Shortage Of Funds Quotes

A major hindrance to cancer effort has been a chronic, severe shortage of funds—a situation that is not generally recognized.

Any of you would go around the world for the sealing ordinance if you knew its importance, if you realized how great it is. No distance, no shortage of funds, no situation would ever keep you from being married in the holy temple of the Lord. There is no bias nor prejudice in this doctrine. It is a matter of following a certain program to reach a definite goal. If you fail in following a program, you fail in attaining the goal. Even in college work, if you never registered properly, never attended your classes, never did the things which are required by the college, you would never receive your degree. Certainly you cannot expect the eternal program to be less exacting.

The world currently has two reasonably disturbing and disturbingly reasonable examples as to what this unraveling might look like: Zimbabwe and Venezuela. In both cases mismanagement par excellence destroyed the ability of both countries to produce their for-export goods—foodstuffs in the case of Zimbabwe, oil and oil products in the case of Venezuela—resulting in funds shortages so extreme, the ability of the countries to import largely collapsed. In Zimbabwe, the end result was more than a decade of negative economic growth, generating outcomes far worse than those of the Great Depression, with the bulk of the population reduced to subsistence farming. Venezuela wasn’t so . . . fortunate. It imported more than two-thirds of its foodstuffs before its economic collapse. Venezuelan oil production dropped so much, the country even lacks sufficient fuel to sow crops, contributing to the worst famine in the history of the Western Hemisphere. I don’t use these examples lightly. The word you are looking for to describe this outcome isn’t “deglobalize” or even “deindustrialize,” but instead “decivilize.

So, we shouldn't keep going on about corruption and embezzlement of all kinds (in any case, the recrimination is part of the crime). We should lucidly take the view that, from a rational point of view and a reasonable human perspective, there are no longer sufficient needs or useful ends to cope with such a mass of money and resources. Were it not for efficient, organized embezzlement, there is a danger we would be confronted with an excess of means and a shortage of ends — a grave and demoralizing situation which we must stave off with bankruptcies, waste, misuse of public funds, etc. The only offender in all this, if we accept that the main function of money is to circulate and be spent, is the small saver. For whereas the big financial crooks merely contravene the moral law or legality, he contravenes the immoral law, the profound law of our society . . . Saving, the retentio n of monies, th e unlawful imprisonment of private funds which could be put to public use, that is to say which could become liquid capital — that is where real corruption lies today. And it is only right that the law should come down on the small saver at the same time as it grants an amnesty to th large-scale fraudsters and gives the green light to their operations.

Overall, the success of a Treasury auction depends on investor demand. Institutional investors such as insurance companies, foreign central banks, hedge funds, money funds, states, municipalities, Savings and Loans, credit unions, pension funds, and small local banks are all major participants. Depending on who buys a certain Treasury determines how much supply is available in the Repo market. For example, if a large amount of the auction is purchased by securities dealers and hedge funds, there’s plenty of supply around the Repo market. Dealers and hedge funds are leveraged players who loan their securities into the Repo market to finance their purchases. That keeps those securities readily available in the market. If, on the other hand, a large amount is purchased by end-user portfolios, such as investors who are more retail and less sophisticated, then there’s less supply available in the Repo market.

Repo is the oil that lubricates the engine of the financial markets. It keeps it running smoothly; it’s the plumbing of the financial system. You might even say it’s the oil that lubricates the engine of the entire economy. Here are some important characteristics of the Repo market: In one respect, Repo is a popular instrument for short-term cash investments for institutional investors, with “short-term” meaning from overnight through one year. It’s an ultra-safe investment. It’s an investment collateralized with a Treasury security at a competitive market rate of interest. In another respect, Repo is a mechanism for market participants to cover short sales of U.S. Treasurys. This is a big part of the Repo market and arguably the most interesting part. In another respect, it provides collateralized funding for large leveraged investors. OK, let’s just get this said up front. Yes, the Repo market is the way hedge funds can highly leverage their trading positions. More on this later.

Treasury Bills are the shortest securities, and they’re discount securities[8]. The Treasury regularly issues 1 Month, 2 Month, 3 Month, 6 Month, and Year Bills. Treasury Notes are securities that were originally issued with maturities between 2 years and 10 years. Currently, the Treasury issues 2 Year Notes, 3 Year Notes, 5 Year Notes, 7 Year Notes, and 10 Year Notes. In the past, there was a 4 Year Note, but it was discontinued. Treasury Bonds[9] are securities originally issued with maturities of either 20 or 30 years. Treasury securities are issued on a very regular schedule. Auction schedules are announced by the Treasury and don’t change very often. Keeping Treasury securities regular and predictable helps keeps the market liquid, and therefore reduces funding costs, in theory, for the government. On top of that, large liquid Treasury issues are good for the financial markets. Just remember, large and liquid is certainly better than small and illiquid! Small issues can experience price distortions, so the Treasury will make adjustments in their debt sales to keep the market liquid, running smoothly and predictably.

In general, outside of the auction cycle, 2 Year Notes accumulate the most shorts when the market expects the Fed to raise rates or there are a lot of yield curve flattening trades. “Flatteners” mean the Street is expecting short-term rates to rise relative to long-term rates. Proprietary trading groups will short-sell the 2 Year Note and buy the 10 Year Note against it. Given that the duration of the 10 Year Note is about five times greater than the 2 Year Note, it means that they are short-selling about five times as many 2 Year Notes as 10 Year Notes to be correctly risk weighted. When big hedge funds are in this trade, the 2 Year Note can get extremely Special.

It's not called Federal Reserve Funds. The money doesn’t belong to the Federal Reserve. It’s never called "Fed Funds" with capital "F’s." Officially, the market is called “federal funds,” though it’s often referred to as “fed funds,” and sometimes called just “funds.” But the “f” is never capitalized. The overnight federal funds rate was the benchmark short-term interest rate for a long time. Way back when, banks dominated the financial system, the overnight inter-bank rate anchored short-term interest rates.

There’s no real definition of a shadow bank, but a shadow bank is basically a financial institution that performs banking functions. A shadow bank can be anything from an REIT (Real Estate Investment Trust) to a mortgage finance company to a hedge fund to a broker-dealer. Think of what banks do. In the simplest terms, a bank takes in deposits and makes mortgage loans. The mortgage loans are the bank’s investments. The deposits are the bank’s funding. Anyone with a savings or checking account is lending money to a bank. The bank borrows money from the depositors and loans money to the homeowners. Mortgage REITs are a great example of shadow banking. The REIT buys mortgage-backed securities (MBSs) and borrows money to finance the purchases in the Repo market. The mortgage-backed securities are just like a bank writing a mortgage loan, except they’re a security, and the Repo transactions are just like the deposits. But the REIT is not a bank. It’s a shadow bank.

Now, picture a bank that’s financing CDOs for a hedge fund through Repo transactions. Suppose the floor dropped-out from under the CDO market, like it did in 2007, and the bank issued a margin call to the hedge fund. Suppose the hedge fund told the bank, “We will give you your cash as soon as we sell some CDOs. Maybe next week.” That doesn’t work. But the Repo counterparty has an out. No need to wait. Once there is technically a default or bankruptcy, the bank can take over the hedge fund’s positions and liquidate them. Then they cross their fingers that they had taken enough margin to cover the losses on the forced sale! That brings up a good question. Why are there runs on banks and shadow banks? The question is easily answered when you look at what banks and shadow banks have in common. They lend long and borrow short. It’s the age-old business model flaw of the banking system. They are lending money long-term and borrowing money short-term. A bank writes a 30-year mortgage loan to a homeowner and borrows money from their depositors to cover the loan. Remember, the depositors can show up any day and withdraw their money. Unfortunately, this same bank business model flaw extends to the shadow banks. They also lend long and borrow short. Just like a bank, a REIT’s MBS portfolio might have an average weighted maturity of, say, seven years.

When it comes time to change the federal funds rate, the Fed usually moves in 25 basis point[5] or 50 basis point increments, or decrements. A 25 basis point change is a pretty normal policy change, such as from 1.00% to 1.25%. If the Fed feels they need to move rates more aggressively, they’ll move by 50 basis points. For example, from 1.00% to 1.50%. At times when the Fed moved by more than 50 basis points, it meant there was a real crisis at hand. A 1.00% move – a full point – signals there are big problems out there. Changes in monetary policy are decided by the Federal Reserve Open Market Committee, or FOMC for short. The group meets eight times a year, approximately every six weeks. It’s composed of board members, who are political appointees, and the twelve regional Federal Reserve bank presidents, who vote on a rotating basis.

Let’s say there was a slight shortage of liquidity (cash) in the system and the fed funds rate was trading a little high at 5.3125% (5 5/16%), instead of the target rate of 5.25%. The Fed would enter the market, announce an operation, and borrow securities from the market. By taking securities out of the market, it put cash into the market. Securities come out and cash goes in. Now, let’s say the fed funds rate was trading at 5.1875% (5 3/16%) with the same target rate of 5.25%. The Fed would execute the opposite transaction. Because there was a little excess liquidity in the system, they would loan securities into the market, taking cash out. These Open Market Operations are more fine-tuning of overnight rates, but there were plenty of times when the actual fed funds rate deviated from the target rate by much more than a sixteenth.

Lion Capital was another small broker-dealer based in New York that filed for bankruptcy two years later in May 1984. Their fraud was even worse than Lombard-Wall. Whereas Lombard-Wall had mis-priced securities, Lion Capital had taken the securities out of the customer accounts and used them to pledge as margin to fund their own trading operations.

This threat of unsustainability is the constant, and most compelling, cry of those who would establish a private health care system in parallel to Medicare. Driven by the belief that health care is a commodity that can be best delivered through profit, they argue that the current system would be helped and not threatened by this change. The evidence is clear: this is rubbish. Wherever it has been tried (in other countries and in limited ways here in Canada), a parallel system has increased waiting lists and practitioner shortages in the public system. It also erodes commitment to funding the public system by those who can afford to sidestep the queues, ultimately leading to two systems that are very different in quality and cost.

Virtually unable to attract new capital to the foundering enterprise, the company seized the next year on a novel approach to raising money to fund the embryonic British Empire: a lottery. With the reluctant approval of King James and the Church of England, the Virginia Company sold lottery tickets to the public, discovering no shortage of gamers willing to hazard hard coinage for the chance to win the 01,000 grand prize, a fortune at a time when the typical working-class family scraped by on little more than a pound a month. Having begun as a corporation, Virginia had evolved into a gamblers' stake with a lively populist following back in England.

The 9/11 Commission warned that Al Qaeda "could... scheme to wield weapons of unprecedented destructive power in the largest cities of the United States." Future attacks could impose enormous costs on the entire economy. Having used up the surplus that the country enjoyed as part of the Cold War peace dividend, the U.S. government is in a weakened financial position to respond to another major terrorist attack, and its position will be damaged further by the large budget gaps and growing dependence on foreign capital projected for the future. As the historian Paul Kennedy wrote in his book The Rise and Fall of Great Powers, too many decisions made in Washington today "bring merely short-term advantage but long-term disadvantage." The absence of a sound, long-term financial strategy could bring about a deterioration that, in his words, "leads to the downward spiral of slower growth, heavier taxes, deepening domestic splits over spending priorities and a weakening capacity to bear the burdens of defense." Decades of success in mobilizing enormous sums of money to fight large wars and meet other government needs have led Americans to believe that ample funds will be readily available in the event of a future war, terrorist attack, or other emergency. But that can no longer be assumed. Budget constraints could limit the availability or raise the cost of resources to deal with new emergencies. If government debt continues to pile up, deficits rise to stratospheric levels, and heave dependence on foreign capital grows, borrowing the money needed will be very costly. [Alexander] Hamilton understood the risks of such a precarious situation. After suffering through financial shortages, lack of adequate food and weapons, desertions, and collapsing morale during the Revolution, he considered the risk that the government would have difficulty in assembling funds to defend itself all too real. If America remains on its dangerous financial course, Hamilton's gift to the nation - the blessing of sound finances - will be squandered. The U.S. government had no higher obligation that to protect the security of its citizens. Doing so becomes increasingly difficult if its finances are unsound. While the nature of this new brand of warfare, the war on terrorism, remains uncharted, there is much to be gained if our leaders look to the experiences of the past for guidance in responding to the challenges of the future. The willingness of the American people and their leaders to ensure that the nation's finances remain sound in the face of these new challenges - sacrificing parochial interests for the common good - is the price we must pay to preserve the nation's security and thus the liberties that Hamilton and his generation bequeathed us.

Every organisation faces challenges, but few seize to perform, not due to any shortage of funds, technology or knowledge, but due to the fact that people in such organisations do not use their creativity to explore innovative solution for their challenges.

Incompetence: The COVID-19 pandemic hit the world in 2019. It takes three years to train a nurse. In 2022 there is a shortage of nurses. Why wasn’t a massive government funded training program initiated to train huge numbers of nurses in 2019?

I really hated the jobs I had that were poorly funded.

There’s a subtle difference between an overnight Repo investment and an overnight fed funds investment. Repo General Collateral is collateralized with securities, whereas fed funds are uncollateralized. A fed funds cash investor doesn’t hold any collateral; they rely on the credit of their counterparty – another bank. Now, given the collateralization of Repo transactions, you would assume that Repo rates will always trade below fed funds. Sometimes, but not always. Over the years, Repo GC[15] has traded anywhere from 25 basis points above fed funds to 500 basis points below. That’s a huge range and just partly driven by the collateralization.

When GC is above fed funds, it usually means there's an abundance of Treasury securities in the market. When GC is trading below fed funds, there’s often increased demand for Treasury collateral. In general, things like Flights-To-Quality and customer demand for Treasurys are factors which move Repo rates around, but not fed funds. It usually takes a crisis to move GC well below fed funds.

The spread between GC and fed funds also tells a lot about the health of the financial markets. The spread is a gauge of the market’s perception of risk. When the GC/fed funds spread is distorted, there are often problems brewing in the market. The spread is an especially good indicator of what's going on behind the scenes, especially when it moves significantly on a quarter-end or a year-end; when bank balance sheets are tight.

During the Financial Crisis itself, there was a Flight-To-Quality like no one has ever seen! The demand for Treasury securities was unprecedented, with GC trading 500 basis points below fed funds. GC/Fed Funds Spread During the Financial Crisis 2007-2008 Once the market moved past the crisis and it was time to clean up, Treasury issuance and Fed QE purchases became the main drivers of the spread between GC and fed funds. When Treasury issuance is high, Repo GC rates increase relative to fed funds.

They didn't like what they found. Further examination found an active LIBOR fixing ring,[18] led by two large global banks and their inter-dealer brokers.[19] With no way to replace the survey method without the chance of rigging reoccurring, global regulators agreed to scrap LIBOR altogether. The problem was finding a replacement. It’s important to understand what LIBOR actually represents. Yes, it represents bank funding costs, but what does that mean? Theoretically, there are two interest rate components that make up LIBOR. The general level of risk-free interest rates and a credit spread. The risk-free interest rate is the equivalent of the U.S. Treasury yield with the same maturity date. The credit spread component represents something like the probability that the bank might default before the maturity date.

An important event occurred at that time. The Fed began paying interest to banks on their required reserves. All of the cash that banks were required to leave at the Fed could earn interest. The new rate was called Interest On Reserves (IOR) and the change made a lot of sense. Had it ended there, this would be a much different chapter. However, the Fed went one step further and offered to pay interest on any excess reserves that banks deposited at the Fed. That became known as the Interest On Excess Reserves (IOER) and it was effectively the final nail in the coffin of the fed funds market. For banks with excess cash, depositing at the Fed was a no-brainer. Why give your cash to another bank when you can give it to the risk-free Federal Reserve? And, on top of that, the Fed paid higher than market rates. A layup. So, it’s no surprise that cash began to move out of the fed funds market. Pre-Financial Crisis, in 2007, the size of the funds market was around $200 billion, and it peaked at $400 billion in 2009 during the crisis. Since then, it’s declined just about every year since.

The fed funds market is not dead, however, mainly because all of its market participants don’t have access to the IOER. Due to the legal structure of the Federal Home Loan Banks (FHLBs), they can’t loan cash to the Fed. That makes them the largest lender of fed funds out there, supplying about 75% of the cash in the market each day. To add insult to injury, foreign banks are often the cash borrowers, relending the funds back to the Fed and taking advantage of the spread between fed funds and IOER. Yes, effectively arbitraging the U.S. government.

