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If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have

If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? The linked discussion about cumulative liquidity seems completely full of FUD and designed to obfuscate rather than illuminate its readers. Less of this and more links to Matt Levine please.

gulikoza 7y ago
What if he doesn't pay back because ₿TC went down instead of up and he doesn't have it anymore? Ofc he needs the next $10 because now it will go up for sure and he'll make the other $10 back as well... :)
- ww520 7y ago
  The loans are backed by assets. They will be seized if the loans were not paid back.
  - Red_Leaves_Flyy 7y ago
    Who pays if those assets are fraudulently overvalued rubbish?
    - quickthrowman 7y ago
      They aren’t, they’re US Treasuries and US Agency Debt. There are no toxic assets used for collateral in the repo market.
      - Red_Leaves_Flyy 7y ago
        Looking at yesterday, there were mortgages used as collateral. https://apps.newyorkfed.org/markets/autorates/tomo-results-display https://apps.newyorkfed.org/markets/autorates/tomo-results-d...
        quickthrowman 7y ago
        That’s Agency Debt, which I specifically stated can be used as collateral for a repo loan.
        Red_Leaves_Flyy 7y ago
        And if that mortgage debt is overvalued rubbish who pays? I'm trying to avoid pedantic arguments and focus our discussion on the safeties and how effective they can be when the unthinkable happens.
SilasX 7y ago
>If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? In a sense, kind of. If your friend is expected to be able to pay for his own lunch (because it's costly to keep covering for him) and only very sporadically need to borrow from you (because e.g. he forgot his wallet), and suddenly you find yourself doing it every day for several days at a time... Then yes, it's worse than your friend having to "borrow $10 [once]" from you, even if it's not as bad as him having a $50 shortfall (esp since he does pay you back). It also means your friend is making a systematic error he's not correcting, and you should probably start charging him more to, in effect, carry his money for him. If you don't, you're enabling his dependence. Similarly, banks are expected to only very sporadically need liquidity directly from the Fed. If they need it over such long intervals, that's bad, and the daily amount borrowed, by itself, understates the significance. It also feels like the Fed isn't doing its job if the banks aren't paying (and savers aren't receiving) a premium for such an unusually scarce service.
- funemployed 7y ago
  > The daily amount borrowed, by itself, understates the significance. If someone tells me that the NY Fed is looking to significantly (>25%) increase its overnight and short-term liquidity operations and the necessary increases are in the range of tens of billions of dollars then that already sounds pretty important. I don't see how anything you said is an argument that cumulative liquidity is an appropriate measure here. Instead we both seem to agree that if someone had said - the loans are only $150 billion (because that seems to be the one day aggregate limit) then that person would also be misleading. My point is not that this isn't an important issue but rather that it is an important issue and as such it deserves serious coverage and the linked article is not it.
  - SilasX 7y ago
    >I don't see how anything you said is an argument that cumulative liquidity is an appropriate measure here. I agreed that accumulating the entire amount is also the wrong way to account for it (but was pointing out that the daily amount is also an error in the other direction): >>even if it's not as bad as him having a $50 shortfall (esp since he does pay you back).
fasteo 7y ago
Complete ignorance about this, but I guess this is how accounting works. You need to track how the money flows, so you write -$10 fives times and +$10 five times. You end up in the same position, but now you can track where the money went and how it came back to your wallet.
yeahigotgoats 7y ago
you should be asking why your friend needs a loan every day and one friend is not the proper analogy, all your friends would be asking you for a lunch loan. which should make you think that something is wrong. instead you spend time blindly defending the system that is causing all the actual problems. while the people that actually benefit from that system just laugh at you
beamatronic 7y ago
In your example it matters where did you get the $10 from? Your kids college account? It still really only matters when your friend fails to pay you back the next day. The first time it happens, do you still loan him the second day? Now you’re in for $20 out of your kids college fund. How about that third day? It gets real, real fast.
tboyd47 7y ago
> If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? If I plan on bailing out his broke ass for the next 5 days, then I have to set aside $50 to do so regardless of whether or not he actually repays me on time. This is closer to the actual situation at hand.
PeterStuer 7y ago
More apt illustration: Your friend is a reckless speculator. He lends $10 with you as an underwriter and your wife says it's fine, but I'm going to check every evening he has at least $1 so we at least know he hasn't lost it all. So every night just before your wife goes to check, you run ahead and lend him quickly the difference between what he still has and the $1 he needs. Your wife checks, he shows her the $1 in his wallet, she leaves and he pays you back the loan you made him a minute before.

