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Everything You Wanted To Know About Tri-Party Repo Markets But Were Afraid To Ask
The U.S. tri-party repo market is one of the most important components of the financial system - that noone has ever heard of (though not ZH readers: Tri-party repo has been a core topic of several of our 2009 posts exploring the nuances of the Lehman collapse - initially here and here and then multiple times since as we discuss the backbone of the shadow banking system). The 2007-09 financial crisis exposed weaknesses in the design of the U.S. tri-party repo market that could rapidly elevate and propagate systemic risk. We have long-discussed the importance of the collateral and hypothecation markets and a recent study of the market identifies the collateral allocation and unwind processes as two key mechanics contributing to the market’s fragility. While the topic is relatively specialized, it is critical to understanding the reality behind the curtain and the paper below provides clarification of the bilateral and tri-party repo markets (The Fed, Bank of NY, and JPM - who in effect have first refusal on any collateral in the system), dealers' intervention, and its potential as a source of financial systemic risk.
The US Repo Market:
The $1.8tn Tri-Party Repo market:
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all greek to me but thanks for explaining,a big cluster fudge!
Try this: http://sibileau.com/martin/2012/07/02/
You didn't re-rehypothecate that.
???
perhaps the pertinant question is: why is there such a time delay gap?
answer: precisely to transmit systemic risk globally.
why? to manage currency drains.
You've really gotta love that % concentration of risk in the top 3 dealers in figure 2 - really encouraging for when the shit hits the fan. Dominoes...
That, my friend, was excellent.
God, it's like gambling where you try and cut your risk........but never really get to in this environment.
These people are seeing a massive expansion of risk.
it's hedging the risk on the risk to the Nth and hoping you can time your exit in the green. totally fucked up unregulated ill-conceived fraud precisely because there are TBTF players vs. everyone else and themselves.
when a tri-party hedge is being filled out with 2/3 or even 3/3 of the parties originating from same TBTF institution you get some crazy shit going down.
This is just plain banking mechanics. You notice they avoided touching on the part that can get things really FUBARed; re-hypothecation. That's where Jamie's little minions get to sing and dance.
Functionally it's less hedging and more squeezing the last bps out of yield & leverage- maximizing the bottom line at the expense of unnecessary bottlenecks, concentration risk, counterparty risk, and term mismatch, all of which lead to a false of sense market liquidity, and gives TPTB at TBTF the authority to pick the winners & losers when TSHTF.
The system needs to be carefully dismantled & rebuilt from the ground up.
thanks Confundido, now I can say,A BIG CLUSTERFUCK!
Thanks Confund... this stuff is work!
You Are A Slave To The Government
Blows a kiss. Your future only becomes your desire. No need to help extend your cause, your cause will be understood once you see through propaganda of painting desires.
:>)
What is the collateral?
In my opinion there is no collateral in any of those asset groups.
That depends on what the definition of the word "is" is. At some point in time a liability got relabeled as an asset.
Is Tri-Party Repo a new type of sexual deviancy?
No, but this is a new type of alchohol deviancy...I'll 'tri' a party with them anytime...
http://www.gspirits.com/ NSFW(Not Safe For Wife)
No, it is merely a new twist on an old trick, check kiting, or check kiking, depending on your upbringing.
Kiting checks for securities DVP, versus busting the losing trades, is/was a low risk way for brokers with no capital to make good money...so I have heard. It was illegal before the banks, themselves, got into it big time.
Uh, I'll take two of those to go, bartender.
Make mine a "double!" :>D
is this akin to the tri wizard tournament where the banksters put all their loser betting slips into the bernank's goblet of fire and as a result receive huge bonuses?
You guys know why they call it "tri-party repo''?
ok, I'll bite.... why DO they call it "try-party repo?"
World Bank & IMF. NATO and UN will police this process.
Because 'We're triple ass-fucked with sand-embedded, FIAT wrapped, studded, horse-sized dildos on fire, by Wall Street and the Fed mother-fucking douchenozzles and unscrupulous whores' was taken?
you are correct!!
Lot of good repo-porn here too: http://repowatch.org/
But while we're back on the shadow banking topic today...
I'm still not sure I completely buy/understand the assertion that shadow banking is an inflationary buffer.
I know the short answer is: *unlike traditional banking, SB has no matched deposits* but how can credit expand that much over decades and not result in much more net buying power chasing (about) the same amount of fixed goods/hard assets such as housing and thereby driving prices upward?
Mortgage backed securities, GSEs and other such instruments and entities...aka "shadow banking liabilities" helped facilitate the recent housing bubble as much as anything else.
Yes, I think it has especially shown up in commodities "investing" by newbies who don't have a clue how to trade derivatives.
Just another trifecta race bet. The laughter resides with betters who think they have insiders gaming wedges stacked in their favor. Oops. Hahahahahaha.
The shadow banking system would benefit by taking lessons from a successful pawn shop owner. Think about it; you don't really want the underlying assets so make sure that it's painful when it does happen. And they need to think ahead; I mean how many tubas do you want.
I say the pea is under shell number three. At least I think that's what the banksters want me to believe. These banksters are pretty quick at this...hey, where's my wallet?
Thanks, Tylers. Eventually I will actually understand all this nonsense. But not tonight...
Tomorrow. Is. Soon. Enough.
i.
When the "traditional" risk free rate---the rate that in a dollar world stands behind everything from bank loans to corporate paper to pension return expectations to the entire enormous pool of derivatives---suddenly has credit risk, is any financial asset "correctly" priced?
Given the need for some benchmark in a global economy, or at least the dependence on a benchmark that the world economy has assumed in modern times, is not the combination of Qe-nfant terrible and the Fiscal Cliff the death knell for the dollar?
Is this dollar death not further exacerbated by Twist, which among other things, allows traditional holders of dollar obligations the chance to shorten their duration, and hence dollar exposure, because Bernanke is taking over the long end? Does Twist, in fact, contain within it the end of the dollar as the reserve currency because non-dollar economies are being rid of their exposure as their ever-shortening maturity profile is retired?
What is the current duration of Japanese and Chinese holdings of USTs and Agencies? Does that number represent the bestcase lifespan of the dollar?