I am reluctant to accuse Jeff Dean of bad faith, but this argument doesn't scan. I've been on the inside of an AI team during a crisis and then seen how senior management spun details to obfuscate critical details to avoid responsibility. Dean is slandering Gebru in a manner that will make it easier to dismiss her work and the work of other AI ethicists (especially women and bipoc) in the future. He and Google are actually themselves guilty of a lacking rigor (i.e. ethical rigor). Worst of all, I expect that racists inside Google and the wider industry will utilize this argumentative structure in the service of neutralizing ethicists and bipoc in the future. This is truly despicable. I used to be a great admirer of Jeff Dean.
Given the way the US oscillates between administrations with oppressive tendencies and administrations which are at best squeamish when they violate international human rights laws, to me this just sounds like a skunkworks project.
> A former Facebook engineer once said (and he’s been quoted a thousand times over): "The best minds of my generation are thinking about how to make people click on ads." I spoke to some of those best minds: economists employed and formerly employed by the most powerful companies in Silicon Valley...
Not to be a jerk, but almost none of the best minds in SV or of my generation are economists.
If you are a millennial or younger, I respectfully disagree. The "best minds" have been sought out to build out the new infrastructure in the service of the new railroad tycoons.
Established outlets for real business journalism were included on the firm's rate card, including claims they could get stories onto Reuters for $8,360 and the Financial Times for about $50k. Also, lesser known, web-only portals were offered for less than $200. There are fewer and fewer watchdogs (journalists are almost like proto regulators) and some folks are taking advantage of the gap/asymmetry. I know more opportunities are created if you're willing to bend the rules a little. I'd be really interested in how other folks are interpreting these sorts of developments.
recently saw a tweet by an academic (political) economist who proposed "you are not a real empirical social scientist unless you have published a null results paper." science cannot advance without them, but an individual cannot build career on them.
I guess that's a fair point. Sorry for oversimplified explanation. So, to attempt to improve on your further clarification: technically it is $75b per night created and destroyed each morning. And 3 separate cycles of $30b will be created for 2 weeks and then destroyed. Therefore $90b injected for 2-weeks then destroyed. Point is this is being injected to help banks cover their overnight exposures with the hope that they won't need the help anymore after Oct 10.
Is there some resource I can look up to better understand what you mean by "destroyed"? Will they be absorbing the value back through financial instruments or how does this "destruction" happen?
They are loans. Money is given to the banks, and then repaid (with interest, but a low rate and short time makes this marginal).
The fact that the money is "created" and "destroyed" is the nature of the Fed. They don't need to have money in order to lend it. That's what the Fed is.
These loans are literally the same as printing money, loaning it, collecting the loans, and destroying the printed money. Except everything is just numbers on a balance sheet, so no physical money needs to be physically printed or shredded. The effect is still the same: The Fed decides that money should enter the money system, and also describes how that money will leave the money system.
Wow this is not good. Repo market is the market of overnight debt between banks. Banks lend money to each other to cover their collateral needs/exposures at the end of each day. If banks lose confidence in each other, they start demanding more collateral from each other in the overnight market, which means the overnight rate goes up. The NYFed is trying to keep interest rates down and is having trouble doing it. As a result, it's having to take some extraordinary measures to the tune of injecting $100b into banks, every night, for the next month. They are basically trying to ensure that no bank gets caught with it's shirt off, while the banks are signaling that they think their peers might be naked.
I don't think that's whats happening. Basically, in a repo you have one party posting a treasury bond as collateral and being lent the equivalent amount of cash. There's an interest rate you're charged on the cash, and potentially a "haircut" on the amount of cash relative to the value of the bond that a bank might take if they decide the other party is a risk and they want more collateral posted.
What you're describing is an increase in "haircuts" in these transactions between banks, but I haven't heard anyone report that has been happening. It has been, more simply, that too many people are showing up with bonds and want cash and too few people are showing up with cash and want to lend it. So the interest rate has risen
And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that
Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only explanation I can think of is that some of the lenders believe that some of the creditors are about to default
Quarterly taxes seems to have been the initial cover story. My guess is it ties back partially to the eurodollar carry trade. There is an unprecedented amount of international rate and currency arbitrage going on which has pulled US dollars out of the US and could easily manifest unintended macroeconomic consequences like this. One day repo is easy for the Fed to address but if it persists then it becomes a confidence issue and people to start wonder: is this just the tip of the iceberg? If the underlying cause really is a systemic imbalance of sufficient magnitude, then who knows what else could pop up. It's more likely to signal major problems in the economies that are importing dollars (Europe in particular but also Asia) than the US itself, but a meltdown is bad for everyone; this uncertainty may be what some traders are starting to hedge against.
