YouSaid · the spoken record

Chris Whalen

lines on the record: 99
first: 2022-08-22
most recent: 2022-08-22
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Since the counter cyclical buffer, and why Prudential regulators so worried. Because they look at the volatility that the Fed has injected into the markets by moving them around 300 basis points up and down. That's the problem. Most companies are small. There's only a very few large financial institutions in this country. You'd be surprised how small they get when you go down the list. They can't manage volatility the same way Jamie Diamond can. Jamie Diamond's run in a small country. He can stop doing business with people outside of JPMorgan.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Backing away. This is something we haven't talked about. While the Fed is doing all the neat things we've been talking about, they're raising capital on the top 50 banks. So Jamie Diamond and all of these other guys who've been providing finance to fintechs and mortgage companies, they're backing away. Isn't that great?”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“It's changing. I've actually just looked into this. The Homo banks are suddenly, there seems to be more loan demand. They suddenly expanded their loan borrowing by like 200 billion the past three months. So it seems like there's more demand for home loan advances these days.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Oh, yeah. I mean, Joe was talking about the federal home loan banks today. They're actually up in the 3.5% range yield wise on their paper right now. So they're paying 3.5%, but they're not making any money. They're underutilized. In fact, I'm hoping that Sandra Thompson, the regulator for Fannie and Freddie, reopens the gates for the rest of the family. That they can come in and borrow from the home loan banks before they go out of business. This is going to be a tough year, guys.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Right. If you borrow at 3% and then rates go from 3% to 6%, you never refinance at 6% unless you had some life event. So prepayments crash. And as a result, the duration of the mortgage-backed securities extends.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Want a copy of the certificate to put on the wall because we may not see a 3% coupon on a fannie jumbo loan like that for a long time.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“That's right. I mean, if you think of it now, right now in Fannie Mae, the... Mortgage security that's closest to par is a four and a half, that means that the loans inside that security are typically going to have five and a half to 6% coupons at a reasonable rate, but those threes that we minted a couple years ago that are inside of Ginny May 2 are going to be around for a long time. In fact, a funny thing, realtors are starting to rediscover the concept of assumability, which is a sell a house for somebody that has a 3% loan from the FHA, and the new buyer of the house can assume the old mortgage. So, this mortgages may never prepay. Why should they? Valuable. My Dutch wife wanted to pay off our 3% last year. I was like, no, we're keeping that loan forever. We're going to frame it.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“The two-year treasury is 3.2%. No one wants to So their lower coupons that are, as you point out, extremely hard, much more difficult to hedge the interest rate change, especially when the two-year is bouncing around 20 basis points a day, trading like a meme stock, and also all the liquidity is in the five, six, seven coupons.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Labyrinthine financial structures. This time it's all about not credit risk But liquidity risk and primarily interest rate risk. So, Chris, when you said those Jinnie May ghettos of a two coupon, you're talking about Mortgage backed securities that were guaranteed by the US government, quasi guaranteed or fully guaranteed. Jenny May, they're fully guaranteed, I think, and they have a coupon, meaning they yield 2%. And those were issued in, let's say, April or May of 2020 when the 10-year was at 50 basis points. So a two-year percent was a really good deal. And those securities were flying back and forth all across from LA to New York to LA to New York to Europe. Everyone was trading them all the time. But now that the tenure treasure rate is”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“So it's harder to fix this, but I think what we've described here for the viewers is that when you mess around with the markets and you move them 300 basis points, and now the Fed is letting them go back to fight inflation, you have a problem structurally in the market. And it's going to be here for a long time. These old mortgage securities won't prepay for 15 years. Howell will be retired in a nursing. Time those Jimmy May 2s finally disappear on the Fed's balance sheet. Just to give a little context for”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“But it's more than natural, so if they are admitting grudgingly, that they made a terrible mistake with quantitative easing because they created this ghetto of low income, low coupon securities, both treasuries and mortgage securities that no one wants. The cost of hedging these securities is two or three times higher than the on the run stuff that the treasury and the mortgage companies are issuing today. And so it's nice that we could fix it with treasury as you buy the old stuff at a discount, you issue new. Okay. The problem with mortgage backs, so is are you going to impose two or three trillion dollars in prepayments on the Bank of Japan? No, they're going to be very”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Just think about it, guys. Once upon a time, we had a fiscal surplus, and the treasury was like, I got to save the taxpayers money. So, you know what I'm going to do? I'm going to buy back some high interest rate debt, save on the interest rate expense. That's so sweet. But now it's like, oh, we have a trillion-dollar deficit. What do we want to do? Let's print more. So it's just a totally different world.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Roll off increasing the duration in the market, hiking interest rates up to tighten financial conditions. And then that causes liquidity problems, that causes problems. And then there's all these sort of solutions that everyone else proposes where it's like, oh, well, the treasury will help support. And make an easy QT happen. But isn't the whole point that it's difficult? Isn't this kind of like the Fed is turning on the humidifier, then the Treasury is turning on the dehumidifier at the same time? Don't you have to let the humidifier run?”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“And then also in this, well, they're undoing twist. They're making up for their earlier mistake was a disaster. This is Janet Yellen, by the way. Don't forget, she's the author of Twist.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Footing the idea of treasury buybacks. So the U.S. Treasury in the refunding minutes kind of folded the idea of maybe we could do buybacks. And what that means is that they'll issue more Treasury bills, very short data treasuries that the money market funds can buy and use the proceeds to buy coupon treasuries longer duration. So it's kind of like a twist, basically. And that will definitely help strengthen the treasury market. But there's a limit to how much they can do, but it'll help.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Now, as I mentioned, as we were just talking about a few moments ago, the amount of supply coming online this year is about 1.5 trillion, taking into account QT. Next year, 1.5 trillion. And from then on, it's probably going to be around a trillion forever. And that's a whole lot of supply just for context just a couple years ago, just pre-COVID, we were issuing about 500 billion a year. Now, who's going to buy all that? Now, before COVID, it was the hedge funds. Post-COVID, it was the Fed and it was the commercial banks. Now I don't know who's going to buy that. So you have a lot of supply coming online and I don't know who the marginal buyer is. Add into that. You have a lot of Trojan market that has very poor liquidity. You see the 10 year just jumping around almost like a MEMS stock. It almost looks like the Fed is trying to stress test the Trojan market. So I think there's a potential for some accident there. And one of the ways that the official sector is trying to get ahead of this is that there”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Something really weird is happening in the markets the past year, so stocks have sold off and bonds have sold off. And a big reason for this is because the Fed's reaction function has changed. So we had this discussion with Alpha a few videos ago and he explained it very well, is that when the inflation is rising, so the Fed is going to be hiking rates, that means bond prices have to sell off as a bond's price into the price those rate hikes in. So that's part of it. That's part of the reason why when stocks file now, bonds also fall because they know that the Fed is going to hike rates because there's inflation. But looking forward, though, I think what I'm worried about is just that the amount of supply of bonds coming online is just tremendous. Ultimately, when I think about what determines longer-term interest rates, it's going to be supply and demand. So someone has to be able to be willing to buy treasury at a certain price.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“They were willing to help the Roosevelt administration track down Americans and force them to give up their gold just so they could inflate the currency. So you always got to remember there's an authoritarian aspect to the Fed that we can never get rid of. It's just part of the nature of the institution.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Well, you know, we used to be able to go into the lobby at the Fed in New York and transact business. But after the 30s, that went out of vogue. They confiscated all the gold and then people were afraid of the Fed. People forget that the Fed helped track down individuals that own physical gold in the early 30s, even before the law was passed.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“They want to have a CBDC. Oh, Fel now, that's going to happen. CBDC, not necessarily, depends on who's in power, but. Know that means that they're going to be able to track and see what everyone does, and maybe if they don't like you, maybe you don't get an account.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“You know, if they don't kind of check the power of the Fed, think about the things they're thinking of doing right now, right? They want to green the financial system. What is that going to mean, right? Let's say you're a bank. You want to make a loan to someone who's in oil and gas or extractive industries? Maybe the Fed causes you problems, right? That might be how it works.