Saturday, June 9, 2012

Election Year Wall Street and Bank Bailout ?

The Risks Looming in the Repo Market

Peter Eavis, a reporter for The New York Times DealBook blog, has predicted that the Federal Reserve Bank of the United States will bailout Wall Street through an intervention in the market for repurchase transactions.

''Given the importance of the repo market, central banks are likely to step in to bail out banks’ repo borrowing again in a global financial crisis. Banks themselves have lengthened their repo loans — from a rough average of three months to around five months, at some firms — to make themselves less vulnerable to repo runs. In addition, they’ve taken steps to more evenly offset the repo loans they borrow with the repo loans they make to other firms, even if poor disclosure makes it difficult for outsiders to discern.''

In spite of Mr. Eavis's assuredness of the Federal Reserve's willingness to bailout Wall Street, it remains unsaid what will be the political or social implications of another central bank intervention to bail out Wall Street, while, at the same time, the social safety net is being gutted and shredded by austerity-crazed Republicans, who are focused on short-term politician gains during this election year.

And in spite the reforms that Mr. Eavis celebrates, such as enlarging the terms of repo loans from three months to ''around five months,'' maybe those extra two months can, all by themselves, prevent another credit crisis during this presidential election year ?

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