The "repo" helped bring down MF Global and Lehman Brothers. Could the eurozone be next? Tim Bennett explains what repos are and why you should be worried.
I've watched lots of fancy videos, trying to understand this whole repo concepts. This is definitly the ONLY ONE what actually explains it very well, both repo and reverse repo, with motivations! Many thanks for your contributions!
Mate while you explain you just answer all the questions which hits my mind...Its more like sitting in front of you in a classroom....Keep Posting... Thanks
This explanation is pure gold. It not only explains the REPO-market in very simple terms, but it also explains a lot of the monetary problems Central Banks currently have with their QE programs. Well done, Sir!
Really enjoyed your video and cleared up understanding on REPO. What kind of course would you recommend to take to learn more about these financial principals you talk about?
Excellent video and covers some important (if not tragic) recent financial events. One question regarding Lehman 105 that always bugged me... ok, in a standard repo, say 102 haircut, the firm about to pawn off the bond has an asset worth 100. If they repo it out, then doesn't their balance sheet have assets increase by 100 cash, and the bond being pawned out increase liabilities by 100, and a further increase in liabilities of 2 due to interest? In contrast, Lehman 105 allows classification of the bond as a sale, meaning that assets drop by 100 (bond no longer belongs to firm), then increases back by 100 due to inflow of cash from sale, and perhaps I'm just guessing here that liabilities increase by 5 due to repo interest. So Repo 102 grows the balance sheet overall, while Repo 105 keeps it flat. Sure the liabilities appear lower, but so do the assets. Am I missing anything here?
Happening now in America. We reached $537B in Fed repo today for 3rd day. Corruption does not stop. Securities being resold. Big squeeze coming in markets.
Tim, I got one question regarding this topic. After the transaction is being settled how is reciving the cashflow linked with the colateral (coupon of a bond or dividend of a stock) ?
Well done, sir. I'm American, trying still, in 2018, to understand SOME of what happened in 2008 to our economy-----& to understand " THE BIG SHORT".film , which is all too complex for me---& I'm a smart guy! ----------------------WolfSky9, 71 y/o
The repo rate reflects the interest rate offered for secured borrowing and lending. Because the borrowing is secured it will typically be at a discount to LIBOR, which is an unsecured rate.
Hello wonderful video by Mr Bennett. I am self teaching myself some intro in finance. Mr Bennett mentioned something on the repo being able to borrow securities for cash. he mentioned that secuties(102 pounds) move in value hence they get given more and cash(100 pounds) does not move in value. Does not inflation influence the value of cash in terms of value over time?
repo 105 sounds like absolute madness, but then again, there are accounting tricks for hiding obligations in almost every industry. airways for example don't have a good chunk of their obligation for the planes that they own because they have them on lease (i think)
In a repo that a bank (Lehman for ex) treated as an outright sale, there already is a scam because Lehman should have written an off B/S commitment (to evidence their commitment to repurchase the securities). They purposely omitted this accountant rule hence cheated from the beginning. The off B/S entry would have evidenced their liabilities. Hence the problem probably was with their internal and external auditors.Their accounts were not a true picture of their operations.
Ive got some shares that i dont plan to sell. But if someone wanted to borrow them hoping to do a short sell, and pay me to do it id love to accomedate them. Tim could you tell us how to do it? Just in case youve done that already im off to watch your vid on short selling... Though ive a feeling its not a "How to" vid, just an explaination of what short selling is.
Excellent. And here we go again? Only this time they said there was not enough cash and rates spiked to 10% two nights in a row. After watching your video, i think there's cash, but the central banks don't want to lend it on the poor collateral? Bonds have been selling off as of late, and I wonder what investment bank couldn't get their cash this time?
one doubt, in repo loan, the gov securities are 1. sold and repurchased or 2. pledged, the ownership is transferred to central bank or retained by the bank themselves, and interest on gov securities is collected by whom the central bank or the bank itself, suppose if the ownership is transferred to the central bank then the interest is collected by central bank and after repurchase will the central bank return those interest to the bank or not, in case of pledging the interest payments are collected by bank i have no doubt on that, can anyone explain this soon ??
