4 ms·

I thought the intention was for Fed to slow economy, and the flows locked up in this program would be doing that rather than being lent out. What is issue?

drexlspivey 4y ago
The issue is that people are moving their deposits out of banks and banks are facing liquidity issues.
- zie 4y ago
  That's the Bank's problem. They know exactly why everyone is running to MMF's. Banks can fix it whenever they want, by being less greedy. So far they don't seem very motivated. Banks provide us with insurance against our future liquidity risk, up to the $250k or so FDIC limit. MMF's do not have that same level of insurance.
  - kasey_junk 4y ago
    Bank a&l regulations are more strict than money market funds.
    - zie 4y ago
      Exactly.
  - bagacrap 4y ago
    Yes those greedy banks that are selfishly trying not to go out of business
    - zie 4y ago
      Banks arguably still serve a purpose, but when most risk is externalized by the govt, the incentive for banks is to let the govt take the risk for you, leading to things like SVB. The govt should not take the risk away from being an equity shareholder in a bank, that's wrong. I'm fine with them taking the risk away from customers of the bank, that's what FDIC is all about. Most customer money in banks is not FDIC insured anymore and that's a problem. Perhaps $250k/account is not enough insurance these days, but that's a different discussion If banks can't survive, that's the equity shareholders problem, just like any other business. What happened with CS, when their govt decided to bail out the equity shareholders makes me very unhappy. The equity shareholders knew the reputation of CS was trash, and continued for decades to ride it further down the drain. They deserved to get flushed for having decades to fix the problem and refusing.
      - bagacrap 4y ago
        CS shareholders got next to nothing. The govt forced through a deal over the weekend that valued the equity at far less than what the market did just 2 days prior. Anyway that's not even in the same country. SVB shareholders got zero.
        zie 4y ago
        Bondholders got actually nothing. It's not supposed to work that way. It should be: Equity gets zero, Bondholders get something.
        drexlspivey 4y ago
        Except those were not actual bonds and it was clear by how they work that they were junior to equity
        bagacrap 4y ago
        Some bondholders got something. Specifically, the ones holding traditional bonds. The ones holding higher-paying and riskier bonds got nothing, by design.
spaceman_2020 4y ago
The Fed is losing money, for the first time ever, by paying out 4.8% on $2T of deposits. https://www.wsj.com/articles/for-the-first-time-the-fed-is-losing-money-mortage-backed-securities-treasurys-interest-rate-risk-svb-ad92e96f https://www.wsj.com/articles/for-the-first-time-the-fed-is-l...
- JumpCrisscross 4y ago
  > Fed is losing money, for the first time ever, by paying out 4.8% on $2T of deposits That article has errors, e.g. “the Federal Reserve was designed to make money for the government from its monopoly on issuing currency.” And that’s not what they’re saying. When rates rise bond prices go down. The Fed made rates rise while holding lots of bonds. Their value went down. This was expected, unavoidable and inconsequential; it is what the authors are complaining about. The interest the Fed pays on reserves is a policy choice to keep those reserves at the Fed and out of the economy. The Fed could turn it off at any time.
  - bagacrap 4y ago
    The Fed literally can't turn it off because they have a mandate to fight inflation.
- zie 4y ago
  It doesn't matter. The Fed can choose to make or lose money at their whim. They are wholly unconcerned about losing money right now. They are much more concerned with Inflation, and it's obvious, because that's been a broken record for over a year now: WE WILL RAISE RATES UNTIL INFLATION IS UNDER CONTROL. Oh Look, they just raised rates again, even after SVB and friends crashed and burned. They are totally serious. If Banks still haven't gotten the memo, there is no hope for them, and the equity shareholders deserve to get wiped to zero, it won't affect US mere mortals, provided we keep under our FDIC limit.
JumpCrisscross 4y ago
> What is issue Monetarily, nothing. Financial-stabilitywise, it’s an inconvenient sucking sound at the banks. If you’re a bank that went to the SVB School of Risk Management, that will be a problem.
- zie 4y ago
  Only for equity holders in the bank, and really with the current lending program from the Fed, they have some breathing room to fix their mess. The question is, will they listen and fix their mess in time. That said, if you are holding more than your FDIC limit, one should probably fix that and re-allocate to stay within the FDIC limits(Generally $250k/person/bank).
bradleyjg 4y ago
The Federal Reserve is part of the Federal government and it’s acting at cross purposes with other parts. Washington should make up its mind.
- dragonwriter 4y ago
  > The Federal Reserve is part of the Federal government and it’s acting at cross purposes with other parts. Divorcing monetary policy from fiscal policy concerns is a major reason for having an independent central bank in the first place. Acting frequently at odds with the rest of government — and avoiding the currency being compromised by concerns of the rest of government — is an important part of why we have a Federal Reserve.
  - bradleyjg 4y ago
    An argument from intent is a bad argument. Like if I complain that the Senate is undemocratic and you say the founders didn’t want to create a democracy, you haven’t actually addressed my concern.
- orangepurple 4y ago
  > The Federal Reserve is part of the Federal government Nope, but they want to pretend they are

drexlspivey 4y ago

The issue is that people are moving their deposits out of banks and banks are facing liquidity issues.

