The repo market problem means that some big financial players, primary dealers, banks, investment houses or hedge funds, are in trouble (insolvent); or that some basic pricing as among short-term and long-term instruments is out of kilter due to some dysfunctional legal or regulatory provision that’s driving improper arbitrages. The FED is papering over the fundamental problem(s) by bailing out the players. This is making the situation worse.
The proper solution when this problem began was to have identified the over-leveraged players, admonished them, and then either let them fail or else stipulate no further FED loans until they liquidated some of their positions. It was to have identified the reasons for the over-leverage, which are rooted in FED policies.
A repo market fail in 2020 that elicits failures in many financial institutions will cause a sharp decline in the stock market. That will harm Trump and help Sanders greatly. A repo market failure prior to the election is a disaster waiting to happen, and it’s one of several such possibilities that could shift the race toward Sanders.
9:00 am on February 10, 2020
