YouSaid · the spoken record

Scott Skyrm

lines on the record: 86
first: 2022-11-29
most recent: 2022-11-29
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

“Put it on screen again. Thank you. Anytime, let's do this again in six months, and we'll see if anything I said was correct.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“is there and can absorb a lot of collateral from the market, and theoretically that should eliminate the chance of a rate spike like we had in September twenty nineteen. However, with bank balance sheets that are restricted by Dodd-Frank with leverage ratios and special leverage ratios, SLR, there's times when banks kind of close down their balance sheets, and that tends to be on quarter end. So if there is going to be a rate spike, chances are, you know, it's going to be on a quarter end or a year end or something like that when banks do not will not be there to add balance sheet to pretty much support the market because they've got leverage ratios that they have to meet.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right, exactly. So in September 2019, there was no standing repo facility, SRF, which is just like the RRP facility, but the opposite. So in the standing repo facility, the Federal Reserve takes collateral from the market and gives the market cash. And of course, it's just the primary dealers that are allowed to access the standing repo facility. So it is my prediction that at some point in the next year or two, the overnight general collateral repo rate, which is right at the bottom of the Fed funds target range, is going to be at the top of it in the range because there's more supply of securities coming into the market. And then once it's at the top of the range, primary dealers are going to be taking securities from their customers and putting it into the Fed each day in the standing repo facility. So the standing repo facility.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“But then when if it goes above the corridor and if it goes extremely above the corridor, that's when you have a real sort of very much a tightness in the repo market, which is what happened in September 2019. But in 2019, the Fed rolled out its repo facility. It said, oh, we will lend reserves to the banks. So do you think that the risk of a 2019 happening again is somewhat slim, not because it wouldn't happen naturally, but because the facility is there? Like, don't worry, the Fed has your back.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right. So the official Fed funds corridor is for Fed funds when they release their announcement at the FOMC meeting. Right now it's between $375 basis points and 4%, then the RRP rate, just a little bit about 380. So you're saying if commercial banks wants to take money from that facility, they got to go, oh, we'll do 385. But then we'll do, oh, 390, 395. So suddenly as money gets a little bit tighter and tighter, it goes up towards the top end of the corridor.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You know, available to loan to the money market fund. So the money market funds, therefore, instead take their cash and they've been giving it to the Fed during the RRP program. But the mechanics of it is as there's more Treasury securities in the market with balance sheet runoff is that the banks, and I don't know who owns these securities, it could be hedge funds, it could be parts of the bank, but the banks are going to have more U.S. Treasury securities to finance in the repo market so that the banks are going to offer the money market funds. Well, the RRP rate right now that you get from the Fed is 380. The banks are going to have to start saying, we'll pay you $385 if you take that cash out of the Fed and give it to us because we have more securities now. We can pay you a higher rate. Right. So the official Fed.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so with money market funds, 2A7 funds, they can go out to a certain maturity. I know it used to be 15 months or something like that. I'm not exactly sure what it is now. But yeah, so money market funds can buy treasury bills. But when they had money market fund reform back in 2015, 2016, 2017, a certain amount of money fund cash has to be invested overnight. And anytime you have money market funds investing cash overnight, it's almost always going into the repo market. So that turnover is money market funds have so much extra cash they can't go to the banks and invest the cash in repo because the banks don't have enough balance sheet or they don't have enough securities”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“As there's more treasury issuance and balance sheet runoff, it's going to drain cash from the RRP. And that might take a year or so, but at some point the RRP is going to be down to zero after there are enough securities that came back into the market from balance sheet runoff, aka quantitative tightening.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“The opposite. So the RRP is a reverse. Sorry, I always get confused. You had all the mechanics, but it was just the opposite way. The market participants lend cash to the Fed. But everything else there was correct. So basically, so there's 2.1 trillion right now. We're down 100 billion in the RRP in the last two weeks. Interesting. So the RRP facility is 2.1 trillion right now. And as more securities come into the market, the repo market is going to need more cash to finance those securities. So the money market funds that are giving cash to the Fed are going to start giving that cash to the banks and broker dealers to take treasuries that are coming into the market from”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right, so Scott officially the reverse repo facility is a facility that allows commercial market participants to be a reverse repo in which the Federal Reserve itself is a repo. So commercial banks sell, they lend their treasuries to the Federal Reserve as if the Fed need securities at all, and the Federal Reserve pays interest on it. So it's effectively, not really, but it's effectively a deposit.