THE WOLF STREET REPORT: What’s Behind the Fed’s Bailout of the Repo Market?

Whose Bets are Getting Bailed Out by the Fed’s Repos & Treasury Bill Purchases?

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  104 comments for “THE WOLF STREET REPORT: What’s Behind the Fed’s Bailout of the Repo Market?

  1. Darius says:

    As a Arbitrage player myself , you are completely on point this is going to be a thermonuclear nightmare with lasting effects for decades ! I have followed and monitored for almost 30 years .

    • Rip Van Winkle says:

      Just do two things.

      1.) BUY JPM
      2.) BUY AGNC

      Well three, paper Freddie&Fannie too :)

      Fiat to infinity, When anybody at JPM or AGNC (Freddie Mac Front – Shadown Bank) goes to jail wake me up. – Rip Van Winkle

  2. Beardawg says:

    As fascinating as it is confusing. Companies with no employees. I will gladly pay you on Tuesday for a hamburger today.

    I suppose if 10,000 mortgages are paying daily at an average of 4.5% and you borrow at 2.5% to buy those mortgages, that’s a helluva spread. Even with a 10% default rate (ala 2008-2011), seems like there’s plenty of cushion.

    • Iamafan says:

      You need to add the costs of servicing the mortgage. That costs lowers the real return significantly.

      • Seen it all before, Bob says:

        Should I feel guilty about getting paper statements when my mortgage is at 3.25% and I pay on time every month?

        There is A LOT of staffing required to service loans from billing to customer service. That’s probably why our loan has been sold off to a couple of different servicing companies in the last 2 years. We are considered deadbeats.

        I am waiting for the good old days like my parents had in the late 70’s and early 80’s when CD’s were at 10% and their mortgage from the 1960’s was at 4.5%. They saw no need to pay off their mortgage.

        I suppose this is what the FED is trying to prevent? Banks having to pay higher CD rates than their average mortgage collection interest rates? I would think this would cause mortgage lenders some heartburn.

        • Seen it all before, Bob says:

          Out of curiosity, I looked up our latest Loan Servicing company that we’ve been dumped to.

          NRZ, paying a 12.67% dividend has taken on collecting our 3.25% mortgage.

          I suppose we will be dumped again shortly. If they can find a sucker.

        • Harrold says:

          If the Fed rates go back to 10% there will be no good times in Whoville.

        • robt says:

          That’s one of the big reasons why the S&L ‘deregulation’ crisis occurred. For them, new mortgage rates were regulated/capped, but deposit rates were not. Plus of course they had to carry all those low rate mortgages from the pre-inflation days.
          Sort of like early power deregulation in California: rates to customers were capped; cost of inputs not.
          The concept deregulation is not well understood by government.

    • CreditTailsRUs says:

      >…seems like there’s plenty of cushion.

      Not if you are 10:1 on said mortgages (these days more like some kind of “HY” securitized trash, not backed by the full faith and credit of the USG et yada [said more eloquently by Wolf]) with collateral (UST’s are the only collateral game in town) that you borrowed from someone else who borrowed from someone else who borrowed it from someone else…

      What we have/continue to see it repo is just a teaser…

    • Cyclops says:

      It walks like a duck and looks like a duck then it must be a QE!

      In 2008, we had the R.E. and soon the stock market crash. Lehman Bro’s. Went under like a flash in the hot frying pan was when the FEDs brought out their big guns! QE, what a filthy name!

      Repos have been used in the past and the big lending banks are supposed to lend to each other banks to fulfill overnight lending needs!

      But that has not happened yet and the FEDs is forced to participate with the Repos growing lending gap,

      What is really happening is that corporate debts and loans are becoming ultra poor quality that banks are loath to provide overnight loans. I read somewhere that 40% of all corporate debts are Baa3 quality or at least hovering one or two levels above junk level bonds!

      What prudent bank will loan to Softbank or vulture funds or unicorns that cash burn billions every year suddenly needed overnight loans to meet short terms bond refunding. Sooner or later the FEDs will be forced to announce the rebirth of Frankenstein’s QE while the stock market is wafting near all time vapor highs!

      Absolutely absurd business with the funny money (the easy and low interest loans). Except it’s much worse than epic 2008 and Dot Com put together!

      • Ig says:

        Not being argumentative, but I thought the repo market just accepted Treasuries and MBS as collateral. So where do corporate bonds fit in the repo market?

      • CreditTailsRUs says:

        Heres the break down of LQD underlying:

        `curl -O ‘’`

        For the ratings of an individual underlying: `curl ‘[CUSIP]’`

        Aaa 51
        Ba1 74
        Baa1 345
        Baa2 371
        Baa3 276
        N/A 28
        A1 210
        A3 320
        A2 281
        Aa1 33
        Aa3 55
        Aa2 64
        bb_junk_count: 74
        b_junk_count: 0
        ig_count: 2006
        almost_junk_count: 992
        ig_count/total: 0.951612903226
        bb_junk_count/total: 0.0351043643264
        b_junk_count/total: 0.0
        junk_count/total: 0.0351043643264
        almost_junk/total: 0.470588235294

        And you have to realize, ratings agencies are laggards…

  3. tommy runner says:

    its feeding

    • Mike says:

      Isn’t it interesting how simple this is while 99% of investors have no clue? It’s an oncoming train derailment. You’ll certainly never hear CNBC highlight it.

  4. TWU says:

    First time commenter – you mention that firms like the one you have discussed has no impact on the “real economy”.

    What is the exposure to pension funds, 401k’s etc to firms like this? We are an inverted pyramid when it comes to retirees vs workers. What happens when tens of millions of Americans lose a big chunk of their retirement savings?

    • RD Blakeslee says:

      … and what happens when your “average American” finally has it made clear to him by unfolding events that he cannot trust money per se?

      • nhz says:

        I also wonder what the average Western citizen will do when they realize that saving no longer exists (in Europe it hasn’t existed since the Euro introduction in 2001).

        Also, our government requires mandatory small print with TV advertisements for lending money: “Warning!! Lending will cost you money!” – hilarious, now that taking out a loan sometimes makes you money. I’m not sure though if this small print is required for mortgages (now that would be scary for the sheeple!). A friend of mine pays 0.2% for his mortgage currently (Euribor + 0.7%), that’s a few hundred bucks a year for a complete house. With inflation at 2.7% and wealth taxes of 1-2% he is making around 4% every year compare to those without a mortgage … and justing from the nonsense that Christine Lagarde was producing in her first interview, it is going to get a lot worse. Throwing EU savers under the bus is for a good cause, we should all be happy that the ECB is stepping up their policy to eliminate all savers and concentrating on jobs ;(

        Lewis Carroll and George Orwell could write a whole new book based on the policies of Fed and ECB and current economic thinking and MSM storytelling.

        • Bobber says:

          Lagarde says people should be happy they have a job, even though they receive no return on savings. She is attempting to shirk her duties and set up a false choice. People need jobs AND a decent return on savings. It’s not a choice of one or the other. The free market would provide both, if Largarde would keep her slimy fingers off the wheel.

          This is the first time in history I’ve heard anybody say with a straight face that a return on savings is not necessary. I guess she has so much capital in her personal bank account, she doesn’t understand why normal people need a decent return to grow a nest egg.

        • Lisa_Hooker says:

          Sent this missive to her Highness at the IMF:

          1) If I have a job and savings and I lose my job I have savings.

          2) If I have a job and no savings and I lose my job I am screwed. See item #1.

          No amount of money can buy happiness. Enough money can rent it. – LH

        • RagnarD says:

          U can save / should save in gold… That i, in something that they can’t print away. Paper is not wealth. Currency is simply a way point between things of value.

          But, yeah, such HARD core saving doesn’t do anything for retirees who need income now to survive, and thus not be eating their seed corn.

          But for younger folks, who can forgo the interest at the moment, gold will reap huge rewards when this game ends.

        • nhz says:

          Agree that gold is relatively safe, however in my country that too is subject to wealth taxes (even while almost by definition you can’t make money owning gold, only evade central bank inflation). I just found out yesterday that buying gold mutual funds like GDX(J) is no longer possible in Euro area; with a clever trick the banksters have made this impossible. Similar to how just before the 2008 crisis the “physical gold accounts” (officially with the option to withdraw physical gold) that were available in my country ceased to exist and are now mostly paper gold, similar to the large GLD paper gold fund. Buying physical gold in larger qty was made very difficult ten years ago too. Can’t be long before they are targeting foreign gold bullion services so the only option left is paper gold, which they can manipulate or terminate at will :(

          While I agree that Gold should do relatively well when the game ends, I’m sure that they will change the rules of the game before then. So it remains to be seen if gold works to escape a future stocks/bonds/RE crash.

        • RagnarD says:


          Well, I have actually buried some of the good stuff outside of the USA. And I plan to bury some inside the USA too.
          I think what the authorities want to do with gold is irrelevant.

          I think their targeting it as you describe – when it has barely moved in price, compared to what we/I believe it will potentially do, tells you that they believe it will / can do the same.

          It’s differently a trickly complicated game. And there are a lot of ways to play it. Certainly the world as we know it is not well designed to allow people to easily possess / move / control physical gold.

