http://www.shoestringventure.com/2009/09/23/so-what-exactly-is-a-reverse-repo-and-why-should-i-care/ Tue, 31 Aug 2010 18:59:07 +0000 hourly 1 http://wordpress.org/?v=3.0.1 http://www.shoestringventure.com/2009/09/23/so-what-exactly-is-a-reverse-repo-and-why-should-i-care/comment-page-1/#comment-1923 DJ Thu, 24 Sep 2009 15:35:54 +0000 http://www.shoestringventure.com/?p=2675#comment-1923 I am not an economist, hence I am reading the article (good stuff). However, when the Fed says it wants to use money market funds to do this reverse repo I get a little nervous. I have money market funds, so basically the Fed is saying to me, Let me take your cash and I will give you one of my Treasury notes for now and come back later and give you your money back. If I wanted Treasuries I would have bought Treasuries. Or if I wanted bad mortgages I would have bought bad morgages. My faith in being repaid by the Fed with a strong dollar is diminishing. I am not an economist, hence I am reading the article (good stuff). However, when the Fed says it wants to use money market funds to do this reverse repo I get a little nervous. I have money market funds, so basically the Fed is saying to me, Let me take your cash and I will give you one of my Treasury notes for now and come back later and give you your money back.
If I wanted Treasuries I would have bought Treasuries. Or if I wanted bad mortgages I would have bought bad morgages. My faith in being repaid by the Fed with a strong dollar is diminishing.

]]> http://www.shoestringventure.com/2009/09/23/so-what-exactly-is-a-reverse-repo-and-why-should-i-care/comment-page-1/#comment-1920 Dave in Chicago Thu, 24 Sep 2009 04:03:34 +0000 http://www.shoestringventure.com/?p=2675#comment-1920 Great article. Read it to my wife and she ALMOST didn't fall asleep - she actually humored me and listened. I built a system to verify the adequacy of collateral for my Company's (big bank with mutual funds like the type the Fed is looking at) repo line of business so actually LOOK for articles about this horribly dry but critical corner of modern finance. I bet only a few percent of people have a clue this is going on - even among the CPA's out there. We need more people like you putting out simple explanations so folks will realize how scary an "efficient" balance sheet can be for companies (other than mutual funds with cash that has to go somewhere) that try to finance working capital with these types of short-term products that are definitely NOT guaranteed to be available 2 days from today. Just ask the folks at Lehman, who were squeezed when their collateral tanked, creating a great sucking sound as their short-term financing flew off their balance sheet. $188 BILLION in repo financing if you are to be believe the internet. btw - fortunately my company is a very old and very conservative institution and has weathered the whole financial mess very very well. It is good to know that not all financial institutions operate like the ones we have been reading about over the past year and I am proud to work at mine. but anyway - I'll stop back and look for more good stuff... Great article. Read it to my wife and she ALMOST didn’t fall asleep – she actually humored me and listened. I built a system to verify the adequacy of collateral for my Company’s (big bank with mutual funds like the type the Fed is looking at) repo line of business so actually LOOK for articles about this horribly dry but critical corner of modern finance. I bet only a few percent of people have a clue this is going on – even among the CPA’s out there. We need more people like you putting out simple explanations so folks will realize how scary an “efficient” balance sheet can be for companies (other than mutual funds with cash that has to go somewhere) that try to finance working capital with these types of short-term products that are definitely NOT guaranteed to be available 2 days from today. Just ask the folks at Lehman, who were squeezed when their collateral tanked, creating a great sucking sound as their short-term financing flew off their balance sheet. $188 BILLION in repo financing if you are to be believe the internet. btw – fortunately my company is a very old and very conservative institution and has weathered the whole financial mess very very well. It is good to know that not all financial institutions operate like the ones we have been reading about over the past year and I am proud to work at mine. but anyway – I’ll stop back and look for more good stuff…

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