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Was there a financial crisis toward the end of 2019?


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2022 Jun 16, 1:33pm   879 views  12 comments

by GNL   ➕follow (1)   💰tip   ignore  

The details are unclear to me. If I remember correctly, there was an interbank overnight lending crisis in 2019. This caused TPTB to use Covid as an excuse to inject trillions of dollars into the system to save the system. Am I correct in any way about this? Can you expand on this topic? Thank you.

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1   Ceffer   2022 Jun 16, 1:40pm  

"We need to imprison you in your homes, take away your freedoms and rights, destroy your country and your Constitution, eliminate your country's borders, foist a fake pandemic, steal a Presidential election while nullifying your votes, wreck your small businesses, alter your DNA, chip you like lab rats, kill as many of you as possible, and lie to you relentlessly in order to balance our books. Thank you for your understanding."
Your Friendly New World Order Banksters

Well, since they put it that way, I guess I can forgive them and understand now.
2   stereotomy   2022 Jun 16, 3:27pm  

There was just a PatNet post on this - hat tip to @Bd6r.

Short answer - yes there was. The FED injected 9 TRILLION into the repo markets to stave off a CLO implosion.

Here's the direct link:

https://thephilosophicalsalon.com/a-self-fulfilling-prophecy-systemic-collapse-and-pandemic-simulation/
3   Al_Sharpton_for_President   2022 Jun 16, 4:10pm  

You own $20,000 of gold bullion that you lend to Bob, who gives you $20,000. You also pledge the gold bullion that Bob has borrowed as collateral for a Citibank loan of $20,000.

******************

“At the heart of the financial crisis, perhaps the most critical element was the lack of visibility into the counterparty credit exposure of one major financial institution to another. Probably the most glaring omission that needed to be addressed was that lack of visibility, and here we are in 2016 and we still don’t have it.”

Auditors can’t help here, and the accounting profession bears some of the blame for this problem. In June 2014, FASB updated the US GAAP accounting rules for repos. Here’s what the books of three parties show when a transferee (Party A) sells pledged collateral to a third party (Party C):

Party A owns a particular US Treasury Bond, showing an asset of $100.

Party B borrows it, showing a liability of $100 ($100 of securities sold, not yet purchased).

Party C shows an asset of $100.

If you add up the positions of all parties, economically there’s no problem because the net of the two longs and one short position add up to $100. The problem arises when you aggregate the three US GAAP financial statements.

Both Party A and Party C report that they own the same asset (!) The balance sheets balance because Party B records a liability, so auditors don’t catch the problem. When that same bond is reused again and again and again in similar transactions, the magnitude of double counting within the financial system builds in a manner that no one can accurately measure.

For years, IMF economist Dr. Manmohan Singh has done terrific work estimating it (see examples here, here, here, here, here, here and here).

Singh has been recommending for years that regulators’ financial stability assessments of big banks be adjusted to back out “pledged collateral, or the associated reuse of such assets.” Financial regulators should have followed his advice years ago!

What does this mean for markets in the short-term? No one knows, but I doubt this is “the big one.” Sure, the repo market is flashing red sirens. But the run on repo can be stalled in one of two ways: (1) banks raise new equity capital, or (2) the Fed injects more dollars into the system.

Yes, it’s true that a run in the repo market is serious, since the big banks are still overly reliant on it and one dropped ball by the Fed could quickly turn the brush fire into an inferno.

But, as usual, the Fed will almost certainly do what it always does—stem the run by injecting cash into the system in various ways, thereby socializing losses among all US dollar holders.

https://www.forbes.com/sites/caitlinlong/2019/09/25/the-real-story-of-the-repo-market-meltdown-and-what-it-means-for-bitcoin/?sh=575d0cf57caa
4   stereotomy   2022 Jun 16, 4:26pm  

Al_Sharpton_for_President says

What does this mean for markets in the short-term? No one knows, but I doubt this is “the big one.” Sure, the repo market is flashing red sirens. But the run on repo can be stalled in one of two ways: (1) banks raise new equity capital, or (2) the Fed injects more dollars into the system.

That's indeed what the FED did, to the tune of 9 TRILLION dollars.
5   GNL   2022 Jun 16, 5:06pm  

Al_Sharpton_for_President says


But, as usual, the Fed will almost certainly do what it always does—stem the run by injecting cash into the system in various ways, thereby socializing losses among all US dollar holders.

1) What do you mean by "stem the run"?
2) What if the Fed did NOT inject cash, what would happen?
3) By injecting cash, does this cover up any malfeasance?
4) Auditors don't catch the problem because it is some kind of anomaly?
5) No one is to blame?
6) Could the injecting cash by the Fed be considered bailing out the financial institutions?

Awesome of you to answer my question. Thanks.
6   GNL   2022 Jun 16, 5:17pm  

It would seem that this was intentional in a way that cannot be blamed on any 1 entity, except maybe GAAP, correct? How did the double, triple etc accounting of said asset effect profits and/or juicing the economy? Did people profit handsomely from this issue? Is there a victim? As in, who ultimately pays for this mistake?
7   GNL   2022 Jun 16, 5:18pm  

Some are positing that this issue is what caused the infusion of trillions and not Covid. Covid was cover for the cash infusion.
8   Patrick   2022 Jun 17, 11:22pm  

Yes:


This is what happened with the ‘repocalypse’ of September 2019: interest rates spiked to 10.5% in a matter of hours, panic broke out affecting futures, options, currencies, and other markets where traders bet by borrowing from repos.


https://thephilosophicalsalon.com/a-self-fulfilling-prophecy-systemic-collapse-and-pandemic-simulation/
9   richwicks   2022 Jun 17, 11:59pm  

WineHorror1 says

If I remember correctly, there was an interbank overnight lending crisis in 2019.


Yeah, this happened. I wrote about it here: https://www.patrick.net/post/1335674/2020-10-20-we-will-never-go-back-to-normal
10   AD   2022 Jun 18, 12:15am  

Yes, the September 2019 crisis led conveniently to COVID lockdowns and greater than exponential increase in M2 money supply

https://en.wikipedia.org/wiki/September_2019_events_in_the_U.S._repo_market

The current bear market is just a continuation of the March 2020 bear market, which was due mainly to the 2019 repo event.

And all of this is just a continuation of the 2008 financial crisis. We never really recovered and we borrowed without hesitation when you examine Debt to GDP ratio.

I remember back in August 2013 listening to a panel discussion on CNBC and them stating that about 50% of the stock market gains from 2008 to 2013 were due to Federal Reserve policies not because of productivity and innovation gains.

,
11   PeopleUnited   2022 Jun 18, 4:54am  

WineHorror1 says

this was intentional in a way that cannot be blamed on any 1 entity, except maybe


12   Al_Sharpton_for_President   2022 Jun 18, 5:21am  

WineHorror1 says


Did people profit handsomely from this issue? Is there a victim? As in, who ultimately pays for this mistake?
You start an "investment company" where you raise money in the short-term lending market by providing collateral that you do not own outright, and invest the money in higher yielding assets. Eventually this fraud gets so out of control that institutions do not trust the collateral claims of other institutions ("the music stops"), and so the Fed prints trillions of dollars to inject into the system, debasing the dollar. Oh, and as an executive of said company, you are paid handsomely.

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