          But I see owning physical as so contratrian as to be irresistible.

  5. JZ says:

    Come on, Wolf, just say it!
    After the video, the only conclusion one can draw is pretty simple.
    The banks are “deposit funding, capital (long term bonds, loans, mortgages) market lending”.
    The shadow banksnlike AGNC and NLY are “repo market funding, and mortgages lending”.
    So, both the banks and the shadow banks lend mortgages, which means they are competitors. But banks control the repo which is the life line of the shadow banks.

    Isn’t this simply the banks let the shadow banks get big and then suddenly the banks want to smoke the shadow banks by cutting their funding source? And then, the shadow banks have to vomit out all of those papers and the banks can buy the “distressed” at 10 cents on the dollar?

    • Wolf Richter says:


      The company I mentioned, AGNC, is not a shadow bank. It doesn’t issue mortgages and does not lend money for home purchases. It buys MBS (which are bonds) and funds those purchases in the repo market. That’s all it does. A bond fund that buys MBS is not a shadow bank either.

      • JZ says:

        Repo market funding and MAKING loans/mortgages is a shadow bank. Repo market funding and BUY mortgagors is NOT a shadow bank? Fine.
        Wells Fargo, Chase and BOA etc do deposit funding and making/buying mortgages. Wouldn’t these Fargos/Chase/BOA want to sell MBS papers to AGNC at high prices, then freeze the Repo, let AGNC die and then absorb back AGNC’s paper?
        To solve a murder case ( may not be appropriate here, but just a thought), one should look for who benefits from the murder (repo freeze), right?
        If AGNC is the one getting popped, then who benefit once AGNC is popped? My guess it is the Fargo/Chase/BOA.

        This feels like the dogs (everyone in wall street) are saying, “FED or the regulators, if you do NOT feed us, we will start to eat each other alive”. So the FED starts to feed them and the regulators start to deregulate.

        Just my feelings.

        • CreditTailsRUs says:

          I’m not sure that Fargo/Chase/BOA benefit though, since these are the folks that originate loans that they securitize and sell off, if players that buy them start to go -1/0, and said loans go bad, they’re holding whats left of the bag.

          On top of this, since these folks are primary dealers, they have to buy government debt at auction as well as on the secondary market now since there is less demand for treasuries as collateral as these leveraged money market spreaders go bad.

          You can see this in spreads (I posted this chart on here many months ago when i said wait for the 3ms30s spread to go negative [sometime mid august 2019] then you’ll start seeing the fireworks [now were at 74bps in about 2.5 months):

          CURRENT USTs (bps): 2019-11-04T00:00:00 Yields Inverted: 2 __ 20s30s spread: 17.0 __10s30s spread: 48.0 __ 2s30s spread: 67.0 __ 3ms30s spread: 74.0

          Now time to watch the trash spreads:

        • CreditTailsRUs says:

          Heres the old one i posted 5 months ago

        • JZ says:

          I would think when AGNC can NOT fund themselves in repo, this is NOT MBS go bad as loans in MBS go bad due to mortgages borrowers default. This is simply AGNC can NOT borrow till next week to pay back what they have borrowed in previous week in the repo. In this case the MBS will be the collateral that now belongs to the repo market lender. If they lose repo money but get MBS collateral in stead, I think they will be under pressure to sell MBS at lower prices due to either regulation or gain back cash they have lost to AGNC. In this entire process, Fargo/BOA/Chase just watch, right? of course, this assumes the repo lender to AGNC is NOT Fargo/BOA/Chase themselves since they want to smoke AGNC or who ever lives off the repo market funding.

        • CreditTailsRUs says:


          >…of course, this assumes the repo lender to AGNC is NOT Fargo/BOA/Chase

          Yeah, you cant assume this. You’d be better off assuming that the any treasuries bank-dealers lean’t out have been bought back by them n number of times (aka rehypothication).

      • jb says:

        just had a side thought, aren’t these companies particularly sensitive to yield curve inversion ?

        • Wolf Richter says:


          Yes, and they engage in derivatives to hedge against interest rate risks and other risks. And these derivative bets can go wrong.

          I didn’t mention this in the podcast because it’s a different topic, but AGNC has disclosed $4.6 billion in losses on its derivative positions for the past four quarters through Sep 30, with losses in every single quarter. This has contributed to a net loss of about $1 billion for the company over those four quarters.

        • cesqy says:

          I pulled up an analysis of AGNC and peers on the net.

    • Rip Van Winkle says:

      I think you missed it. AGNC ( American Capital Agency Corp. – GSE/Freddie-Mac ), doesn’t have employees, and its not a shadow bank.

