Pawning Off Collateral Damage
The Nattering One muses... now that the Fed (worlds largest pawn shop) will hold repo paper longer than 28 days,
what happens if the debt(asset) plunges in value and the holder of the pawn ticket doesn't want it back? Who makes up the difference?
Fleck poses the same question.
This latest action by the Fed (the TSFL) will temporarily alleviate some pressure, but it will not change the fundamental problem:
Home prices were in a bubble that has now burst.
People making median salaries in this country can't afford to buy houses. And even folks who make more money often own more house than they can afford.
This problem is going to run its course. There's no bubble to bail out the housing bubble.
Before its implementation (TSFL), the chance of the Fed buying a piece of paper that could deteriorate rapidly over the course of a couple of repo terms would have been small.
The Fed might actually start taking paper at one price and then find out (by the time XYZ financial institution is supposed to take it back) that the paper is trading at a different price.
Inquiring minds would like to know what the Fed would do about these losses if the repo'ing entity was determined not to take back the collateral.
what happens if the debt(asset) plunges in value and the holder of the pawn ticket doesn't want it back? Who makes up the difference?
Fleck poses the same question.
This latest action by the Fed (the TSFL) will temporarily alleviate some pressure, but it will not change the fundamental problem:
Home prices were in a bubble that has now burst.
People making median salaries in this country can't afford to buy houses. And even folks who make more money often own more house than they can afford.
This problem is going to run its course. There's no bubble to bail out the housing bubble.
Before its implementation (TSFL), the chance of the Fed buying a piece of paper that could deteriorate rapidly over the course of a couple of repo terms would have been small.
The Fed might actually start taking paper at one price and then find out (by the time XYZ financial institution is supposed to take it back) that the paper is trading at a different price.
Inquiring minds would like to know what the Fed would do about these losses if the repo'ing entity was determined not to take back the collateral.
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