David Seroy: Why All Shadow Banking Credit Has to Squeeze Through Repo

Description

Shadow banks can create credit out of thin air, no reserve requirements, just private ledgers.⁣ ⁣ “Boom boom. David, I just created you a billion dollars.”⁣ ⁣ But eventually that IOU has to become a real dollar, and they don’t have access to Fed reserves.⁣ ⁣ That’s the gap repo bridges.⁣ ⁣ “Huge amounts of liabilities and credit that's created in the shadow banking system has to squeeze through this tiny door of repo in order to settle.”⁣ ⁣ Twenty years ago the collateral of choice was mortgage backed securities.⁣ ⁣ “That is the exorbitant privilege that went to real estate.” 🎬