New York Fed Again Upsizes Liquidity Plans for Turn of the Year
Here is my admittedly ignorant question about this: is it possible that the institutions borrowing these funds are actually using those funds not for relatively low-risk purposes (e.g., paying taxes), but instead to trade &quot;overnight&quot;? Similar to how a high-net-worth individual can borrow against their assets for a very low rate and then turn around and invest those cheap-interest-rate funds into higher-return (i.e., riskier) investments?<p>This is wholly unsubstantiated, but a link someone posted on this issue in a previous submission on HN (I can&#x27;t find it) suggested that hedge funds in particular are the main institutions causing this, that the too-big-to-fail banks (JP, BofA, etc.) are unwilling to lend to them in the repo market because the hedge funds are taking too much risk with those funds, and the hedge funds are in turn forcing the fed&#x27;s hand by telling them that they either step in with funds or they&#x27;ll either be forced to sell assets en masse or, worse, fail. I&#x27;m probably using the wrong language to describe the mechanics of how this would actually take place (e.g., I&#x27;m not suggesting a hedge fund actually calls up and forces the fed&#x27;s hand).<p>I have seen multiple people assert there&#x27;s a reasonable explanation for this and others suggest this is just more QE and that the market, after years of QE, can&#x27;t function properly without it, and so I&#x27;m floating what is likely a conspiracy theory as an attempt at getting an explanation from someone informed.  Nearly impossible to believe this is a benign event. The parties (the fed, the big banks, hedge funds) haven&#x27;t earned that trust so if it is benign then maybe there&#x27;s a first time for everything.