April 24, 2011
Confused by the recent dramatic moves in General Collateral repo rates? Carry trade killing FDIC assessments got you down (and copycatting other blogs)? Still anguished by relentless end of quarter window dressing even as primary dealers reduce leverage to post crisis lows? Surprised by the ongoing deterioration in near term shadow banking despite the so-called improvement? Stunned by how the Fed has seemingly lost control of the near end even as the announcement of implicit tightening could be a few shorts days away? Then the following presentation from Barclay’s Joseph Abate on the regulatory changes in money markets, and their broad consequences for funding markets is a must read for anyone concerned by the very peculiar recent goings on in shadow banking.
The bottom line is that as so often happens, regulatory intervention in what many forget is probably the biggest short-term funding market (now that LIEBOR (sic) is being investigated for mass criminal collusion, which is not news to anyone who followed unsecured funding during the great financial crisis) may end up having very dramatic events on actual funding availability.
While not nearly as serious as the “Ice-Nine” of money market that started in the week after Lehman’s failure, it is more than obvious that a slow withdrawal of liquidity from the shadow banking system is again in progress. And as Zero Hedge readers know too well by now, it is precisely the critical shadow banking system with its $16 trillion in assets, that is by far the biggest determinant of whether or not the Fed will need to continue providing the liquidity needed to fund the shadow banking collapse offset. Read: conducting QEx.
For much more, we urge everyone to read the following presentation which summarizes the recent adverse developments in shadow banking which as much as anything else, may force the Fed’s hand to continue with ongoing market leverage interventions.
This article was posted: Sunday, April 24, 2011 at 4:03 am