Thursday, January 2, 2014
Horse sense tells them never to bet on people
Remember Repo 105? That was accounting smoke and mirrors in which a bank reduced its holdings of securities just before its Quarterly Report in order to appear to reduce its leverage and increase its liquidity. After the Report the bank had to repurchase the securities and restore the real position. It involved shifting around cash and securities. Well, it seems the Fed is helping the banks with this scam, Just before the end-of-year accounts it swapped USTs for cash in order to help bank balance sheets look more sound than they are. These UST sales caused the drop in price and the rise in Treasury yields. The press, however, reported that this spike was due to "gains in consumer confidence and home sales (which) bolstered bets (that) the Fed will end bond purchases next year".