http://www.nytimes.com/2010/03/13/business/13freedom.html With reporting like this, no wonder people don't know what to blame. Back in the good old days, banks would finance their long-term loans in one of two ways. One way way was through traditional banking, which meant taking deposits. The other way was through a shadow banking system fed through the money market system. When you put money into... [more]
http://www.nytimes.com/2010/03/13/business/13freedom.html
With reporting like this, no wonder people don't know what to blame.
Back in the good old days, banks would finance their long-term loans in one of two ways. One way way was through traditional banking, which meant taking deposits. The other way was through a shadow banking system fed through the money market system. When you put money into a money market fund, they lend the money out in these repo transactions where they lend the cash for asset-backed securities for short durations like a week.
When the markets started getting shaky, the money market funds didn't want to break the buck because they just didn't want to risk it. So what did they do? They put the money in T-bills, which sat in the government's coffers.
By opening the Fed window to lesser-quality assets, they were able to have this money market money financing the loans again, except it was intermediated by the Fed (for a fee, which was the spread on interest rates).
None of this removes balance sheet assets/liabilities, but now numbnuts reporter starts alluding it to how it might equate with the Repo 105 transactions that temporarily removed assets & liabilities from the balance sheet.
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