So by saying it is an Actual Sale you are dispositioning the transaction differently on your books. So, that is how it was done. Amazing. Just by changing, the nature to the transaction, you are changing what will show up on the p&l Sheet and on the Balance Sheet. Amazing. Did I get this right?
There's a fundamental issue I don't get. If, say, the owner of some bonds wants a short term cash loan, why wouldn't he sell the bonds at the bond market, and then buy them back (if so he wants) in a week or so? Why would he prefer a repo instead? Is the transaction costs much different (selling/buying bonds vs a loan)? Is the accounting of the repo advantageous in some way?
+Dimitris Andreou exactly, the costs of selling and repurchasing them are very high if you take into consideration, that they probably deal with bonds with a value of a few millions. the lending costs in a repo transaction (the interest rate) is almost 0. so why paying order fees and losing the bid/ask spread?
One thing I don't understand here is whether we are selling and buying or lending and borrowing cash vs collateral? what about the ownership of the securities used as collateral - if it's a bond, who's entitled to a coupon payment?
love watching videos . transcript are funny ."if i was going to try and raise money short term 1:24 but i want to 1:24 is gay couple broke up 1:27 however my watch"
This is similar to a derivative once cash-for-security is re-hypothectaed, especially multiple times. Block chain would keep track of the daisy-chain of re-hypoyhictation, especially if the cash could be block-chained as well (crypto currency) with built-in limits as to the times it could be re-hypothecated and an increase of interest/premium/haircut for each re-hypthecation as that would increase the costs of the risk and hence reduce the re-hypothecation process in order to maintain liquidity. Better yet, instead of lending these securities, as the underwriting could have been compromised due to the lack of disclosure by the security creator, there should be no lending, rather it should only be a sale, but that creates a lack of liquidity, especially if it is a CDO made of student loans for which some head-of-state socialist (Bernie?) decides to forgive the debt of the students causing the "security" to become worthless. This causes the CDS to be activated, causing a cascade of defaults as we all know the CDS lack reserves to perform as their reserves have been re-hypothecated as well. What a tangled web the financiers have woven.
Isn't a repo not a loan but an actual sale/exhange, which they eventually have to buy back? Wouldn't Lehman have to show in their footnotes this as a contigent liability? Where could investors see how much repo liability they had?
1) How could MF Global (or anyone, really) not realize they are horribly exposed by arbitraging the difference between treasury interest and repo interest? 2) The rep for GoldmanSachs mentioned that hedge funds were part of the repo rate “glitch” last week-how does that figure in to the rehypothication process you discuss?
Interesting repo story with scary implications when you think the Lehman debacle has not made this bankheist impossible to do right now. The Basel agreements to have banks have enough solid money can never be enough if t'is repo explained trick with same collateral is duplicated God knows how many times and not checked into by some bank checking authority.
Just here to say hi and comment that the next recession is probably starting today 9/17/19. The repo market is starting to cascade tonight with JPM and the FED taking the fall this time. History repeats itself doesn't it? Shorting the market 3 /ES Mini-Contracts. 100 pt move in the S&Ps = $5,000 per contract.
Interest rates are spiking because of the level of risk...the Fed's artificially low rates aren't enough to incentivize holding the debt....meanwhile the Fed keeps issuing more treasuries, now it's stepped in as not only the issuer, but the "buyer of last resort." It's simply debt monetization, same as the banana republics do...this is not going to end well for the dollar, there's no end in sight for this new round of "open market operations."
@Thomas Headley ahhh, that must be why the Fed has had to continue adding liquidity daily since and has committed to for the next month (ad infinitum)...a simple one off overnight mechanical failure...got it! This is QE lite...they're just warming up the presses now
I've watched lots of fancy videos, trying to understand this whole repo concepts. This is definitly the ONLY ONE what actually explains it very well, both repo and reverse repo, with motivations! Many thanks for your contributions!
watched more than 10 of your videos Tim! Thankful for all!
