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The Shadow 

Who knows what truth lurks behind the headlines?


Note:  Our Inflation Trivia series has earned its own page.  Visit here to access the full series.  Follow us on Twitter at @TheCarfangGroup.

April 5, 2024 - Two divergent policies.  Passive Quantitative Tightening  vs Active Quantitative Tightening.  A $1Trillion+ Question

  • Passive Quantitative Tightening (Fed letting its portfolio run off) vs Active QT (Bank of England and Riksbank who are selling their bonds).

  • Central banks took on massive amounts on long term bonds at ultra-low rates during QE.  As rates rose, huge unrealized losses began appearing in the fine print in the footnotes to tables in their financial statements, $941B on Dec 31 at the Fed. (higher by now since market rates are rising again)

  • Two different approaches.

    • The Fed appears on course to hold these trillions of securities at negative spreads for what could be a decade or more.

    • BoE and Riksbank are selling their bonds at losses at a taxpayer cost of $110B and $4B respectively.

  • Although U.S. Fed dismisses the losses as unimportant because they are "unrealized", the negative spread will nevertheless saddle U.S. taxpayers with a $1T tab, just not all at once.

  • Wouldn't it be better for the Fed to 'fess up' and get the distortions of the QE experiment behind us, rather than sleepwalk into the future with a swollen balance sheet?

  • The Shadow thinks back to its last post and the title of an Italian film classic:  "Non Stanno Tutti Bene".

January 24, 2024 - Stress in the Banking System: Commercial Real Estate, Held to Maturity Securities

  • The Shadow has been thinking about the health of the U.S. banking system over the past few months.

  • U.S. banks are holding over $2.5 trillion in "Held to Maturity" (HTM) securities, when means that they do not have to book unrealized losses.  Collectively, nearly $400 billion in unrealized losses lurk.

    • Banks also hold $1.8 trillion of commercial real estate loans.  Analyst prediction of bank losses run the gamut.  The coming together of decade high interest rates and unprecedented low occupancy are cause for concern.

    • The Fed, via its stress test, however, calls up the Italian film title from the 1990 Cannes Festival "Stanno Tutti Bene".  That is, "Everything Is Fine."

  • Now you can run your our stress test thanks to this handy Bank Stress Simulator.  Input your own assumptions about commercial real estate and held to maturity securities.  Then check out the results state by state, bank by bank.

  • The Shadow thinks "Non Stanno Tutti Bene".


November 6, 2023 - U.S. Treasury's Day of Infamy

  • On Oct 31, we crossed over into totally uncharted territory.  However, not a word from the government's PR machines nor the media.

    • Total public debt hit $33.699 Trillion. 

    • Average annualized rate on the debt just hit 2.97%.

    • Annualized interest on the Federal debt now equals ONE TRILLION DOLLARS. 

  • That's one very long shadow.

August 18, 2023 - Dealing With Our Federal Reserve Stress Test Driven Insomnia

  • Unable to come to grips with the two stress scenarios developed by the Fed (see two previous posts below), we decided to conduct our own stress tests.

    • We extracted over two hundred thousand data points covering 4,681 U.S. banks from both the FDIC, FFIEC and FRED databases. 

    • Then we built our own stress test model, allowing us to test multiple complex scenarios for every U.S. bank.

    • Finally, we pressed the "run" button

  • Oh my!  Now the Shadow is getting even less sleep at night.    

  • We started with the easy stuff.  Let's assume 10% loss on CRE portfolios and no losses on securities or any other loans.  We defined stress as a 40% loss of capital or greater.

    • All 33 U.S. Banks $100B+ easily passed.

    • Of the remaining 4,648, 320 fail the test.

    • The largest failure was a bank in the $10B range.

  • Then we got tougher.  We assumed 15% loss on CRE portfolios and 5% losses on held-to-maturity securities.  We defined stress as a 40% loss of capital or greater.

    • Two of 33 U.S. Banks $100B+ failed this test, primarily due to their securities losses.

    • Of the remaining 4,648, 1,290 failed the test.

    • The largest failure was a bank in the $250-500B range.

  • Then we got depressed.  We assumed 20% loss on CRE portfolios and 10% losses on held-to-maturity securities.  We defined stress as a 40% loss of capital or greater.

    • The same two of 33 U.S. Banks $100B+ failed this test, primarily due to their securities losses.

    • Of the remaining 4,648, more than half, 2,118 failed the test.

    • The largest failure, again, was a bank in the $250-500B range.

  • Our final test was a contagion scenario.  We assumed the same 20% loss on CRE portfolios and 10% losses on held-to-maturity securities.  However, in the face of contagion, we assumed that banks which lost 30% (rather than 40%) or more of their capital would be stressed.

    • Five of the 33 U.S. Banks $100B+ failed this test.  That's one of every seven of the country's biggest banks.

    • Of the remaining 4,648, more than half, 2,730 failed the test, effectively wiping out the community and regional banking sectors.

  • ​On second thought, we haven't dealt with our insomnia.      

July 5, 2023 - Federal Reserve Stress Test Misses Key Likely Scenario

  • The Fed's stress test "Severely Adverse Scenario" is a replay of the 2008 crisis but hardly a worse case.  It tests:

    • 9% drop in GDP with high unemployment

    • Inflation falling to 1.25% by YE 2023

    • Overnight money at 0.10% through 2026

    • 10-yr treasury below 1.50% through 2026. 

  • Sure.  Many banks will have big credit losses, but they will be offset by huge gains in their outsized bond portfolios.  

    • Voila!  Everyone Passes.  

    • How Tidy.   

  • In the baseline scenario with flat GDP and gradual recovery, rates hover near current levels while inflation drops to 2% by 2Q24.  That's the softest of soft landings.  Did someone say "Mission accomplished"?

  • The true worse case might be a stagflation scenario with large CRE and credit card losses accompanied by stubbornly high inflation and rising interest rates, leading to deposit runoff and requiring banks to sell some of their HTM bonds at a loss.

  • Visit our Jan. 2022 Inflation Trivia post to see how stubborn inflation can be and its myriad false signals of relief.

  • The Fed has been warning "higher for longer", yet didn't even test that scenario!  Huh?  

  • The Shadow is not reassured.

June 30, 2023 - Federal Reserve Stress Test

  • How much STRESS would a stress-test test (if a stress test could test stress)?

  • Good News: The Fed this week said that the 23 tested banks in the U.S. passed with flying colors.        

  • The Carfang Group did its own test. We tested for 25% losses on CRE loans and 4% losses on HTM bonds. (Actually, that is far from a worse case scenario.) None of these banks would see a 60% loss of capital in that scenario although six would take a not-insignificant 20% capital hit. These 23 are the "too big to fail" banks and it doesn't look like they are in serious danger.