      War is Peace
      Freedom is Slavery

      Slaves are NOT employees
      Secret Funding Operations and ‘float’ are NOT shadow banking :)

  6. Ole C G Olesen says:

    Thanks for the Explanation! You should have commented on one additional part of the Speculation: What is the real Profit of these speculative Trades? Ie multiplied the calculated interest rate differential by the degree of leverage to arrive at an estimate of the profitability when the trades are “successful “… What are we talking about? ….. 3 % … 4 % … or what? Not exact figures ..but an informed estimate …

  7. Iamafan says:

    The real reason for this crazy endeavor is government debt monetization. The Treasury gets to borrow cheap because interest rates are lower. The Fed and the shadow money system are really joined in the hip in the repo market. Government securities are reused as collateral a number of times to conjure money out of thin air. No meaningful explanation required to Americans. Not even the number of parties that participate in the Fed repo.
    Just a technical adjustment.

  8. Whatsthepoint says:

    So what happens when/if the Fed stops covering their asses? Any chance of that really? Would the blowout really be that bad if, as you say, these players have little effect on the ‘real’ economy?

    • Iamafan says:

      Strangely enough the many parts of the repo market were not reformed after the 2008 crisis affected that very market. Only settlement and netting in the triparty by the settlement bank(s) was addressed but not the main GCF Govt securities.

  9. Jeff Relf says:

    The government still owns Fannie Mae and Freddie Mac;
    they couldn’t survive were repo rates to get too high.
    Like the Fed says, low short-term rates are “natural”.

    The government is a monopoly, they cheat;
    no one else stands a chance.

    Meanwhile, the inner-city poor can’t afford rent,
    and are forced to live on the street, like dogs.
    Who’s going to clean the rich man’s toilets ?

  10. panatomic-x says:

    thanks wolf. quite the education on this blog. the one thing that really surprised me was the reverse repos. why would a real estate hedge fund be buying reverse repos? you said to cover their treasury shorts. why are they shorting the treasury market?

  11. AlamedaRenter says:

    Apparently The Fed and Treasury need to set up a spam filter.

  12. cesqy says:

    Hmm what a concept….a business with no employees. What’s the next capital leap–a venture charter school with no students or teachers that can make a profit buying textbooks and curriculum using educational loans and grants. We know they’ll never go bankrupt since all they have on their books are student loans.

    • nhz says:

      Too late, has already been done in Netherlands 20 years ago. Enlist loads of fake foreign students who never turn up while you get a lot of money from the government for every student. Of course, after some years someone finds out that so many people on this school are never graduating and then the principals get a slap on the wrist, plus the school is required to pay back all the money they stole. And next year everyone forgets, and the people who organized it all get even better jobs in the highest ranks of politics. I guess it’s even better today if you let the fake foreign students take out huge student loans at the current 0.4% student interest rate (didn’t exist over here 20 years ago) for even more expensive curricula. Netherlands already knows that most foreign students never pay back their student loans, so who cares ;(

      • panatomic-x says:

        happened in nyc, too. off topic but this is the story. i went to the community college in my neighborhood to sign my kid up for their free pre-school that is paid for with tax dollars. there was no sign of kids anywhere. they told me that their program wasn’t open to the public. when i insisted that they let me talk to the director, they threatened to have security throw me out. i filed a complaint with the city but 10 yrs later, they are still pulling the same scam. their website doesn’t even mention thar they are part of the citywide universal pre-k program.

        • nhz says:

          not surprising, many participants make money on these scams and it’s just taxpayer money, so who cares … certainly not the politicians who invent these programs to enable this kind of fraud.

          Over here the initial scam no longer exist, but I don’t doubt they have other ones running, e.g. involving school real estate.

    • Non-Disclosure says:

      Not sure why my post hasn’t been approved yet, but here is a link you should read. Feel free to research further for more info!

    • Beardawg says:

      Yup….that’s pretty much what I was saying (2nd comment from the top).

      Just usin’ cheap borrowed money of which there is a never-ending supply, to buy MBS which payout at 2X the rate you borrowed to buy it.

      Damn….if there ever was a no lose situation….this sure seems like it.

  13. Michael Engel says:

    SPX daily close : 12/24/18 to 8/5/19 ==> bull eye.

  14. jb says:

    great recap on this mystery . I like the podcast type articles . gives my eyes a break . thanks

  15. Curious George says:

    So this shell game continues as long as the Fed steps up to the plate? What other events, if any, could cause this to blow up?

  16. Just Some Random Guy says:

    Repo Man was a great, under rated movie.

  17. Just Some Random Guy says:

    Stocks hit another high this morning. But still it’s all doom and gloom all the time in the comments section.