This is an interesting line of thought, could you expand and simplify your explanation a bit for people who are not as familiar with the dynamics you're talking about?
(not a finance guy) - what I was told when the Fed did this on Monday/Tuesday was that there was a perfect storm where businesses had way more withdrawals from their accounts than deposits (taxes + payroll iirc) which led to a situation where banks didn't have the cash on hand for the repo market and minimum balance required by statute. But that doesn't explain why the Fed is doing this over the next few weeks.
No idea how accurate that is as a characterization, so someone help out via Cunningham's Law.
That makes some sense as Monday was the deadline for Q3 federal taxes. However this should of course be something that is expected and factored into banking operations so there must be some other factor no?
Recommend a google news search and pick one of the Bloomberg stories (they limit how many you can read for free).
The problem is that (apparently) there are few lenders in a position to give up reserves to fund other participants bond holdings. Balance sheets, required reserves, excess reserves etc are all pretty complex post 2008.
I don't know how to link to an earlier comment I posted in another thread this morning but summarize:
-Treasury took in an additional 80+
-goal of having 350B cash on hand by quarter
-probably single biggest cause for liquidity issue
-most of the collateral posted to the Fed has been Treasuries and less so mortgages.
-financial system/world runs on repo and it is troubling this is happening at all.
-Did Mnuchkin orchestrate this to force the Fed into backdoor easing through another round of QE? My guess, yes.
(QE is where Fed buys treasuries and other debt consequently injecting cash into the system)
An increase in ON repo was expected but the magnitude of it was not. What makes the most sense is that there was a large amount of leverage that was dependent on rolling ON repo financing. Reserves are not as abundant as thought due to various financial regulations and also are not evenly distributed. The distribution matters a lot because some desks that may have been more ready/able to lend may not have had the reserves and I guess vice versa.
Sept 15 was tax day. Companies withdrew money they had in the market to pay taxes. It is a regular occurrence every year, but this year it was a problem because the FED tightened. They assumed 1 trillion would have been enough but now are looking for the correct amount buy adding money.
The headline says they're conducting repo operations until Oct 10 which is 3 weeks out, so obviously it's something more that just quarterly tax payments.
The reason why they're doing that is because they need to restore confidence to the market. The absolute worst thing the Fed could do is do what they did this week, say everything is all good, and then something even worse happens in the near future.
You’re right. Thanks for this comment. It’s really helpful. I’m still wondering what the factors are that created this gap. If financial institutions aren’t losing confidence in each other or the assets that are been posting as collateral, why is there a cash shortage in the overnight market?
Aren't the haircuts and interest rates just flip sides of the same coin, though? You can express risk in either language, and if either is rising that means that the evaluation of risk has risen too.
I don't know that this really makes me personally feel better.
nobody is loosing trust, where are you getting that from? There's just not enough cash at hand so the fed is injecting some. People see doomsday scenarios where there is none
So in that situation, the banks are basically in a position where raising their rates (which earns them more) will lead to the feds covering more and more of that? What's to stop them from collectively playing chicken against the feds, while shoveling money into the bag until it becomes ridicules? I mean normally I'd expect a business being close to bankruptcy being told by an investor "This simply cannot happen, I will inject money indiscriminately until you float!!" will start looking for money dumps like buying verbs from CEO's, not opportunities to actually bring the business back in good standing.
What you've described is already happening, just on a global scale. For 10 or more years, whole financial system is just pushing slowly and collectively the lever, knowing that central banks will not allow it to collapse. So as long, as you're not outstandingly fragile, and instead your collapse would mean a collapse of most of similar financial agents, you can always push your risk a little bit higher, forcing your competition to the same.
So much wrong about this listing and company that I feel relieved to hear they are delaying their IPO. The corporate structure defied reason as did the concentration of voting power in their CEO, aside from the self-dealing and other ethical lapses which were apparent. I still don't know why this business is considered a technology play.
