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Banks Plead To Exempt Repo Market From Bank Fee; Alternative Includes Failed Auctions, More M.A.D.
Has it been a whole 24 hours since we last heard about Mutual Assured Destruction if bankers don't get their way? It must be, because according to Dow Jones the Treasury market is presumably considering how to exclude the $5 trillion repo market from any "banker" taxation after "market participants" implicitly threatened with failed bank auctions unless this exemption is granted.
Market participants are concerned that the planned fee could upend the repo market's business model, by raising costs in a market that relies on low transaction costs and small gaps between buy and sell prices. Rising costs could hurt trading volumes and shrink the pool of participants, which could stifle trading in the broader Treasurys market by making it harder to manage positions by borrowing securities in repo. That could lead to higher Treasury yields and, because Treasury yields are the benchmark for other types of lending rates, could drive up borrowing costs across the economy.
"That would be the worst thing for a still-struggling economy," said the head of repo trading at a major bank, "impacting mortgage rates and Treasury rates at a time when the government has pushed so hard to support the housing market."
So, when the Fed is suckling at the proverbial Treasury teat, and keeping rates artificially low, it's perfectly ok, but if something occurs, for whatever populist reasons, that forces political hands to finally punish the banking elite with something that Credit Suisse estimates will be a pinprick on their collective gluteus maximums in terms of EPS impact, and make the exporting of inflation to our creditor nations a tad riskier, everyone should drop everything and make sure that Wall Street follows the record 2009 bonus seasons with an even higher pay day in 2010?
Hopefully, after yesterday, the President has realized that the American population will no longer stand for bullshit promises of change that are never realized. Obama has less than a year to actually implement some of this proverbial change, and preferably of the variety that doesn't include a doubling of unemployment, before he suffers a historic landslide loss in the upcoming mid-term elections. And still he is terrified of standing up to Wall Street derivative Larry Summers, and notifying the banker kleptos that they are all free to move to London if they don't like the US business climate.
In the meantime, the bankers continue knowing what is best for America's peasantry, and providing their unsolicited advice, especially when their direct deposits are threatened:
Darrell Duffie, a professor of finance at Stanford University, said applying the fee to Treasury repo would "slow down the market, and reduce liquidity, and that is not good for the Treasury market."
The fee could also hurt the Federal Reserve, which has been testing reverse repos as a way to reduce its $2 trillion balance sheet and withdraw liquidity from the system to prevent inflation from taking hold. Any reverse repo transactions--in which the Fed lends out securities with the promise to buy them back at a higher price--would be subject to the 15-basis-point levy.
Duffie expects Treasury repo--and possibly repo with debt sold by Fannie Mae (FNM) and Freddie Mac (FRE)--to be exempt from the fee. "Cooler heads will prevail," he said.
Cooler or more corrupt? And where does this neverending systemic threat end? How about extrapolating that because of the tax, a few key man bond traders may take that permanent sabbatical to Buenos Aires, which could kill the HY issuance onslaught, or that a Goldman M&A associate will feel unwelcome among his poorer future colleagues, and his departure would destroy the incipient M&A market. It will, of course, never end so long as those who are in charge (at least on paper... the true owners of this country can be found at the Marriner Eccles building in D.C.) never have the guts to put their money, and their collapsing electoral support where their mouth is.
Oh and in the meantime, the forward looking market is completely oblivious of the repo pandemonium that is sure to grip the world should the bank tax be levied:
Despite the recent concerns among market participants, the repo market has been calm. Repo rates are still hovering around the low levels they've been at for months, not far from the higher end of the Federal Reserve's zero to 0.25 range for official rates. Libor--a key benchmark for everything from adjustable-rate mortgages in the U.S. to large floating-rate corporate loans--has also remained low, at around 0.25% recently after rising close to 5% back in 2008, indicating few concerns that short-term rates could rise.
Brilliant - so essentially yet another example of unjustified bluster from the douchebankery, who are doing nothing more original than what Ben Bernanke does every single time he talks to the financially illiterate critters in Congress. We suggest the whole bank tax be scrapped, and letting bankers focus on the one thing they do best: transferring wealth from Main Street to deposit accounts at bankrupt banks, until the country has nothing left for repo (pun inteneded), and bankers leave on their own accord to more plunderable pastures.
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TD - From your earlier post "Too bad auctions can't close at a negative yield. Primary dealers
submitted a whopping $46.5 billion of orders, and took down $6 billion.
A little too much excess cash anyone?"
Uh.... uh.... I don't get it. LOL
Spot on except I don't agree that the people won't take anymore. I just think the Repugnicants and the Dumbacrooks have such brilliant PR mechanisms in place (they work together it seems, letting one side or the other "appear" to be in power but never actually representing the actual citizenry) that the people will continue to support this illusion of representational government, while the elected officials keep up the charade by pandering to fringe nutcases and having their pockets lined by the corporate elite. Until the mainstream public stop bickering over non-issues and realize they are the suckers P.T. Barnum was talking about, expect things to stay the same.
They'll push for a referendum on abortion or some such sideshow in a pretense that there's a difference between the two parties.
Hopefully, after yesterday, the President has realized that the American population will no longer stand for bullshit promises of change that are never realized. Obama has less than a year to actually implement some of this proverbial change, and preferably of the variety that doesn't include a doubling of unemployment, before he suffers a historic landslide loss in the upcoming mid-term elections. And still he is terrified of standing up to Wall Street derivative Larry Summers, and notifying the banker kleptos that they are all free to move to London if they don't like the US business climate.