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Paid an interest rate on that cash. So what the Fed did was they bought too many securities, injected too much cash into the market. The market had all this cash, but it was too much, so they ended up giving the cash right back to the Fed and investing it at the Fed. So really when you look at it, it's a clear sign that the Fed kept QE going way too long, probably $2 billion worth of cash injection too long.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly. Exactly. Someone really must like the repo market to be here this long. So here's what is going to happen in the repo market over the next few months. And it's already starting to happen now. So the RRP facility got as high as maybe 2.3 trillion or so. And what the RRP facility is, is that it's a holding tank for liquidity. So because the Fed did too much QE and they took too many securities out of the market, injecting too much cash into the market, money market funds, all sorts of investors ended up with a lot of cash. So ironically, the RRP facilities where cash investors like money market funds, bank investment portfolios, they can give cash to the Fed and get.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So I try to get out of the weed. I try to stay out of the weeds and you want to put me in the weeds. I'm happy to go in the weeds. It's okay.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Zero hedge and find that. So if you want a lot of details about the repo market panic of September 2019, it is out there online. But other than that, the repo market is going to be very interesting. The repo market is if the financial industry is the part of the engine of the economy, the repo market is agrees that lubricates the engine because when you can borrow and lend cash and borrow and lend securities pretty seamlessly, it's very easy to buy and short sell and it's very easy to have very liquid and tight spreads in the market and it's very healthy for the market to have a repo market that's very seamless. And liquid. And there's no problems in the repo market at this point. But I fear down the road there's going to be some issues.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think the repo system's very healthy right now, and there's more supply coming into the market and bank balance sheets are going to be tighter going forward because banks and broker dealers like my company are intermediaries. And we finance positions in the U.S. treasuries and the repo market for our clients. So the repo markets function just now just right now. Year end will be kind of interesting. We'll see if there's some tightness in bank balance sheets. And there's no problems at any point. Also with the September 2019 repo market panic as I called it. I actually put a white paper out about that which zero hedge picked up also. So you can probably search.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“I don't know. I don't know. I will know before it happens, I think. But at this point, something's going to break and your four things are really spot on. I think it'll be something in there. Yeah, I think that some problems are going to arise and all goes down to the FID's dilemma of which one which choice they're going to make. Now, of course, If anyone wants to keep anybody's involved in the repo market and needs repo financing, they've got my name, you know where to find me. And I provide a lot of information on the repo market to our clients. And I think they're better off in their financing positions because they get a lot of good information that they can't get in. Other places.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“There's more details in my paper, and I'm sure you could just someone can look up on Zero Hedge and find the paper, you know, look up my name. But I think that's something and maybe in six months you can have me back and I can say, hey, remember six months ago, you know, people need to watch your podcast more because they're getting good information here. So that's kind of my biggest prediction and stuff with the markets. That's a Fed's dilemma.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“In my view, the Fed tightening rates is a natural part of the market. We've been through it ups and downs many, many times before. So it's something that happens. Rates tighten. It slows down the economy. And that's a natural mechanism of the financial markets. Balance sheet runoff was only tried once before. And eventually the repo market blew up in September 2019. And at that point, they only put 670 billion worth of securities in the market. And right now we're going to put, you know, so right now the Fed and the treasury is running at a pace of putting a trillion dollars of securities in the market every six months. So I would say if my view, and of course.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“The market to absorb every month, and at some point something's gonna break because you can't have that many securities coming into the market. So therein, in my view, lies the Fed's dilemma is that they want to shrink the balance sheet because they've got to control inflation. But if they shrink the balance sheet, they're going to be putting a lot of supply into the market. And if they put that much supply in the market, something's going to break. So that's if you're going to call. So my long-term prediction right now is the Fed kind of has a choice. Either they're going to control inflation or they're going to keep the market from breaking.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“In the financial system, and it's my belief that the price of oil, supply chains, those are somewhat excuses as to why we have inflation. I think the number one reason why we have inflation right now is because of the size of the Fed's balance sheet and the amount of liquidity that they put into the market over the last few years. And the Fed has a dilemma right now because if they take those securities out of the Fed's portfolio and put them in the market, something's going to break. So you've got balance sheet runoff and the treasury is still issuing a lot of money. And you have about $175 billion of securities coming into the market every month via the treasury or the Fed. And that's a lot of securities.