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Related: About this forumStill Broken Five Years Later
Weekend Edition February 21-23, 2014NY Fed's Dudley Warns that "Firesales" Could Trigger Another Financial Crisis
by MIKE WHITNEY
The repo market wasnt just a part of the meltdown. It was the meltdown.
David Weidner, Wall Street Journal, May 29, 2013.
Ask your average guy-on-the-street what caused the financial crisis, and youll either get a blank stare followed by a shrug of the shoulders or a brusque, three-word answer: The housing bubble. Even people who follow the news closely are usually sketchy on the details. They might add something about subprime mortgages or Lehman Brothers, but not much more than that. Very few people seem to know that the crisis began in a shadowy part of the financial system called repo, which is short for repurchase agreement. In 2008, repo was ground zero, the epicenter of the meltdown. Thats where the bank run took place that froze the credit markets and sent the financial system into freefall. Unfortunately, nothing has been done to fix the problems in repo, which means that were just as vulnerable today as we were five years ago when Lehman imploded and all hell broke loose.
Repo is a critical part of todays financial architecture. It allows the banks to fund their long-term securities cheaply while giving lenders, like money markets, a place where they can park their money overnight and get a small return. The entire repo market is roughly $4.5 trillion, although the more volatile tri-party repo market is around $1.6 trillion. (Note: Thats $1.6 trillion thats rolled over every day.)
Repo works a lot like a pawn shop. You bring your rusty bike and your imitation Van Gogh Starry Night to Rosies E-Z-Pawn, and the guy with the gold earring behind the counter gives you 15 bucks in return. Thats how repo works too, the only difference is that repo is a loan. The banks post collateral mostly pools of mortgages (MBS) or US Treasuries and get overnight loans from a cash-heavy lenders, like money markets, insurance companies or pension funds. Borrowers repay the loan with interest added to the original sum.
http://www.counterpunch.org/2014/02/21/still-broken-five-years-later/
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Still Broken Five Years Later (Original Post)
Crewleader
Feb 2014
OP
From where I'm sitting it looks like NOTHING in our financial system has been fixed.
democratisphere
Feb 2014
#1
democratisphere
(17,235 posts)1. From where I'm sitting it looks like NOTHING in our financial system has been fixed.
THEY just keep slathering this very ugly 'thing' with an extra heavy sugar coating. Then there is still the question of 5 bankers "leaping".
sense
(1,219 posts)3. I'm pretty sure
we're up to 8 "leapers".
RobertEarl
(13,685 posts)2. Hasn't the fed kept the repo market solvent?
The fed, iirc, has the overnight loan program down to somewhere around 0 interest. Is not that a kind of repo program that the banks rely on to stay solvent?
I remember the crash... a city hall dude told me that the city couldn't borrow any money at all at the time. That the situation was the first time ever the city was denied a loan. Seems at the time that banks did not trust that the loans made in the repo market would be able to be repaid?
Conspiracy or not, someone high up in the banking field could see the collapse coming and did not make the moves to avert the collapse.