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To: yard_man who wrote (51585)	12/27/2000 1:58:50 PM
From: accountclosed	Read Replies (1) \| Respond to of 436258

a repo is a "repurchase agreement". so it puts temporary cash ("reserves") into the system. the fed buys the securities from "primary dealers" which are large institutions chartered to do biz with the fed. the repurchase, in this case 7 days later, pulls the reserves back out of the system. the money is an entry only as the primary dealers have bank accounts at national banks, and so the fed just writes a credit on its books to the benefit of the primary dealers bank (if the primary dealer is not itself a bank). the reason that they are called reserves is that the cash, then on the credit at the fed to the receiving bank can lend out many times that amount of money as they only have to reserve fractionally against loans. also, reverse repo operations work oppositely where the fed sells securities temporarily. or if some true bond guru comes around, i may have repo/reverse repo language backwards.

To: yard_man who wrote (51585)	12/27/2000 3:02:49 PM
From: pater tenebrarum	Read Replies (4) \| Respond to of 436258

i see...a repo is a repurchase agreement, in which the Fed buys government securities held by banks to inject temporary liquidity into the system. you will have noticed that there's always a term attached to a repo, like 28 days, or 2 days or whatever. after the term expires the institutions involved have to buy the securities back from the Fed. a coupon pass by contrast is a permanent liquidity injection. once the money from these open market desk ops. is deposited with the banks in question, the fractional reserve banking multiplier effect kicks in and transforms a mere billion at the repo stage into an eventual almost 10 billion in new credit sloshing about in the system when everything's said and done. works like this (in simplified form): once deposited, 90% of the amount can be lent out, 10% have to be kept as the fractional reserve. so 900m. of 1bn. lands as a deposit in the next bank, on the account of the borrower. now, again 90% of the 900m. can be lent out, and once deposited at the next bank, the process repeats, until the money has magically multiplied into a huge surge in outstanding credit and liquidity. it's a modern day form of day-light robbery basically.