The Repo Market Clunker Program

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One of the largest and most active sectors of our financial market is the repo* market. Repos are delivered through major banks, JP Morgan and BNY Mellon. It is vital to our financial system. Of course, the repo market cannot do all that well with zero interest rates since it relies on making money on the interest.

Repo investors are approved by the Feds, which one would assume is enough for the government, but it isn’t. There’s another crisis coming!!!

Riding high on their success with the post office and Fannie & Freddie, the Feds and the U.S. Government are now planning to take over the repo market. Instead of using private banks such as JP Morgan and BNY Mellon, the Feds believe they need to be in total control.

Many officials at the Fed believe that such a role [i.e. delivery of repos] may not be appropriate for private institutions and that a public sector body may be more appropriate, according to Financial Times.

The same government that loses jobs and magically reports improved employment numbers at the same time is the same government we want in charge of delivering repos. The wunderkinds who brought you cash for clunkers and helped destroy perfectly good used cars is now bringing you yet one more government takeover. What could possibly go wrong with that?

The administration has its usual alarmist concerns about the risk inherent in private banks delivering repos yet they can’t fix the post office.

The fact that the government and the Feds have kept the interest rates at zero, making the cash purchases in the repo market moot, seems like it could be more of a problem for the repo market than anything else so why would we think the government can handle this?

I wonder if Corzine will be available to take charge? He might be too busy advising Obama and Biden.

I agree there is a problem and the big banks have taken on way too much, but I’m for keeping this in the private sector with government oversight. I’m not an economist, but there is something about the government running everything that says ineffective Socialism to me.

*A repo is a short-term interest-bearing loan against collateral. It is basically a cash transaction. It is for big monied investors and does not bring in large profits, but it is secured as opposed to Fed funds. The Feds use the repo market to stabilize interest rates.

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