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User Info Beaker! (Podcast); entered at 2020-01-11 22:54:31
Amused
Posts: 503
Registered: 2019-04-22
I think option (1) is correct. They believe all the homes and other assets are overvalued.

I don't know a lot about this sector, but I have some ideas based upon my limited knowledge.

Since credit is easy to get right now, and the Fed is willing to lend, they would rather use that than their own cash, because if they use their own cash and the crash comes they will be insolvent.

The question I've got is this, what rate of return are they getting for having money parked at the Fed, does the Fed pay them a percentage for being over their reserve?

Also I thought they used to have to park $1 out of every $10 loaned out, but I seem to recall the reserve being done away with during the Great Recession but I don't remember if it was ever restored.

Also, what is the Fed charging for it's loans to backstop the market?

If I was the bank and the Fed was going to charge me less to borrow than what they are going to pay me if I park cash there, I would do the same thing, but like I said, I don't know what they charge at either end.
2020-01-11 22:54:31