    Comments here would be like talking about every interception Brady has ever thrown, without ever mentioning the super bowl wins, or any of the records he’s set.

  18. joe says:

    OK Wolf, I donated. Your kind of unbiased clear to understand descriptions of the shenanigans in the leach financial “industry” are interesting, informative, hard to find, and trust-able.
    Still hard to figure the timing.
    As an aside, I’ve been to, and like, Japan and the East.

  19. Memento mori says:

    I think this is a technicality, this was the most coherent explanation I could find for the repo madness,
    I think one of the Dodd-Frank hidden rules was to allow the Fed to precisely do this, without need to go to Congress like during last recession. So now that the Fed has free hand to buy whatever they deem worthy and Congress is bypassed, we will never know who is getting the money and it’s probable that the Fed will stop completely publishing the figures in the future.
    Who wants to see bankers again going to Congress begging for money, that was too humiliating last time and we don’t want people doing God’s work go through that again.

    • NBay says:

      In the REAL movies they would have all broken down crying before they were shot by the good guys. It was a lousy low budget flick.

    • Andrea King says:

      NEVER mention the words “Bankster” or “Congress” in the same sentence as GOD!
      (What planet are you on) ?

    • morticia says:

      Over at ZH, they’re saying JPM is the most exposed REPO player, funny that name isn’t mentioned here, just this AGNC a low-level example, but interesting.

      In 2007 its was JPM that caused the depression, looks like this time also, given that Wolf is retired, why is he so afraid to name names? So many caveats when he mentioned AGNC, what’s the fear?

      Given that AGNC for example goes un-named, what if just IF, this was all created by our GOV, and it was CIA or some other agency running AGNC, just getting free money, knowing that it could not blow-up.

      Lastly, this time will they bail out JPM, or let it die?

      The commenter here is right-on, last time (2007) all was public, here we are in 2-3 months after initial blow-up of REPO, and NOW we still don’t know, and are just speculating, all is a secret now, all is national security.

      FED just covers all bet’s to infinity, and never has to worry about blow-back, and neither does congress.

      Digging deeper it would be interesting to know if I could startup an AGNC like company in my dogs name it and let it trade? Can my dog get these most excellent REPO RATES? Can my dog buy trillions of dollars of RE-MTG paper?

      Back in the day we would do an DBA on AGNC, find out who owns, go back and run that name on all companys, find out how many shells this person has, run back and find out his/her work history, and who he/she is working for, now its like all due diligence has evaporated, and we just speculate to infinity, like this “No Employees”, yep but there are owners. But they are un-mentionables.

  20. “When the New York Fed provides liquidity to the primary dealers, that cash does not necessarily “trickle down” to the rest of the money markets. Indeed, a good bit of it goes offshore seeking to maximize yield.” The one consistent concern at Fed is the global economy. Interim rate cut based on trade wars. Fed may be trying to keep the source of dollar funding overseas moving. The alternate explanation is they are just trying to monetize debt, (by running Repo and RRPO, they hand out the bonds and THEN monetize them) USG liabilities increase and revenue is flatter than a tax cut. Repo broke when the side accepting the collateral no longer trusted MTM value. And lenders taking bonds for cash did not want to get stuck with those bonds when the trade busted, and they do. That has the effect of draining cash from the system. Very dangerous business which is why Fed has to supply a surfeit of (your) cash to make it work.

    • joe says:

      “cash” flowing around within the confines of the Masters of the Universe scorecard system does not concern me. What do you think will happen in the real world and when?

      • Treasury market implodes. Lack of fiscal spending accelerates the problem. Money flows are waning, and should not be happening which indicates trouble monetizing bonds into cash, which is the Repo problem in microcosm.

        • cesqy says:

          So when the bond market collapses Ambrose, what do you think happens in US: a or b ?
          a. Inflationary recession – More fed money chasing same goods and services and probably the value of the dollar goes down.
          b. Deflationary recession- Less fed money chasing same goods and services and the value of the dollar goes up.

          I think normal recessions last about 18 months and right now it seems to me that China, Japan, and Germany have excess goods and services to trade. Also, the FED seems to have unlimited dollars and the Treasury no limit to issuing bills, notes, and bonds until Minsky shows up.

        • A & B all over again. Decades perhaps of extreme volatility. The off market systems blow up, and there is no regulated system which can handle the volume. Doug Noland’s recent article, “What is happening in the Cayman Islands?” It all started in the 90’s when the stock market went off paper, if anyone remembers that? Each time they add a new layer, replacing MM with electronic trading, and later algos, for instance, everyone consternates about liquidity, and they move on. The tech revolution in stock trading is an incredible story, and certain to collapse at some point. We are just moving way too fast without any plan.

