  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
0x00000000 7y ago
Low key quantitative easing
- rdtwo 7y ago
  It is QE
  - 0x00000000 7y ago
    It’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 ago
My 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 ago
I 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 ago
One 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 ago
Another 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]

It 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 ago
So 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 ago
  Well 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 ago

There'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 ago
is this to support specifically the emerging non-QM product ($20-ish BN so far in 2019) sector?
tryitnow 7y ago
Wow. 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 ago
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

0x00000000 7y ago

Low key quantitative easing

rdtwo 7y ago
It is QE
- 0x00000000 7y ago
  It’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 ago

My 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 ago

I 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 ago

One 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 ago

Another 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]