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“When the Fed buys securities and puts them in their portfolio, they pay for those securities somehow. It's called money creation, and effectively they create money out of thin air. So as the Fed was buying securities for the QE Soma portfolio, they were putting cash into the market. So at this point, if you think that Milton Friedman was right or even a little bit of right, and he said, let me try to get the quote right, that inflation is always a monetary phenomenon, something like that. If you believe that more money floating around the market at least causes some inflation, you kind of realize that the fact that the Soma portfolio is so large means that there's a lot of money in the market right now.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So that might be a good thing to kind of summarize because I think in something that people can relate to, that's kind of the most interesting part about the repo market right now. So here's how I see it. Right now we're doing what they call as balance sheet runoff at the Fed. And the Fed accumulated an 8.9 trillion dollar balance sheet over the last few years, basically to finance government spending. I'm not going to put blame on who spent all the money, but a lot of money was spent in Washington. And if you spend a lot of money in Washington, you have to issue Treasury securities to finance that spending. Luckily, they had the Federal Reserve out there willing to buy the Treasury securities and take them out of the market. Now the mechanics of it is that”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So, I'm going to talk about kind of a large concept with the repo market. And anybody out there that wants to learn a little bit more on the repo market and my thoughts, I put out a white paper about a month ago called The Fed's Dilemma. And it's floating around the market. Zero Hedge picked it up and published the entire thing on their website. And last time I checked, there were like 50,000 views.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“But the money But I get what you mean. And yeah, it's true. It's so much, you know, it's more complicated in a way in the crypto world. And it's not as transparent in the crypto world. And I think there's going to be people digging around in this company for a long time, you know, trying to figure out where everything went.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Wow, that is optimistic, and I hope that is the case for all clients with FTX. I have a fear that it won't be true. And I think MF Global was a disaster story for sure. And for people who want to know the details, they got to read the book. But the money news.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Would be paid but not the full amount. So the equity was wiped out. But then there was money left to pay at least some of the debt. But all the customer funds were eventually repaid.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Everybody clamped down on their money and held it as much as they could because there were potential legal proceedings with somebody who's dealing doing business with MF Global. So everybody held on to their cash and that cash existed somewhere. So it's really then a matter of kind of like mopping it up and getting the cash back. Once they got the cash back, all the customer money was eventually repaid. It took a few years and I forget the number like 80, 90% was paid within a couple years. And then after that, MF Global did have some bonds that were trading. And I remember within a couple or so, like a lot of the MF global bonds were trading at, let's say, ballpark 50 cents on the dollar. So the market kind of expected that there was money left over and the bond.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So, this is kind of interesting too. And when I started working on that MF Global book was a couple months after they went under, I probably started working on it in March or April or May after they went, excuse me, bust in October. And I started looking at it and reading regulatory filings and things like that. And listening to testimony. The bottom line is the money was never really missing. It was always somewhere. So basically what happened in the scramble to meet margin calls, you know, that customer cash ended up going somewhere to meet a margin call at LCH ClearNet, FICC, DTC, JP Morgan Chase. And then once MF Global went bust,”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“And so MF Global had to declare bankruptcy because there was no suitor. How much money did, what percentage of their funds did clients get back? Did investors get wiped out? Did bondholders get wiped out? Where in the stack was it? Was it clients bondholders, stockholders? Was it different? And also, how long did it take for this to get settled out for people to get their money back?”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“I can tell you that I'm most 95% sure that the good businesses at MF Global got picked up right away and moved to other places.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You know, some of their, you know, like their financials. He's like, and we didn't want it after that. But that typically happens. And to tell you the truth, with my experience in the industry, which goes back a lot of years, is that anytime a company is going down, there's parts of it that are good. And, you know, people in the street realize that there's going to be some good businesses there. And somebody might be out there to buy the whole business. But sometimes you can kind of pick the carcass once it's gone. So, you know, there might be a metals trading group there. And, you know, you go in and you just hire the people instead of having the legacy company that's got legal problems. So in the end, I know a few people looked at MF Global and nobody wanted to touch it.