      • Wisoot says:

        Joe you ask what will happen and when?
        I predict The African Union – all 54 countries – turn to EU and say nope not anymore – turn to USA and say we will create our own money asante sana – turn to China and say we will buy the development we need with the money we have created as directed by us thank you – turn to the world and say since certain institutions create money out of thin air as of this day we cancel all debt owed by each African country and from this day forward each country of the world will do the same and this will allow us to save our elephants, the last few wild tigers, lions and gorillas – because mumma AFrica takes care of them that live in her bossom – and now it is time to stop creating plastic and throwing it into our seas – and yes that means every isalnd in hurricane path to return to using sustainble materials – time to stop churning up toxic air with polluting activity – you need to reseed your continents as Godafi was trying to do in Libya – Libya’s Qaddafi taps ‘fossil water’ to irrigate desert farms – so we can all enjoy our collective planetary oxygen levels back to the pre- 1900 levels so we have a planet to give to our childrens children. And a new economic system will be formed based upon resource rich countries and service countries and the FED will slowly become a distant voice in the background falling on top of the flattened EU post Brexit.

  21. Iamafan says:

    Dear Wolf,

    Thanks for covering some of the larger mREITs and how they had influenced the Fed repo.
    Can you kindly do the same for Taiwan and the extent of its investment in MBS as well as the repo market.

    • Memento mori says:

      Have you bought the beer mug? For each mug you get, I am sure Wolf will be happy to cover one particular subject, otherwise be happy with the free stuff Wolf kindly puts here for everyone.

    • Old-school says:

      Read a good book 20 years ago ‘Get Rich Slowly’ or something like that. Said buy 5 asset classes Large cap stocks, small cap stocks, int stocks, int. Treasuries and Reits but never buy a mortgage Reit.

  22. timbers says:

    It’s comforting to know the Fed is moving mountains to put free money into the hands of any and all who find ways to “invest” it – in the name of “liquidity.”

    And the best part is, it’s not even QE.

    Mean while as the Fed continues to flood the world with a tidal wave of funding for “investors” I’m reading a growing a number of articles how these “investors” are using this free equity to find ways to cheat us out of our healthcare benefits through surprise out-of-network billings.

    And since spiraling healthcare cost in face of declining life expectancies and outcomes of course = increased GPD growth, it’s all a “Win Win Win.”

  23. DR DOOM says:

    If your enterprise is in the Fed club you will continue your skim (arbitrage) which adds no economic value but does pressure interest rates lower and lower to maintain the skim. If your enterprise is outside the Fed club you will be cannibalized ,eaten by the Fed club. The remaining liability will be passed on to the economy . The Fed believes it will be allowed to be the last man standing whilst waist deep in economic carnage. My bet is a bounty will placed on their heads along with their Congressional enablers . The Fed is the spawn of Congress . The sheriff of the Posse must be the president. We the people are the mob.

  24. Bet says:

    The Canary has just vomited. Been following CACC for a long time, it has now dropped from 500 to 397. They are subprime auto, the supposedly “safe”one

    Credit Acceptance Corporation provides financing programs, and related products and services to independent and franchised automobile dealers in the United States. The company advances money to dealers in exchange for the right to service the underlying consumer loans; and buys the consumer loans from the dealers and keeps various amounts collected from the consumers. It is also involved in the business of reinsuring coverage under vehicle service contracts sold to consumers by dealers on vehicles financed by the company. The company was founded in 1972 and is headquartered in Southfield, Michigan.

  25. NARmageddon says:

    Readers may find the Wikipedia article on shadow banking interesting. There is certainly no general agreement on who or what is a shadow bank.

    The shadow banking system is a term for the collection of non-bank financial intermediaries that provide services similar to traditional commercial banks but outside normal banking regulations.[1] The phrase “shadow banking” contains the pejorative connotation of back alley loan sharks. Many in the financial services industry find this phrase offensive and prefer the euphemism “market-based finance”.[2]

    This definition was first put forward by PIMCO (Pacific Investment Management Company) executive director Paul McCulley at FED (Federal Reserve System) annual meeting in 2007.

    Former US Federal Reserve Chair Ben Bernanke provided the following definition in November 2013:

    “Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions — but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper [ABCP] conduits, money market funds, markets for repurchase agreements, investment banks, and mortgage companies”[3]

    • Richard Groseclose says:

      When I try to sign up for your email, I am told “Opps, something happened. Try again later”. So far, after 6 hours, it is still not working.