zie 4y ago
That's the Bank's problem. They know exactly why everyone is running to MMF's. Banks can fix it whenever they want, by being less greedy. So far they don't seem very motivated. Banks provide us with insurance against our future liquidity risk, up to the $250k or so FDIC limit. MMF's do not have that same level of insurance.
- kasey_junk 4y ago
  Bank a&l regulations are more strict than money market funds.
  - zie 4y ago
    Exactly.
- bagacrap 4y ago
  Yes those greedy banks that are selfishly trying not to go out of business
  - zie 4y ago
    Banks arguably still serve a purpose, but when most risk is externalized by the govt, the incentive for banks is to let the govt take the risk for you, leading to things like SVB. The govt should not take the risk away from being an equity shareholder in a bank, that's wrong. I'm fine with them taking the risk away from customers of the bank, that's what FDIC is all about. Most customer money in banks is not FDIC insured anymore and that's a problem. Perhaps $250k/account is not enough insurance these days, but that's a different discussion If banks can't survive, that's the equity shareholders problem, just like any other business. What happened with CS, when their govt decided to bail out the equity shareholders makes me very unhappy. The equity shareholders knew the reputation of CS was trash, and continued for decades to ride it further down the drain. They deserved to get flushed for having decades to fix the problem and refusing.
    - bagacrap 4y ago
      CS shareholders got next to nothing. The govt forced through a deal over the weekend that valued the equity at far less than what the market did just 2 days prior. Anyway that's not even in the same country. SVB shareholders got zero.
      - zie 4y ago
        Bondholders got actually nothing. It's not supposed to work that way. It should be: Equity gets zero, Bondholders get something.
        drexlspivey 4y ago
        Except those were not actual bonds and it was clear by how they work that they were junior to equity
        bagacrap 4y ago
        Some bondholders got something. Specifically, the ones holding traditional bonds. The ones holding higher-paying and riskier bonds got nothing, by design.

spaceman_2020 4y ago

The Fed is losing money, for the first time ever, by paying out 4.8% on $2T of deposits. https://www.wsj.com/articles/for-the-first-time-the-fed-is-losing-money-mortage-backed-securities-treasurys-interest-rate-risk-svb-ad92e96f https://www.wsj.com/articles/for-the-first-time-the-fed-is-l...

JumpCrisscross 4y ago
> Fed is losing money, for the first time ever, by paying out 4.8% on $2T of deposits That article has errors, e.g. “the Federal Reserve was designed to make money for the government from its monopoly on issuing currency.” And that’s not what they’re saying. When rates rise bond prices go down. The Fed made rates rise while holding lots of bonds. Their value went down. This was expected, unavoidable and inconsequential; it is what the authors are complaining about. The interest the Fed pays on reserves is a policy choice to keep those reserves at the Fed and out of the economy. The Fed could turn it off at any time.
- bagacrap 4y ago
  The Fed literally can't turn it off because they have a mandate to fight inflation.
zie 4y ago
It doesn't matter. The Fed can choose to make or lose money at their whim. They are wholly unconcerned about losing money right now. They are much more concerned with Inflation, and it's obvious, because that's been a broken record for over a year now: WE WILL RAISE RATES UNTIL INFLATION IS UNDER CONTROL. Oh Look, they just raised rates again, even after SVB and friends crashed and burned. They are totally serious. If Banks still haven't gotten the memo, there is no hope for them, and the equity shareholders deserve to get wiped to zero, it won't affect US mere mortals, provided we keep under our FDIC limit.

JumpCrisscross 4y ago

> What is issue Monetarily, nothing. Financial-stabilitywise, it’s an inconvenient sucking sound at the banks. If you’re a bank that went to the SVB School of Risk Management, that will be a problem.

zie 4y ago
Only for equity holders in the bank, and really with the current lending program from the Fed, they have some breathing room to fix their mess. The question is, will they listen and fix their mess in time. That said, if you are holding more than your FDIC limit, one should probably fix that and re-allocate to stay within the FDIC limits(Generally $250k/person/bank).

bradleyjg 4y ago

The Federal Reserve is part of the Federal government and it’s acting at cross purposes with other parts. Washington should make up its mind.

dragonwriter 4y ago
> The Federal Reserve is part of the Federal government and it’s acting at cross purposes with other parts. Divorcing monetary policy from fiscal policy concerns is a major reason for having an independent central bank in the first place. Acting frequently at odds with the rest of government — and avoiding the currency being compromised by concerns of the rest of government — is an important part of why we have a Federal Reserve.
- bradleyjg 4y ago
  An argument from intent is a bad argument. Like if I complain that the Senate is undemocratic and you say the founders didn’t want to create a democracy, you haven’t actually addressed my concern.
orangepurple 4y ago
> The Federal Reserve is part of the Federal government Nope, but they want to pretend they are