The Five D's - Part II
Now the Fed is rehypothecating crap collateral (MBS) in a massive ponzi scheme which may blow up in their collective faces. Since off balance sheet derivatives are now covered under FDIC insurance, we will pick up the tab on that one as well.
The central bankers have introduced "artificial ingredients" into the mix. And the perversion of capital it has led to, along with the debt they so enjoy wallowing in, will be our ultimate undoing.
The four D's: Dollar Denomination, Debt, Default, Derivatives. The synergy of the first four can often lead to the fifth D, deleveraging of a disorderly fashion in global markets.
Collateral calls on underlying "assets" which, much like a Ponzi scheme, really either weren't of merit (crap collateral posted for repo) and/or there in the first place (rehypothecation), resulting in "liquidity traps" for those lacking enough real HQLA assets or cash money, resulting in the fifth D: deleveraging of an unorderly fashion in global markets.
But its different this time, and it always is (sarcasm)... In previous "vortex's" the banks were the end game as a depositor could demand his funds from cash on hand, or the crap collateral (MBS ABS) got a massive haircut and there were backstops. This time the dynamics are completely different, as in insufficient backstops because all the money is not in banks, but in ETF's and Mutual Fund's who have little to no cash on hand.
The unwind going on at Pimco is typical as it takes 40-60 days to sell the actual underlying asset. In the meantime, in order to satisfy the customer payment demand, or collateral call, the fund must liquidate more liquid assets, those being SP500 stocks and bonds.
To complicate matters, for those doing business outside US borders with dollar denominated debt, the Eurodollar is in uber demand and being hoarded, hence the self reinforcing dollar squeeze. So better hope the vortex doesnt get out of control, because as Jeffrey P. Snider eloquently puts it, "the exits are narrowed" and when the elephants all try to get out at the same time.... well you know.
The central bankers have introduced "artificial ingredients" into the mix. And the perversion of capital it has led to, along with the debt they so enjoy wallowing in, will be our ultimate undoing.
The four D's: Dollar Denomination, Debt, Default, Derivatives. The synergy of the first four can often lead to the fifth D, deleveraging of a disorderly fashion in global markets.
Collateral calls on underlying "assets" which, much like a Ponzi scheme, really either weren't of merit (crap collateral posted for repo) and/or there in the first place (rehypothecation), resulting in "liquidity traps" for those lacking enough real HQLA assets or cash money, resulting in the fifth D: deleveraging of an unorderly fashion in global markets.
But its different this time, and it always is (sarcasm)... In previous "vortex's" the banks were the end game as a depositor could demand his funds from cash on hand, or the crap collateral (MBS ABS) got a massive haircut and there were backstops. This time the dynamics are completely different, as in insufficient backstops because all the money is not in banks, but in ETF's and Mutual Fund's who have little to no cash on hand.
The unwind going on at Pimco is typical as it takes 40-60 days to sell the actual underlying asset. In the meantime, in order to satisfy the customer payment demand, or collateral call, the fund must liquidate more liquid assets, those being SP500 stocks and bonds.
To complicate matters, for those doing business outside US borders with dollar denominated debt, the Eurodollar is in uber demand and being hoarded, hence the self reinforcing dollar squeeze. So better hope the vortex doesnt get out of control, because as Jeffrey P. Snider eloquently puts it, "the exits are narrowed" and when the elephants all try to get out at the same time.... well you know.
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