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Comment by tomp | Hacker News Reader

No, the way this works is this (as I understand it): I'm a bank, I need some cash to operate (people withdrawing money, trading, making payments, etc.), but I have no cash. I have $10B in US Treasury bonds, but - well, they're notionally worth $10B, but nobody want to exchange them for money, because noone else has money to spare (i.e. liquidity crisis). So here comes the Fed, takes my $10B in bonds, gives me $10B of cash so that I can run my business... In a week or so, I need to return $10B in cash, I get my $10B in bonds back ("collateral") and the cycle continues again.

The alternative is, the bank collapsing, taking some part of the economy with it.

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Genuine question here. Any data on the typical duration of these loans? How long typically the Fed holds collateral?

I remember 2 years ago the market throwing a tantrum because of the fed unwinding it balance sheet. Doesn’t that mean that typical loans are never repaid and the Fed just let the bonds mature?

I think the "unwinding" was Fed stopping QE, which is slightly different - they were buying bonds on the market (not as emergency liquidity) to prop up asset prices (buy bonds -> reduce interest rate -> investors seek other sources of returns -> buy stocks -> stock prices go up... same with real estate). Bonds mature (literally disappear), so if you want to keep propping up asset prices, you must keep buying new bonds as the ones you own mature. The Fed was doing that for a while, then tried to slowly stop, ween the market off the cheap money (because if the patient is supposed to be healthy, s/he should be able to survive and thrive without drugs). Trump threw a tantrum (I guess he knew/suspected that Fed was the only/main thing propping up asset prices, without Fed the market would crash/stop increasing, which isn't good for elections because politicians always get the blame), the markets weren't happy either (basically NIMBY - you're invested so you want to keep the value of your assets as high as possible).

Got it thanks. Still, any data on how long a typical repo loans is?

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