Bravo, not only for the content, but also for the delivery!
Mate while you explain you just answer all the questions which hits my mind...Its more like sitting in front of you in a classroom....Keep Posting... Thanks
This explanation is pure gold. It not only explains the REPO-market in very simple terms, but it also explains a lot of the monetary problems Central Banks currently have with their QE programs. Well done, Sir!
What a wonderful explanation. You are the best finance teacher in the world.
I will second that. I was on Tim's channel daily when studying financial managment, investment management and corporate finance for my MBA
@@123maxABC and
Thank you for making this video. No matter how old the video. The great content and delivery of the video will always be there. Again thank you
Love your videos Tim. Very clear and concise. Keep 'em coming!
Great video - very clear explanation about the basics and sophisticated nuances of repurchase agreements.
You deserve partnering 10x more than every youtube partner right now. Awesome explanations.
This guy never ceases to surprise with his fantastic understanding of markets
good video. this mate has saved me from my final exams for several times!!!
Good videos...! very helpful !
mate, you are a hero. thanks
Brilliant videos. Thank you
Watching in May 2021. Waiting for this to blow up again. Thanks for the content!
very detailed presentation. I like all your videos
Thank you for this series. Very enlightening...
wow. this video is extraordinary! this is an aaaaaaamazing explanation. brilliant. brilliant! i love it.
Great Videos! Very Helpful! Thank you.
Very nice explanation of complex terminologies with great examples !
Thanks. And no - I usually shoot these in one take. I do however have a good think about what I will say for a few days beforehand. Tim.
Good Job
God bless you for your teaching skill sir.
who else read this out in his voice? Jk your videos are marvelous
Brill - best teacher ever. Please do more vids !
Excellent teaching! Thanks for this.
This is awesome. I could understand a new concept quickly
Really well explained. Thank you, for this!!
Brilliant work! Keep it up! :D
This is a great explanation with important examples. Thank you
Thanks for explaining this so well!!
legendary.
Truly blessed to have a professsor like you
What an excellent explanation. Kudos
thank you so much for these!
amazing work ! keep up !
Thanks for this Informative Video.
well done and well preapred, too. i barely see any editing in most of the vidoes. I suppose you do some rehearsal beforehands, Tim?
Really enjoyed your video and cleared up understanding on REPO. What kind of course would you recommend to take to learn more about these financial principals you talk about?
Thanking you is not enough, God bless you and long live my friend.
Great teaching. Much better than machinery voice and animated cartoons. Tim, are you still making videos nowadays?
Excellent video and covers some important (if not tragic) recent financial events.
One question regarding Lehman 105 that always bugged me... ok, in a standard repo, say 102 haircut, the firm about to pawn off the bond has an asset worth 100. If they repo it out, then doesn't their balance sheet have assets increase by 100 cash, and the bond being pawned out increase liabilities by 100, and a further increase in liabilities of 2 due to interest?
In contrast, Lehman 105 allows classification of the bond as a sale, meaning that assets drop by 100 (bond no longer belongs to firm), then increases back by 100 due to inflow of cash from sale, and perhaps I'm just guessing here that liabilities increase by 5 due to repo interest.
So Repo 102 grows the balance sheet overall, while Repo 105 keeps it flat. Sure the liabilities appear lower, but so do the assets. Am I missing anything here?
thanks for the simple explanation - concept of basic Repo similar to Pawn Broking
Awesome videos!
you clarified everything
Happening now in America. We reached $537B in Fed repo today for 3rd day. Corruption does not stop. Securities being resold. Big squeeze coming in markets.
Yep, it's hitting over 1 Trillion now in the repo market in the US.
