LOL. You do realize Tim Geithner's entire career (beginning with the Mexican intervention in 1994) has been built on figuring legal loopholes around supposed rules on what the Fed and Treasury can do. So yes, Congress closed that one up, but there are others and the little weasel is sure to find them.
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Global Macro Trading Journal
- Thread starter Daal
- Start date
LOL. You do realize Tim Geithner's entire career (beginning with the Mexican intervention in 1994) has been built on figuring legal loopholes around supposed rules on what the Fed and Treasury can do. So yes, Congress closed that one up, but there are others and the little weasel is sure to find them.
MMIFF never relied on the FX fund of any sort. It was a Fed program, not the US Treasury's, so I am not sure what the FX fund has to do with it.Quote from Daal:
I read in a book about the crisis that congress amended the legislation and the UST Fx fund can't be used for that purpose anymore. They would have to go do congress to ask for it again. The run would happen within hours/days
Quote from Martinghoul:
MMIFF never relied on the FX fund of any sort. It was a Fed program, not the US Treasury's, so I am not sure what the FX fund has to do with it.
I believe you are wrong. What stopped the run wasn't the Fed liquidity it was Paulson's guarantee of all deposits
"On September 19, 2008, U.S. Treasury Department announced that up to $50 billion in the ESF would temporarily be made available to guarantee deposits in certain money market funds.[8]"
http://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
After all liquidity doesn't create solvency and the fears were with regards funds breaking the buck not being illiquid
No, I am correct... I watched it unfold and was right in the thick of it. I don't even remember something as trivial as a $50bn guarantee. Given the size of the money mkt fund industry, $50bn is less than nothing. The MMIFF, which, as I said, was a Fed program, was a liquidity facility of up to $600bn size. You see the difference, right?Quote from Daal:
I believe you are wrong. What stopped the run wasn't the Fed liquidity it was Paulson's guarantee of all deposits
"On September 19, 2008, U.S. Treasury Department announced that up to $50 billion in the ESF would temporarily be made available to guarantee deposits in certain money market funds.[8]"
http://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
After all liquidity doesn't create solvency and the fears were with regards funds breaking the buck not being illiquid
At any rate, regardless of what happens, the Fed program is there and it doesn't depend (for now) on any Congress authorization.
Quote from Martinghoul:
No, I am correct... I watched it unfold and was right in the thick of it. I don't even remember something as trivial as a $50bn guarantee. Given the size of the money mkt fund industry, $50bn is less than nothing. The MMIFF, which, as I said, was a Fed program, was a liquidity facility of up to $600bn size. You see the difference, right?
I see the difference, one guarantees you can redeem at PAR and the other guarantees you can redeem. The worries were on the former not the latter. Yes the MM industry was large but the expected losses were not. We are talking 1-3c haircuts here which the fund could cover almost on its own
Well, if that was the issue, why did people worry about the run in the first place?Quote from Daal:
I see the difference, one guarantees you can redeem at PAR and the other guarantees you can redeem. The worries were on the former not the latter. Yes the MM industry was large but the expected losses were not. We are talking 1-3c haircuts here which the fund could cover almost on its own
Daal, seriously, pls take my word for it. It was NOT a solvency issue, it was precisely a liquidity issue that had to do with the duration mismatch that the MMF industry was allowed to run. The Fed MMIFF, by committing to a provide a liquidity backstop, addressed the issue. It wasn't the paltry $50bn, which was smth like 1.4% of assets. Moreover, if you read the MMIFF docs, you'll see that it was designed to purchase assets from the funds at "amortized cost", which renders the other distinction meaningless.
At any rate, regardless, my point is that the Fed and MMIFF are still there if need be and they don't require a congressional seal of approval.
Quote from Martinghoul:
Well, if that was the issue, why did people worry about the run in the first place?
Daal, seriously, pls take my word for it. It was NOT a solvency issue, it was precisely a liquidity issue that had to do with the duration mismatch that the MMF industry was allowed to run. The Fed MMIFF, by committing to a provide a liquidity backstop, addressed the issue. It wasn't the paltry $50bn, which was smth like 1.4% of assets. Moreover, if you read the MMIFF docs, you'll see that it was designed to purchase assets from the funds at "amortized cost", which renders the other distinction meaningless.
At any rate, regardless, my point is that the Fed and MMIFF are still there if need be and they don't require a congressional seal of approval.
You make good points, I'm sure however you can't say that the Paulson move didn't help a good deal. These technical points that you raise can't be understood by the average person, I don't know what is the retail participation rate on the MMF but I got to assume its quite decent, decent to the point where if they all flee the fund would default.
And for them, hearing that the government has guaranteed their money can be the difference between withdraw or not
Indeed, and, funnily enough, there were inflows into retail funds arnd that time, possibly as a result of the Treasury's measure. However, the bigger part of the issue was the institutional funds, with smth like 60% of total industry assets.Quote from Daal:
You make good points, I'm sure however you can't say that the Paulson move didn't help a good deal. These technical points that you raise can't be understood by the average person, I don't know what is the retail participation rate on the MMF but I got to assume its quite decent, decent to the point where if they all flee the fund would default.
And for them, hearing that the government has guaranteed their money can be the difference between withdraw or not
At any rate, while I do believe Rosengren exaggerates a bit, the issue is still largely there. But I do think it's manageable, if sh1t does hit the fan.
Krugman, Rogoff on Charlie Rose
http://www.charlierose.com/view/interview/11710
http://www.charlierose.com/view/interview/11710