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“So if I remember correctly, there were a couple suitors for MF Global, and of course the first one I think was JC Flowers or JC Flowers might have already been an investor. I don't remember his actual first thing, but he was a golden guy. And even if you look in the book too big to fail, when Lehman was going down, he was like in the room trying to get a good deal for Lehman Brothers. So I think JC Flowers was part of it. Interactive brokers also, Thomas Pedifry, I think is the pronunciation. I did speak with him on the phone about their looking at MF Global, and he's a very smart man. He basically said, you know, we had a team, we looked at”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Before I pick your brain just about the repo market right now, I want to throw two more parallels at you between FTX and MF Global. One is a stubborn CEO with political connections and a heavy risk appetite who is surrounded by yes men. And the second is the potential acquisition by a savior that is later terminated. Binance was rumored to buy out FTX and rescue FTEF. It didn't. MF Global had a similarly same fate. Tie a bow on the story for us, Scott. What happened? Who was the potential savior for MF Global and why didn't it go down and global had to declare bankruptcy?”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Right, exactly, exactly. And that was with MF Global. You had basically a prop shop that was layered on top of a futures FCM. And you can kind of see at banks with Dodd-Frank, they've taken a lot of the, what was it called, the Volcker rule, where they took a lot of prop trading out of the banks. And of course, MF Global was a broker-dealer, not a bank, and not subject to Dodd-Frank. So, you know, in a way, there's a loophole there. But yeah, so, I mean, I would think, but a lot of the banks also, they have an asset management group and they have hedge fund affiliates. So, you know, it's, you know, banks can have prop trading businesses also, but it can't be inside the bank.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Of high finance profits into by importing teams from Goldman Sachs and other trading shops. And it's tough when you have a brokerage business But on the other side, you have people who are trying to make as much money as they can trading.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“That money went to Alameda, and this is another parallel, which is that the cohabitation of a hedge fund prop shop within a brokerage and an exchange. Alameda Research was a hedge fund that Sam Bakeman Fried started first. Then he launched FTX, and on paper they were separate entities, and he technically stepped down as CEO from Alameda Research. But it's quite clear now that they were the one and the same. And if Alameda booked a loss, it was FTX's loss because Sam McMahon Free was going to make sure that they covered that loss. In the traditional financial world, there's some of that, like Goldman Sachs, has a prime brokerage business. They also have a large proprietary trading shop after the Great Financial Crisis, it's much less, but there's some amount of it that can occur without everything blowing up. But within MF Global, I think that was another thing where you had this kind of sleepy brokerage business that John Corzine wanted to inject a lot of the”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, you were right, it did not happen in traditional finance American capital markets, but it happened in the Bahamas and it was so obscene that there was $8 billion that I don't, and this is a theory that is based on a Twitter DM that Sambak and Freed sent to a journalist, but he pretty much says that $8 billion that Alameda owed FTX is a likely chance that it never was at FTX. So when you wired money saying, oh, I'm going to put my money in FTX.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, you hit it on the nose here with all these parallels. With me, I kind of saw, okay, company collapses, money missing, that reminds me of MF Global. I think you see a lot of the depth related to the two. It's very interesting, interesting story. To tell you the truth, I didn't think an NF Global was going to happen again. After MF Global happened, the Finra and the SEC and the CFTC came down really hard. There's very tough policies and procedures for moving customer SegCash around. And, you know, I've worked at broker dealers since then. And, you know, I've managed Stegfund Cash before myself. And you cannot intermingle anything. Terms of the SegFund cash. They're really tight rules in the US. But then, of course, not in the Bahamas.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“FTX had the same issue, but instead of two months it was two years or in some cases five years. It had this token called SRM, which it was valuing at its balance sheet a month ago at about $5 billion. But that's the token where literally they had 300 times more than the daily traded volume. 99% of that token was locked up and it had a vesting schedule or a inflation schedule that it would be public for a number of years. So they were valuing assets and taking liquid deposits that could be called at any time against assets that were five years in duration.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“LCH Clearinet kept calling them for more and more margin, and then as the European debt crisis began, the margin percentages went up because the markets were more volatile. So then all of a sudden, and I forget the numbers in the book that was a while ago, but as I said, at one point they're paying at least $500 million to LCH ClearNet, you know, to cover the margin. And of course, they would get all that money back when the bonds matured, but they just had to hold out until the bonds matured. And with MF Global, a large percentage of their repo to maturity trade matured in December and they went bust in October. They were really just two months away.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You know, hand slapped pretty hard on this one was that if the European debt crisis occurred like it did right after they got into this trade, then the value of the bonds were declining. So the price of the bonds were going down, but they had already repoed them to maturity. But when they repoed them to maturity, those trades were in the European Central Clearing Counterparty, which is like an exchange like LCH ClearNet. Think of the Futures Exchange. So, you know, even though they're bought and sold, they still have to pay margin to finance the bonds. So then as the value of the bonds went down,”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Well, so the number one, so there's a risk that MF Global suffered, and then there is the obvious risk. So the obvious risk is that Portugal defaults and doesn't pay their debt, or any one of those countries defaults and doesn't pay their debt, which is an unlikely outcome. Most likely they would default. They wouldn't pay their debt for a few months. The ECB would put together a plan to save them and finance them. So maybe the real risk there was that the debt might not be paying for a short period of time. So that was OneRisk. That is like the default risk. Then there's a liquidity risk. And this is what MF Global really dove deep into and they had their...”