A $53 billion crack just emerged in the financial markets...

[pbmus]

A crack just emerged in the financial markets: The NY Fed spends $53 billion to rescue the overnight lending market
By Matt Egan, CNN Business
Updated 2:11 PM EDT, Tue September 17, 2019


New York(CNN Business) Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.

The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets.

It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008.



https://amp.cnn.com/cnn/2019/09/17/business/overnight-lending-rate-spike-ny-fed/index.html?__twitter_impression=true

[Iliyah]

1. Oh shit . . .

I am aware that t-rump is manipulating the stock market and is destroying it at the same time. Bring the stock market down, the USA economy goes down.

[pbmus]

2. We are in some deep shit...

[Midnight Writer]

3. Destroying integrity in our government, in our markets, in our treaties, in our institutions.

And worst of all, destroying our relationships with our fellow citizens.

[pbmus]

4. Bingo..

[SWBTATTReg]

5. Hmmmmm...and largely ignored by most people...$53 billion is a lot of money...

As they say in the article, federal tax receipts are running low, vs. outgoing bills. I anticipate that this will keep happening until perhaps a systematic overhaul reconciling incoming vs. outgoing is undertaken by the Fed.

[KPN]

23. Or the money press will crank up even more.

[czarjak]

6. 2008...

The good ‘ol days!

[DetlefK]

7. This is exactly how it began in 2008:

One day everything was perfectly normal... And then all of a sudden there was talk how we must immediately pump money into the market or else everything will collapse.

No fore-warning. No slide. One day it was this, next day it was that.

[mtngirl47]

14. There were plenty of warning signs in 2008

First we had the fuel prices go up astronomically in 2007---usually a sign of lower demand. Also the sub-prime mortgage crises started in April of 2007 with the bankruptcy of one of the big sub-prime companies (New Century)

Then all credit dried up throughout 2008---no loans for houses, no credit cards, plus banks were lowering credit limits and taking away lines of credit for businesses. Bush even gave a big tax rebate in April of 2008.

I'm trying to prepare my business for the recession....already trying to decide about major purchases or improvement projects....do I really need these things or will they wait in case of a major down turn.

[UpInArms]

15. Greenscum destroyed our financial stability

Dropped interest rates 11 times in 2001 ...

Encouraged home buyers to get variable interest rate loans

Started quantitative easing

Bernanke brought in the printing press

[KPN]

24. I dunno about that. There were lots of warnings ...

and in the last couple months before the dive even some alarm bells.

[DetlefK]

31. Yes, it began in spring 2008, but it still seemed to come out of nowhere.

[KPN]

33. That's probably because for those of us listening,

we thought it was just more of the doomsday stuff some investment service/product profiteers, financial gurus and talking heads always seem to be spouting. The chicken little syndrome — “the sky is falling, the sky is falling.” It also seemed fast because it was fast, once it actually started happening. Look at Lehman Brothers; here today, gone tomorrow.

[riversedge]

26. Seems so LONG ago. I actually do not recall. Thanks

[Joe Nation]

8. GET-OUT-OF-THE-MARKET

RUN! RUN! RUN!

[rurallib]

9. uhh oh

[Pepsidog]

10. Ut Oh !

[Backseat Driver]

11. OP - Please consider an important cross-post in the DU Economy forum category n/t

[leftstreet]

12. This is complete bullshit

this overnight market plays a central role in modern finance. It allows banks to quickly and cheaply borrow money, for short periods of time, often to buy bonds like Treasuries

However, analysts drew a distinction between the current period of stress and what happened during the crisis. Back then, investors were deeply worried about the financial health of banks. Today, banks are hauling in record profits and balance sheets look sturdy.

They're trying to CAUSE a problem

[Shrike47]

21. They who? I am really wondering?

[KPN]

25. Nah, they're trying to keep the markets climbing.This is all about

big money continuing to make big money.

[Amishman]

32. The overnight rate is all about liquidity, not overall financial position

The hypothesis stated in the article is solid, banks being temporarily tight on liquid funds due to quarterly payments and insufficient funds allocated by the Fed to anticipate.

Add in potentially additional draws by trading houses who bet badly on the oil price spike and ebb, as they need to borrow to cover.

For those unfamiliar, liquidity refers to the immediate availability of funds. If I own several nice houses but have only $500 available in my checking account, I am wealthy but have very poor liquidity.

To use a credit card example: the federal reserve is the credit card company and they set the credit limit. They potentially set the credit limit too low, incorrectly anticipating the overall draw. They essentially had to temporarily raise the credit limit. Given that this is a 24 hour intervention, any ongoing liquidity / insolvency problems would persist - which it appears it has not as the draw and market rate has stabilized.

To explain further, overnight borrowing is how banks balance their available cash on a daily basis. If a bank has a surplus from the day's activity they lend to another bank who was down that day. It is very common for a bank to borrow one day and lend the next

[Amimnoch]

13. Yep. All of the signs are there.

Moved my entire 401K from stock plan selections to bonds last month.

[ffr]

16. The last rescue of this kind since 2008? That's strange. The financial markets were in freefall

during that period, thanks to conservatives and their deregulation meme.

[unblock]

17. oh come on. this is very temporary, very technical problem, readily fixed.

if it happened while in the middle of something else going majorly wrong, i'd sit up and take notice.

but no, this will be fixed and forgotten by the end of the week.

[MarcA]

18. Who Determines the Overnight Borrowing Rates?

Is this not like other rates controlled by the Fed?

[CarlitosMMT]

19. Fed funds rate

The Fed sets the overnight interest in the banking system. It does so by defending the rate ie buying/selling as is needed.
It does not explicitly set other rates but does implicitly target rates of longer duration.
There is no crisis here.
They just haven’t had to do this since the financial crisis because they loaded the system with excess reserves. The problem then was rates going lower than their set target rate.
This used to be a normal thing. Reserves vibrated in the banking system - bouncing around in the system minute by minute b/n banks.

[MarcA]

20. Thank you for explaining this. n/t

[uponit7771]

22. Is this a technical fix ?

[riversedge]

27. Fed announces plans to carry out repo operation for second straight day

There will be another one tonight.





Fed announces plans to carry out repo operation for second straight day

Published: Sept 17, 2019 4:52 p.m. ET






https://www.marketwatch.com/story/fed-announces-plans-to-carry-out-repo-operation-for-second-straight-day-2019-09-17-16915031?mod=us-markets


Oh

The New York Federal Reserve announced it would carry out its second overnight repurchasing operation of the week on Wednesday, after it conducted $53 billion of repos on Tuesday morning. The central bank pledged to carry out up to $75 billion of repos on Wednesday. As part of the repurchasing operations, the central bank temporarily buys Treasurys and other highly rated debt from dealers in order to inject liquidity into the system. The decision comes in the wake of a recent spike in repurchasing rates, a short-term borrowing rate utilized by hedge funds and banks. That has, in turn, pushed the fed funds rate to the top of its target range, raising concerns the U.S. central bank is losing control of its benchmark interest rate.

[Wellstone ruled]

30. 123 billion,oh boy,this is scary.

European and China Markets ought to be real interesting tonight. No wonder the Saudi Oil thing went quite.

[Lady Freedom Returns]

28. I'm already financially messed up.

Have fun guys.

[empedocles]

29. Thank you

[Delphinus]

34. I listened to

Professor Richard Wolfe on this - he seems quite concerned.

Edit to add link to YouTube video: