Well, this is exciting. Worries about the minutae of the Treasury market, and how bond managers finance their Treasury holding. It's a dizzying game of Chinese whispers/"Everybody paid in full" with twenty different ways it can go wrong.
So a bunch of academics thought up that if... and you Bitcoiners won't believe this... the Fed stands ready to take over the risk, then all works out, YES?
This proposal is just for the Fed to do a bit more of the trade: Instead of lending against Treasuries, it would buy the Treasuries and also sell the futures. It’s economically pretty much the same thing, though: The Fed can print money, and it can lend its balance sheet to levered investors so they don’t all have to dump their Treasuries at once. The Fed is the lender of last resort in the US financial system, and in modern finance that means being the synthetic lender of last resort.
the purchases would be self-liquidating because the reversal of the securities purchases would be embedded in the short positions in derivatives
ah, man. Gotta love the financial regulation/Fed lender-of-last-resort type reasoning. If there only was a better way to do money/savings/assets.
In a separate story:
Banking is getting incrementally narrower, and nonbank financial firms are increasingly getting into businesses that 20 years ago were done by banks.
I love when financial markets find ways around clunky regulations. "BANKS SHOULD DO BANK STUFF," uh-hu, okay, then let's set up these new entities doing the bad stuff, that the very same banks lend to instead. Makes sense, makes sense.
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