MY UNDERSTANDING IMO: It appears that Hedge Funds and others are too heavily leveraged. “Hence the need for an emergency liquidity intervention by the Fed.”
Is it different this time? Well, in 2008 nobody would bail out Lehman. Visualize that as the first bit of ice scrapping across the hull of the Titanic.
Today, the biggest guy on the planet (the FED) is bailing out (via the Repo market) the hedge funds and banks, et al. Visualize that as the FED plugging all the subsequent holes in the Titanic.
Will it work? Yes, until the FED stops, or something explodes.
Better read it yourselves, via the link below.
THE FACTS OF THE REPO CRISIS, SUMMARIZED:
1) The repo crisis was the result of a liquidity shortfall at the "Top 4" banks, precipitated by JPMorgan's drain of over $100BN in repo market liquidity (a wise move, which eventually forced the Fed to launch QE4, and helped JPM report its most profitable year on record)
2) The Fed addressed the "supply side" of the Sept repo crisis by injecting over $400BN in liquidity to replenish bank reserve levels, first via repo and then via T-Bill POMO, i.e., QE4.
3) The Fed has yet to address the "demand side" of the Sept repo crisis, namely the market transmission mechanism which is intermediated by hedge funds. And it is here that, as the WSJ reported, the Fed is currently contemplating
providing liquidity directly to hedge funds to prevent a systemic collapse during the next repo crisis, whenever it may strike.
https://www.zerohedge.com/markets/944-t ... edge-funds