Monday's Reverse Repo Test?

[AllentownJake]

Gee, who could have seen this coming?
http://www.zerohedge.com/article/mondays-fed-reverse-repo-test-disaster

On Monday the Federal Reserve held a major reverse repo test, as was announced by the NY Fed and by Zero Hedge. We have subsequently received several unconfirmed reports that the conducted test has been a disaster (we have calls into the Federal Reserve to confirm or deny this, we are eagerly awaiting their reply).

How do you do a reverse repo when there's no cash to tender?
http://market-ticker.denninger.net/archives/1522-JP-Morgan-Earnings-Mirage.html

Bottom line: JP Morgan/Chase appears to have only $21 billion in actual cash. Their "Cash" position as stated on Yahoo Finance and other places includes deposits with banks and fed funds - that is, cash "equivalents" that are not actual money in their possession.

That, of course, doesn't count when The Fed wants to drain liquidity and needs to drain actual cash.

It also belies a bigger question - what is the true leverage ratio of JP Morgan/Chase, if their actual cash is only $21 billion? Oh, that's kind of an ugly question, especially with some $700 billion in debt outstanding....

Are people really this dumb over at The Fed?

It appears so, and begs the question - how big of a disaster are we about to undergo?

http://market-ticker.denninger.net/archives/1530-Mondays-Reverse-Repo-Test.html

[JDPriestly]

1. What is a reverse repo?

The Fed has been working with primary dealers in government securities to strengthen the infrastructure for reverse repurchase agreements, whereby the Fed would sell Treasuries and other securities to banks with an agreement to buy them back later at a higher price.

The procedure, known as reverse repos, drains cash from the banks, unlike a normal repurchase agreement when the Fed buys securities from the banks and injects cash into the system.

The Fed is walking a fine line between calming those worried about inflation due to the central bank’s quantitative easing – increasing the money supply by fiat – and those concerned that a premature end to the liquidity measures will choke off the incipient economic recovery.

http://www.dsnews.com/articles/fed-reassures-market-that-reverse-repos-are-only-in-testing-phase-2009-10-21

[AllentownJake]

2. They are doing a test

In case inflation takes off so that they can pull money out of the system. It is one of their inflationary combat tools.

The point with JP Morgan is with 21 billion in cash, they are currently leveraged over 30-1.

[slipslidingaway]

3. knr thanks n/t