  • Bad News: 1,477 banks out of the remaining 4,650 would see capital take a serious 60% plunge in same scenario.        

  • Are these these banks "small enough to fail"?       

  • Oh-oh.

May 22, 2023 - Has the U.S. ever decreased its debt ceiling?

  • The debt ceiling is currently $31.4 trillion or 120% of GDP.  It has been raised more than 100 times since established in 1917.

  • Surprisingly, the debt ceiling has been decreased ten times since WWII.       

  • In three successive years (1977, 1978 and 1979)  it was cut by more than 40%, setting up the ultimate showdown.  In all three cases the matter was resolved within a few days.  The other seven were actually studied attempts to lower the debt.



Mar 30, 2023 - Who Should Bear the $20 Billion FDIC Project Loss?

  • SVB had $10 billion dollars in insured deposits, yet the FDIC projects a $20+ billion loss.   

    • The loss is the result of a government policy decision to cover all uninsured depositors, as well as insured depositors.        

    • This was NOT an insurance underwriting loss.  It was a policy. 

  • FDIC is now considering a special assessment targeted on the biggest banks to cover the cost of the government policy decision and sheltering community banks from the $23 billion cost.  

    • That makes a lot of sense since the biggest banks were the beneficiaries of significant deposit inflows.

    • That makes no sense since the policy was designed to prevent a run on community banks, making them the beneficiaries.

    • But wait, weren't the real beneficiaries the sophisticated uninsured depositors.  $23 billion would only be a 15% haircut for them.       

  • The Shadow wonders why the government is picking winners and loser rather than just following the long established, well understood rules?               

Mar 23, 2023 - Stats Show a Highly Disrupted Monetary Playing Field

  • Corporate treasurers continued to increase their already swollen cash holdings, now at $3.62 trillion.  See The Carfang Group's Corporate Cash Bulletin.  High yields helped fuel that increase but generally excess cash is best employed in operations or returned to shareholders.    The Shadow believes they are holding this cash as a shock absorber against a potential economic downturn.

    • Cash rose $109 billion in Q4 2022.

    • Holdings are $1 trillion above the precovid trend line.​

    • Some uptick in money market funds along with a decline in bank deposits, especially uninsured deposits.

  • Banks saw their deposits grow by an astonishing $4.7 trillion since the onset of the pandemic to roughly $18 trillion.   Uninsured deposits are nearly $8 trillion, a highly unstable situation.  See Carfang's Quarterly Deposit Bulletin.          .

  • Bank deposits fell $460B in 2022, the only decline in the FDIC's fifty year time series.  That is only one tenth of the recent deposit growth yet it is causing so much turmoil.  Perhaps that's because uninsured deposits fell $831 billion last year

  • Did someone say "Flight to Quality"?           

Mar 17, 2023 - How Up-to-Date is the FDIC?

  • This morning, the Shadow received the latest quarterly Fed bulletin via email.  We anxiously opened, hoping to get the latest scoop on SVB, Signature Bank, 1st Republic, et. al.           .

  • The opening line:  "Deposit growth moderated and bank office closures decelerated in the year ending June 30, 2022."     .    

  • That's right, "June 30, 2022".

  • Extrapolating the lag time, the Shadow now expects to first read about SVB sometime in December.

  • Please say it ani't so.

Mar 16, 2023 - Back to QE

  • Fed just reported its balance sheet grew by $297B in the past week, wiping out all the quantitative tightening of the past four months.        .

  • Virtually all of the increase was in the form of loans to banks. 

  • We agree that flooding the zone with money during a crisis is appropriate. 

  • But what does that mean for the inflation fight?

Mar 9, 2023 - Realizing Those Unrealized Bond Losses.  Daydreams vs. Nightmares.

  • We've written about the $1.1 trillion unrealized losses on the Fed's balance sheet. However, their footnotes say that's not a problem since the bonds are designated "Held to Maturity".

  • The Shadow thinks that footnote is only correct until it isn't.    

  • Bank's, too, have this problem in their bond portfolios.

  • Traditional asset and liability matching techniques mitigate the issue.

  • Unfortunately, the lure of the carry trade in a zero interest environment was too much for some banks to resist.

  • Today, Silicon Valley paid the price.  It reportedly needed to sell bond holdings at a loss to fund deposit withdrawls.  Its stock fell 60% intraday.  

  • The Shadow will lie awake tonight wondering how this might impact other large banks.  Of course, that's better than falling asleep and having nightmares about how this might impact the Fed's multi-trillion dollar portfolio.

Feb 7, 2023 - European Central Bank Leads Federal Reserve in Race to Shrink

  • Both remain more than double their long term trend line.

Feb 4, 2023 - What are Banks Doing with Your Deposits

  • Since 2006, deposits are up $11.5 trillion.  

  • Loans and leases are only up $5.2 trillion. 

  • The "missing" $6.3 trillion is stranded in gov't securities and reserves at the Fed.

  • The Shadow worries that banks have become just a funding source for the federal debt. 

Jan 29, 2023 - Winding Down the Federal Reserve's Balance Sheet

  • The Fed's plan was to wind down it's balance sheet by allowing maturing securities to roll off at a rate of $95 billion per month beginning September 2002. 

  • Through Jan 25, it has only run down by $356 billion, not the expected $475 billion.

  • Is the Fed off course?  . 

Jan 27, 2023 - Running the Numbers on Monetary Policy

  • Correlation between M2 money supply and nominal GDP (includes inflation) is .985.  Lag time is 9 - 15 months.

  • US money supply peaked in 2Q22.  Factoring in the lag, we're still enjoying the stimulus. 

  • The Shadow encourages you to enjoy it while it lasts. 

Jan 25, 2023 - Money Supply Worries

  • It's official, the Fed just reported a 1.35% drop in M2 Money Supply for 2002.  

  • This is the first down year since 1933 which, the Shadow recalls, was not a boom year to say the least. 

  • There is nearly a 100% correlation between lagged M2 and nominal GDP.  (From your long-ago economics class, nominal GDP equals real GDP plus inflation). 

  • Using a bit a algebra, you'll see that real GDP faces a headwind equal to the 1.35% drop minus the rate of inflation.  That's a 7%+ hurdle.     

  • Since GDP = Money Supply x Velocity, an increase in velocity might cushion the fall.  

  • Can you name even one policy maker discussing velocity? 

Jan 12, 2023 - Peak Inflation Euphoria

  • BLS has just reported the sixth consecutive monthly decline in the U.S. Consumer Price Index.        

  • Policy makers and pundits are absolutely giddy.  The inflation monster has been slain.    

  • Forecasts of a soft landing abound and the stock market is rising.   

  • But the Shadow has a clear memory of the last inflation cycle.       

  • We recall that inflation was finally subdued during the EIGHTH run of six+ consecutive monthly declines.   

November 22, 2022 - Money Supply shrinks

  • The U.S. Federal Reserve just released its M2 Money Supply data, now down 1.5% from March and negative for the year to date.  .

  • If M2 closes the year negative growth, 2022 will be the first down year since 1933. 

  • U.S. monetary policy is in uncharted territory. This could get scary.


October 19, 2022 - Big Bang or Drip, Drip, Drip

  • Big Bang.  Today is the 35th anniversary of Black Monday.  The S&P 500 fell more than 23% in a single day!  It seemed like the end of the world. Liquidity evaporated, clearing mechanisms buckled, margin calls went out.  The "portfolio insurance" fad imploded in a single day. But the computers just kept on selling.

  • Drip, Drip, Drip.  Today is Oct 19, a nondescript, nice autumn Wednesday. The S&P 500 fell more than 23% YTD!

  • The Shadow was around for both events and wonders aloud which is better.

September 9, 2022 - Just when the Shadow thought that the Quantitative Easing / Quantitative Tightening experiment couldn’t get any further off the rails, we find this nugget buried deep in a table within a footnote inside the Fed's just released June 30 financial statements.  The portfolio/policy managers in charge of the Fed's $8.8 trillion balance sheet have run up cumulative unrealized capital losses of $719 billion.  Graphic

  • From a financial accounting standpoint, the Fed doesn't mark-to-market and does not record these unrealized losses in its official statement of condition.  If it were a private sector institution having announced its intention to reduce its holdings, it would likely be required to recognize these losses in its financial statements, wiping out its $41.7 billion in capital seventeen times over.

  • Commercial banks are required to keep capital equal to at least 8% of assets. Of course, as a central bank ultimately reliant upon the faith and credit derived from taxpayers, the Fed does not require those capital levels. However, as it embarked upon rapid balance sheet expansion (QE) and risk taking, it did not raise its capital commensurately. Its capital ratio fell from a pre 2008 financial crisis 3.5% level to a mere 0.47% today (or -1700% if you prefer to mark-to-market).

  • Unrealized losses could be especially problematic as the Fed tries to unwind its balance sheet while raising interest rates.  Obviously, since the value of bond holdings moves inversely with interest rates, the Fed has created a catch-22. 

  • The Fed's $2.7 trillion of mortgage backed securities (MBS) further exacerbate the problem (as in past crises).  Because of their structure and the behavioral nature of mortgage payoffs, MBS duration increases as rates rise.  Homeowners no longer rush out to refinance.  As a result, an MBS that previously had an expected life of say 7 years may now be at 10+ years.  This phenomenon compounds the decline in value.

  • The Shadow frets that this could become a goldmine for bond vigilantes.

June 16, 2022 - The world economy is beginning to feel a lot like late 2007.  See Meltdown.   Things were starting to break.  Market participants were well aware of inflated real estate, arcane investment instruments, subprime mortgages, etc.  However, most felt the problems were isolated, far off and generally under control.


Yet seemingly unrelated things were beginning to break around the edges. Reach way back into your memory bank and recall the following:

  • Cheyne Finance Plc, First SIV Default, Rating Agency Debacle  link

  • Bear Stearns suspends redemptions from its Enhanced Leverage Hedge Fund  link

  • Northern Rock Asks Bank of England For Liquidity Assistance  link

  • Florida Local Government Investment Pool Freezes After Run  link

  • Citi Raises $7.5B From Abu Dhabi Investment Authority  link

  • Bank of America Halts StratCash Redemptions  link


Now fastforward to today.  We are reassured that thanks to Basel III, banks are well capitalized, consumers are flush with cash, corporations are holding record levels of liquidity.  The Fed tells us "we have all the tools we need".  Yet things are starting to break.

  • Credits Suisse warns of yet another loss.

  • Cryptos Luna and Terra implode.

  • Italian treasury bonds crater.

  • Melvin Capital and Tiger Legatus hedge funds announce closings.

  • Revlon files for bankruptcy.

  • Three Arrows cryptocurrency fund struggles to stay afloat.

May 15, 2022 - Inflation exceeds 8% for two consecutive months.  Producer prices are up over 11%, pointing to even higher consumer prices in the coming months.

  • Since 2010, U.S. money supply (M2) is up 145%.

  • Since 2010, GDP is up only 58%.

  • Too much money chasing too few goods = inflation.

  • No surprise.  Plenty of warning.

  • What's so difficult to understand? 

May 13, 2022 - RIP Luna, Terra dying on the vine, Tether under stress

  • Overnight, crypto exchange Binance suspended trading in stable coin TerraUSD and its liquidity pool Luna.  Luna now appears to be quoted at $0.0001.  That's down from $119.18 on April 5.  Ouch.  Or rather, a $60B thud.

  • TerraUSD, which had been pegged to the dollar at $1.00. is now quoted at $0.168.

  • Spill over to other stable coins caused the $83B Tether to de-peg (the Shadow just loves the euphemisms.)  It traded as low as $0.949 but is now close to par.

  • Both Blackrock and Citadel Securities have denied initiating the trades which precipitating the trades which initiated this debacle.  According to Forbes “Rumors that BlackRock had a role in the collapse of UST are categorically false,” said BlackRock spokesperson Logan Koffler."

  • At the Shadow, we look forward to helping you untangle this mess.  Following the money and tracing the collateral should get very interesting.

May 10, 2022 - TerraUSD $17B stable coin imploded this week.  The meltdown of this unregulated fund that pegs at $1.00 began over the weekend and fell to $0.694. As of Tuesday afternoon, it traded at $0.759.

  • ​Remember when the SEC, FSOC and Congress embarked on a still ongoing purge of prime money market funds following the $66B Reserve Primary Funds' drop to $0.991?  Where's the proportionality?  

  • Sen. Pat Toomey pressed U.S. Treasury Sec. Janet Yellen on the topic.  He suggested that Congress might enact legislation, implying that regulators had failed.  Remarkably, Yellen replied that would be "highly appropriate."

  • The Shadow first raised this issue ten months ago.  See our article below "June 30, 2021 - Are crypto Stablecoins the new Prime Money Market Funds?"

April 28, 2022 - Although real US Q1 GDP fell 1.4% annualized, the all-important Money Velocity rose slightly from 1.178 to 1.122.

  • ​For the quarter, real GDP was down 0.4%.  

  • How​ever, nominal GDP, including the effects of inflation rose by 1.6%

  • At the same time, M2 money supply dipped by 1.0%

  • Thus, the velocity increased just slightly.

  • This increase is significant since it may finally represent the completion of a floor.  Velocity had be decreasing steadily from nearly 2.0 X in 2005.

  • Velocity measures the number of times each year the nation's money stock turns over to purchase goods and services.  Many view it as a measure of capital efficiency.

April 20, 2022 - Is economic history repeating or just rhyming?  During the last great inflation cycle, the guardians of our money supply, banking system and securities markets assured us that the inflation would be short-lived.  After all:

  • ​The Vietnam conflict would be ending soon, alleviating budget pressure.

  • The Great Society's record social spending would soon be paying huge dividends and stimulate growth.

  • OPEC would come to terms with the U.S., increase output and reduce prices.

  • "Excess Profits" taxes would motivate greedy businesses to temper their price increases.

June 3, 2022 - The Federal Reserve's balance sheet grew by $107B in December, $116B in Jan 2022 and $55B in February and $9B in March.  See July 21 post below for commentary.  Finally, well into the inflation cycle, the Fed is "bending the curve".  To the Federal Reserve we ask "Quo vadis?"

                 Reverse          Fed     

                     Repo      Bal Sheet     

05-27     2,006.7 B      8,915.5 B

04-27     1,906.8         8,939.2 

03-28     1,872.0         8,937.1

02-28     1,596.1         8,928.1

01-31     1,654.9         8,873.2

12-31     1,904.1         8,757.5

11-30     1,518.0         8,650.4

10-29     1,502.2         8,556.2

09-27     1,297.1         8,448.0

08-30     1,140.7         8,349.2

07-26        891.2         8,221.5

06-30        991.9         8,078.5

05-28        479.5         7,810.5

04-30        183.2         7.935.7

03-31        134.3         7,689.0

02-26          11.2         7,590.1

01-29            7.1         7,404.9

Sept 20, 2021 - Global markets plunged today as rumors swirled about a liquidity crisis at China Evergrande Group.

  • ​Evergrande is supporting approximately $300 billion of debt on its balance sheet.

  • Some commentators describe Evergrande as "systematically important".

  • Geeze.  $300 billion is nothing more than a slow morning on the Fed's reverse repo desk.  RRP hit an all time high of $1.224 trillion today.

  • We await Chairman Powell's press conference following the FOMC meeting which concludes on Wednesday.  What will he have to say about Evergrande's $300 billion, the record $1.224 trillion RRP or, most importantly, the Fed's balance sheet which topped $8.4 trillion for the first time last Wednesday?

July 21, 2021 - Has the Fed already begun to tighten the money supply, even as its meeting minutes imply accommodation?


  • ​M2 money supply had been growing at a blistering pace since the beginning of the pandemic, up $5.03 trillion through March 2021.  

  • In late March 2021 the Fed reactivated its reverse repo program, effectively draining cash out of the system.  

  • Since the beginning of April, M2 has actually fallen by $100 billion through the end of May!  

  • Yesterday, RRP stood at $848 billion, up from zero earlier this year.

  • We await the June M2 numbers next week but will monitor the RRP daily on this page.

July 12, 2021 - Huge market multiple for a quasi - prime money market fund


  • Information is sketchy but here is what The Shadow thinks might be the situation:

    • Circle (, a Bermuda registered entity, manages "USD Coin”, a stable value crypto currency.  (See the June 30 blog below to understand how the stable value cryptos resemble prime money funds.)

    • On Jan 1, they had $4B AUM. Now they are up to $26B.

    • For a one month lock-up, they pay 4% per annum on those funds, payable in USDC. For investors willing to extend the lock-up for a year, the rate rises to $4.15%.


  • But here’s the NEWS. They just announced they are going public via a Concord Acquisition Corp (CND) SPAC with a $4.5 billion valuation! That is an order of magnitude greater than the valuations (based on AUM) of the most successful asset managers in the world.

  • CEO tweeted last week "As part of our transformation from private to public company, that also creates an opportunity for Circle to also provide significantly more transparency about the business we are building around USDC, and about the reserves that back USDC."  Hmmm.

  • Please share your insights with The Shadow,  Our brain is not absorbing this.


June 30, 2021 - Are crypto Stablecoins the new Prime Money Market Funds?


As the regulatory piling-on of Prime Money Market Funds (PMMFs) continues, The Shadow asks, "will crypto stablecoins take their place?"

  • Twenty years ago, PMMF assets were equivalent to 11.9% of U.S. GDP.  Today, they are down to a miniscule 2.3%.  Yet the regulatory onslaught continues.  Not yet satisfied, U.S. Treasury Sec. Yellen led off the June 11, 2021 FSOC meeting with a call for further "reform".

  • This reminds the Shadow of that Vietnam War (when many FSOC commissioners came of age) sound bite often repeated satirically by a late elder statesman of the money fund industry, "We need to destroy the village in order to save it".

  • By the way, Commercial Paper, which companies rely upon for short term credit needs and are a primary holding of PMMFs, has decreased by two thirds over the same period.

  • Enter STABLECOINS.  These cryptocurrencies attempt to maintain a stable $1.0000 market price.  Some invest in money market instruments in order to achieve to achieve the parity.  Others use market operations, buying and selling, to maintain parity.  

  • The 54 USD stablecoins that we watch at The Carfang Group have a total market cap of $112B which is already 20% of the PMMF total market cap.

  • Tether is an example of the first type.  It claims to be managing a $63 billion portfolio of government securities and commercial paper to achieve its peg.  Tether claims to hold 49% of its portfolio in commercial paper.  At $63B, it would be the 4th largest PMMFs, ahead of many household names.

  • TITAN is an example of the second type.  Two weeks ago, its market operations backfired.  The coin lost over 99% of its value.

  • In PMMFs, shares are redeemed directly from the fund company when an investor seeking liquidity sales shares.  In coins like Tether, investors are free to trade their coins with other.  This takes a lot of liquidity pressure off the portfolio.  Essentially, their structure leads to a much longer WAM, which could be a key to stability.

  • Stablecoins, at least for now, have escaped the tight regulations to which PMMFs are subjected.  

The Shadow is watching with interest.

April 5, 2021 - GMT, a new global standard?  (Global Minimum Tax, that is)

  • In 1884, several dozen nations met in Washington, DC and adopted the prime meridian as the common reference point for measuring time.  GMT or Greenwich Mean Time became the almost global standard.  France vehemently objected and only grudgingly accepted the standard, but not the name, in 1911.

  • Now in 2021 in Washington DC, U.S. Treasury Secretary Janet Yellen is proposing a new GMT, a minimum global corporate tax.  

  • Space does not permit a full discussion here.  The complexities, competing interests and rivalries are epic.

  • However, the Shadow is looking forward to witnessing a lively debate.

March 30, 2021 - Fed seeks comments on Artificial Intelligence activities of financial institutions.

  • Five federal financial regulatory agencies are gathering insights on financial institutions' use of artificial intelligence (AI). The agencies seek information from the public on how financial institutions use AI in their activities, including fraud prevention, personalization of customer services, credit underwriting, and other operations.

  • Download full Request for Comment here.

March 21, 2021 -  Is Humphrey-Hawkins now amended?  Humphrey-Hawkins-Powell?

  • In 1913, the U.S. Congress passed the Federal Reserve Act with the objective of creating a sound U.S. banking system supported by a stable U.S. dollar.  Price stability was to be the primary objective of monetary policy.  With low inflation, a stable dollar would permit the economic system to self-optimize.

  • In 1977, inflation stood at 6.5%.  The Humphrey-Hawkins Full Employment Act was introduced, requiring the Fed to maximize employment as well as maintain a stable currency.

  • As a non-Keynesian, the Shadow was not at all surprised when inflation rocketed to 13.55% by 1980.

  • We watched in near-despair last Wednesday as Fed Chair Powell unilaterally overrode the U.S. Congress and declared that the stable currently mandate would be put on hold until the full employment mandate is achieved.  The disastrous half-step of 1977 has now reached a full stride.  

  • This movie's ending may not be suitable for children (or adults).

  • Footnote:  The Shadow certainly desires high employment levels at good wages.  However, we recognize that employment responds to numerous economic, regulatory, social and technological variables, almost all of which are beyond the Fed's remit.

March 17, 2021 -  Did Jay Powell really say this?  Yes he did.

  • In his press conference following Wednesday's FOMC meeting in which he promised to keep the punch blow overflowing, Fed Chair Jerome Powell said "You can only go out to dinner once per night."  When he made that momentous announcement, was he:

    • Announcing another Covid lockdown restriction,​

    • Reminding me the I need to shed a few pounds, or

    • Suggesting that long-term inflation prospects were tame?

  • The Shadow picks door number three.  However, we disagree and point out that back in the 1970s, we could only go out to dinner  once per night.

  • On June 15, 1981, the Fed Funds rate hit 20.61%.

  • I remember that day sitting with Bob Arnold, Merrill Lynch's treasurer.  The Fed Funds rate was about to breach New York's usury ceiling.  We were gaming out several disaster scenarios,

    • Would Fedwire shut down, since, effectively, it was a system that transferred fed funds?

    • Would investors max out their margin accounts (capped at the ceiling) and invest risk free in treasuries at a handsome spread while at the save time collapsing the entire brokerage industry?

    • Would brokerages preserve their profits by preemptively issuing margin calls, possibly taking the markets?

    • Would someone invoke the questionable phrase "institutional exemption" and just ignore the usury laws?

    • Would the interbank lending market freeze-up and what would be the results?

January 17, 2021 -  Introducing the Gamma Squeeze.


  • Short sellers of GameStop, AMC, BlackBerry, Express and others just met Gamma the hard way

  • Before this week, only financial quants had ever heard of "Gamma".  For those of us who model options strategies around volatility, the series of Greek letters describing financial pricing attributes are a thing of beauty

  • To be technically precise, "Gamma" describes the rate of change of "Delta".  In options land, "Delta" is the rate of change in an option price for a given price change in the underlying security. 

  • In a practical sense, a broker dealer may have a client that wants to buy a cheap out of the money call option.  A short-term option with a 150 strike on a 100 stock would be fairly cheap, hence attractive to retail investors who read on a chat board that the price is about to double.  The investor would profit handsomely if the stock rose to say $200.

  • On the flip side, the BD would facilitate by taking the other side of the trade and short the option.  But the BD would hedge its short position by buying a small amount of the underlying stock.  Gamma, in conjunction with Delta, is the measure we use to determine the hedge ratio.  Since the stock is well out of the money, the Gamma and Delta would be fairly low, and the BD may only need to buy 10 or 15 shares to "perfectly hedge" 100 short options.

  • However, sometimes the stock actually does go up.  That happened this week as the shorts were squeezed in GME, AMC, BB and others.  As the stock price approaches the strike price of the option, its Gamma and Delta rises.  The BD needs to buy more shares to maintain the proper hedge ratio.  (Think of gearing) Of course, that buying further increases the stock price.

  • Now looks at what happens when Gamma squeeze meets Short squeeze.  Round and round they go.

  • Just look at this action for the two weeks between Jan 13 and Jan 27, 2021 as I write this:

    • GameStop rose from  $20 to $347

    • AMC Entertainment rose from $2.20 to $19.88

    • BlackBerry rose from $7.50 to $25.00

    • Express (the Limited spinoff) rose from $1.02 to $9.55

  • We'll return to this topic later to see how the movie ends.


January 15, 2021 -  Today is an historic anniversary in Money Market Fund history with eerie parallels to the present.

  • Twelve years ago today, in 2009, total assets in U.S. MMFs reached a then all-time high of $3.92 trillion.  That record stood for nearly 11 years.

  • The Dow Jones Industrial Average fell 20% in the subsequent two months.

  • Now for the parallels to today:

    • It immediately followed the release of two high profile reports calling for radical changes in MMF regulation.  The Volcker Group of Thirty report in Jan. 2009 and the President's Working Group report in Dec. 2020.

    • MMF assets had increased by more than 20% in the preceding years (2008 and 2020)

    • It was the week before a presidential inauguration which saw the White House move from Republican to Democrat control.

    • In terms of the overall economy:

      • It followed a year of major market turmoil.

      • It was during a period of nearly zero interest rates.

January 8, 2021 -  Froth in digital currency land?  Maybe.  Maybe not.

  • Crypto currency moved to all time highs this week with Bitcoin trading above $40,000 or nearly 4X its level in three months.

  • But the real market action is in the "miners", some of which are up 9X since October, 2020.  RIOT, MARA and BTBT are on quite a run.

  • Update Jan. 14:  I acquired RIOT puts today.

October 19, 2020 -  It must be official since it has an acronym:  CBDC

  • Bitcoin, Ethereum, Libra, Ripple.  Move aside and make room for CBDC - Central Bank Digital Currency.

  • Not satisfied with a seven fold expansion of central bank balance sheets over the past twelve years, there are new worlds for the Federal Reserve, Bank of England, the European Central Bank and the Bank of China to dominate ( or some might say "interfere with").

  • To be fair, the fragmented, opaque and volatile world of digital currencies ought to keep central bankers up at night.

  • However, we are beginning to see the broad outlines of the benefits digital currencies could usher in:

    • More efficient and lower lost payments​

    • Faster and cheaper international payments with less FX friction

    • Solutions for the underbanked / unbanked

    • Security

    • Privacy

  • Left to a free market, digital currencies such as Bitcoin, Ethereum, Libra or Ripple could disrupt some highly profitable corners of the banking business such as payments, foreign exchange and trade.  

  • No wonder central banks want a piece of that action.

October 1, 2020 -  Still trying to get it right.  Volcker Rule 2020 takes effect today.