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“You can look in the notes and you can see, hey, we've got 11 billion European debt that's financed to maturity. So, you know, so then, of course, with MF Global, a lot of events happened where eventually the FINRA, the regulatory agency in the US and their account and MF Global's accounting firm said, hold on here. You got 11 billion of these things. They're not risk-free. There's obvious risk here. That can't be. What is that risk, Scott?”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Portuguese bonds, they stayed away from Greece because everybody knew that was a mess. They bought all these bonds, 11 billion of them, and they repoed them to maturity. So they kind of had an arbitrage locked in, and they were making, I forget the exact numbers they might have been making a lot of money. I think it was like $25 million a month or something just on this trade. Then here's the sweet part about it as a repo to maturity the accounting firm took it off their balance sheet, so it didn't look like they were in these trades at all because there was a repo to maturity, which was an off balance sheet true sale at the time. But”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“Correct, correct. It's basically buying the Portuguese bill for six months and then repoing it in the repo market for six months. And of course the repo rates are a money market rate that kind of follows what the ECB is doing. It's kind of prices where their overnight rates will be for six months. So in a way they're two different markets. And when you have two different markets, there's potentially an arbitrage between the two. But what was unique, and this made me happen again in the next few years, but what was unique was that there was a lot of issuance of European debt spreads widened. And when spreads widened, there was an opportunity in there. So what happened was, you know, MF Global bought all sorts of Ireland, Belgium, Italy.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“It basically created an arbitrage in the repo to maturity market. So MF Global went and using the same rates as before, they went and bought one year or six month Portugal.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“They couldn't do austerity. That was a big term 10 years ago. And they kept issuing more and more debt to pay their kind of generous spending budgets. And as they issued more and more debt, their yields went higher and higher. So then when you got to the point, so let's say that we're using the same examples before that the six month rate in the repo market was 340. And a treasury, you know, which is AAA rated is at a yield of 3.5. But now let's say that the Belgium six month bill is at 3 and 3 quarters. And Italy is at 380 and Ireland is at 360 and Portugal is at 390. So all of a sudden, all these sovereign country debt because they issued so many securities, their yields went high and their yields went high.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“in Italy and Spain, they're not on their own currencies anymore. They're on a hard currency called the euro. And people started doing, traders started doing repo to maturity trades in European, and it made it much, much easier with all these countries that were on the euro. Now, when all these countries were fiscally stable and the yields of their six-month bills and bonds and notes were all relatively similar to the rates in other money markets like the repo market, there's really no arbitrage. But then what happened was as the European debt crisis was creeping up, then all these countries, the pigs as we call them, were selling more and more debt. Basically, these countries were addicted to spending.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“If you owned a Treasury bill and repoed it to maturity, the accounting firms would account for that, lack of a better word, as a true sale. So it would go off your books. So you own the bill, you repoed it to maturity, it's taken off your balance sheet because they call it a true sale and it's a locked in profit. And even though it's really sitting there with a repo, the accounting firms call it a true sale, therefore it comes off your balance sheet. And that was always done for years and years in the US Treasury market with Treasury securities that are triple-A rated risk free. So basically you're dealing with risk-free securities. So that trade's been around. People have done it over in Europe. And now what happened was you had the invention of the euro. And then all of a sudden, countries like Belgium.”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT
“At three forty so you can lend that bill in the repo market, kind of like selling it to maturity, and then you've locked in 10 basis points. And that was a big trade in the treasury market for a long, long time. Basically, in a way, it was kind of like an arbitrage between actual Treasury bill yields or short coupons would happen with very short coupons and the repo market kind of keeps short-term rates in balance. And those trades still exist. People still do those trades. They're out there over in Europe sometimes, sometimes in the US. But there's a lot of people ready to jump on that arbitrage. So traditionally, that was called a repo to maturity trade and how the accounting worked for it was that the accounting firms recognize that as what they call a true sale. So in other words,”
2022-11-29 · Forward Guidance · FTX and “The Money Noose”: Scott Skyrm On The Fall of MF Global · IDENTIFIED FROM THE TRANSCRIPT