      • Wolf Richter says:


        Sorry for the troubles. I checked. On Oct 21, you unsubscribed, perhaps accidentally or because you went on vacation and didn’t want the emails to pile up. This creates a problem when you want to re-subscribe. The third-party email system I use is set up to prevent email spam and unwanted emails. So once you unsubscribe with that email, the system will not let you re-subscribe. Even I cannot re-subscribe you with this email. This happens occasionally. The only solution we have come up with is to sign up with a different email. That works.

  26. Unamused says:

    Ten years on and they’re still trying to make up the losses incurred by the onset of the Great Recession. Those must’ve been truly volumnious. At this rate they won’t be anywhere near to finishing up the mess in time for the next implosion, and it’s bound to be a real doozy.

    The whole shebang would be more stable, less risky, and perhaps even survivable for a bit longer if it were properly regulated, instead of operating as a gladitorial school for wannabe financial overlords, for which there are no available positions anyway. No engineer would deliberately design a system guaranteed to self-destruct, seemingly unpredictably, but financiers pursue esthetic depravity as a matter of personal style.

    Speaking of gladitorial enterprises, NFL football, btw, is not actually a sport but is legally a ‘staged presentation’, like Hamlet but with fewer Danes and updated armour, with outcomes frequently manipulated so as to maximize industry revenues, just going by the court records.

    • cesqy says:

      Smiling into my early afternoon beer mug, as I place tomorrows bets on “unamused’s” trifecta of economics, politics, and sports.

  27. Iamafan says:

    I think we aren’t seeing the forest for the trees.

    JPM itself published this:

    In their primer on SPONSORED Repo, they said:
    “We believe sponsored repo cannibalizes less efficient forms of repo, ultimately freeing up capital and creating more capacity for banks to provide liquidity to the fixed-income markets”.

    In sponsored repo, Fixed Income Clearing Corporation’s (FICC) intermediates both sides of the trade, thereby allowing dealers to net the transactions off against each other. This means the amount of capital banks have to hold is greatly decreased, allowing dealers to provide more balance sheet to clients or deploy capital towards other operations.

    But this netting benefit comes at a cost. Dealers have to provide a guarantee to FICC with respect to all obligations of its sponsored members and post additional capital into FICC’s clearing fund. They may also have to post additional liquidity at FICC’s Capped Contingent Liquidity Facility, which is a liquidity buffer that each netting member needs to maintain institutionally to support a potential liquidity crisis of the clearinghouse.

    In sum: sponsored repo is largely a form of repo substitution, with dealers moving away from balance sheet intensive repo trades to something that’s efficient, allowing the capital gained in the process to be redeployed towards other uses.

    Sponsored repo gives Money Market Funds (MMFs) the ability to access collateral on days when it may not be otherwise available, such as during quarter-end when banks restrict balance sheet use. For hedge funds, who lend collateral versus cash, its benefit is mostly in financing availability.

    But the upside is limited, with FICC capping how much non-bank members can engage in sponsored repo to account for the somewhat riskier nature of these members relative to “well-capitalized” Bank Netting Members such as U.S. G-SIBs.

    Well said JPM.

    Meanwhile at the DTCC Sponsored Members page:

    GSD Sponsored Service Monthly Trading Volume
    9/2019 Monthly Peak $399,508,130,138 or about $400 billion.

    From the NY Fed:

    Liquidity needs created by activity in the Sponsoring Member Omnibus Account will be considered when calculating the Sponsoring Member’s Capped Contingent Liquidity Facility (CCLF) requirement.

    Currently, Sponsoring Member eligibility is limited to GSD Bank Netting Members that are (i) “well-capitalized” (as defined by applicable regulations) and (ii) have at least $5 billion in equity capital.

    FICC proposes to create a second category of entities eligible to become Sponsoring Members in addition to Bank Netting Members that are “well-capitalized” (as defined by applicable regulations) and have at least $5 billion in equity capital (hereinafter, “Category 1 Sponsoring Members”). The second category of entities eligible to become Sponsoring Members would include all other GSD Netting Members except for Inter-Dealer Broker Netting Members (hereinafter “Category 2 Sponsoring Members”).

    OK. If Bank Netting Members and their sponsored members are supposed to be WELL CAPITALIZED, then who was needing more liquidity over and above their FICC CLEARING FUND???

    I think all they have to do is find out each member’s balance in the Capped Contingent Liquidity Facility (CCLF) and determine who lacks liquidity.

    • Iamafan says:

      The CCLF might be a safety fund just in case a member goes awry. But these dealers have to have a clearing balance at BNY Mellon. So that can be checked instead if the CCLF is untouched.

    • NARmageddon says:

      Good background info, @Iamafan. Too bad it took so long to get past moderation, almost 17hours passed until I saw it. Not all of that delay due to moderation I’m sure.

