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comment by uhsguy

This is really wacky stuff, As far as I understand the only reason this would happen is if there is no cash on hand at the banks or if the securities offered for repo were bad. I find it hard to believe that there was no cash available to lend so the likely scenario is that someone showed up on the repo market with some really toxic securities. Just like bear sterns some large firm is about to go boom.

The one thing against that is that once somebody shows up with the toxic assets everybody else knows that implosion is imminent so panicked selling should follow, but that didn’t happen in June 2007 so maybe the market isn’t that in tune or the smart money knows how to not spook the big payday.

kleinbl00  ·  598 days ago  ·  link  ·  

"I hate this loan. I hate you for getting this loan. You realize we're making like $450 on this loan? I hate this loan. I think I hate you. You better sign this."

First bank loan I ever got was for a car. Think I borrowed like 8 grand. They ran my credit and decided I could borrow 8 grand for like 1.75%. That was fifteen-twenty years ago; a stupid low interest rate was an anomaly. Now? Now the banks have to make money at that rate all the time.

Fundamentally, a repo rate above what the Fed wants it to be means that the banks are not incentivized to participate at the Fed rate. Lack of positive incentive? They don't make enough money to bother. Negative incentive? They don't have the cash to cover it. I am not a bank. But I know that banks lending money to other banks is not where the money is right now.


uhsguy  ·  598 days ago  ·  link  ·  

The repo rate is supposed to be a risk free loan it’s backed by collateral and is repaid the next morning. It’s like if you wanted to borrow 3 bucks from me and you gave me a fresh gallon of milk in return. My household can easily consume that milk so if you paid me back the 3 bucks and a penny then great not a big deal. The problem comes around when you want to borrow 3 bucks and you have a carton of freshly expired milk, because now there is a chance the milk won’t be any good if you choose not to play me back, and really if all you have to offer for collateral is expired milk perhaps you won’t come get it tomorrow, now I might want 3.50 tomorrow to compensate for the risk.

am_Unition  ·  598 days ago  ·  link  ·  

To state this explicitly: Please stay on Hubski for a while and make more economics analogies?