markjgsmith

home > archives > everything > 2023 > 03

2023/03/25 #

  • cat << EOF > Normal process for banks in distress

    I've extracted the following from a recent episode of the Eurodollar University podcast with Jeff Snider and Steve Van Metre. They discuss various topics but figured it was worth re-sharing the step by step process for better understanding of the dynamics at play.

    In normal times banks going through distress for whatever reason would do the following:

    1. Go into illiquid loan book
    2. Take say 100 million dollars of illiquid loans out of the book
    3. Liquify that by pledging those 100 million dollars to a money dealer like Goldman Sachs or JP Morgan
    4. Borrow US treasuries, not at same value, there’s probably going to be a significant financial penalty, but at least they will lend the bank US treasuries
    5. Then go into the repo market with those treasuries, in order to secure some short term financing, so they can at least keep the doors open
    6. That will keep them from having to fire-sale assets

    That process hasn’t been happening, at least not in enough banks. We know that because the amount of banks going directly to the FED asking for loans has sky rocketed. Total amounts via discount window are much bigger than usual.

    Also 4 week treasury bills mid week (15 March which is typically a seasonally troublesome time) suddenly had a massive drop in treasury bill rates (~60 basis points), much lower than normal. The only reason people keep buying these treasuries at such low rates is likely (the argument goes) to be because they are being used for something other than investment. They are being used as collateral for loans.

    The fact the FED can charge such low rates implies there is a massive need, so points to the fact that many many players (likely the smaller banks) are trying to get collateral in order to get loans.

    Two systemic problems are occurring:

    1. Big banks don’t want to lend treasuries against illiquid assets
    2. Money dealers don’t want to lend cash against the treasuries

    What do they know about the long term illiquid assets that the smaller banks don’t know?

    EOF

Today’s links:

2023/03/21 #

  • cat << EOF > Monetary system link dump

    Quick link dump of podcasts covering the very hectic goings on in the finance industry.

    I've been finding that some of the best coverage has been from Bitcoin podcasts. This is because they are likely currently some of the most knowledgeable about the fundamental dynamics at play because they have had to go through so many ups and downs in such a short period of time.

    Analysing the monetary system is very similar to debugging a gigantic bit of software. The data is spread out all over the place, but it's very much like hunting down a tricky bug.

    If you only have time for one of these, I think probably the Caitlin Long episode was the most insightful, but they are all phenominal.

    EOF

  • cat << EOF > Review: Robolledo RA#876

    Resident Advisor Mix: RA.876 Robolledo

    "Mauricio Rebolledo is one of those veteran artists who has stood the test of time. He can play Burning Man, go back-to-back with DJ Tennis and mentor young producers with unwavering finesse, staying true to his signature sound of sparse, psychedelic chuggers. Where many of his peers have embraced a more commercial sound, the Mexican artist likes to keep it weird, opting for touches of Krautrock and hazy atmospherics in both his sets and on his albums."

    I read this in the mix description and I instantly feel at home, this is the sort of realm I feel comfortable in.

    I start to listen, I stare off into the distance, I am removed from the general flow of things, and I am transported to a place where I am watching myself being defragged, all the chaos of the past few weeks is being neatly, efficiently, effortlessly re-arranged, it feels good, it feels clear, high fidelity, it feels stereo.

    Groups of red green and blue blocks of varying sizes move between shelves in an infinite library of 12 inch records, and music videos, and memories of clubs and gigs I’ve been to, from small 30 person rooms to stadiums and festivals, the euphoria of all these things permeates my self.

    The ropes that tie me down are anialated and I levitate above all struggles, the impossible becomes possible, I see, I sense, I feel paths through the chaos.

    But wait hold on, about 1/2 way through, the world stops allowing you, things become strained and difficult.

    You are tied once again to the Earth, you fall, you struggle, and eventually you accept you are no longer hovering, no longer floating, your head drops, you exhale.

    And then a chorus of angels swoops in like a wind from on high, the beat picks you up, and you’re off again, the bondage of earthly things is once again dissolved and you are free.

    You continue, things are passing, and you realise quite unexpectedly you have reached orbit, a wonderfully retro electronic landscape stretches as far as you can see.

    The trip continues for some time until it gently fades and you glide in and softly land.

    EOF

Today’s links:

For enquiries about my consulting, development, training and writing services, aswell as sponsorship opportunities contact me directly via email. More details about me here.