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Thread: Fed Funds Rate Mysteries... Impending Credit Market Supercriticality?

  1. #1
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    Oct 2006
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    Default Fed Funds Rate Mysteries... Impending Credit Market Supercriticality?

    Look at these stats! If they aren't buggy, there were some Fed funds loans made at 1% and other loans made at 15%!!. And we're not talking about pocket change here.



    Up to date stats are available from the Fed Bank of New York

    These rates aren't just for anybody. This is the "interest rate at which depository institutions lend balances to each other overnight". If I understand this correctly, then some depository institution(s) got a really nice deal, and some other depository institution(s) could only get funds at the kind of rates that I would associate with the aftermath of the '70s oil crisis, the 1997 Asian Financial Crisis, or the UK "Black Wednesday" exit from the ERM.

    Karl Denninger's take on this ("Impending Credit Market Supercriticality?") is that some institution(s)' collateral is so much worthless garbage that they were charged usurious interest rates. If you knew which institution that was, would you keep your money there?

    And some other instutution(s) must be in very good standing indeed to get a 1% interest rate. This is not far off the ultra-low interest rates set by the Bank of Japan (associated with a property asset value collapse and deflation in the 1990s). Are these kinds of rates offered out of human kindness, or is it because these institutions must be supplied with funds at below-normal-rates to prop them up at all costs? I wish I knew the answers to these mysteries. Perhaps the ones who borrowed at 15% are "too small to prop"... so they get charged according to their perceived risk, just like us little people.

    If you search back over a year, somebody got 0% on 08/13/2007 and 08/10/2007 ( Hey, free money! Must be "in the family", eh? ), but the top rate seems to be 7%.

    Am I reading this data incorrectly? Is it really something unusual? What's going on here?
    Last edited by Cajus; 10-29-2007 at 07:43 AM. Reason: Denninger phrase added

  2. #2
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    Subprime today

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