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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsA $53 billion crack just emerged in the financial markets...
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
(25,111 posts)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
(12,422 posts)Midnight Writer
(21,693 posts)And worst of all, destroying our relationships with our fellow citizens.
pbmus
(12,422 posts)SWBTATTReg
(22,059 posts)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
(15,635 posts)czarjak
(11,253 posts)The good ol days!
DetlefK
(16,423 posts)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
(987 posts)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
(51,279 posts)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
(15,635 posts)and in the last couple months before the dive even some alarm bells.
DetlefK
(16,423 posts)KPN
(15,635 posts)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
(70,047 posts)Joe Nation
(962 posts)RUN! RUN! RUN!
rurallib
(62,373 posts)Pepsidog
(6,254 posts)Backseat Driver
(4,379 posts)leftstreet
(36,097 posts)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
(6,913 posts)KPN
(15,635 posts)big money continuing to make big money.
Amishman
(5,553 posts)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
(4,558 posts)Moved my entire 401K from stock plan selections to bonds last month.
ffr
(22,665 posts)during that period, thanks to conservatives and their deregulation meme.
unblock
(52,113 posts)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
(2,195 posts)Is this not like other rates controlled by the Fed?
CarlitosMMT
(53 posts)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 havent 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
(2,195 posts)uponit7771
(90,301 posts)riversedge
(70,047 posts)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
(34,661 posts)European and China Markets ought to be real interesting tonight. No wonder the Saudi Oil thing went quite.
Lady Freedom Returns
(14,120 posts)Have fun guys.
empedocles
(15,751 posts)Delphinus
(11,824 posts)Professor Richard Wolfe on this - he seems quite concerned.
Edit to add link to YouTube video: