9 ms·

America's financial system came close to the brink

68 points by iancmceachern 2y ago

slaterdev 2y ago
https://archive.is/YqV82 https://archive.is/YqV82
deleted 2y ago
[deleted]
nabla9 2y ago
>And it would be reckless to assume the shocks are over, or that foreign investors’ faith in American assets, now shaken, can be magically restored. How much more can the system take before something really does break?
- kowabungalow 2y ago
  I think the biggest issue is that you have to put the assets somewhere and usually that meant a relationship to US currency. China has to go further with a proposal for how it is going to do a US proof global system. Telling the EU to stand up in unity will only work when the proposal makes the same kind of sense to the EU in the longterm as whatever the US is doing makes sense to the Republicans.
  - JumpCrisscross 2y ago
    > China has to go further with a proposal for how it is going to do a US proof global system Commit to selling half of their $800mm of Treasuries [1] and replacing them with Eurobonds as part of a free-trade agreement. That, in turn, funds Europe’s defence detachment from the U.S. [2]. [1] https://en.m.wikipedia.org/wiki/Foreign-exchange_reserves_of_China https://en.m.wikipedia.org/wiki/Foreign-exchange_reserves_of... [2] https://www.reuters.com/world/europe/europes-plans-pay-surge-defence-spending-2025-03-19/ https://www.reuters.com/world/europe/europes-plans-pay-surge...
inverted_flag 2y ago
It's already back on the brink.
angry_moose 2y ago
Worth noting the 10 year are spiking again today and are currently at a higher level than Wednesday: https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx https://www.marketwatch.com/investing/bond/tmubmusd10y?count... (though they have started recovering some since I posted this originally)
seanhunter 2y ago
A lot of people maybe don’t realise how important treasury rates are to their everyday life. You might be thinking “why do I care? I’m not going to go an buy treasuries. I don’t hold treasuries. So if they go up, go down, fall off a cliff it doesn’t matter to me. whoop de doo”. To which I say hold on there a second. Firstly you probably do own some treasuries. If you have any kind of pension it will have some treasuries in it. Also if you buy something like a stock etf they will hold their cash in treasuries probably or use treasuries as collateral when they need to do margin trades. Also your credit card, mortgage, car loan anything like that if you hold it is priced at a spread above treasuries. The spread is to take into account how much more risky you are than the US govt. Also say you’re a founder and you’re doing some kind of investment round. Well the investors are going to price your business using a discounted cash flow model as part of their decision-making process. The discount is an interest rate that is calculated using treasuries. Basically you look at the future cash flows and you deduct interest that you could get on such an asset to get an idea of the value of that future cash today. When someone wants to ship a containerload of goods and they accept a bill of trade or whatever that includes a counterparty credit spread which is a spread over treasuries. You heard a lot about the LIBOR scandal a few years back well interbank rates are derived from a credit curve that is bootstrapped using treasury rates. So any kind of cross-currency transaction or thing with fixed or floating interest (even if it’s not in dollars) is likely to be affected by US treasuries. Literally every financial asset is tied in some way to treasuries because a “risk free rate” is at the basis of option pricing, discounting, lending and borrowing, margin, counterparty credit adjustment etc etc.
- janis1234 2y ago
  Can what you explain what the significance of the US 10 year yield going up is?
  - deng 2y ago
    It means that they are not being bought. Normally, if the stock goes down, treasury yields go down because investors use them as safe havens for their money, so there's higher demand for them and hence the yield goes down. So why isn't this happening now? There's probably a bunch of reasons. It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be enough liquidity, but it seems people are rather holding on to their cash and not invest in anything. However, it seems still treasuries are being sold like crazy. For a while, even gold went down, which is also highly unusual during a market crisis. One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. In itself, this does not bring much money, but it seems this is done on a huge scale, and it's currently going very wrong. Now they are getting margin-called and need to sell assets. At some point, the FED would normally intervene and buy treasuries. However, the FED still has a ton of treasuries from the COVID crisis on its balance sheets and I think they will not intervene until the market has gone quite a bit lower, so I'm still invested very much bearish, although I lost quite a bit from that when Trump announced the delay, but two days later and we're already close to being back where we started and I could kick myself why I even reacted, but you can't win in this game when it's so distorted, so I'm mostly staying out now and just leave my few remaining PUTs open, and I guess many do the same. The US economy is now fully dependent on the whims of a corrupt president, whose friends currently surely make a ton of money on insider knowledge, so there's zero trust in anything anymore.
jijijijij 2y ago
Does anyone else feel seriously... demotivated(?) by these reckless games with the economy? Like, it's really getting to me. It's a new quality of helplessness seeing these shenanigans in my books. More tangible, raw, direct. Much more insulting. My job, the financial security I've been working for hard, honest struggle, if a handful of people can at will gamble with all of that like it means nothing at all, then why the fuck bother? Why should I get my ass up, if some entitled rich fuck can wipe away years of work and sacrifice for some blatant inside trades with their homies? I mean, for them it's just funny numbers, for me it's life changing money and existential security. I don't know, man. I feel like a fucking peasant.
- wormlord 2y ago
  We are all serfs
  - jijijijij 2y ago
    Yeah, but I preferred the theater of decency. Inflation is gonna eat the cash. Now, if you think you are smart and invest, they pull the rug on all of it. Honestly, where are the incentives to save up, to build something for yourself? I mean, the outlook wasn't that great even without this bullshit. It's all so damn bleak.
- kashunstva 2y ago
  Also contributing is the utter lack of opposition leadership. The current president can marshal his goons to invade and defile the Capitol. What leadership is in opposition? The guy that stands up and gives a 25 hour speech? Props for the feat of endurance; but then what? Or Obama, giving a hyper-intellectual abstract, detached talk? It’s a complete vacuum. For the opposition party it’s business-as-usual, as if you can do your regular Senate stuff and get something done.
  - mint2 2y ago
    > The guy that stands up and gives a 25 hour speech? Who isn’t even the top house democrat. The opposition party’s actual leaders were going around saying the best strategy was to lay low… feels like some kind of bad joke.
wormlord 2y ago
> A particular worry in the Treasury market is that a doom loop could arise from the “basis trade”. This is popular with hedge funds and has minted fortunes at some of America’s largest. It attempts to profit from the difference in price between Treasury bonds and Treasury futures contracts, caused by high demand for the futures from asset managers. Traders exploit this by buying Treasuries and selling futures contracts. To amplify the returns, they borrow using the Treasuries they have bought as collateral, then recycle the cash into even more Treasuries. Thanks to this procedure, hedge funds are short some $1trn-worth of Treasury futures. Every few years some dumb shit like this blows up and then the "experts" hem and haw about why reform actually can never be done and "we MUST keep gambling with instruments you see!" it's just so transparently stupid at this point.
- JumpCrisscross 2y ago
  > then the "experts" hem and haw about why reform actually can never be done The reforms were done. Glass-Steagall, for instance [1]. They’re then undone [2]. Idiots just keep voting the guys who caused the problem into office [3]. [1] https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legislation https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legis... [2] https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93... [3] https://www.politico.eu/article/donald-trump-stability-global-finances-silicon-valley-bank/ https://www.politico.eu/article/donald-trump-stability-globa...

68 points by iancmceachern 2y ago

slaterdev 2y ago

https://archive.is/YqV82 https://archive.is/YqV82

deleted 2y ago

[deleted]

nabla9 2y ago

>And it would be reckless to assume the shocks are over, or that foreign investors’ faith in American assets, now shaken, can be magically restored. How much more can the system take before something really does break?

kowabungalow 2y ago
I think the biggest issue is that you have to put the assets somewhere and usually that meant a relationship to US currency. China has to go further with a proposal for how it is going to do a US proof global system. Telling the EU to stand up in unity will only work when the proposal makes the same kind of sense to the EU in the longterm as whatever the US is doing makes sense to the Republicans.
- JumpCrisscross 2y ago
  > China has to go further with a proposal for how it is going to do a US proof global system Commit to selling half of their $800mm of Treasuries [1] and replacing them with Eurobonds as part of a free-trade agreement. That, in turn, funds Europe’s defence detachment from the U.S. [2]. [1] https://en.m.wikipedia.org/wiki/Foreign-exchange_reserves_of_China https://en.m.wikipedia.org/wiki/Foreign-exchange_reserves_of... [2] https://www.reuters.com/world/europe/europes-plans-pay-surge-defence-spending-2025-03-19/ https://www.reuters.com/world/europe/europes-plans-pay-surge...

inverted_flag 2y ago

It's already back on the brink.

angry_moose 2y ago

Worth noting the 10 year are spiking again today and are currently at a higher level than Wednesday: https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx https://www.marketwatch.com/investing/bond/tmubmusd10y?count... (though they have started recovering some since I posted this originally)

seanhunter 2y ago

A lot of people maybe don’t realise how important treasury rates are to their everyday life. You might be thinking “why do I care? I’m not going to go an buy treasuries. I don’t hold treasuries. So if they go up, go down, fall off a cliff it doesn’t matter to me. whoop de doo”. To which I say hold on there a second. Firstly you probably do own some treasuries. If you have any kind of pension it will have some treasuries in it. Also if you buy something like a stock etf they will hold their cash in treasuries probably or use treasuries as collateral when they need to do margin trades. Also your credit card, mortgage, car loan anything like that if you hold it is priced at a spread above treasuries. The spread is to take into account how much more risky you are than the US govt. Also say you’re a founder and you’re doing some kind of investment round. Well the investors are going to price your business using a discounted cash flow model as part of their decision-making process. The discount is an interest rate that is calculated using treasuries. Basically you look at the future cash flows and you deduct interest that you could get on such an asset to get an idea of the value of that future cash today. When someone wants to ship a containerload of goods and they accept a bill of trade or whatever that includes a counterparty credit spread which is a spread over treasuries. You heard a lot about the LIBOR scandal a few years back well interbank rates are derived from a credit curve that is bootstrapped using treasury rates. So any kind of cross-currency transaction or thing with fixed or floating interest (even if it’s not in dollars) is likely to be affected by US treasuries. Literally every financial asset is tied in some way to treasuries because a “risk free rate” is at the basis of option pricing, discounting, lending and borrowing, margin, counterparty credit adjustment etc etc.