Beginning in 2001, there was another shift in the Repo market. The CFTC changed their margin investment rules, allowing for FCMs (Futures Commission Merchants) to invest their cash in federal agencies, municipal bonds, and corporate bonds, instead of just Treasurys. The premium that U.S. Treasury collateral enjoyed narrowed. Before the rule change in 2000, GC was averaging around 7 basis points below fed funds. Beginning in 2001, GC was averaging almost flat to fed funds. When there’s less demand for Treasurys, there’s a smaller premium.

Yes, Repo rates are observable, liquid, and can be published. However, they are a risk-free rate which doesn't capture the credit spread. Repo rates could never fully represent bank funding costs. During the time a Repo rate replacement was being discussed, it was discussed at an FOMC meeting and once the FOMC minutes were published, it was clear Repo was not in the running. The hunt for the LIBOR replacement continued through 2018, when the Fed’s Alternative Reference Rates Committee finally announced their new rate. The new rate was called the Secured Overnight Funding Rate, or SOFR for short.

SOFR really can’t be used as a proxy for bank funding costs. It doesn’t have the credit spread component. The result is that SOFR can never be used as a replacement for LIBOR. It just won’t happen. However, SOFR still has a role to play. Though it was badly constructed, it’s still better than fed funds for hedging the multi-trillion-dollar Repo market.

When cash moves in and out of money market funds (MMF), it affects Repo rates. Yes, these funds invest a majority of their funds in bank CDs, commercial paper, U.S. Treasurys, corporate bonds, and discount notes, but their uninvested cash goes directly into the Repo market. Large funds like Fidelity, Vanguard, Federated, PIMCO, and Blackrock invest hundreds of billions of dollars in the Repo market each day. When individual inventors put money in these funds, a percentage of that cash filters into the Repo market.

Working together, Salomon submitted bids for their own account, Tiger Investments, and the Quantum Fund. The 2 Year Note auction was held on April 24, 1991. Salomon bid for $4.2 billion in its own name, $4.287 billion on behalf of the Quantum Fund, $2 billion on behalf of Tiger Investments, and $130 million for some smaller clients. Keep in mind, U.S. Treasury issues were much smaller back then. The total issue size was only $11.3 billion. All total, Salomon and the hedge funds bought $10.6 billion of the 2 Year Note at the auction – 94% of the entire issue.

On the other hand, a generous capital market is usually associated with the following: fear of missing out on profitable opportunities reduced risk aversion and skepticism (and, accordingly, reduced due diligence) too much money chasing too few deals willingness to buy securities in increased quantity willingness to buy securities of reduced quality high asset prices, low prospective returns, high risk and skimpy risk premiums It’s clear from this list of elements that excessive generosity in the capital markets stems from a shortage of prudence and thus should give investors one of the clearest red flags. The wide-open capital market arises when the news is good, asset prices are rising, optimism is riding high, and all things seem possible. But it invariably brings the issuance of unsound and overpriced securities, and the incurrence of debt levels that ultimately will result in ruin. The point about the quality of new issue securities in a wide-open capital market deserves particular attention. A decrease in risk aversion and skepticism—and increased focus on making sure opportunities aren’t missed rather than on avoiding losses—makes investors open to a greater quantity of issuance. The same factors make investors willing to buy issues of lower quality. When the credit cycle is in its expansion phase, the statistics on new issuance make clear that investors are buying new issues in greater amounts. But the acceptance of securities of lower quality is a bit more subtle. While there are credit ratings and covenants to look at, it can take effort and inference to understand the significance of these things. In feeding frenzies caused by excess availability of funds, recognizing and resisting this trend seems to be beyond the ability of the majority of market participants. This is one of the many reasons why the aftermath of an overly generous capital market includes losses, economic contraction, and a subsequent unwillingness to lend. The bottom line of all of the above is that generous credit markets usually are associated with elevated asset prices and subsequent losses, while credit crunches produce bargain-basement prices and great profit opportunities. (“Open and Shut”)

It is strange how many government departments claim to have money shortages, but there is never a shortage of funds for wars.