Far from it. Auditors can’t catch this because GAAP accounting standards obfuscate it, as I’ll explain later. The repo market shook the financial world in September when an unexpected rate spike choked short-term lending, spurring the Federal Reserve to intervene. 0 34 U.S. Department of Agriculture Agricultural Marketing ServiceLivestock, Poultry & Grain Market News USDA AMS Livestock, Poultry & Grain Market News 1 No one really knows how solvent (insolvent?) I jumped to blockchain to try to fix these problems, and from 2016-2018 I was chairman and president of Symbiont, an enterprise blockchain company, where I jointly spearheaded blockchain delivery of index data to Vanguard. However, it provides a “teachable moment” regarding systemic fragility and anti-fragility. 7�(P�Bںz؇�vwHL�4B��~��Z� ��'�m�v�����Ïz�3t�5���5B���B���z^��zh�P��L3;ۍ��$�3$��_��pH�=�wo����\���? It always has been. Last week the financial system ran out of cash. In stark contrast to the traditional financial system, Bitcoin is not a debt-based system that periodically experiences bank run-like instability. SIFMA is the voice of the U.S. securities industry. the Repo Market in the US deteriorated in a dramatic surge of demand for liquidity in … counting of US Treasuries takes place. 105 0 obj <>stream But, as usual, the Fed will almost certainly do what it always does—stem the run by injecting cash into the system in various ways, thereby socializing losses among all US dollar holders. The repo market can be split into two main segments: Bilateral Repo – The bilateral repo market has investors and collateral providers directly exchange money and securities, absent a clearing bank. The repo market seized up last week, with median repurchase rates skyrocketing from their usual band of 2.00-2.25% to 2.46% on Monday, and 5.25% on … I’m a 22-year Wall Street veteran who has been active in bitcoin since 2012, and whose passion is a fair and stable financial system. This is the real reason why the repo market periodically seizes up. You can see how much liquidity that the Fed has injected in the repo markets in the official balance sheet. If you want to understand the repo market, think about renting shoes at a bowling alley. When that same bond is reused again and again and again in similar transactions, the magnitude of double counting within the financial system builds in a manner that no one can accurately measure. By the end of July, the repo problems made their way into the Fed’s meeting, as we learned when the minutes of that meeting were released in August. J�H?�5+����r��-��`�=���wX�ŀxܕX �H!4�*�'r���"}.�'׻��_�����^s"� ��� In mid-September 2019, overnight money market rates spiked and exhibited significant volatility, amid a large drop in reserves due to the corporate tax date and increases in … The repo market shook the financial world in September when an unexpected rate spike choked short-term lending, spurring the Federal Reserve to intervene. Most financial regulators baffle us with jargon when they discuss this issue, making it barely intelligible to regular folks (cloaking it in such terms as “clogged transmission mechanisms,” “length of collateral chains”). On Monday, September 16, 2019, a similar situation occurred in the overnight repurchase agreement (repo) funding market. As risk premiums go, 8% is shockingly high—for a supposedly risk-free asset! The article by Kevin George finishes with a piece of advice, to read beyond the headlines: The repo blow-up of 2019 set markets on edge and prompted the Fed to pump billions of dollars of emergency funding into the financial system. December 13, 2019. h�bbd```b``��`� D�d�H�F�� At a systemic level, the traditional financial system is as fragile as Bitcoin is anti-fragile. fO�9 r�Xe�dL�$�{��4�1X���(�?c�O� �� They recognize that what appears to be an 8% risk-free arbitrage is anything but risk-free. To wit, the IMF has estimated that the same collateral was reused 2.2 times in 2018, which means both the original owner plus 2.2 subsequent re-users believe they own the same collateral (often a US Treasury security).
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