The horror scenario lurking in the plumbing of finance
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Back when Hollywood was fully functional, horror movies were reliably released around Halloween, or, sometimes, whenever there was a Friday the 13th. This year, though, the horror movie in US Treasuries, the mother of all contemporary markets, is being played over the summer and early autumn.
One of the strings plucked by horror movie makers is the audience’s inability to warn the characters. “Don’t split up to search the ruin in the dark woods!” “Don’t open that door— the guy with the axe is on the other side!”
The equivalent fear hanging over the financial system now is: “Don’t create an artificial shortage of good collateral! No! No!”
Just as the expendable teenagers will always split up and then open the wrong doors, we can count on the US Federal Reserve and Congress to do the stupid…