Well said Tyler.
Obama will not recognize this because he has no phucking stones and, frankly, I don't think he understands what is going on, so he just listens to Larry Summers because Larry is "the smartest guy in the room". Obama is not going to risk the political pain of telling the truth about the banking system and instructing his regulators to force the banks to retain capital vs. putting the profits in their pockets (divvies as well) and begin the process of writing down and discharging the shitty assets on the balance sheets, of which there are so many. Hell, the FDIC has taken the absolute reverse course in exempting from capital requirements the tsunami of crap coming back on the balance sheets this Q due to FASB FAS 166/167.
"Yes, banks, we read your public comment letters on this which focused on how lending will come to a standstill in the USA if you are forced to reserve for all of these losses. Therefore, take a year and a half off and we'll pretend all is okay. Love and kisses, Sheila Bair."
Sheila Bair (I know, I know, she is a Larry Summers/Ben Bernanke sock puppet like the original waterboy, Tim Geithner) also has ~ 600 banks that are insolvent to shut down but has barely started, which costs the US taxpayer increasingly more money every day that the kick the can game is played. Attempting to maintain a tough gal status, Sheila actually came out today at a conference and said banks must begin to start recognizing CRE losses....that one gets my vote for joke (lie) of the day Sheila. That shit is even funnier than those goofy home vids you made about FDIC insurance protection.
Oh Obama, stupid puppet. He must either be dumb (not as unintelligent, more like unaware of reality), or pure evil. I vote for the former. Economic professors abound love Bernie Bern, which shows the ignorance of "economists" and it is so easy for O to get duped while he has his nose in the air (his Biden impression is impeccable!). He likes to be photographed after all, not heard. If people realized Obama speaks with the same vocabulary as Bush, they may have a heart attack. The only difference is, Dubya was dyslexic, and could not read off of teleprompters.
Blair by the way, makes me shiver.
Sorry Hendrix-- I'm totally against the intellectual bailouts of our governing elite. Mr. Obama is a very smart man who knows exactly what he's doing-- even though it is evil and it is wrong.
Mark it now... if there is another financial crisis, there will be plently of snakes pleading ignorance when it come time to assigning blame.
Nuh-uh... ain't gonna happen this time.
Fair enough.
Use abuse and confuse fail?
Nice.
You say this about Obama
"And still he is terrified of standing up to Wall Street"
You are wrong he's not terrified at all. They own him. He is their property. White wall street owns the black man in the white house.
Obama answers to Summers, and I think he likes it. ;)
The fee could hurt the Fed? Awe, poor wittle baby. They kick and scream like children, how the hell do we not put them in their rooms!
The tight spreads are causing the music to stop, for a minute. Then commodities will revalue and when it does we will begin to discuss Khalifornia, and jobs programs. With the leverage Reg discussed, the banks will find (make) a way to spend cash. Then the DoeLar will bleed once more.
The Fed can put the economy in a depression within 9 months if it wants to do so, or cause a massive financial panic...and blame it on whomever they wish.
They only need the agreement of GS, of which they are a subsidiary, and the mass media who always support the Fed.
The Fed has a gun to Obama's head.
Don't forget JPM.
Before this is all over I suspect that everyone will have cause to bemoan the higher taxes and lower government expenditure that will be required.... I am just waiting for the campaign that aims to label anyone that is unwilling to sacrifice as a mentally ill, unpatriotic selfish kleptocrat.
If you don't think a republican congress is any more likely to deal appropriately with the banks, then what?
The only 'alternative' at this point is the tea party movement and that puts Palin/Beck in charge. How's that gonna work?
Short of a revolution, there is no way to reign in the banks.
Well, that settles it, then. Revolution it is. Let's have our first revolution meeting on Saturday @ 7pm. Your house. ;)
Can we do it at 8 pm? I have pilates at 7 pm. Let's make it a potluck. I will bring a casserole.
teh fed is outdated. time to evolve and progress. end teh fed.
Well, that was a sarcastic in the extreme delivery.
Douchebankery!!
How much in money has Obama given Wall treet in cash and guarantees? Is it thirty trillion?
Is a bank tax or a per repo transaction tax the topic?
Repos are the short end liquidity and multiplier tool ( an active bond and cash are exchanged on average about 5 times per bond per day).
So taxing the transactions themselves would likely make repos less appealing, reduce the liquidity of all markets which pyramid off this bottom short end cash borrowing tool and reduce the velocity of trading in the market possibly slowing the velocity of money itself at large. A per transaction tax is not a great idea.
More interesting is who has cornered certain bonds since 9/11 for months at a time and never gets busted...go ask the FED.
More interesting too is that there is an inner market of a few big dealers and only Morgan Guarantee and Bank of New York significantly in triparty repo so the risk is so concentrated they become defacto TO BIG TO FAIL.
See Bank of New York 9/11, doesn't know whats in your personal account for couple of weeks "here take 50 bucks" and seems to lose about 1/2 the U.S. bond market since they're back up facility is a couple blocks from the main facility both by the World Trade Center. -Thats who we depend on for 1/2 the triparty repo business.
Fortunately repo itself is cleared elsewhere now.