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Joseph, the tenured economist. And yet, you know, my concept would be, let's go back to 1929, get rid of the Federal Reserve Board entirely. We've got to turn three of the Western branches into full reserve banks, and then we subject them all to Senate approval. Get it out in the public, and we close down that building in Washington, by the way. We can make it a homeless shelter.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“It's a New Deal socialist institution. That's what it is. You know, the whole concept of a central bank is a socialist concept. So, you know, I guess we shouldn't expect any more from them, but the thing that bothers me is the lack of sensitivity that they have for what they're doing to the markets. They don't seem to mind. And then they model things like reserve requirements that you were talking about earlier based on a percentage of GDP. This makes no sense at all, but that's what they do because it's the only thing they can talk about at the press conference that people would understand. There's such a lack of understanding of finance and economics in Washington that you can't get more complicated than that. I mean, Chair Powell has used the word duration a couple times. It just went right over everybody's head. The people at the press conference are basically groupies for economists, the people you were just describing.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“I've been thinking about that a lot too. So just from my time at the Fed, so I noticed that the people who make all the decisions at the Fed, they basically just get there by getting in early and writing it through seniority, and they can never be fired, and they eventually over time become more senior and accumulate all this power. So this is not just at the Fed, but it's at any agency, right? Secretary of the State Department, military, or any department, you have this entire small army of bureaucrats who wield enormous amounts of power because the government has control over so many things. And these people, you never see them, you don't stand for elections, they never get fired, but they hold so much power.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“And yet, you expect them to supervise our central bank. Nah, they don't want to know is the reality. The last thing they want to do is ask Chairman Powell a question, you know, that he can't answer.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“That's the context for quantitative easing, Joseph. The Treasury was running a balanced budget, Chairman Powell wouldn't have to worry about the market. But it's because the Treasury has sludged large deficits, Fed monetary policy has to lean in that direction. So forget about inflation, right? You know, I'll tell you guys a funny story. I was the first journalist to write about the secret Fed minutes. If you go back and look at the Fed research, I was the first one. My dad's wire service wires Washington did the work. And it was because I knew Henry B. Gonzalez. Henry B from Texas used to ask a lot of questions, and he would read everything. You'd have hearings that went on for eight nine hours he'd ordered dinner. You weren't allowed to leave. Today, the people in the house financial services committee are a joke. Maxim Waters can't even find the light switch without help.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“And Sherell is putting chemicals on top of this every day to see what happens. But they don't know. It's clear from his comments in the minutes and the press conferences that he doesn't know how much of a balance sheet reduction equals how much Fed funds. He has no idea. But we're going to find out”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“So it's hard to find somebody out there that benefited more than the US Treasury from quantitative easing. And yet we don't have a member of Congress who can ask Chairman Powell about this. They are a real disappointment, I must say, the current crop of congressmen. Think about who we had in Congress a hundred years ago, who actually understood finance and could barbecue Chairman Powell. But there's nobody to ask him questions now, so they do what they want. Like, as Joseph was saying, they nationalized the Fed funds market. Great. People have to realize is that the U.S. bond market is a reason we're different. And if we mess with this enough, and then we wonder why we don't bounce after a crisis like COVID or a recession, that's why. So if we let these folks at the Fed continue their social engineering and their experimentation on all of us, you know, we're like a lab experiment. We're a little petri dish.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“That's really the downside of QE. It's kind of like heroin for a while. It feels great, but then you want more. And as you expand the balance sheet, really who is the big beneficiary other than those companies that were issuing debt, right? It's the Treasury. We monetized the cost of the Treasury issuance on every bond that the Fed bought. And then they took the income from two and seven trillion dollars or the mortgage securities, and they gave that to the Treasury.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Taking into They were, but it's a terrible misallocation of resources. I mean, if you look at the losses that have been taken on those securities that were issued during 2021, look at the losses of both equity and debt in fintech and mortgage and crypto and main stocks. All of this, you're right, was the result of the Fed. We basically shifted the credit curve a full notch so that a company that was a single B or double B could come out and raise debt at an investment grade spread. Well, now they're not trading at investment grade spreads anymore.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Chris, I want to ask you about securities. You mentioned that the quantitative easing over the past two years, it failed to stimulate lending from commercial banks. But I really think that's the old fashioned lending. Oh, I might lend against your house. I'm going to lend a consumer loan, a commercial, an industrial loan. So the party wasn't really going on there, but the party was in full flush in the securities market investment grade, bonds, CLOs, high yield bonds, the stock market, IPOs, SPACs. Can you just speak, Chris, to the effect of quantitative easing on the securities market? You know, I actually was speaking to”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“And so they're lending a little bit of money to basically foreign banks, hoping that the foreign banks would pay them a little bit. And then the foreign banks take the money and deposit it to the Fed and earn that IOR spread. So, for example, they could borrow from the home loan banks at, I'd say, 50 basis points, turn around and deposit it at the Fed for 60 basis points, and earn 10 basis points read. That's usually how it works.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“The federal funds market, it's been ticking up a little bit. I think it's around 80, 90 billion now. The repo market. Oh my gosh, it's like $3,000, $4 trillion. So the world has really changed. The federal funds market used to be an important market pre-GFC because pre-GFC, there wasn't a lot of reserves in the system and banks needed them to make payments and so they would go and borrow from other banks to get them. Post-GFC, like you mentioned, Jack, because of QE, there's just so much more liquidity in the banking system there's really no need to borrow. The funny thing is that the only people who are actually lending in the Fed funds market these days are the home-owned banks and they're not commercial banks. They're basically the special kind of GSE that actually doesn't receive interest on reserves. So they get zero in their Fed account and they're desperately trying to earn a little bit of money. So they're lending”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“But now that there are so many reserves in the banking system as a result after the great financial crisis and quantitative easing, it really is the reverse repo rate that is the bulk of the action. Joseph, perhaps you can give us some ballpark numbers on just how much larger the reverse repo market is than the federal funds market and why that's significant.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I don't know. I think it's not like when I was a kid years ago when all the demand pull inflation from young families was the big policy concern. We have a very different population now and we have global demand for dollars that we don't even talk about at Fed minutes.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“That looks like the plan so far, just basically higher for longer, as they would say. Raise it up to what they think of as, let's say, 3.5%, 4%, moderately All restrictive, just leave it there for a while. And you've had a lot of commentaries saying that the error of the 1970s was that we cut rates too soon and then we had to raise them again. So we don't want to make that mistake again. We're just going to Resolution, what we think is a restrictive stance and just keep them there for a while. I guess the question is, is 3.5% actually restrictive when inflation is like 8%? I don't know”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And I'm hoping they just raised rates, the target rates a couple times between now and the end of the year and then just leave it there and see what happens with the balance sheet, right?”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Billion in mortgages. And as you know, Chris, and we'll talk about it later, they probably won't get there because of the prepayments and so forth. But I think they're going to proceed on their current plan and let it run on autopilot starting in September.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“That's a really good question. You know, my sense is from reading commentaries that Cherpau was on the FOMC during the time of the Taper Tam trip. And so that's just made him more cautious. And remember the last time we did QT, it was perceived that that contributed to the repo market exploding. So that makes them a lot more hesitant. Also hesitant because the treasury market blew up in March of 2020. So he wants to be extra careful. He's kind of erring on the side of caution and kind of dragging this out. But I think, though, that we're going to proceed as he telegraphed. So we're going to get 60 billion in treasuries and 35.