      @Wolf, I wonder if there is any way that moderation could be a little more automated and somewhat adaptive (learning from previous/recent approvals). With your obviously intensive workload of research and writing, it might also be helpful for you not to have to do so much moderation manually.

      I did a search on “automatic comment moderation”. It does seem to exist, but maybe not for Jetpack(?). Maybe some of your readers have expertise in and suggestions in this area?

      • Wolf Richter says:


        Two things:

        1. “…almost 17 hours passed until I saw it.” The reason it took you 17 hours to see is because you didn’t look for it yesterday or because you missed it. Iamafan’s comment was released yesterday late afternoon (time-stamp is on Eastern Time).

        2. “….I wonder if there is any way that moderation could be a little more automated and somewhat adaptive (learning from previous/recent approvals…” Ha, that’s the problem. Iamafan and others here are currently caught up in an algo problem that I don’t understand. His and some other commenters’ comments are automatically routed to moderation by my AI-driven anti-spam system. I have no idea why. These problems have cropped up before, but in small numbers. Now there are a lot of them. Something changed, and I don’t know what. It will eventually go back to normal, as it has in the past. AI can be a nasty thing once it starts working again you :-]

        Since this issue cropped up like this, I check every hour or two to get these comments moving — unless I’m sleeping, swimming, or otherwise unavailable. So I’m asking everyone for patience while this is going on.

        • NARmageddon says:

          Ah, too bad with the AI. My experience is that anything I post with a link gets moderated. Sometimes even posts without a link. Something like Iamafan posted with 3 links probably gets moderated no matter your “AI/social credit” status(?).

          Small PS: Displayed timestamp reflects posting time not unmoderation time, AFAICT.

        • Wolf Richter says:

          Yes, three links will do that for sure.

          Comment spam is a real issue. The first day I opened the comments on my new site in 2014 (which you’re looking at now), I didn’t have an anti-spam system in place. Then when I got up the next morning, I had about 300 spam comments on it, published, and for all the world to see. That’s when I got smart. But nothing on the internet is easy and clear-cut.

          I can still get over 100 spam comments on a bad day, but none of them will see the light of the day.

    • NARmageddon says:

      >>I think all they have to do is find out each member’s balance in the Capped Contingent Liquidity Facility (CCLF) and determine who lacks liquidity.

      I think that information is a very closely guarded secret, just as secret as the individual bank reserve balances at the Fed.

      Related: Note also that the FIXX GCF tri-party repo service is double blind. That means parties do not know who their counterparties are, exactly because borrowers want to maintain their anonymity.

      Search/reference: (no link to avoid moderation)
      Federal Reserve Bank of New York Staff Reports
      A Primer on the GCF Repo® Service

  28. NARmageddon says:

    This just out, JPM is again being blamed for the repo crisis, but with some more and different details.

    I think there are some holes in the explanation, but can;t quite out my finger on it yet.

    • morticia says:

      Well according to Dalios book “2007 Credit Crisis”, the REPO was the cause, and JPM was the catalyst, so its fairly certain to say “DEJA-VU”

      Didn’t fix the problem the first time, so it comes back,

      Note also they’re saying this is not real, funny isn’t that what they always say? It ain’t real until there is an official denial.

  29. Jason says:

    Very good Wolf, thanks.

  30. Maximus Minimus says:

    Is there a difference between the general repo market where these players play, and the overnight repo market by which the FED maintains the target rate?

  31. Iamafan says:

    Good question.

    The Fed repo (the desk) settles in the Tri-party repo. The FICC GCF repos (both Treasury and Mortgage security divisions) between mostly dealers and now their sponsored members also settle in the Tri-party repo. Also the broader class of collateral done with OTHER non-dealers also settle in the Tri-party repo.

    The Fed obviously sets its own stop-out rates to lower repo rates directly. But if you look at DTCC FICC GCF repo, the rates are still higher.

  32. QQQBall says:

    Thank you. Very interesting report

  33. Erle says:

    This is the most powerful of your recorded voice messages. I feel strongly enough to toss some more beer money. I will listen again to catch whatever I missed on the first go-around.
    Some jerk in the recent past mouthed something “about a heck of a job”. But I will not compare you to dubya.

  34. Benjamin Bush says:

    If the Fed is attempting to solve a mismatch between short and long rates in a situation such as AGNC (and I am sure all the banks and derivative desks) doesn’t the immense amount of leverage in the system mean they are only putting a finger in the dike? Especially if they are attempting to rollout of their MBS securities which are at the long end of the curve. Additionally is there any statistic as to the amount of equities that are being repoed?

Comments are closed.