Really? And you arrived at this incredible epiphany how precisely, pray tell?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
US government looking to control credit by reduciing system to 5 large banks
- Thread starter zdreg
- Start date
Quote from Martinghoul:
Really? And you arrived at this incredible epiphany how precisely, pray tell?
You know that, I know that. So what is the whole spectacle all about? Just go on with your "education of the masses".
Ohh, by the way, you might stop asking for a permission to comment. It doesn't make a good impression, you know.
I don't know whatever it is that you think you know. As to me asking permission to comment, I have no idea what you might be referring to. To be brutally honest, I am having some general difficulty folowing your reasoning here.Quote from pythontrader:
You know that, I know that. So what is the whole spectacle all about? Just go on with your "education of the masses".
Ohh, by the way, you might stop asking for a permission to comment. It doesn't make a good impression, you know.
Quote from Martinghoul:
I don't know whatever it is that you think you know. As to me asking permission to comment, I have no idea what you might be referring to. To be brutally honest, I am having some general difficulty folowing your reasoning here.
Difficulty indeed. As to the brutality of the truth... It was really brutal.
Quote from Martinghoul:
That's my point. MMF investors have been led to believe that the $1 NAV floor is some sort of an inviolate rule that has been imposed by Holy Writ. That is entirely the fault of the industry, which has seen its assets swell as a result of promising things they know they realistically may not be able to deliver. So yes, sure, part of the blame rests with idiot investors, but false advertising is nothing to sneeze at. Moreover, the MMF industry has been somehow able to do all this, while being able to avoid the rigors of mark-to-mkt.
My facts regarding the concentration of the MMF industry come from some research I did back in 2007 on the state of affairs in the funding mkts. It was based on ICI data that you can obtain if you pay for it. If you'd like me to, I can dig stuff up, although it's been a very long time.
Well, according to what I have read Reserve Primary held arnd $785mil of Lehman paper (I presume it was mostly CP). They had to write this down to 0. The actual losses the investors would have suffered may have been smaller or larger than that, depending on whether the paper was purchased below, at or above par.
how much per share?
The real problem here is that commercial paper is thought to be supersafe. It's one of those things that is until it isn't. Lehman's default on its cp was reminiscent of what happened when Penn Central defaulted on its cp in 1970 and then, just as in 2008, the Fed stepped in with a guarantee to prevent a total collapse of the cp market.
So it's not really a problem with money market funds; it's a problem with cp.
So it's not really a problem with money market funds; it's a problem with cp.
I disagree... Nothing inherently more "unsafe" about CP than other unsecured debt and people who own it on a normal, prudent mark-to-market basis deal with it. For example, the original Canadian ABCP blowup in 2007 was, while messy, dealt with. The problem is the fundamental mismatch between offering investors instant liquidity without mark-to-mkt and applying this to your entire asset base. MMF is the only type of institution that offers this to retail clients without any sort of a explicit minimal backstop. That, IMHO, is a disaster waiting to happen (well, it's happened already, actually).Quote from trefoil:
The real problem here is that commercial paper is thought to be supersafe. It's one of those things that is until it isn't. Lehman's default on its cp was reminiscent of what happened when Penn Central defaulted on its cp in 1970 and then, just as in 2008, the Fed stepped in with a guarantee to prevent a total collapse of the cp market.
So it's not really a problem with money market funds; it's a problem with cp.
It was tedious reading 5 pages of this thread. Zdreg, thanks for the article links at the onset they were worth the read. Mghoul and responders: you could skip all the meta coversation and this would be a 1 page thread.
The elephant in this room is that at Zero short term interest in confident credit there is no profit in the MMF industry. People who have big money need to put somewhere for short terms, if they can't put it in MMF, then it has to go somewhere else. Banks, with no loan demand can't use it very well...it will all end up as increased excess reserves. Looks like the short term U.S. TBills will be low for at least into 2014 whether Barananke wants it or not.
How can you ask sponsors that are already making no money to raise capital to support that result?
The elephant in this room is that at Zero short term interest in confident credit there is no profit in the MMF industry. People who have big money need to put somewhere for short terms, if they can't put it in MMF, then it has to go somewhere else. Banks, with no loan demand can't use it very well...it will all end up as increased excess reserves. Looks like the short term U.S. TBills will be low for at least into 2014 whether Barananke wants it or not.
How can you ask sponsors that are already making no money to raise capital to support that result?