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Demeter

(85,373 posts)
3. So much for that amazing rebound---DJIA down 200+, S&P down 25+
Tue Aug 25, 2015, 06:41 PM
Aug 2015

And you can see by the shape of the curves it was all PPT, all the way, and losing the battle...which brings me to this post:

Perry Mehrling: No One Has a Good Idea of How to Keep the Fed From Having to Rescue Mr. Market Again as Yves Smith called it, or

Toward a robust dealer system of first resort

http://www.perrymehrling.com/2015/08/toward-a-robust-dealer-system-of-first-resort/

Goldman Sachs takes “A Look at Liquidity”, and tells us what they see. Suffice it to say that different people see different things, depending on their vantage point, like the proverbial blind men touching the elephant. Let’s see if we can construct a picture of the animal as a whole from the snapshots provided.

What seems clear is that the bank dealer system of the past is now gone (notwithstanding last-ditch pleading to bring it back). Banks are largely out of that business, guided by new regulations (specifically the “non-risk-based leverage and liquidity rules”), but also motivated by their own experience with the crisis. Banks do not want to be in the position of requiring emergency support from the Fed any more than the Fed wants to be in the position of providing that emergency support.

Ever since the crisis, central banks have been standing in for the pre-crisis bank dealer system, flooding the system with funding liquidity. World-wide QE has essentially bought time for a new more robust dealer system to begin rising from the ashes of the old. However, at the moment that new system is far from complete, even as central banks (led by the Fed) are signalling that they will not be around forever. In normal times the central banks supports the market; only in crisis times does it become the market. What will the new normal times look like?

Steve Strongin talks about how the Fed might respond to the next crisis: “the Fed might have to buy the distressed assets directly and/or other parts of the government might have to step in” (p. 5). That is of course how the Fed responded to the last crisis, as I have myself recounted in my book New Lombard Street. But the necessity for that response shows exactly the inadequacy of the old dealer system–it was not a robust first resort system. That’s why we have junked the old system. The question is whether we can rely on the emerging new system to be more robust.

There is a lot of hype about electronic exchanges, and also Exchange Traded Funds, and some of the hype is warranted. Yes, to the extent that we can make it easier for buyers and sellers to find each other and do business directly, we can do without the now-missing dealer intermediary. In effect, all such measures work by making the broker function more efficient, which is fine if markets are balanced. “But the largest problems are likely to arise when markets are not balanced and under significant net selling pressure…” (p. 5)



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Remember that refinery in Indiana that unexpectedly shut down? Demeter Aug 2015 #1
Where the nuts come from? Fuddnik Aug 2015 #6
Too many martoonies? Demeter Aug 2015 #8
Oh, I thought you were talking about the BOG in Jonestown. Fuddnik Aug 2015 #9
Where do they export them to? Out of the country? Demeter Aug 2015 #10
Labor Day is September 7, very late this summer DemReadingDU Aug 2015 #22
It's inconvenient, if you ask me Demeter Aug 2015 #23
Wellwhatduyaknow! Hugin Aug 2015 #21
D.C. rejects Exelon-Pepco merger; Del. terms blocked Demeter Aug 2015 #2
So much for that amazing rebound---DJIA down 200+, S&P down 25+ Demeter Aug 2015 #3
Dow, S&P Close Lower In Biggest Reversal Since Oct. 08 REPOST FROM LBN BY brooklynite Demeter Aug 2015 #5
Sentiment Building to Deport Nation’s Billionaires By Andy Borowitz Demeter Aug 2015 #4
Shoddy Chinese-Made Stock Market Collapses Demeter Aug 2015 #24
Robert Reich: In the New Economy, Workers Take on All the Risk Demeter Aug 2015 #7
And now, a harrangue from the 1%---because they are special, dammit! Demeter Aug 2015 #11
OMG - "less wealthy" "less affluent" bread_and_roses Aug 2015 #26
So let me get this straight Punx Aug 2015 #27
Former JPMorgan analyst arrested for insider trading Demeter Aug 2015 #12
"BLACK" MONDAY SUMMARY REPORT Demeter Aug 2015 #13
Why Goldman thinks the S&P 500 is headed for an 11% rebound By Barbara Kollmeyer Demeter Aug 2015 #14
The 4 Stocks That Sank the DJIA on Monday Demeter Aug 2015 #15
Thank you Demeter StoneCarver Aug 2015 #20
They could help out the State Department with their geopolitics, Demeter. Joe Chi Minh Aug 2015 #28
I think that's beyond human help, Joe Demeter Aug 2015 #31
The finalists vying for the crown of the ultimate cage-liars! Joe Chi Minh Aug 2015 #34
1/3 of the way there after today! Roland99 Aug 2015 #29
PUBLIC SERVICE REMINDER: Stock Trading in U.S. Will Pause If S&P 500 Plunges 7% Demeter Aug 2015 #16
Saudi Arabia Is Seeking Advice on Cutting Billions From Its Budget in the Wake of the Oil Crash Demeter Aug 2015 #17
Here's What Usually Happens to Markets After the S&P 500 Drops 5 Percent in a Week Demeter Aug 2015 #18
Much of Wall St still believes in Sept rate hike Demeter Aug 2015 #19
Krugman on debt WITH COMMENTARY/TRANSLATION by WARREN MOSLER Demeter Aug 2015 #25
Dow and S&P with largest % gain in 4 years Roland99 Aug 2015 #30
And all of it PPT generated Demeter Aug 2015 #32
2nd that (n/t) bread_and_roses Aug 2015 #33
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