Category Archives: Too interconnected to fail

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Economists and other analysts see value, danger in repo and shadow banking, urge reform

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Latest update: October 2, 2012 In recent months economists and other experts have published a torrent of reports on repo and shadow banking, noting their importance and their dangers and urging reform. Following are 74 of the reports, arranged chronologically … Continue reading

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The media buzz about rehypothecation

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Updated July 30, 2013 Rehypothecation may be the news hook that finally gets the U.S. business press to start covering the repurchase market. Ever since the broker-dealer MF Global filed bankruptcy October 31, and word escaped that $1.2 billion of … Continue reading

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Leading crisis experts are trying to get our attention

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When three of the economists most knowledgeable about the financial crisis of 2007-2008 start jumping up and down, waving their arms and shouting “fire!” … maybe we should listen? That’s happening now. Three prominent economists are calling for a solution to … Continue reading

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Regulators talk tough about tri-party reform

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If the industry task force working to make the tri-party repurchase market more stable in a crisis won’t do the job, regulators may have to do it for them. That tough warning comes from William Dudley, president of the Federal … Continue reading

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Reuters: U.S. banks making repo loans to European banks

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Reuters reports U.S. banks have agreed in recent weeks to make billions of dollars of repurchase loans to European banks, contrary to the official word from U.S. regulators that American banks have reduced their exposure to European banks to a minimum … Continue reading

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Bloomberg details Fed’s three-year bailout frenzy

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Bloomberg News has given us a stunning picture of the frantic efforts by the Federal Reserve to save the credit markets between August 2007 and April 2010. The report doesn’t mention the R-word (repo), even though fear for the repurchase … Continue reading

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Using taxes, fees or haircuts to reform repo

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Americans don’t hear much debate these days on ways to avoid having to bail out the repurchase market again. That’s a problem, because Congress is not likely to act on an issue the American public is not paying attention to. … Continue reading

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WSJ: REITS fall on repo fears

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In an otherwise enlightening August 2 story about how repo-dependent Real Estate Investment Trusts fared during the debt ceiling crisis, Wall Street Journal reporter John Jannarone made the following statement: Fortunately, the repo market is unlikely to freeze up entirely. … Continue reading

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Economists: Repos underlie financial crisis in Europe

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The financial crisis in Europe grows out of banks’ excessive use of repos and their assumption that government officials will not let the repurchase market fail, according to a July 2011 report by two economists. In “Europe on the Brink,” economists Peter Boone and Simon … Continue reading

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The repurchase market has become Too Big To Fail

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Commentary From the editor: Have the U.S. and Europe reached the point where borrowers can not be allowed to default on their debt, and their lenders or investors can’t be forced to eat any losses, if financial institutions are widely using the debt as collateral … Continue reading

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Fear in today’s markets shows failure of Dodd-Frank

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If the financial crisis in 2007-2008 was fundamentally about mortgages, as many believe, why are we facing a similar financial crisis today? Here’s the answer: The fundamental problem three years ago was not mortgages. It was the repurchase market and credit default swaps. … Continue reading

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NY Fed economist buries the bad news about tri-party repo reform

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Commentary From the editor: To those of you who read the latest from the New York Fed’s Liberty Street economists, Stabilizing the Tri-Party Repo Market by Eliminating the ‘Unwind,’ I hope you read to the end of the piece. At … Continue reading

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Some experts are comparing Greece to Lehman

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If eurozone officials decide Greece does not have to repay its debt in full, the European Central Bank says it may stop making repo loans to financial institutions that put up Greece’s debt as collateral, according to a June 10 story by the … Continue reading

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Banks’ over-reliance on overnight repo is “absurd”

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Enrico Perotti, professor of international finance at the Amsterdam Business School, wants to tax banks that repo, to discourage “the current absurd over reliance on overnight repo markets.” He is highlighting the following papers on his web site. From The Governance … Continue reading

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Something about the financial crisis doesn’t add up

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 Last updated June 26, 2012 From the editor, I have written the following short article to explain in simple terms, for the average American, why repo matters. If you find that parts are hard to understand, I hope you will … Continue reading

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Is insurance moving more into the shadows?

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Insurance companies are taking advantage of new laws in roughly 30 states that help them hide risks, reduce costs, cut back on reserves and find friendlier regulators, according to a story in the New York Times. From the story, by Mary Williams … Continue reading

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Will ‘ring-fencing’ work better than ‘firewalls’ did?

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We’re hearing a lot about “ring-fencing” these days. That sounds suspiciously like “firewalls” to some of us who covered the S&L calamity 20 years ago. Sheila Bair, chairman of the Federal Deposit Insurance Corp., thinks bank holding companies should ring-fence their investment banking operations … Continue reading

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Economists offer ways to measure and monitor systemic risk

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Economists have produced several studies showing ways the new Office of Financial Research and other experts might measure systemic risk and identifying useful data to spot rising risk. The important point is that regulators were not collecting needed data before the financial criis of 2007-2008, … Continue reading

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Fed releases names of tri-party repo borrowers at height of crisis

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Bloomberg and Fox News began reporting March 31 the names of the financial institutions that got emergency repurchase loans from the Federal Reserve during the financial crisis. The names became public when the Fed released to the two news groups the reports … Continue reading

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Did bankers ignore warnings about faulty loans?

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“You can’t get losses of this magnitude without massive fraud,” said Bill Black, a professor at the University of Missouri in Kansas City and an expert on bank fraud. Black should know, he played a key role in uncovering S&L fraud … Continue reading