  • Volcker Rule 2020 takes effect Oct. 1 and banks should be very happy.  Ten years after the Dodd-Frank Act/Volcker Rule took effect (see our July 2020 insights below), this new rule relaxes several provisions which had limited bank investment activity and proprietary trading.

  • It appears that banks may invest their own capital in VC funds and certain credit funds.

  • Banks may now invest alongside some of the funds they sponsor.

  • It liberalizes 23A trading.

  • We have long advocated that Dodd-Frank went way too far in its post crisis regulation.  This is a partial recognition of that reality.

  • But there is so much more that still needs to be addressed. Read here.

September 22, 2020 -  What ever happened to the charge that companies were "hoarding" cash?

  • U.S. Corporate Cash soared to $3.9 trillion or 20% of GDP.  That was comprised mainly of bank deposits and money market funds.  Read here

  • That is more than $2.0 trillion higher than just a few years ago.

  • Obviously, this is a prudent liquidity buffer in the face of the global Covid pandemic.

  • We strongly argued back then, cash levels are a function of hundreds of individual decisions and not some dark market cabal.  However U.S. regulators, notably the Securities and Exchange Commission, and legislators continued their stubborn pursuit of market villains.

  • What a difference a lit bit of context makes!  We wonder if they'll now go back an redo their ill conceived market regulations.

  • September 20, 2020 -  The run into BlackRock ETFs

  • On March 23, 2020, the U.S. Federal Reserve announced an unprecedented policy shift to calm the Covid-crushed markets.  For the first time ever, it would purchase up to $750 billion of corporate debt and debt-related exchanged traded funds (ETFs).  Further, it would hire BlackRock, the $7.3 trillion asset manager, to advise and execute the program.  Debt and ETF purchases began in May, 2020.

  • The results were immediate.  The announcement alone helped calm markets and the ultimate purchases were estimated at only $13 billion, barely 2% of the maximum.

  • The results for BlackRock were also remarkable.  The Wall Street Journal reports immediate and substantial inflows into BlackRock ETFs.  Essentially there was a stampede to front-run the Fed purchases. In fact, WSJ cites Morningstar in noting that BlackRock's market share in Fed eligible ETFs grew from 51% to 56% between late March and June.

  • BlackRock is estimated to earn 14 bps in management fees (WSJ) from front-running investors. LQD alone saw $8.2 billion in inflows in the days following the announcement.  That works out to $11 million in fees, just on the LQD front-runner hopefuls.

September 18, 2020 -  Do banks need more capital? How about 24%?

  • The not quite fully implemented Basel III accords, following the 2008 financial crisis, imposed higher capital and liquidity standards on commercial banks.  Neel Kashkari, president of the Minneapolis Federal Reserve Bank has long argued that the bank capital requirements should be even higher.

  • Kashkari is concerned that more capital in the financial system is necessary, given possible Covid economic impact scenarios.

  • According to Seeking Alpha, he said at a Council of Institutional Investors virtual event  "If the largest pension plans in America got together and said we aren't going to trade with banks that do not have at least 24% equity, they would increase their capital levels".

  • Is the regional Fed president fomenting a boycott?

September 4, 2020 - Basel III final implementation delayed again.

  • According to its press release, "the Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), has endorsed a set of measures to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of the coronavirus disease (Covid-19) on the global banking system."

    • The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor has also been extended by one year to 1 January 2028.

    • The implementation date of the revised market risk framework finalised in January 2019 has been deferred by one year to 1 January 2023.

    • The implementation date of the revised Pillar 3 disclosure requirements finalised in December 2018 has been deferred by one year to 1 January 2023.​

  • Sounds like the Bank for International Settlements doesn't want to let a good crisis go to waste.

  • Final, final implementation push out to 2028.  If our match is correct, that's nearly twenty years after the crisis.

August 14, 2020 -  Does the left hand know what the right is doing? 

  • Fannie Mae and Freddie Mac just slammed the brakes on the consumer mortgage refinance market.  It is instituting a 50 basis point (0.50%) fee on new refinancing.  That's roughly $1,500 on a $300,000 refi.  In a sidebar that seems unserious, it suggests that consumers will not be adversely impacted if lenders and mortgage originators do not pass the fee on.  Let's discuss Econ 101.

  • They call it an "Adverse Market Refinance Fee" to recoup the additional risk in the new Covid world.  That seems to ignore that fact that a nascent recovery has begun and the Federal government is using trillions of liquidity and fiscal stimulus to immunize lenders from such "risk".

  • It seems to be directly contrary to the objectives of the Federal Reserve's $1.25 trillion-dollar mortgage-back securities purchase program which was to "intended to provide support to mortgage lending and housing markets and to foster improved conditions in financial markets more generally".  

  • Why would Fannie and Freddie, under the guise of "risk management", institute a measure so directly counter to the Covid-19 stimulus efforts of both political parties?  Perhaps bolstering capital ahead of their exit from their Dodd-Frank mandated conservatorship?  

  • We're going to keep our eye on this and following the money wherever it flows.

August 3, 2020 -  Former Fed Chair Janet Yellen says the we need a new Dodd–Frank

  • She also praises Dodd-Frank.

  • So which is it????

July 2020 -  Dodd–Frank Wall Street Reform and Consumer Protection Act  - Ten Years Later

  • See our analyses and commentary in the posts below.

  • Put Dodd-Frank into Context

    • Read "Retracing the Financial Crisis 2007 - 2008", a collection of 75 vignettes which chronicle the unfolding saga which played out in broad daylight.

    • Recall that the actual market capitulation was triggered with the federal bailout of AIG.  While some historians still claim that Lehman Brothers or the Reserve Primary Fund was the proximate cause, our forensic examination of capital flows that week point instead to the $85 billion rescue of AIG.  Investors presumed the Fed felt that markets were strong enough to absorb a Lehman collapse.  But when the NY Fed stepped in two days later to rescue AIG, markets figured the Fed was in full panic mode and acted accordingly.  
    • Remember these names?  Washington Mutual, Indy Mac, Countrywide Financial, Wachovia, Golden West, Northern Rock, Dexia, Bear Stearns, Cheyne Financial, King County WA.
    • Remember these terms?  Structured investment vehicles (SIVs), Alt A mortgages, subprime loans, auction rate securities, enhanced cash, asset backed commercial paper, collateralized mortgages (CMOs), tranches, credit enhancement.
    • In 2007, Fortune magazine ranked Lehman Brothers at the #1 Most Admired Company among securities firm.  Bear Stearns ranked second.  Goldman Sachs was a distant third that year.

July 10, 2020 - Beta(m) - a Breakthrough in Money Market Investing

  • Join us for the unveiling of BETA(m)™ our new quantitative methodology for evaluating money market risks and returns. Register for the inaugural webinar on July 14.  

