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Fed Posts Official Guidelines On Reverse Repos...From Money Markets
Ah, ye old "have your ZIRP cake and eat it too." First the Fed's overlord single-handedly destroys money market holdings courtesy of negative real rates in his scramble to get 120 year olds to buy Baidu, and now after the same MMs are down well more than 10% in AUM in 2010 alone, he is formalizing the way to bleed them even further. From Reuters: "The New York Fed on Friday posted on its website a master
agreement it will use with money market funds to engage in
reverse repos. The contract details the steps the New York Fed
and money market fund counterparties will have to take to enter
into a reverse repo agreement. Such an agreement would lock up
cash at the Fed for a predetermined amount of time." The actual press release from the Goldman branch of the Currency Printing Institute is below:
The Federal Reserve Board has approved amendments to Regulation D (Reserve Requirements of Depository Institutions) authorizing the Reserve Banks to offer term deposits to institutions that are eligible to receive earnings on their balances at Reserve Banks. These amendments incorporate public comments on the proposed amendments to Regulation D that were announced on December 28, 2009.
Term deposits, which are deposits with specified maturity dates that are held by eligible institutions at Reserve Banks, will be offered through a Term Deposit Facility (TDF). Term deposits will be one of several tools that the Federal Reserve could employ to drain reserves when policymakers judge that it is appropriate to begin moving to a less accommodative stance of monetary policy. The development of the TDF is a matter of prudent planning and has no implication for the near-term conduct of monetary policy.
The amendments approved by the Board are a necessary step in the implementation of the TDF. As noted in the attached Federal Register notice, the Federal Reserve anticipates that it will conduct small-value offerings of term deposits under the TDF in coming months to ensure the effective operation of the TDF and to help eligible institutions to become familiar with the term-deposit program. More detailed information about the structure and operation of the TDF, including information on the steps necessary for eligible institutions to participate in the program, will be provided later.
Becauae you know it's the money markets that are about to cause oil to go to $200. How about forcing some of your darling Primary Dealers to part with their excess trillions in reserves? What's that - you need someone to keep repoing out 10 Minute T Bills to the triparties so that 19 Year Old Unsupervised Senior Managing Directors at Goldman can also buy BIDU (with other people's money) undeterred?
Now we understand.
For anyone caring to read this drivel, here's the link for the final rule.
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The really good magicians always show you and tell you exactly how they are going to fool you. Prestidigiflation!
fuck.
+1, fuck all of it
Bernanke is the biggest asshole on God's green earth.
Not if you're a bank.
I want to bash the son of bitch's head in.
ETA: Maybe the union guys I saw on TV last night will beat me to the punch. All pun intened.
get your physical
Digits just sitting in a bank account. Some will ask, where did the wealth do? Well, we never really had it. It wasn't something tangible, it was just ones and zeros in the ether.
I have some pretty sophisticated clients but not a one really understands this concept. It's "real" because they can withdraw some and "buy" things with it. Since this has been the way the world works all of their life, how could it be any different now or ever?
For me to say otherwise is just crazy talk.
Can you please explain what is the implication of this regulatory change? Thanks.
IMHO this eventually will lead to the following.
Your "safe" money market money will soon be used to buy all that "crap" the Fed paid 100 cents on the dollar for from various banks and other non disclosed parties and which in reality is worth maybe 40 cents on the dollar...........if all goes well and the economy doesn't collapse in 2-3 years.
Essentially they are calling anyone who has money in a money market fund "sucker". Apparently the Fed and the Ponzi believe there is a huge pool of "greater fools" that invest in money market funds.
Game on baby, game on.
I wonder if we will see net withdrawals from MM over the next few months in response. Hmm what is "considered" more conservative than MMs? Maybe Bucky rises.
Thank you. I had the same question myself. Great explanation. Wonder if I'll get a "we can hold your demand deposit for up to seven days" letter like the one that I got from Citi?
"Wonder if I'll get a "we can hold your demand deposit for up to seven days" letter like the one that I got from Citi?"
Up to six months, sucker. What? What're you gonna do about it fool?
Each time you don't chase off the wolves when they show up, they come a little closer. Eventually they get you coming out of your own front door. You are either the hunter or the hunted. I know that isn't fair nor what you bargained for. But it is what it is from now on. Either you resist or you are lunch.
Thanks CG. I think maybe I'll just invest in Jack Daniels futures and forget about the whole f***ing thing. But I do appreciate the clarification and like a lot of your posts.
mitch, why in the name of god would you have any money in a bailed out zombie bank??!?! STARVE THE BEAST
I'm no expert, but I think what's happening is that Uncle Ben is planning to stop inflation by taking money from conservative investors instead of risk takers.
No Big Deal
This is a truly simple money market alternative investment vehicle the Fed will be offering. Just as an institution might purchase CP, CD, term repo, LoC, etc., another alternative will be a direct deposit at the Federal Reserve. No different than a commercial bank deposit or CD.
The terms will be announced periodically and as such will simply compete with other money market instruments.
And Note, that if the Fed truly wishes to drain reserves from the system in doing so, it will likely necessitate a Higher Interest Rate than available in alternatives in order to attract sufficient funds in order to implement such monetary policy action.
Second, many of the investment pools herein targeted (Mutual Money Market Funds) require by terms of their charter and investment guidelines, that the issuer be rated A-1, P-1or equivalent. Thus, is this to mean that nobody at the Fed has yet considered that they must achieve a Rating from a, or numerous, Nationally Recognized Statistical Rating Organization(s) (NRSRO's)?
So what? Another money market instrument in which to invest. Nothing nefarious.
I read the 24 page document just to make sure I wasn't missing something, and I totally agree with you.
I don't understand why this is creating outrage in some of the posted comments...or in the article itself. It seems like anything with the words "Federal Reserve" in it immediately brings out the virtual torches and pitchforks.
I agree that this event, in and of itself, is harmless if you consider anything the Fed does as harmless. And as my post above points out, I said that (IMHO) it will eventually lead to something else, not that it is now what I described.
But IMHO once you see one cockroach, once you let the camel push his nose under the tent flap, there is no turning back. The Fed is sitting on over $1 Trillion of shit paper and they are going to offload it to someone else before this sucker collapses. So they are setting up the systems, with legal justification, now. They have always shown they think ahead.
Not for one instant do I think that anyone in the Fed is stupid, silly or dumb. They are masterful thieves.
Silver and Gold will be kings very very soon. The paper wad is falling apart.
Can we stop paying attention to fed funds rates announcements yet?
My 401k is going to be locked up for the next couple of weeks, while it switches managers.
Murphy's Law states that if something big is going to happen, it will be while most of my savings are locked up. Feel free to trade on that and profit from my misery.
Prob. I don't get this, but here's my question. Haven't MM's traditionally invested in cd's, comm'l paper, sometimes short term treasury, repurchase agreements with brokers? So since financial crisis, by def, MM's have become very risky investments. So how does reverse repos with fed makeMM's even more risky, even if Fed is handing over worthless mtg crap to the MM's?
I got scared out of MM's in summer '08 and put that money into 2 mos or less t-bills, thinking gov't will have to pay me back first. Just keep rolling them over at 0%. Maybe wrong, but can't keep it all in gold or mattress.
First of all this particular press release is addressing a totally different issue than what most of you are worrying about. This is a scheme to allow banks to earn interest on their excess reserves. As you know there is about $1 Trillion in excess reserves in the banking system ( used to be about $20-30 Billion before the Big Scam). So the Fed cannot raise "rates" in the usual way - ever. So the only way to raise rates is by paying banks interest on their excess reserves - which will force the inter-bank overnight lending rate ( Fed Funds rate) to also go up.
As for the other issue of the Fed trying to drain reserves by doing reverse repos with MMFs. I thought the Fed had kinda dropped the idea. But in any event iam not too fussed either way. In fact I would be delighted if the only thing my money market fund held was short term obligations of the Fed - even if it is collateralized with crap. Yah the collateral may be crap - but the Fed is on the hook to pay you - the collateral only comes into play if the Fed "defaults" - in which case the condition of my MMF will be the least of my concerns!
Couple of numances:
"Such an agreement would lock up cash at the Fed for a predetermined amount of time." Check for the "except in the event of an emergency, as determined by - you guessed it - the Fed. Then god knows when you'll get it back.
As for the collateral you get back - methinks it will not be worth the FRNs you traded it for, and methinks also the trick here is to create the illusion that the collateral is liquid. After a few passes back and forth, people start thinking the stuff is worth the loan value, when in fact the lender is basing their credit decision on the Fed as the borrower, the Almighty Issuer of King Dollar, and the Event Horizon for all bad debt.
"The development of the TDF is a matter of prudent planning and has no implication for the near-term conduct of monetary policy."
Please ignore any "small-value offerings of term deposits" no matter how large they may be.
I guess the Fed is looking at all that cash sitting in MM Funds, and figures it's not earning any interest and not serving any productive purpose, so why not just go ahead and spend it. I will leave it to the progressives to formulate the appropriate moral justification for the action.
Funny how everything, since the credit collapse started, seems to come back to one simple concept: Counterparty Risk
In this case, an obvious question is: When the next systemic shock hits the fan, will the Fed allow you access to your MM Fund ?
Sure looks to me like the answer to that is: not until they feel like it (in other words, NO).
Confiscation of IRA's and 401-K accounts is next.
Ben is gearing up the big bank holiday in money markets. Money Markets being flush with cash-Bernanke has plans for it to combat round 2 of the Great Depression 2008. He'll spray your digital bits into the event horizon and lose it. But not to worry, you get the bits back with Treasuries. Don't be surprised about what happens to it and what you can do with that money.
Deflations are about hoarding. Keynesians are about spending and printing and generating GDP via velocity.
If you are hoarding cash to look for price discovery, then I have news for you. Ben is going to steal it and spray liquidity all over the place.Hoarding is antimatter to Keynesians who have never made an honest dollar in their life. And the problem with Keynesian/Marx-lite/Socialist Oligarchism economics is you run out of other people's money(Margaret Thatcher.)
We are in the early stages of this massive credit contraction-and the power that be still have a pig trough to suck out of. It just so happens it belongs to you.
You gotta hate these Ivy Leaguers. They just about screw everything up
It is the only real answer.
The FED has just stopped using Treasury as a pretense.
The agreement may as well take the form of a bond. That way at least we could have a secoundary market for the deposit agreement.
The new government debt instrument can be called:
Fonds.
FED + Bonds, because the customers are fond of the rates :)
Wait a minute, the only real problem for the FED is how do you pay for the interest? Well, nothing a few key strokes won't fix.
They know not what they do!
Mark Beck