janis1234 2y ago
Can what you explain what the significance of the US 10 year yield going up is?
- deng 2y ago
  It means that they are not being bought. Normally, if the stock goes down, treasury yields go down because investors use them as safe havens for their money, so there's higher demand for them and hence the yield goes down. So why isn't this happening now? There's probably a bunch of reasons. It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be enough liquidity, but it seems people are rather holding on to their cash and not invest in anything. However, it seems still treasuries are being sold like crazy. For a while, even gold went down, which is also highly unusual during a market crisis. One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. In itself, this does not bring much money, but it seems this is done on a huge scale, and it's currently going very wrong. Now they are getting margin-called and need to sell assets. At some point, the FED would normally intervene and buy treasuries. However, the FED still has a ton of treasuries from the COVID crisis on its balance sheets and I think they will not intervene until the market has gone quite a bit lower, so I'm still invested very much bearish, although I lost quite a bit from that when Trump announced the delay, but two days later and we're already close to being back where we started and I could kick myself why I even reacted, but you can't win in this game when it's so distorted, so I'm mostly staying out now and just leave my few remaining PUTs open, and I guess many do the same. The US economy is now fully dependent on the whims of a corrupt president, whose friends currently surely make a ton of money on insider knowledge, so there's zero trust in anything anymore.

jijijijij 2y ago

Does anyone else feel seriously... demotivated(?) by these reckless games with the economy? Like, it's really getting to me. It's a new quality of helplessness seeing these shenanigans in my books. More tangible, raw, direct. Much more insulting. My job, the financial security I've been working for hard, honest struggle, if a handful of people can at will gamble with all of that like it means nothing at all, then why the fuck bother? Why should I get my ass up, if some entitled rich fuck can wipe away years of work and sacrifice for some blatant inside trades with their homies? I mean, for them it's just funny numbers, for me it's life changing money and existential security. I don't know, man. I feel like a fucking peasant.

wormlord 2y ago
We are all serfs
- jijijijij 2y ago
  Yeah, but I preferred the theater of decency. Inflation is gonna eat the cash. Now, if you think you are smart and invest, they pull the rug on all of it. Honestly, where are the incentives to save up, to build something for yourself? I mean, the outlook wasn't that great even without this bullshit. It's all so damn bleak.
kashunstva 2y ago
Also contributing is the utter lack of opposition leadership. The current president can marshal his goons to invade and defile the Capitol. What leadership is in opposition? The guy that stands up and gives a 25 hour speech? Props for the feat of endurance; but then what? Or Obama, giving a hyper-intellectual abstract, detached talk? It’s a complete vacuum. For the opposition party it’s business-as-usual, as if you can do your regular Senate stuff and get something done.
- mint2 2y ago
  > The guy that stands up and gives a 25 hour speech? Who isn’t even the top house democrat. The opposition party’s actual leaders were going around saying the best strategy was to lay low… feels like some kind of bad joke.

wormlord 2y ago

> A particular worry in the Treasury market is that a doom loop could arise from the “basis trade”. This is popular with hedge funds and has minted fortunes at some of America’s largest. It attempts to profit from the difference in price between Treasury bonds and Treasury futures contracts, caused by high demand for the futures from asset managers. Traders exploit this by buying Treasuries and selling futures contracts. To amplify the returns, they borrow using the Treasuries they have bought as collateral, then recycle the cash into even more Treasuries. Thanks to this procedure, hedge funds are short some $1trn-worth of Treasury futures. Every few years some dumb shit like this blows up and then the "experts" hem and haw about why reform actually can never be done and "we MUST keep gambling with instruments you see!" it's just so transparently stupid at this point.

JumpCrisscross 2y ago
> then the "experts" hem and haw about why reform actually can never be done The reforms were done. Glass-Steagall, for instance [1]. They’re then undone [2]. Idiots just keep voting the guys who caused the problem into office [3]. [1] https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legislation https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legis... [2] https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act https://en.m.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93... [3] https://www.politico.eu/article/donald-trump-stability-global-finances-silicon-valley-bank/ https://www.politico.eu/article/donald-trump-stability-globa...