  • Applying modern portfolio theory to the money market space.  Constructing optimal money market portfolios along the efficient frontier.  Integrating modern portfolio theory and customized investment policies.

  • Each set of short term investment policies has its own efficient frontier, its own optimized portfolio, based upon risk and return tradeoffs as well as liquidity requirements.

July 9, 2020 - Structure of the U.S. Banking System.  Dodd Frank - Ten Years Later

  • According to the Federal Reserve Bank of St. Louis, there were 6,623 commercial banks in the U.S. when the Dodd-Frank Act (DFA) was signed in July, 2010.  That number fell to 4,427 in March, 2020.  One third of all U.S. commercial banks have disappeared in the ten years post Dodd-Frank.

  • Measuring through Feb. 2020 to factor out the $2 trillion surge in bank assets as a result of Covid-19 stimulus programs, U.S. banking assets had grown by 51% since the act was signed.  That barely outpaced nominal GDP which grew by 44% over the nearly ten years.  Clearly, DFA succeeded in reduce the growth rate of the banking sector.

  • Much like air in a balloon that simply moves around when the balloon is squeezed, assets of non-bank financial instruments have surged.  (See the July 5, 2020 post below.)

  • From the creation of the Federal Deposit Insurance Corporation (FDIC) in the 1930s and prior to DFA in 2010, there we between 150 to 175 new commercial banks established each year.  Most economists would view that as a sign of a robust industry and successful capital formation.  

  • Between 2010-2018, only 19 new banks were chartered in total.  14 banks have been chartered in the past year, a slight pick-up by still 90% below the historical pace.  For The Carfang Group, this effective halt in new bank creation is a cause for concern.


July 8, 2020  The Financial Stability Oversight Council (FSOC).  Dodd Frank - Ten Years Later

  • Following the financial crisis of 2008, there was a widespread recognition that several regulatory agencies missed some warning signals or viewed them too narrowly.  To remedy this, our legislators decided to form an uber-agency - the Financial Stability Oversight Council (FSOC) - comprised of the heads of several financial regulatory agencies including the SEC, FDIC, OCC, CFPB and CFTC, as well as the Federal Reserve Chair and the Treasury Secretary.

  • A cynic might say that those very same agency heads who failed to see the pre-crisis financial market dislocations would now form a committee to oversee each other.  Voila.  Problem solved.

  • In reality, this extended the regulatory processes, created additional overlap and resulted in a double jeopardy. There are examples of agency heads reaching informed conclusions but pressured to act against their better judgment to accede to the will of the Treasury Secretary.

  • FSOC was mandated to designate and supervise "systemically important financial institutions" or SIFIs.  This sweeping authority helped ensure that the largest and most interconnected banks had more liquidity and were better capitalized.  However, it was also a tool used to harass insurance companies and other non-banks, far removed from the market risk taking of 2006-08.

  • Most telling, the Treasury website boasts that FSOC creates "collective accountability".  That oxymoron says it all!

July 7, 2020  Dodd–Frank Wall Street Reform and Consumer Protection Act  - Ten Years Later


  • In two weeks, we mark the 10th anniversary of the signing of the Dodd–Frank Wall Street Reform and Consumer Protection Act.  Over these next two weeks, The Carfang Group will write on these pages and provide color and interpretation on how well it worked.  We have commented extensively in articles and in U.S. Congressional testimony, pointing our the successes and failures.  

  • The March Madness 2020 in the financial markets has provided the ultimate stress test and is a useful lens through which to view the Act.

  • Overall, we rate the bill a "C-".  

    • It began with an "A+" set of objectives to promote the financial stability of the United States by:

      • improving accountability and transparency in the financial system,

      • ending "too big to fail",

      • protecting the American taxpayer by ending bailouts,

      • protecting consumers from abusive financial services practices, and for other purposes.

    • It quickly descended into barely passing grade territory as two thousand pages of directives sowed confusion and raised compliance costs for all capital markets players, forcing smaller firms to close or merge into one of the giants. 

      • By outsourcing the actual rule writing to multiple, competing agencies, the jumble of inconsistent and overlapping regulations created a regulatory overhang that slowed the markets for years.  Working with different timetables, conflicting objectives and a wide range of competencies (or lack thereof), these agencies tripped over each other and confused markets for years.

        • Securities and Exchange Commission

        • Commodities Futures Trading Commission

        • Controller of the Currency

        • Federal Deposit Insurance Corporation.

    • Fortunately, coming in to the pandemic, the U.S. banking system was as strong as it has ever been.  We will give Dodd-Frank some of the credit.  However, more of that credit goes to the Basel III global framework for banks.

    • On the other hand, we would fault some Dodd-Frank provisions for the seizing up of the U.S. commercial paper markets and for the reluctance of the largest U.S. banks to fully facilitate the rollout of the Payroll Protection Program and other government stimuli.

  • Over the next two weeks, we will delve into the various planks of the Act including:

    • Too Big To Fail

    • Systemic Risk

    • Eliminating Bailouts

    • The Financial Stability Oversight Council (FSOC)

    • GSEs like Fannie Mae and Freddie Mac (see the Aug. 13, 2019 post below)

    • Volcker Rule

    • Consumer Finance Protection Bureau (CFPB)

  • Stay tuned.

July 5, 2020  Largest Financial Institutions - Ten Years After Dodd-Frank


  • In 2010 when Dodd-Frank was signed into law, financials comprised 15.6% of the S&P 500.  Their impact is now only 10.6%. 

  • There are certainly apples and oranges issues when comparing commercial banks, central banks and asset managers.  But no matter how you slice it, the league tables have changed radically since the passage of Dodd-Frank.  (We're still waiting for second quarter numbers.)

  • Remember when banks were the worry?  Remember names like Bank of America, JPMorgan Chase, Citibank?  Recall "systemically important".  Well? Barney Frank, Chris Dodd and others put an end to that.

  • It looks like June 30, 2020 data will show the U.S. Federal Reserve's twelve banks having combined balance sheet assets of $7 trillion.  That's up eightfold since the beginning of the 2008 financial crisis.  But today that only get's them second place.  BlackRock's assets under management (different from balance sheet assets but market impacting, nonetheless) are likely to top the listing, exceeding $7 trillion with Vanguard not too far behind in the neighborhood of $5.5 trillion.  Meanwhile, growth of "systemically important" banking assets and liabilities have barely kept pace with growth of GDP.  We don't believe JPMorgan's balance sheet will top $3 trillion at quarter end.

  • Check back in a couple weeks when the official June 30 numbers become public.

July 2, 2020 - Big Finance vs. Big Tech


  • Keep Your Eye on those Crypo-Regulatory Turf Wars.  They're fierce.

  • This intense clash of the titans is largely taking place behind the scenes now that most headlines are on Covid.