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Well, in theory, the Fed's going to be able to reduce the asset side of the balance sheet and then see the liability side go down. That's what our friend Bill has written about and his colleagues who do great work. But at the same time, Chairman Powell, Joseph's been signaling that he's not really comfortable. In fact, he delayed six months the runoff date for the balance sheet because I think they're still trying to figure it out. How do you read this? I'm taking Jack's thunderway, by the way.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“And before money market fund reform, it was like hundreds of billions of dollars. But after money market fund reform, the funds that were doing this lending, these were the prime money market funds, they shrank a lot. They lost a trillion dollars in assets. So their ability to lend to commercial banks to do that ARP is a lot smaller. And so if you don't have a lot of money being able to do that ARP, then there's, I think, less of a drain of the RRP into the banking sector.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“I think that would have worked before Money Market Fund return, but it's a bit harder now. And the reason being that the way that that mechanism used to work is that you had some banks, mostly foreign banks, who would go out and borrow reserves at a low price and then deposit it at the Fed to earn IOR. This trade caught basically IOR arbitrage was responsible for a lot of the demand in the federal funds market and overnight unsecured borrowing in general”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“I did see that you mentioned that, that Bill Nelson, who was a very senior formerly senior person at the Fed and also a great economist, mentioned that one way that you could help drain the reverse repo facility would be to raise the interest on reserves higher than the spread between the interest rate on IOR to RP just widen that spread as a way to incentivize banks to hold more reserves. That way they won't push so much of the money into the money funds, which end up in the reverse report facility, right?”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Is helpful What do you think happens next, So Joseph? You think that they push the radar reserves up and they leave the reverse rate where it is?”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“To your point, to your point, note the reverse repo facility was at 1.0, but they raised it five basis points, you know, and that helps the money market funds a lot. Otherwise, they'd be making no money at all.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“Well, don't be because the first step Joseph drove rates down more. And so these money market funds that were on the verge of going out of business come to the Fed and say, would you lend us some securities that actually ever return? And so step two is what you just described, which is that they have nowhere left to go. So they go back to the Fed. And the Fed is now lending them the securities that they bought from JP Morgan.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“No one knows what the Fed is doing. So look at where inflation is. But I would just add to Chris's note, like Jack, like you said, the Fed did all this quantitative easing and it bloated the bank's balance sheet and they didn't like that, as Chris noted. So one of the things they've been doing, the commercial banks have been doing the past couple years is actually asking some of their depositors to take money out and deposit it into the money market funds. So one way a commercial bank can do to shrink their balance sheet is to ask people to take money out of their bank account and put it in a money market fund. And when that happens, then the money market funds get a whole bunch of money that they don't have anywhere to put and end up being put into the reverse repo facility. And that's why the reverse...”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“One hand had two roaring years twenty and twenty one, but now we're kind of back in a recessionary deflationary mode. And look at the mortgage sector. People are going out of business left and right. It's kind of feast and famine. It was the best of times and it was the worst of times. And now we're in the worst. And just today, Jinny May just put out new capital requirements for a bunch of issuers that are going out of business. So I thought that was nice. Kind of a little cherry on the top of the cake. And this is all central bankers trying to help us. Maybe Joseph can help us understand why this is helpful. Joseph.”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT
“As you said, Jack, it made them bigger. They got a lot of short-term reserves at the Fed, which is cash, but they couldn't do much with it. You're not going to go make thirty or more mortgages or ten year commercial loans with it. So it made them bigger. It pushed down their returns on assets and on equity. And it essentially, I think retarded lending because it had the effect of pushing interest rates down dramatically. So if you look at JP Morgan City, the big guys, right, they're making barely three percent gross before administrative costs and funding and everything else on a commercial loan. Why did they want to do that? So I think it disincentivized credit creation in a strange way, and it pushed it off into the world of fintechs who have now collapsed. So, you know, the economy...”
2022-08-22 · Forward Guidance · The Fed’s Ticking Time Bomb Is About To Explode | Joseph Wang & Chris Whalen · IDENTIFIED FROM THE TRANSCRIPT