Free Republic
Browse · Search
News/Activism
Topics · Post Article

To: SAJ
I’m not an economist.

Wouldn’t (isn’t) the Fed Funds be inter-bank exchange rates while the Discount Rate be for the general public at large? I would think that the Discount Rate as applied to the economy weighs mightier than the Fed Funds rate. Is there a money chart to get this type of data/info?

9 posted on 09/05/2007 11:08:50 PM PDT by endthematrix (He was shouting 'Allah!' but I didn't hear that. It just sounded like a lot of crap to me.)
[ Post Reply | Private Reply | To 6 | View Replies ]


To: endthematrix
The so-called 'discount window' is principally an interbank rate. There have been major occasional exceptions to this, however.

Almost surely, the most famous exception occurred in the evening of 19 October 1987, aka 'Black Monday'. At the Chicago Merc, the arbitrageurs who were short stock shares and had sold SPX puts against them were utterly destroyed that day, when the SPX went to a then-unheard-of 40 pt premium over cash.

Cumulatively, these folks went into the dinger bigtime -- they were well over $1 billion in deficit.

Futures and futures options trades must be marked-to-market and settled up every day. So, how did these folks whistle up a cool billion-plus dollars overnight? The only lender in a situation such as this is the Fed, and the mechanism they used that evening was the discount window. Good thing, too -- or else CME probably wouldn't have been able to open for trading the next day, and the losses would simply have exploded when every brokerage house forcibly liquidated the remainder of the arb positions.

I'm at a bit of a loss as to what you're asking regarding Fed Funds. Delighted to answer your question (assuming, of course, that I know the answer), but I'm not sure what the question is.

13 posted on 09/06/2007 7:30:37 AM PDT by SAJ
[ Post Reply | Private Reply | To 9 | View Replies ]

To: endthematrix
Erratum in prev mssg: for 'premium over cash', please read 'discount to cash'.

Sorry.

14 posted on 09/06/2007 7:33:54 AM PDT by SAJ
[ Post Reply | Private Reply | To 9 | View Replies ]

Free Republic
Browse · Search
News/Activism
Topics · Post Article


FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson