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Rumored Source Of Reverse Repo Liquidity: Not Bank Reserves But Money Market Funds

Tyler Durden's picture




 

And the Fed finds a way to screw everyone over yet again. Contrary to expectations that the Fed will use reverse repos to remove excess liquidity (which, by definition, such an action would) it appears that Bernanke's wily scam is to push even more money out of money market funds and into capital markets. Even though banks currently have about $800 billion in excess reserves which the Fed is paying interest on, and which would be a damn good source of liquidity extraction as the Fed considers to shrink its ever expanding balance sheet, the Chairman is rumored to be considering money market funds as a liquidity source. Reuters points out that the Fed would thus have recourse to around $4-500 billion, and maybe more, of the $3.5 trillion sloshing in "money on the sidelines", roughly the same amount as MMs had just before the Lehman implosion.

Why not the other logical source of liquidity you ask:

The central bank is now considering dealing with money market funds because it does not think the primary dealers have the balance sheet capacity to provide more than about $100 billion, the Financial Times said.

Heaven forbid PDs have to sell any of the Treasuries they are sitting on to free up some cash. One also wonders just how much in excess reserves the PDs are currently in possession of. But that would be counterproductive to the Fed's every day scam of running the markets higher. How can PDs, and banks in general keep buying equities, if they are forced to give cash to the Fed? Furthermore, if regular investors perceive some threat to the MM liquidity pool, it will of course pile into other riskier assets.

All in all, the Chairman is determined, come hell or high water, to part consumers with their savings: whether it be through zero deposit interest rates, through money market guarantee removals, through talk of inflation or, ultimately, through actions like these. After all, America has gotten to the point where the Fed is beating the drum on the need to keep blowing the capital market bubble bigger and bigger: anything less, and just as Madoff investors discovered, the entire pyramid collapsed overnight, and where people thought there was $50 billion, there was really $0.

 

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Thu, 09/24/2009 - 15:44 | 78758 Mos
Mos's picture

The best part is the collateral they are going to use to borrow against, namely the MBS and treasuries they have been buying up with freshly printed money.  So what happens if the Fed gets audited and it turns out much of the MBS used as collateral is grossly overvalued.  Seems to me this will end in disaster and the MM funds will be left holding the bag.

Thu, 09/24/2009 - 15:45 | 78759 buzzsaw99
buzzsaw99's picture

I tried to tell everyone that Ben Shalom was a pig, but they all said oh noes, u jus don't know ben...

Thu, 09/24/2009 - 15:46 | 78760 JohnKing
JohnKing's picture

Is this what you call "all in"?

Thu, 09/24/2009 - 15:47 | 78762 Bearish Spirits
Bearish Spirits's picture

So we have the guarantees on money market funds which just ran out, declining money market balances, and Bernanke is looking to scare more money out of the funds and into the market.  Really scraping the bottom of the barrel here.

Thu, 09/24/2009 - 15:52 | 78766 Gilgamesh
Gilgamesh's picture

Negative interest rates, what's up.  Only for the people, though; banks get paid to keep their (our) money as reserve deposits.

Thu, 09/24/2009 - 16:02 | 78779 Rula Lenska
Rula Lenska's picture

Nicely summarized, Gilgamesh!

Thu, 09/24/2009 - 15:50 | 78765 Anonymous
Anonymous's picture

bernanke is a dead donkey's asshole

Thu, 09/24/2009 - 15:51 | 78767 Mannwich
Mannwich's picture

My money market funds have just been pulled and they're NOT going into equities.  Sorry Ben.

Thu, 09/24/2009 - 16:04 | 78784 Bam_Man
Bam_Man's picture

You are representative of the class of investors who have stayed in Money Market Funds (at 0.06% yield) throughout this phony, engineered rally in risk assets.

These investors are EXTREMELY risk averse and want nothing to do with the equity market, much less one that is as grossly overvalued and manipulated as this. Taking away their Money Fund 'guarantee' puts them in an unacceptable situation - namely a no-return asset with risk.

Ben is smart enough to know this. And that is that these yield-starved and risk-averse MMMF investors will gradually migrate to relatively "safe" US Treasuries. Not equities.

 

Thu, 09/24/2009 - 16:11 | 78794 Mannwich
Mannwich's picture

That's exactly where my MMF went - into Treasuries (for now).  Next stop, my mattress.

Thu, 09/24/2009 - 16:28 | 78825 Anonymous
Anonymous's picture

Spot on Bman! I always enjoy your observations, here and elsewhere.

Thu, 09/24/2009 - 19:04 | 79035 Anonymous
Anonymous's picture

keep some cash and gold in your mattress and it will buy more goods in the future. That is risk free, I think.

Thu, 09/24/2009 - 22:36 | 79158 Anonymous
Anonymous's picture

Face it, this "risk adverse" population is what is left of the Great Depression I. Thus, the plan is clearly to wipe out their nest egg before Obama care has them sign a "solient Green" agreement and I'm not talking about people
as food, but the name derived from soy, lentil and money.

Thu, 09/24/2009 - 15:56 | 78772 max2205
max2205's picture

Bad sign, desperate sign.  MMF backed by MBS, what a fucking joke.  They want everyone out of MMF and into T's to keep a lid on short rates as long as they can.  Sounds like this might be the last act for Ben.

 

Me out of MMF's

Thu, 09/24/2009 - 16:10 | 78791 Cognitive Dissonance
Cognitive Dissonance's picture

Increasingly desperate men do increasingly desperate things.

Thu, 09/24/2009 - 16:28 | 78827 Anonymous
Anonymous's picture

Only by incremental slippage of one's morals and ethics can a good man do the most vile and evil works of darkness against his fellow men.

Thu, 09/24/2009 - 15:56 | 78773 reading
reading's picture

This appears to be one of those tremendous backfiring opportunities...I see money pouring out of MM's and most definitely not going into equities.  Creating something very similar to what we were dealing with this very same week just a year ago.  I can promise you, my MM funds are not going into the equities and I know I am certainly not alone.

Thu, 09/24/2009 - 15:56 | 78774 Anonymous
Anonymous's picture

"the Chairman is rumored to be considering money market funds as a liquidity source."

So just to be clear, he's considering borrowing from MM, using MBS as collateral?

Man, as someone who has most of my savings tied up in a 401k, I just feel like a sitting duck. They offer you way too few investment options, with inexcusable fees, so the only thing I can do right now is keep my money in the MM option, and now they're going to destabilze that as well?

I read a lot on this site and just cynically roll my eyes at Wall Street and the Fed's antics, but this one has me truly pissed.

Thu, 09/24/2009 - 16:37 | 78840 TheGoodDoctor
TheGoodDoctor's picture

This truly is a joke. I can't believe they are forcing me to make a choice to lose money. Best of luck Ron Paul! Audit the Fed!

Thu, 09/24/2009 - 15:56 | 78776 Anonymous
Anonymous's picture

what kind of bullshit country do I live in?

Thu, 09/24/2009 - 16:14 | 78798 Cognitive Dissonance
Cognitive Dissonance's picture

The most financially and militarily innovative bullshit country in the world. God bless Ben Bernanke and the Fed.

NOT

Thu, 09/24/2009 - 16:00 | 78777 Anonymous
Anonymous's picture

You wrote:

it appears that Bernanke's wily scam is to push even more money out of money market funds and into capital markets.

How does it do that? He will give them a Treasury security or a mortgage as collateral and he will receive money from the financial system.

It is not leaving the money market for the capital markets but will park itself safely in a little corner of the world at 33 Liberty street at which time it is dead money.

Money funds lubricate the system. To the extent that he takes money from them and buries it at the Fed it is that much money not available in the money markets which, ceteris paribus, should result in higher short rates.

So there aint no way it is going to the capital markets!!!

Thu, 09/24/2009 - 16:23 | 78811 BM (not verified)
BM's picture

+10

unless the FRBNY is "the capital markets"

Thu, 09/24/2009 - 16:32 | 78833 Anonymous
Anonymous's picture

The point is that once this activity is understood, no one will want their money in MM, and will flee out to other assets, like Treasuries. The Fed's borrowing isn't going to capital markets, the savings scared out of MMs will go to the capital markets (or more likly gold, or the mattress).

Thu, 09/24/2009 - 16:02 | 78780 AR
AR's picture

TYLER... where is the "Audit the Fed" petition ZH readers and contributors NEED to sign in order to send it to the 75 Senate members not yet on board with Bill S.604 ???  The Fed and Treasury is insane.

Thu, 09/24/2009 - 16:04 | 78782 Bearish Spirits
Bearish Spirits's picture

Wow...PPT sure were hustling those last few minutes.  There was a death struggle going on around the 200 EMA on the 1-minute DJI chart. 

Tears of joy the Dow closed above it, I'm sure.

Thu, 09/24/2009 - 16:04 | 78783 Anonymous
Anonymous's picture

So if you're pulling your $$$ out of MM funds and aren't putting it into equities, where are you putting it? Under a mattress?

What if your $$$ is in a MM fund in your IRA/401k?? What then?

Just trying to learn. Thanks.

Thu, 09/24/2009 - 16:15 | 78803 reading
reading's picture

Don't know if there is an easy answer here as in a 401k you can be hostage to the options it provides which often aren't so hot.  They'd like you to pick treasuries -- however, that's not going to look so hot if inflation takes hold.  So outside a 401k I'd opt for a regular savings account that is insured inside the 401k parameter you'll have to research your options.

In the end, given how fast they seem to be driving this country and our financial system off the cliff it likely won't matter as the average investor won't have 2 cents left in investments by the time they are done.

 

 

Thu, 09/24/2009 - 16:19 | 78807 Cognitive Dissonance
Cognitive Dissonance's picture

If your money is in a 401(k) with limited investment choices, your only choices are as follows.

1) Quit your job NOW so you can (hopefully) move your 401(k) away from your employers lousy choices plan and into a much more flexible IRA.

2) Keep your job and hold on tight for the ride of your life.

 

Thu, 09/24/2009 - 16:46 | 78856 RatherBFlying
RatherBFlying's picture

Get a Treasury Direct account, and place the money in what they call "Zero Percent C of I" instruments. They are liquid (you're not tied up for a minimum of 4 weeks like T-Bills) so you can transfer the money back to your bank immediately when you are ready to do something else. Also, no FDIC worries, so you can stuff millions there if you want.

Slight hang up with the C of Is: You can only transfer $1K in (from your bank) at a time (so if you want to move in $10K there in one day, you hve to schedule 10 $1K transfers), and when you transfer money in from your bank, they lock your entire C of I balance for 5 business days. It's not been a problem to deal with so far.

If you do this, also open up a Credit Union account and link it in so when want to spend the money you can go with honest folk instead of the Big Bank Rapists (BBRs). Plus, your BBR might not be there, hopefully your local credit union will.

Thu, 09/24/2009 - 17:51 | 78963 docsdoc
docsdoc's picture
I just bought some more GOLD!
Thu, 09/24/2009 - 16:05 | 78785 Anonymous
Anonymous's picture

"it appears that Bernanke's wily scam is to push even more money out of money market funds and into capital markets."

yeah, like NY FED's accounts, newbie

Thu, 09/24/2009 - 16:06 | 78786 Anonymous
Anonymous's picture

When the a goverment revalues the currency does debt revalue also or does it stay at the face value. Example, does a $300,000 mortgage after a currency revaluation of 10:1 stay at $300,000 in the new devalued currency?

Thu, 09/24/2009 - 17:53 | 78966 Hansel
Hansel's picture

Clearly you don't know the rules of Calvinball.

http://www.bartel.org/calvinball/

Thu, 09/24/2009 - 16:10 | 78790 Anonymous
Anonymous's picture

ZH Here is a post for you....

RECENT SECONDARIES BUSTED TODAY

PALM
RTK
OPEN
ETFC
BRKR
AMR
SFD
HBAN
CREE
SF
ABX
FFH
ATPG
GET
ARE
PNNT
CNXT

I hope the broker dealers didn't hold on to their overallotments for 2 long...

Thu, 09/24/2009 - 16:11 | 78792 Anonymous
Anonymous's picture

I'm buying physical gold with my MM funds. Check. Your move, Ben.

Thu, 09/24/2009 - 17:28 | 78936 Bam_Man
Bam_Man's picture

Sometime within the next two years "They" will attempt to confiscate your (and mine) physical gold.

It would be a good idea to begin making arrangements to move your physical gold out of the country.

Fri, 09/25/2009 - 04:38 | 79297 Fred C Dobbs
Fred C Dobbs's picture

I am afraid of the US government confiscating gold again too. Anybody care to give an opinion of the best/easiest way to own gold in a foreign country that can't be taken?

Thu, 09/24/2009 - 16:15 | 78801 Anonymous
Anonymous's picture

sigh, this is starting to get obscene.

let me get this straight. my MM funds will be borrowed by the fed whereby they will use MBS as collateral? uhh...no thanks

is there a source that points to which money market funds are going to participate in this?

its not enough that they take half our paychecks and probably 60% of paycheck from our kids and 90% of paycheck from our grand kids. they want to get their hands on my savings as well?

at this rate, i am going to have to literally hide my money under mattresses.

lets put that $2.5 under a mattress and see what happens then.

Thu, 09/24/2009 - 16:20 | 78809 bonddude
bonddude's picture

As I mentioned before MMs can't last long anyway at these low rates. There is simply not enough

spread to pay for operating them. So reverse repos show the desperation of Uncle Ben since it's such a short term solution.

Thu, 09/24/2009 - 16:49 | 78870 Anonymous
Anonymous's picture

What is the balance sheet exchange that would be beneficial here? Qui bono? Do the MMF's exchange cash for AAA-backed, and then pass that higher yield on to MMF shareholders? It seems such funds would then be functioning like short-term Government securities funds rather than 30-90 day commercial paper funds. Obviously offering a higher yield would be of great benefit to money market funds, but would not the current legal structure/prospectus of such funds need to be greatly modified to allow such a fundamental restructuring of their portfolios? Perhaps allowing greater leverage (with the Fed reverse repo paper as uncallable collateral) in the issuance of CP would be the hidden inducement.

Thu, 09/24/2009 - 17:28 | 78937 bonddude
bonddude's picture

So the government guarantee is up and they would re-inflate MM yields with suspiciously familiar devices (structured products or cp) ? Prospectuses allow just about everything under the sun, even so called "government securities" MMs. Nevertheless, raising MM yields high enough to justify their existence without some outside help seems like recreating the monster (Prime Reserves, etc...) that we have only partial, as yet, have unwound. Still a lot of garbage in those MMs and certainly ARSs are dead. See, they've created an instant T-bill market making MMs untenable.

Thu, 09/24/2009 - 16:21 | 78810 Anonymous
Anonymous's picture

Wait a minute... Money Market funds operate on the same fractional reserve banking scheme. If the Fed really were to start draining these funds of "reserves" through reverse repos, they would undercapitalize the funds and could cause another liquidity squeeze. A bank run on MM accounts would be devastating.

TD, you wrote that 9/19/08 may have been day the world nearly fell into the abyss. These guys couldn't possibly be repeating that episode? Or are they deliberately doing to set up another crisis?

Thu, 09/24/2009 - 17:20 | 78923 Anonymous
Anonymous's picture

Agree. Another big liquidity squeeze on bank run.

Thu, 09/24/2009 - 17:30 | 78938 Primal Reversion
Primal Reversion's picture

I thought of the exact same thing when I heard this. The last time it happened, some convenient changes were announced (i.e. new $250K FDIC limit increase) just "in the nick of time" to prop things up and make the herd feel [temporarily] safe. One has to wonder if the props came in simply to allow the Big Money to position themselves better before the shoe was allowed to fall.

Thu, 09/24/2009 - 16:24 | 78815 Anonymous
Anonymous's picture

If you have a mortgage or any debt what so ever, why not just pay it off?

Thu, 09/24/2009 - 16:43 | 78850 TheGoodDoctor
TheGoodDoctor's picture

Because when the dollar goes to hell and hyperinflation happens you can pay off your debts a lot easier with a wheelbarrow full of cash.

Thu, 09/24/2009 - 17:17 | 78917 Anonymous
Anonymous's picture

By that time, you probably will lose your job and you
house will be under foreclosure.

Thu, 09/24/2009 - 16:49 | 78859 buzzsaw99
buzzsaw99's picture

+1 Absolutely, you get a cookie. The lucky ones have the perfect amount of debt which they can pay off to earn a greater return.

Thu, 09/24/2009 - 16:50 | 78875 Anonymous
Anonymous's picture

What if there is deflation? What if your money market goes bust? Better to have a paid off house.

Thu, 09/24/2009 - 17:12 | 78911 TheGoodDoctor
TheGoodDoctor's picture

Actually then I think it would be better to keep your dollars because your dollar would buy more since prices would deflate. You would have people clamoring for the dollars and even investing them might provide a higher yield.

Thu, 09/24/2009 - 17:34 | 78941 bonddude
bonddude's picture

+10

Thu, 09/24/2009 - 17:41 | 78950 buzzsaw99
buzzsaw99's picture

Better to have a paid off house.

Agreed.

Thu, 09/24/2009 - 16:26 | 78818 Anonymous
Anonymous's picture

No doubt this is Voelkers idea. He claims money funds are getting an unfair comptitive advantage over banks because they don't have to pay deposit insurance premiums. I think money market funds are just too damn efficient for the government. Of course that pot of loot will be moved long before these criminals can borrow it using worthless collateral.

Thu, 09/24/2009 - 16:26 | 78821 Happy Days
Happy Days's picture

Let's not forget that Bernanke is just a pawn in this game. His

moves are orchestrated by none other than the Rockefellers, Rothschilds

and the few other families in this line of fine business. If anyone thinks

that H.R. 1207 will solve this...(although needed)...think again as

this would assume that the Fed would come clean and tell the truth

in an audit. Folks...to think they would not "cook" the books is 

fantasy land...and they will if it ever gets that far...and that may be

a stretch. We know they have lied and have been secretive. If that

would change, then I guess the earth is flat. Enjoy the show brought

to us by Hollywood East and Las Vegas East.

 

Thu, 09/24/2009 - 16:31 | 78830 A_MacLaren
A_MacLaren's picture

End the Fed...  NOW.

Clearly the #1 Source of the problem.  More and more Debt "liquidity" is the cure to too much debt.  yeah, right.

Though the clueless politicos (of both parties) that passed Gramm-Leach-Bliley (finally repealing Glass-Steagal) and then the Commodities Futures Modernization Act of 2000 that gave legal standing to the derivative bomb of Swaps, run a close #2

Thu, 09/24/2009 - 17:37 | 78945 Primal Reversion
Primal Reversion's picture

I keep hearing this, but what/who would actually have the power (or the stones) to even attempt it? They own the game and everyone that has been playing in their game is subject to playing by their rules. I don't see an end to the Fed until some external factor(s)/force(s) come in and give us/them no other alternatives. Unfortunately that scene isn't a pretty one for any of us.

Thu, 09/24/2009 - 16:32 | 78835 Gilgamesh
Gilgamesh's picture

FDIC insured MMKTs going away too, for what it's worth.

Thu, 09/24/2009 - 16:32 | 78836 Anonymous
Anonymous's picture

But money markets are also capital markets. Money in money market funds is not saved in a box or on "the sidelines", that money is a source of, day to day, cheap and abundant funding for many large and small companies and many large and small governments (federal, local or states).

Thu, 09/24/2009 - 16:46 | 78857 Anonymous
Anonymous's picture

Not if they can successfully scare it our of MMF and into funding the U.S. debt instead.

Thu, 09/24/2009 - 16:56 | 78886 Gilgamesh
Gilgamesh's picture

Yes, makes you wonder what they have planned by letting CIT go away (eventually) and now killing mmkts.  Well, I have my theory that seems more likely every day now - but it's still considered wing-nut.

Thu, 09/24/2009 - 16:47 | 78863 Anonymous
Anonymous's picture

Tyler, some 55 billion was withdrawn from MMA last week as yields are now .1%! At what point does this reach systemic risk and a run on MMA?

NEW YORK -- Defying the traditional relationship, Treasurys, considered a safe harbor, have attracted robust demand in recent weeks even as riskier assets from stocks to crude oil and gold have performed well.

This was driven by the ultra-low interest rates in money markets and the large amount of cash in the system, said Ford O'Neil, a senior portfolio manager at Fidelity Investments, the largest U.S. mutual fund company with $1.4 trillion of assets under management.

Major central banks have flooded money markets with billions in cash in an attempt to thaw lending frozen by the financial crisis. Borrowing rates in interbank markets have dipped to near zero, while yields on money market funds and bank saving accounts have also nosedived. Last week alone, a total $55.23 billion was withdrawn from money market funds.

"The assumption is that people are a little bit more comfortable and taking a little bit more risk," Mr. O'Neil said in a telephone interview. "They are clearly moving out of money markets into bonds. Otherwise, fundamentally, Treasurys wouldn't have rallied along with stocks."

The unusual moves in financial markets reflect the uncertainty over the global economic outlook even as recent reports show manufacturing recovering and housing stabilizing. But the strength and sustainability of any recovery has been thrown into doubt by the anemic labor market, with jobless rates in major nations continuing to rise.

In the U.S., the unemployment rate hit 9.7% last month, the highest level since June 1983. With consumers more likely to save than spend, it's uncertain whether the economic rebound will pick up speed once government stimulus runs out.

Mr. O'Neil, who co-manages the $10.8 billion Fidelity Total Bond, one of the company's flagship bond funds, said he doesn't see a significant spike in economic activity any time soon and expects inflation to remain subdued, which is why he remains comfortable holding Treasurys maturing in 10 years or less.

But he is still slightly underweight Treasurys, preferring instead corporate bonds and commercial mortgage-backed securities. In particular, he likes bonds sold by the financial sector, noting that they are still cheap compared with the industrial sector and that their credit quality will improve as banks continue to repair their balance sheets.

Mr. O'Neil expects inflation to remain contained in the near term, but owns Treasury inflation-protected securities, or TIPS, from five- to 10-year maturities to diversify his portfolio and as a hedge against the risk of rising long-term price pressures.

Fidelity Total Bond invests in a broad range of fixed-income assets. It has handed investors a total return of 15.35% this year through the end of August, beating the 4.62% return on the benchmark index -- the Barclays Capital Aggregate Bond Index, according to data from Fidelity's Web site.

Mr. O'Neil said the Federal Reserve's asset-purchase programs, totaling $1.75 billion in Treasurys, agencies, and mortgage-backed securities, have given investors the confidence to buy Treasurys and other assets. That has been the main reason for the decent demand seen in Treasury auctions in recent months, despite the sharp rise in supply from a year ago. On Thursday the Treasury Department raised the auction sizes for next week's two-, five- and seven-year notes again, boosting the total amount to $112 billion from $109 billion a month ago.

Mr. O'Neil said unwinding these programs will take several years. He said the Fed could hold the mortgage-backed securities it has purchased to maturity, rather than sell them back to investors, to avoid disrupting the market. That could also be the case with its Treasury purchases.

"I would be very surprised if the Fed sells (those) Treasurys back to the market any time soon because the markets are still reasonably fragile," said Mr. O'Neil. "That is why the markets are so confident about auctions -- the government stands ready to back them up."

Given the prospect of slow growth in coming years, Mr. O'Neil said long-term investors need to revise their game plan and should allocate more money to bonds and increase savings overall.

"Now people can't rely on their housing and stock portfolios for saving every year," said Mr. O'Neil. "You have to go back to the old fashioned way -- actually taking money out of paychecks and into banks or mutual funds."

Write to Min Zeng at min.zeng@dowjones.com

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Thu, 09/24/2009 - 17:39 | 78948 bonddude
bonddude's picture

They will start sending money back to shareholders or you pay them to hold it OR whatever mutual fund or brokerage holds it eats the maintenance costs as an accomodation.

Thu, 09/24/2009 - 16:51 | 78876 buzzsaw99
buzzsaw99's picture

Sorry Ben, your FICO is in the toilet and your collateral ain't worth squat. Next stop, the Bank of Sealy.

Thu, 09/24/2009 - 16:56 | 78887 Anonymous
Anonymous's picture

Actually, this is brilliant - he's gonna stick the MMFs with those MBS so when they meltdown it will be Them (not the Fed) that needs a far more politically palatable bailout. Grandmas and working families need your help. Obviously the MMFs will also need additional regulation after that so it never happens again.

Thu, 09/24/2009 - 19:23 | 79044 cougar_w
cougar_w's picture

[need additional regulation] Haha.

FED: "OK Mr. MMF. I'm going to hand you this sack of busted hammers and you are going to give me all the money in your wallet."

MMF: "But... that would be madness! My wife will kill me!"

FED: "That's right. In addition, by accepting the deal you demonstrate that you are insane. We'll send around a physician to examine you, pronounce you unfit to wipe your own ass, and throw you in a mental ward."

MMF: "But that's not fair! I'll be divorced and ruined!"

FED: "But I really need the money in your wallet. Be happy you are getting a sack of busted hammers. It's better than the alternative, which is nothing."

MMF: "What the... no it isn't!"

FED: "But if I simply take the money and keep the sack of busted hammers, then that's theft and I get in trouble. Plus I still have the sack of busted hammers to get rid of."

MMF: "Well that's your problem, on both counts. So why don't you... hey! You just took my wallet! No, keep the hammers! Help me someone I'm being robbed!!"

FED: "I'm glad you see my problem. Thank you for your assistance. Have a nice day."

Thu, 09/24/2009 - 16:58 | 78888 Anonymous
Anonymous's picture

As Reuters explains, this is a plan to drain money from the financial system, not a plan to increase liquidity in the system.

"This would drain liquidity from the financial system, helping to avoid a burst of inflation as the economy recovered"

The money in money market funds is already borrowed to someone. If the Fed borrows money from the money market funds will be competing with other borrowers in this market and will therefore extracting money from the money market and "freezing" that cash in the FED's balance.

As Reuters explains, this is a possible exit strategy from the measures of liquidity, not a new measure of liquidity providing.

Thu, 09/24/2009 - 17:09 | 78901 buzzsaw99
buzzsaw99's picture

I suppose draining the borrowed reserves away from the banks would make too much sense to anyone who isn't a maggot bankster?

Thu, 09/24/2009 - 17:12 | 78907 Anonymous
Anonymous's picture

just put my money market funds into Aussie dollars. sorry ben. moving my kids' college money into same tomorrow morning. no way you screw my kid out of a college education.....yes, i'm a peasant, but.......i think my kid deserves a chance.

Thu, 09/24/2009 - 17:23 | 78926 buzzsaw99
buzzsaw99's picture

+1000

Thu, 09/24/2009 - 17:26 | 78931 NumisEX
NumisEX's picture

want out of your MM fund and don't know where to go? Buy /GC and /SI unleveraged and take delivery!

Thu, 09/24/2009 - 17:34 | 78943 surfer
surfer's picture

Guys I read every day and I the known knowns are exposed in a truly valuable  way. However as I said to my seniors be careful what you wish for!!

 

I think the expression you cant handle the truth , more appropritely should be, WE cant stomach the truth and thats not just the heirachy, Joe Public has enjoyed the game too.

 

And please dont forget that the desperados will do anything to avoid the end game dollar strength before dollar collapse, the rest of the world cannot afford.

 

We should hope for a muddle through over the next 10+ years, the alternative is worthn punting on.

 

Just me thoughts...

Thu, 09/24/2009 - 18:37 | 79009 Anonymous
Anonymous's picture

I just bought a case of 45ACP's.......I'm ready

Thu, 09/24/2009 - 18:39 | 79012 Hondo
Hondo's picture

I just bought another case of 45 ACP's....I'm ready

Thu, 09/24/2009 - 19:26 | 79047 cougar_w
cougar_w's picture

They'll be worth their wiegh in gold some day. Literally.

Thu, 09/24/2009 - 18:57 | 79029 Anonymous
Anonymous's picture

BB should visit a new car dealers back lot.

Thu, 09/24/2009 - 20:54 | 79103 cocoablini
cocoablini's picture

This is basically the Gold Confiscation Act of the 30's-except they are Confiscating savings and giving you toxic assets that are NOT guaranteed by the Fed necessarily. They are trying to schuck agency and MBS' onto the MM and when the MM gets a drawdown they get to declare "lock out" period. This is what I was waiting for-what the FED and PPT had in mind for Droptober. Lock up the cash, no shorts, no access and we are fucking stuck with a MM that cannot have a drawdown nor can it meet it's obligations. And since they are SIPC insured, that means whatever shithole insurer will go bust after one MM asks for it's cash to pay the run on it.
SIPC is a scam-it's industry-backed for like one broker tanking it
Best bet: you are guaranteed your stock certificates so get into equities that you think could do OK. Like gold miners. They may dump, but in a deflation they will do better than most
Better: Get physical gold-not easy now.
Treasury-backed mutual funds are now offlimits unless you are in already.
This really means the US is in deep poo

Thu, 09/24/2009 - 21:21 | 79120 Gilgamesh
Gilgamesh's picture

Just a cautionary note to anyone - MMFunds are only SIPC insured if the entire brokerage holding your investment account goes bust and/or someone takes off with your assets (i.e. they are "missing").  SIPC doesn't do a thing if a Money Market fails/breaks the buck.

 

You're on a good track with the 'bets.'  Put hedging with it (vs market) isn't a bad idea in this environment, for sure.

Fri, 09/25/2009 - 00:58 | 79242 texpat
texpat's picture

What about FDIC-backed sweep accounts?

 

Fri, 09/25/2009 - 09:24 | 79388 Gilgamesh
Gilgamesh's picture

Those are fine (managed by a bank that pays for the FDIC backing).  But these are being slowly terminated, by request of you know who.  Don't be surprised to soon find out you no longer have that FDIC insured sweep option.

Thu, 09/24/2009 - 21:32 | 79128 wackyquacker
wackyquacker's picture

Duh. Only one way out of this mess- pay up. Simple as that. Think you can shepherd PM's across borders and still not have it confiscated? This one's coming bigger than Butch.

Thu, 09/24/2009 - 22:20 | 79150 Anonymous
Anonymous's picture

Your money market funds will be AUTOMATICALLY going into Ben's playpen through the daily sweeping process:

Ben isn't stupid. He is taking advantage of risk aversion on the part of many investors to involuntarily make them participants in his shell game:

http://debtsofanation.blogspot.com/2009/09/debts-of-spenders-fed-plans-t...

Thu, 09/24/2009 - 23:18 | 79177 Hephasteus
Hephasteus's picture

Get to mattress cash and gold/silver. He's going to shove Money Markets into the stock market and crash it. It's not enough to break the buck this time. It has to be crushed.

Thu, 09/24/2009 - 23:52 | 79201 ShankyS
ShankyS's picture

Brilliant! Why not, they freaking guarantee everything else and if it fails, they are not on the hook for anything. Time for us to step up to the plate with our funds! Wait a minute, we already did that. Hey Ben, FO, and keep your mitts off of our $$. You are not welcome here anymore.

O - fer on the captcha. It must be late. Need to get the calculator out.

Fri, 09/25/2009 - 00:38 | 79231 cocoablini
cocoablini's picture

shovel your cash into the system and they are not on the hook for backing it up. The MM system will break if no on trusts the MM to hold the cash for investments. It's a great scam-move private savings into the money system and collateral is unbacked assets that the FED has been trying to dump for months

Fri, 09/25/2009 - 01:19 | 79247 Assetman
Assetman's picture

Let's say PIMCO has a money market fund in the $40 billion range.  What would stop PIMCO from refusing to make a reverse repo?

If the Fed forced the issue and required the MM fund to take MBS collateral, what would stop PIMCO from taking them to court?

I am thinking almost every MM fund out there would not want to touch the mortgage related collateral with a 10 foot pole.  I just don't quite understand how the Fed could force the issue on a non-bank MM provider.

Fri, 09/25/2009 - 11:38 | 79579 Anonymous
Anonymous's picture

Why else do you think the Fed is pushing for broad, new enhanced powers under "super/systemic risk regulator"? And Obama is actually seriously considering approval?

Fri, 09/25/2009 - 00:56 | 79237 Anonymous
Anonymous's picture

Spouse has 550 left in her 401K, we may force them to pay that out when we transfer out of benefits position into a job with no benefits soon.

Fri, 09/25/2009 - 00:57 | 79240 Anonymous
Anonymous's picture

This bullshit has got to end.

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