  • Even if you haven't heard much lately about Bitcoin, Libra, Ripple, Etheream or dozens of others, there is plenty of action.

  • Entrenched interests look to create regulatory barriers, keeping big tech out of the digital currency realm even as big tech is rending old line payment systems obsolete.

  • Read our LinkedIn piece on the key issues shaping up in DC.

  • We discuss the trends in digital currencies in our seminal piece "Megatrends in Treasury, Money and Banking".

June 25, 2020 - Treasury Coalition's Global Recovery Monitor.  Treasurers prepare for the long haul.

  • The Carfang Group is a founding member of Treasury Coalition which surveys treasurers bi-weekly to monitor their activities and outlook as the Covid19 pandemic continues to unfold.  Over 1,350 organizations have participated and the findings are instructive.

  • This week's respondents report healthy access liquidity but still see it as a top concern.  Corporate treasurers are less pessimistic about their accounts receivable.

  • Treasurers except a return to financial normalcy in about 11 months.  That's up from 10 months in the prior period.  Most don't expect to see GDP growth until 1Q2021.

  • Most expect a "W' shaped recovery.  

  • The Carfang Group will go out on a limb a posit a square root shaped recovery.    

    • Historic levels of stimulus and liquidity will take nominal GDP and stock indices above their previous highs.​

    • Then three things will happen to flatline global economies for awhile:  ​​

      • Stimulus will be slowly withdrawn slowing growth,

      • New regulations will slow growth,

      • Inflation arising from the stimulus will negatively impact some sectors and countries.

      • Read full article here.

  • Take the 5 minute Global Recovery Monitor survey here and receive the biweekly results as soon as they are published.

June 19, 2020 - Follow the money - U.S. Corporate Cash blasts through prior record.

  • The Carfang Group reported that U.S. corporate cash surpassed $3 trillion for the very first time, providing an ample cushion to help weather the Covid19 storm.  Checkable bank deposits, money market mutual funds, bank time deposits and the direct investments all showed strong growth.

  • FDIC reported that bank deposits grew by $1.2 trillion in the first quarter, including a $760 billion increasingly in accounts larger than the insured $250,000.

  • Bank reserves held at the Federal Reserve at the end of May were $3.2 trillion, almost double the $1.63 trillion total at year-end. 

  • Banks earn interest on these reserves called IOER (Interest on Overnight Excess Reserves) as a result a post 2008 emergency program that never expired.  We opposed IOER when first implemented and continue to oppose it.  Literally, banks get paid to hold the cash at the Fed and not lend it out.

  • Connect the dots.  The Fed announces an alphabet soup of stimulus programs to pump money into the markets.  That cash finds its way from corporate coffers and ultimately into banks.  The banks let it sit in their reserve accounts at the Fed earning interest.

  • So did the Fed just print money and pump it back on to its own balance sheet?  Hmmmm.

June 11, 2020 - Treasury Coalition's Global Recovery Monitor hopeful.

  • The Carfang Group is a founding member of Treasury Coalition which surveys treasurers bi-weekly to monitor their activities and outlook as the Covid19 pandemic continues to unfold.  

  • Over 1,200 organizations have participated and the findings are instructive.

  • 46% except a "W" shaped recovery whereas only 6% expect a "V"

  • Very few companies report treasury staff moving back on site.

  • Treasurers except a return to financial normalcy in about 10 months.

  • Although concerns about liquidity have lessened, accounts receivable remain a problem.

  • Take the 5 minute survey here.

June 5, 2020 - Playing the blame game already.

  • Regulators appear to be scapegoating money market funds for contributing to the panic in the financial markets in March.

  • The commercial paper markets froze in mid March, imperiling the ability of corporations to efficiently raise cash to fund their operations.  Interest rate spreads widened to as much as 200 basis points.

  • Keep in mind that the Fed lowered interest rates in two steps in early March.  So the widened CP spread was more like CP rates moving somewhat higher while Fed rates dropped an unprecedented 125 bps in a few short weeks.

  • Prime money market funds had historically been the largest buyer of corporate commercial paper.  The Securities and Exchange Commission, goaded by FSOC, promulgated draconian regulations which took effect in 2016 resulting in 60% or $1 trillion of assets exiting prime funds.  Of course, this rendered them unable to buy the corporate paper when the liquidity markets tightened in March, sending corporate borrowers scrambling.  We predicted this in April, 2017 here

  • During March, investors withdrew another 25% their Prime fund assets.  You could hear the dog whistlers shout "run".  Of course, that was dwarfed by the 40% drop in equities and even some bonds but no dog whistles there.

  • So now they'd have you believe that Prime funds were somehow responsible for the CP crunch in March and require another round of regulation.  Hmmmm.

August 13, 2019 - On Dodd-Frank Act, SIFIs, Fannie Mae and Freddie Mac


  • To some, it's a bit surprising that Fannie Mae and Freddie Mac, with a combined $5.7 trillion in total assets have emerged largest unscathed from the Dodd-Frank fallout.  In fact, they are stronger than ever. 

  • But should they continue to escape the reach of FSOC and now be designated as SIFIs, systemically important financial institutions?

  • Yes, they are subject to annual stress tests but escape some of the more draconian SIFI obligations.

  • Dr. Alex J. Pollack, former head of the Federal Home Loan Bank of Chicago offer this concise syllogism today on Real Clear Markets.

1. SIFIs must be regulated by the Fed.

2. Fannie and Freddie are obviously SIFIs.

3. Therefore, Fannie and Freddie must be regulated by the Fed.

  • If you believe in the Dodd-Frank Act, it is simply “Q.E.D.”

March 3, 2019 - Five Decades of Corporate Treasury in the U.S.

  • As part of its 40th anniversary festivities, London based Association of Corporate Treasurers invited Tony Carfang to document the parallel period of corporate treasury in the U.S.  Read the full article here.

  • 1970s - 15,000 banks in U.S., many prohibited from branching.  Paper based transactions.  High inflation with interest rates approaching 20%.  Reg E lays early groundwork for electronic banking.

  • 1980s - Monetary Control Act unleashes innovation.  ACH grows.  Treasury workstations emerge.  Banks consolidate.  Treasury Management Association come of age.

  • 1990s - Money funds, sweep accounts and investment portals take hold.  Liquidity management and payment operations come together in the modern treasury department.

  • 2000s -  Global supply chains and regional treasury centers take center stage as treasury departments globalize.  Global banks emerge as the transaction banking powerhouses. 

  • 2010s - Business analytics and intelligence tools introduced in corporate treasury.  Cyber security issues become problematic.  


The Carfang Group periodically updates this page with important information for financial professionals.  Our decades of experience in the markets and first hand dealings with key players affords us a unique perspective.  Most of all, we help you look beyond the headlines and understand what is really happening and how it will affect you and your company.

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