Great work
Tim, I got one question regarding this topic. After the transaction is being settled how is reciving the cashflow linked with the colateral (coupon of a bond or dividend of a stock) ?
brilliant explanation. thank you
Amazing video
Well done, sir. I'm American, trying still, in 2018, to understand SOME of what happened in 2008 to our economy-----& to understand " THE BIG SHORT".film , which is all too complex for me---& I'm a smart guy! ----------------------WolfSky9, 71 y/o
The repo rate reflects the interest rate offered for secured borrowing and lending. Because the borrowing is secured it will typically be at a discount to LIBOR, which is an unsecured rate.
sir you are great
very good explanation
Excellent - nice additional comment too for context RE Re-hypothecation ! Surely this can be regulated though no? All deals can be traced to source?
Excellent explanation.
Thank you !
Excellent explanation 🙏
great explanation!!
Thank you!!!!!!
Hello wonderful video by Mr Bennett. I am self teaching myself some intro in finance. Mr Bennett mentioned something on the repo being able to borrow securities for cash. he mentioned that secuties(102 pounds) move in value hence they get given more and cash(100 pounds) does not move in value. Does not inflation influence the value of cash in terms of value over time?
repo 105 sounds like absolute madness, but then again, there are accounting tricks for hiding obligations in almost every industry. airways for example don't have a good chunk of their obligation for the planes that they own because they have them on lease (i think)
Very easy to understand for the lay person
"Stick figure A, and Stick figure B" Hell yeah finance at MY speed. Big ups
thank you!
Great video!
Wondering: WHO made the rule that one could consider 105+ a “sale”?
Someone must have made that approval initially
Tim - your videos are incredible. Please keep up the good work!
Watching from Kenya in 2020
In a repo that a bank (Lehman for ex) treated as an outright sale, there already is a scam because Lehman should have written an off B/S commitment (to evidence their commitment to repurchase the securities). They purposely omitted this accountant rule hence cheated from the beginning. The off B/S entry would have evidenced their liabilities. Hence the problem probably was with their internal and external auditors.Their accounts were not a true picture of their operations.
Ive got some shares that i dont plan to sell. But if someone wanted to borrow them hoping to do a short sell, and pay me to do it id love to accomedate them. Tim could you tell us how to do it? Just in case youve done that already im off to watch your vid on short selling... Though ive a feeling its not a "How to" vid, just an explaination of what short selling is.
Good speaker, would like to have him explain the wicked UST action the past 2 days...wild bid/ask spread......Citadel liquidating? lmao?
facinating stuff
Excellent. And here we go again? Only this time they said there was not enough cash and rates spiked to 10% two nights in a row. After watching your video, i think there's cash, but the central banks don't want to lend it on the poor collateral? Bonds have been selling off as of late, and I wonder what investment bank couldn't get their cash this time?
Can collaterals be anything or it has to be bonds? Like can I have an asset as a security?
Just wow!!
Could you explain the London Whale trading loss
Watching this the day after the GC Repo rate spiked and the Fed did 53.2B to assist (Sept 17)
one doubt, in repo loan, the gov securities are 1. sold and repurchased or 2. pledged, the ownership is transferred to central bank or retained by the bank themselves, and interest on gov securities is collected by whom the central bank or the bank itself, suppose if the ownership is transferred to the central bank then the interest is collected by central bank and after repurchase will the central bank return those interest to the bank or not, in case of pledging the interest payments are collected by bank i have no doubt on that, can anyone explain this soon ??
So by saying it is an Actual Sale you are dispositioning the transaction differently on your books. So, that is how it was done. Amazing. Just by changing, the nature to the transaction, you are changing what will show up on the p&l Sheet and on the Balance Sheet. Amazing. Did I get this right?
MarvelGirl100 yes you did!
I am so thankful to you. Here, in Canada everything is a secret. If you want to learn Finance you will pay through the nose.
Relevant to today's market
There's a fundamental issue I don't get. If, say, the owner of some bonds wants a short term cash loan, why wouldn't he sell the bonds at the bond market, and then buy them back (if so he wants) in a week or so? Why would he prefer a repo instead? Is the transaction costs much different (selling/buying bonds vs a loan)? Is the accounting of the repo advantageous in some way?