gulikoza 7y ago

What if he doesn't pay back because ₿TC went down instead of up and he doesn't have it anymore? Ofc he needs the next $10 because now it will go up for sure and he'll make the other $10 back as well... :)

ww520 7y ago
The loans are backed by assets. They will be seized if the loans were not paid back.
- Red_Leaves_Flyy 7y ago
  Who pays if those assets are fraudulently overvalued rubbish?
  - quickthrowman 7y ago
    They aren’t, they’re US Treasuries and US Agency Debt. There are no toxic assets used for collateral in the repo market.
    - Red_Leaves_Flyy 7y ago
      Looking at yesterday, there were mortgages used as collateral. https://apps.newyorkfed.org/markets/autorates/tomo-results-display https://apps.newyorkfed.org/markets/autorates/tomo-results-d...
      - quickthrowman 7y ago
        That’s Agency Debt, which I specifically stated can be used as collateral for a repo loan.
        Red_Leaves_Flyy 7y ago
        And if that mortgage debt is overvalued rubbish who pays? I'm trying to avoid pedantic arguments and focus our discussion on the safeties and how effective they can be when the unthinkable happens.

SilasX 7y ago

>If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? In a sense, kind of. If your friend is expected to be able to pay for his own lunch (because it's costly to keep covering for him) and only very sporadically need to borrow from you (because e.g. he forgot his wallet), and suddenly you find yourself doing it every day for several days at a time... Then yes, it's worse than your friend having to "borrow $10 [once]" from you, even if it's not as bad as him having a $50 shortfall (esp since he does pay you back). It also means your friend is making a systematic error he's not correcting, and you should probably start charging him more to, in effect, carry his money for him. If you don't, you're enabling his dependence. Similarly, banks are expected to only very sporadically need liquidity directly from the Fed. If they need it over such long intervals, that's bad, and the daily amount borrowed, by itself, understates the significance. It also feels like the Fed isn't doing its job if the banks aren't paying (and savers aren't receiving) a premium for such an unusually scarce service.

funemployed 7y ago
> The daily amount borrowed, by itself, understates the significance. If someone tells me that the NY Fed is looking to significantly (>25%) increase its overnight and short-term liquidity operations and the necessary increases are in the range of tens of billions of dollars then that already sounds pretty important. I don't see how anything you said is an argument that cumulative liquidity is an appropriate measure here. Instead we both seem to agree that if someone had said - the loans are only $150 billion (because that seems to be the one day aggregate limit) then that person would also be misleading. My point is not that this isn't an important issue but rather that it is an important issue and as such it deserves serious coverage and the linked article is not it.
- SilasX 7y ago
  >I don't see how anything you said is an argument that cumulative liquidity is an appropriate measure here. I agreed that accumulating the entire amount is also the wrong way to account for it (but was pointing out that the daily amount is also an error in the other direction): >>even if it's not as bad as him having a $50 shortfall (esp since he does pay you back).

fasteo 7y ago

Complete ignorance about this, but I guess this is how accounting works. You need to track how the money flows, so you write -$10 fives times and +$10 five times. You end up in the same position, but now you can track where the money went and how it came back to your wallet.

yeahigotgoats 7y ago

you should be asking why your friend needs a loan every day and one friend is not the proper analogy, all your friends would be asking you for a lunch loan. which should make you think that something is wrong. instead you spend time blindly defending the system that is causing all the actual problems. while the people that actually benefit from that system just laugh at you

beamatronic 7y ago

In your example it matters where did you get the $10 from? Your kids college account? It still really only matters when your friend fails to pay you back the next day. The first time it happens, do you still loan him the second day? Now you’re in for $20 out of your kids college fund. How about that third day? It gets real, real fast.

tboyd47 7y ago

> If I lend my friend $10 every day for lunch and he pays me back the next day and this happens 5 days in a row in what context would it make sense to say I have lent him $50 dollars? If I plan on bailing out his broke ass for the next 5 days, then I have to set aside $50 to do so regardless of whether or not he actually repays me on time. This is closer to the actual situation at hand.

PeterStuer 7y ago

More apt illustration: Your friend is a reckless speculator. He lends $10 with you as an underwriter and your wife says it's fine, but I'm going to check every evening he has at least $1 so we at least know he hasn't lost it all. So every night just before your wife goes to check, you run ahead and lend him quickly the difference between what he still has and the $1 he needs. Your wife checks, he shows her the $1 in his wallet, she leaves and he pays you back the loan you made him a minute before.