I do look at CNN, mostly for the business side as their presentation of the markets is better than some of the others. There, I saw this post and started scratching my head as I haven’t seen this anywhere else in the “general issues” sites that I visit. I’m not a financial geek and I’m pretty sure that I still don’t understand all of the nuances here but this “understated but serious” wording from CNN has me a bit concerned even after a third reading. It may nothing – but may it be a “lock up” such as we saw around 2007/2008?
The New York Federal Reserve has vowed to ease the turmoil that erupted last month in the overnight lending market. Keeping that promise is proving to be a very heavy lift.
Borrowing costs in this critical corner of Wall Street have gotten back to normal. But that’s only because–behind the scenes–the NY Fed is pumping in vast amounts of money to ease the cash crunch before it spills over into the real economy or dents consumer and business confidence.
Without the Fed, the repo market just wouldn’t function anymore.”
For instance, the NY Fed pumped in $99.9 billion of cash into the financial system on Tuesday alone. It topped that by injecting $134.2 billion on Thursday. In addition to that short-term liquidity, which gets paid back quickly, the NY Fed purchased $26 billion of Treasury bills this week. Those T-bill purchases drew enormous demand, with banks requesting nearly four times as much cash from the Fed.
These aggressive steps from the Fed, along with the strong demand from banks, shows that the overnight lending market is not back to normal. Banks are still clamoring for cash — and the Fed is rushing to fill the vacuum.
“There is something wrong with the plumbing of the financial system. The stress is still there,” said Philip Marey, senior US strategist at Rabobank.
Precisely why a cash shortage exists is up for debate, with everything from post-crisis regulations to the $1 trillion deficit being blamed.
Go read the rest of it and if it makes more sense to you than it does to me, please let us know in the comments.