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Colin Lokey  

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  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    Charlie, I didn't mean that the Fed must be in every repo equation...I mean...seriously? You are determined not to get this and that is just fine with me and with everyone else reading your comments as well I would think. You are demonstrating a profound unwillingness to abstract from the nuts and bolts of repo transactions and QE. The problem is that I understand what you are saying, but I don't think you understand what I'm saying. So like Josey Wales, we have a "failure to communicate." There are some great articles out there on this subject other than mine which you can easily track down. I imagine however, that you do understand how all of this fits together and you are just arguing to argue. I'm sure there are others here who will oblige you on that front, but I cannot any longer. Thanks again for reading and taking the time to comment.
    Jan 22, 2013. 12:57 PM | 1 Like Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    Yeah, I mean I don't want to say that Charlie doesn't make some decent points here. He does. Its just sort of whether you believe what is being said about how benign QE is (its just an asset for asset swap) or not. Anyway, I appreciate his comments just like all other comments.
    Jan 22, 2013. 10:27 AM | Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    When did I say anything about the size of a balance sheet? When did I say that Treasury bonds were interchangeable with cash? When did I say that the bank had more 'assets' after QE (I said they had more cash). Excess cash IS excess cash and that cash isn't any different (in terms of its being cash) if it comes from the Fed than if it comes from depositors. The idea of whether or not it expanded the balance sheet was never mentioned (well, until you mentioned it). So no, I'm not 'wrong' to say that cash is cash. In fact, "cash is cash" is a tautology (i.e., it can't be wrong by definition). In short, you are now making straw men at nearly every turn so you can attack them and claim I don't understand this or that which is amusing, albeit pointless. This is a common tactic in these comment sections: press the author with comment after comment constructing straw men along the way by slightly modifying the argument in each successive comment until, eventually, by sleight of hand, you have backed the author into a corner at which point you can claim they don't know what they're talking about and thereby discredit the work. Unfortunately, you won't get there with me.

    That said, I see where you are going...here, I think, is what you are saying: "why didn't the banks just repo the Treasuries they had in the first place.... they don't need to sell them to the Fed first, then buy more treasuries with their new money, only to pledge them as collateral in the same repo market they could have pledged their original treasuries....That's just extra, unnecessary steps!"

    Here's answer to that fairly well reasoned argument. The Fed needs to buy THOSE treasuries (the ones on the banks' books). It can't buy them directly from the Treasury department because that would be overt financing of the deficit. It must INdirectly finance the deficit via the purchase of 'deficits of the past' so to speak, or, existing treasury bonds. In other words, the Fed is going to buy those Treasury bonds because that's what the FOMC said. It's not like the banks can just say, well, I don't think I want to sell those to you today, I'd rather repo them out and make derivative bets with my cash instead. So when you say

    "If you have received cash from the Fed via QE, as per your example, and you go out and "buy collateral and repo it", that is no different to having the "treasuries, govies, etc" in the first place and repo'ing them."

    It is a bit different in the fact that the Fed isn't in the equation anymore in your example. But they must be in the equation. This whole thing is a circular funding scheme: The Fed funds the deficit indirectly by buying banks' treasuries, the banks fund the deficit directly when primary dealers bid at auction with what is essentially the Fed's cash, meanwhile regulators require a certain amount of risk free assets to be held on the books which they are, in record amounts, and some portion of those assets can be pledged out for cash while a portion isn't and remains available for the Fed to purchase, and around we go.
    If this chain is interrupted at any point (i.e. if banks stop playing the game as you seem to be suggesting), the financial repression music stops.
    Jan 22, 2013. 10:06 AM | 4 Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    Well needless to say I like this article. Haha. Thanks Bard
    Jan 22, 2013. 09:00 AM | 3 Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    Thanks for reading
    Jan 22, 2013. 08:20 AM | Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    Charlie I've lost your plot line to be honest with you. What's not to understand here? You're a bank, you have more fungible cash as a result of QE, you want to do something with that cash, you channel it through the repo market because if you just go out and spend it on say, a derivatives bet, you have no treasuries, govies, etc to show for it. If you buy collateral and repo it, you get to spend your cash AND keep your securities on the books. The more cash you have, the more you'll do this. If you have no excess cash, you don't go out and make bets with it. Excess cash is excess cash. It doesn't matter if it comes from depositors or the Fed.
    Jan 22, 2013. 08:19 AM | 3 Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    You can view the article at the link below for more info on how QE affects the stock market through various channels such as encouraging corporate borrowing to fund share buybacks:

    http://bit.ly/Tdf2Cx
    Jan 21, 2013. 11:12 PM | Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    One word: fungible
    Jan 21, 2013. 10:04 AM | 3 Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    I would note that a collapse of confidence in the repo market has already caused the system to collapse once.
    Jan 20, 2013. 10:27 AM | 5 Likes Like |Link to Comment
  • Repoed, Part 2: A Deeper Look At Banks' Source Of Dry Powder [View article]
    Part 3: http://seekingalpha.co...
    Jan 20, 2013. 09:54 AM | Likes Like |Link to Comment
  • Repoed, Part 3: Proof Deposits Are At Risk And A Disappearing Act Explained [View article]
    Note the funny thing about the JPMorgan CIO Task Force quote: the word "and" usually comes just before the last item in a series, so when JPM puts "and" before "asset-backed securities," that would seem to be the end of the "High credit quality fixed income." Thanks the continuation of the list after that however, they might say that "corporate securities" are only investment grade...but we really don't know do we? haha. So actually the quote is ambiguous in one sense. Where it is decidedly unambiguous is in the fact that deposits are invested in a variety of assets other than safe government securities. Also, it should be noted that it is widely speculated that the Whale had positions in high yield.
    Jan 20, 2013. 09:52 AM | 1 Like Like |Link to Comment
  • No Hokum: No Stock Investments With Excess Reserves [View article]
    I don't want to beat a dead horse here, but here is a quote from JPMorgan's just released internal review of its CIO unit:

    "CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed-income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage-backed securities, CORPORATE SECURITIES, sovereign securities, and collateralized loan obligations."
    Jan 18, 2013. 09:53 AM | Likes Like |Link to Comment
  • Repoed, Part 2: A Deeper Look At Banks' Source Of Dry Powder [View article]
    The London Whale's bets were on investment grade credit and possibly high yield credit via CDS indices sponsored by Markit. Nothing whatsoever to do with interest rate swaps on currencies.
    Jan 16, 2013. 06:29 PM | Likes Like |Link to Comment
  • Repoed, Part 2: A Deeper Look At Banks' Source Of Dry Powder [View article]
    Diego: Your contention that I make a 'generalization' flaw seems to miss the oh, 5 some odd times I overtly said this analysis is limited by its dependence on two firms. But more generally, I refer you to the comments below. No bank like say, JPMorgan, would ever do something suspect right? It's just GS and MS. Everyone just glosses over JPMorgan's CIO debacle. Why? Because they can't explain it without admitting what is really going on.
    Jan 16, 2013. 04:48 PM | 1 Like Like |Link to Comment
  • Repoed, Part 2: A Deeper Look At Banks' Source Of Dry Powder [View article]
    Here's a link to a diagram from JP Morgan which shows where your deposits go:

    http://bit.ly/U1OAto
    Jan 16, 2013. 04:39 PM | Likes Like |Link to Comment
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