…
"Thank you for contacting us regarding "share entitlements". When you purchase stock, they are held in ¿book-entry¿ (electronic) form but in"Street-Name". This provides secure and reliable methods of ownership,without the risks and worries that can be associated with a paper certificate.
Due to a change implemented by the Depository Trust Company (DTC) and approved by the Securities and Exchange Commission (SEC), a physical certificate is "no longer" available through TD AMERITRADE. Your ownership of a security through TD AMERITRADE is maintained electronically in street name at the Depository Trust Company (DTC). from the comment thread of [1]
The above would seem to be right out of the seal the cockpits, fire all your pilots and outsource to a bunch of Predator drone operators school of corporate safety and soundness. That was a commenter, but the post itself [1] was even more hair-raising. The assertion there was of a widespread amount of "failure to deliver" in the "repo" market in T-bills themselves in the wake of all the chaos last September. The good new is, what with all the bailouts since September 18th, it can’t possibly be that bad now.
However … last Sunday the WSJ sent up a flair that new rules coming into effect tomorrow will cause issuers of treasuries who fail to deliver to be charged a hefty fee, and that the immediate impact will be such as to likely cause Treasury Debt yields to go negative.[2] Today Bloomberg is warning this could drive away short sellers and impare market liquidity.[3]
OK, so if I’m reading the below quoted bit from this 2-week-old blog post in The Atlantic [4] correctly, treasuries are sort of the last bastion of the Commercial Paper model for doing corporate short term finance and a host of other related things. We’re talking here about the pressure of the transmission fluid, as it were. Do we really want to mess around with the liquidity of this market starting May Day?
UPDATE: belated thanks to both twist and the Implode-O-Gang for critical digs on this story. And further thanks to Aaron’s people for their pickup of this post, although of course they had to quote the most egregious typo in the above ("hefty fee" not "heft fee") 
…………………………………………….
Meanwhile, I’m sitting an hour’s drive from about half of Canada’s present Swine Flu cases (in Windsor), and then this afternoon, without warning all hell broke loose (this is the CBC story with more video) just a 10 minute drive away..
"… anyone got some marshmallows?" It’s something of a joke in Canada that Maritimers tend to be a wee bit laid back. It’s not a joke.
Well, it’s been almost 9 years since Love Bug I came zorching out of the Philippines and exactly half a year since Love Bug II, Porche’s stealth short-squeeze against VW, caused chaos among the hedges and other speculators. Do we really want tomorrow to look like another badly dubbed Disney B-movie?
——————-
[1]: "Wall Street Selling Imaginary Treasuries", by Eric deCarbonnel, MarketSkeptics, April 29, 2009.
My reaction: The settlement system for the US government bond market broke down last September.
1) Following the collapse of Lehman Brothers, fails to deliver in the US treasury market rocketed to more than $2 trillion.
2) The number of fails is almost certainly higher than is being reported. For one, the DTCC, used by two to three hundred bond dealers for settlements, does not reveal publicly the fails to deliver there.
…
[HousingDoom comment: click through to the above article for several more points and a truly hair-raising summary. The Good News ... most of the information cited is old, late-2008. Certainly things are better now than then, or authorities wouldn't be trying something as stupid as risking an out-of-control short-squeeze in treasuries, right?]
[2]: " ‘Fail’ in Repo Market, Pay a Price: Participants in Treasury Securities Repurchase Face a Fee if They Can’t Deliver", by Deborah Lynn Blumberg, Wall Street Journal, April 26, 2009.
The fee is expected to result in repo rates going negative, with demand increasing for very scarce Treasury issues as investors search with more gusto for the Treasury securities they must deliver to avoid the fee. Negative repo rates mean investors extending a cash loan are paying for the privilege of owning a Treasury note.
[3]: "Repo Failure Remedy Drives Away Bond Short-Sellers", by Liz Capo McCormick, Bloomberg, April 30, 2009.
While the new recommendations are meant to curb disruptions caused when traders fail to meet their obligations, some strategists are concerned it may do more harm than good in the $7 trillion-a-day repurchase market, where dealers finance their holdings. A reduction in trading would be a setback for the Fed as it seeks to lower borrowing costs by pumping cash into the banking system and purchasing as much as $1.75 trillion in Treasuries and mortgage securities.
“Making short-selling potentially costly can reduce market liquidity,” said Darrell Duffie, a Stanford University finance professor and member of the New York Fed’s Financial Advisory Roundtable. “Financial markets with relatively unencumbered short-selling perform better.”
[4]: " ‘Too Big to Fail’ is Not Going Away", The Atlantic (blog entry), April 16, 2009.
Outside of the payment system, there are several key markets where a material disruption could set off a dangerous chain reaction. The interbank market is one obvious example. A bank would be considered systematically important if it accounts for a large enough share of interbank lending. What constitutes "a large enough share of interbank lending"? No one really knows, but any definition of "too systematically important to fail" would have to identify that threshold. The short-term repo market is another key market where the failure of an important player could have systemic consequences, because so many financial institutions fund their operations through repos. Most experts consider the largest derivatives markets to be "key markets" as well, because the failure of an important player in one of these markets could force counterparties to liquidate the collateral posted against these derivative contracts. If the collateral the failed institution had posted against its derivatives was sufficiently similar, such forced liquidations would depress the value of the assets, and would impose substantial losses on any institution that held a significant amount of these assets. These key markets can be thought of as the pressure points of the international financial system.
Bubble Meter
Mish's Global Economic Analysis
UK House Bubble
Ohio Fraudclosure
Northern Virginia Housing Bubble Fallout
Breaking News Relevant Articles© Copyright 2012 Housing Doom | Copyright© 2011, AuthentiCraft, Inc.
Comments are now closed.