sunset from behind the wire

sunset from behind the wire

Friday, December 20, 2019

A Looming Financial Crisis?

No, it's not clickbait.

Steve S. wrote and referred me to this article - linked for your convenience - $2.93 trillion. In a nutshell, this is the situation:
Last Thursday, December 12, the New York Fed announced that over the next month it would shower the trading houses (primary dealers) on Wall Street with a total of $2.93 trillion in short-term loans. The money is for a Wall Street liquidity crisis that has yet to be explained in credible terms to the American people.
The New York Fed’s repo (repurchase agreement) loan program began on September 17 when repo loan rates spiked from approximately 2 percent to 10 percent – meaning either liquid funds were not available to loan or the mega banks on Wall Street were backing away from lending to certain counterparties. Repo loans are typically between banks, hedge funds and money market funds on an overnight basis and are made against good-quality collateral. Since that time, the New York Fed has been making these loans to the tune of hundreds of billions of dollars weekly.
Liquidy problems don't NECESSARILY equate to a crisis through the use of derivative financial instruments if you can hold to maturity. (read more about the Orange County CA Bankruptcy, which was a liquidy crisis on steroids) I ran the investigation that involved broker dealers and bond traders and as a result, I do know what a double step-down, inverse floating rate note based on Swiss LIBOR is. There are things you learn in life that are difficult to purge.

My take on the article is that somebody is leveraged in the wrong direction to the tune of $3 trillion and the Federal Reserve is trying to save them and save the market as it now exists. But the devil is in the details, isn't it?
The $2.93 trillion that the New York Fed will funnel to Wall Street over the next month consists of up to $120 billion each weekday in overnight loans through January 14 and $440 billion in term loans ranging from 3-days to 32 days. In addition, during the last week of the year (on Tuesday, Wednesday and Thursday) the Fed will bump up its overnight loan offerings to $150 billion from $120 billion, thus providing an additional $90 billion that week.
Whatever it is, it's a real mess, and it will drag all of you (and the nation and the world) along with it. If it's the liquidy crisis that I suspect it is, there is a way to fix it without crashing the economy, but it's touchy.  Fredd, what do you think?

Friday's Follies


Did you know that the Donkeys Debated?

I was on the road and missed most of the Democrat debate. The big take aways would seem to be that Yang doesn't like circumcised males, Bernie is still an angry old communist (he's consistent), Warren is angry at the Butt Guy for hanging out with billionaires, and Biden's doctor told him that he is every bit as healthy as some people. It's no wonder that the donkeys voted to impeach President Trump for things that aren't crimes even if their absurd accusations had merit. 

Kabuki theater. 

Unfortunately for the donkeys, theatrical moves such as, "we impeached the President but we're not sending the articles to the Senate," sound even more pathetic than Kabuki performances. You can't make this sort of soap opera up. And how will history record this? It's more like a Nostradamus rant than it is anything resembling normal human interactions (beyond the third grade). 

The white cat memes make more sense than the donkeys in the House of Representatives. 

The Meaning of Life

Our fellow blogger, Jules, has a book of the same title coming out soon. (shameless plug) If you were to ask me what was best about life, I might default to Hollywood writing and Conan the Barbarian: "Crush your enemies, see them driven before you, and hear the lamentation of the women!" Ok, maybe it's not THE meaning, but... you might get my point if you were a barbarian. 

I'm looking forward to the book coming out to hear other's take on things. Clearly the best thing in life for me is grandchildren. Not quite the meaning, but maybe it is the meaning when you get down to the bottom line. (LL with youngest daughter - right - more than a few years ago)

LL with youngest daughter, left, a couple years ago. No success in life can compensate for failure with your family. I think that learning to be kind, learning to be loving and learning to be a worthy parent may be the reason for living. The rest of it is the static background of making money, buying toys and the hash that people seem to pay an inordinate amount of attention to.   

But I'll have to wait until Jules' book comes out to know if I'm the only one who feels that way.

Discovery, or Lack of?

To date, scientists have discovered 4,104 confirmed exoplanets. But for every confirmed planet that astronomers nail down, there are handfuls of maybe-planets in the data, whispers in the data that might come from stars hiccuping or pairs of stars dancing or would-be stars that didn't quite make the cut. And scientists no longer have the resources to analyze every potential planet's identity crisis. And for all that, no other "intelligent" life, broadcasting from the void.

Then again, why would space aliens want to make contact if they're watching CNN?