+Dimitris Andreou
exactly, the costs of selling and repurchasing them are very high if you take into consideration, that they probably deal with bonds with a value of a few millions. the lending costs in a repo transaction (the interest rate) is almost 0. so why paying order fees and losing the bid/ask spread?
This is the only video of this guy without schoolboy comments, I guess its higher level **isht
One thing I don't understand here is whether we are selling and buying or lending and borrowing cash vs collateral? what about the ownership of the securities used as collateral - if it's a bond, who's entitled to a coupon payment?
It’s generally only overnight lending to meet next days capital requirement
love watching videos . transcript are funny ."if i was going to try and raise money short term
1:24
but i want to
1:24
is gay couple broke up
1:27
however my watch"
how can I participate in this market
This is similar to a derivative once cash-for-security is re-hypothectaed, especially multiple times. Block chain would keep track of the daisy-chain of re-hypoyhictation, especially if the cash could be block-chained as well (crypto currency) with built-in limits as to the times it could be re-hypothecated and an increase of interest/premium/haircut for each re-hypthecation as that would increase the costs of the risk and hence reduce the re-hypothecation process in order to maintain liquidity.
Better yet, instead of lending these securities, as the underwriting could have been compromised due to the lack of disclosure by the security creator, there should be no lending, rather it should only be a sale, but that creates a lack of liquidity, especially if it is a CDO made of student loans for which some head-of-state socialist (Bernie?) decides to forgive the debt of the students causing the "security" to become worthless. This causes the CDS to be activated, causing a cascade of defaults as we all know the CDS lack reserves to perform as their reserves have been re-hypothecated as well.
What a tangled web the financiers have woven.
Delivery is top notch
Isn't a repo not a loan but an actual sale/exhange, which they eventually have to buy back? Wouldn't Lehman have to show in their footnotes this as a contigent liability? Where could investors see how much repo liability they had?
1) How could MF Global (or anyone, really) not realize they are horribly exposed by arbitraging the difference between treasury interest and repo interest? 2) The rep for GoldmanSachs mentioned that hedge funds were part of the repo rate “glitch” last week-how does that figure in to the rehypothication process you discuss?
Rehypothecation = Fractional Reserve Lending
Securities = Cash
Interesting repo story with scary implications when you think the Lehman debacle has not made this bankheist impossible to do right now. The Basel agreements to have banks have enough solid money can never be enough if t'is repo explained trick with same collateral is duplicated God knows how many times and not checked into by some bank checking authority.
Great job !! very good exclamation... but what I didn’t know was that this is happening in Europe also?
I thought the same but This video is from 2012.
We’ll this aged well 👍🏼👍🏼👍🏼
3:05 it's 2021, now you can
Damn that’s what’s happening right now with repo in us
For anyone who's interested what the answer to Tim's last question could be, search for Jeff Snyder Eurodollar University ✌️
Took me awhile listening to him... finally figured out he was not "Porn Broker" in a strange accent......
lmfao love Tim and his brilliant explanations with a great British accent!
One bank pawns some assets to pay their short term bills.
Just here to say hi and comment that the next recession is probably starting today 9/17/19. The repo market is starting to cascade tonight with JPM and the FED taking the fall this time. History repeats itself doesn't it? Shorting the market 3 /ES Mini-Contracts. 100 pt move in the S&Ps = $5,000 per contract.
Interest rates are spiking because of the level of risk...the Fed's artificially low rates aren't enough to incentivize holding the debt....meanwhile the Fed keeps issuing more treasuries, now it's stepped in as not only the issuer, but the "buyer of last resort." It's simply debt monetization, same as the banana republics do...this is not going to end well for the dollar, there's no end in sight for this new round of "open market operations."
@Thomas Headley ahhh, that must be why the Fed has had to continue adding liquidity daily since and has committed to for the next month (ad infinitum)...a simple one off overnight mechanical failure...got it! This is QE lite...they're just warming up the presses now
@Thomas Headley time will tell... my money is on print and purchase until we're awash in it.
Well well. Look at what we have here.
You have confused me...Mixed up SLB in Repos.
They’re doing it again...