tag:blogger.com,1999:blog-3782644139927778760.post4496080078090731210..comments2008-05-07T02:02:18.883-04:00Yves Smithhttp://www.blogger.com/profile/03506020285476330865noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-3782644139927778760.post-54564427684913493522008-05-07T02:02:00.000-04:002008-05-07T02:02:00.000-04:00Vultures remain in the air looking for fresh road kill:<BR/><BR/>Asst Sec Ryan Remarks at SIFMA Wall Street to Washington Conference<BR/>Thursday, May 01, 2008; Posted: 07:33 PM<BR/>http://www.tradingmarkets.com/.site/news/Stock%20News/1482080/<BR/><BR/>At the February 2008 Quarterly Refunding, we discussed settlement failures in the Treasury market with our Treasury Borrowing Advisory Committee (TBAC), a committee sponsored by SIFMA and comprised of some of the finest, most experienced professionals in the financial market place. As you know, settlement failures, or fails, occur when a party selling a security fails to deliver the security to the buyer on the agreed upon settlement date. Settlement failures, occur for a variety of reasons including errors in the back office and miscommunications, and are generally small and resolved quickly.<BR/><BR/>Larger, more chronic fails can occur due to wide-scale operational disruptions or financial market conditions, such as when interest rates reach low levels.<BR/><BR/>Treasury and the TBAC discussed the potential risk of chronic fails in a lower interest rate environment, a risk that we believe impairs liquidity and threatens to raise our cost of borrowing. In addition, we asked market participants to pursue market-oriented solutions, adapt and implement practices for such a situation, and report back to us regarding their progress.<BR/><BR/>Over the past twelve weeks, we have seen rates drop quickly, the demand for Treasury securities skyrocket, and a rapid increase in fails to deliver in the Treasury market. In a short time period, we entered an interest rate regime in which the cost associated with fails declined significantly - and, perversely, weakened the financial incentive to rectify a fail. While the cost of failing to deliver may be low for a single market participant, the aggregate cost can be high when it potentially impairs the overall system, and such behavior is certainly not consistent with professional best practices.<BR/><BR/>This week, at the May 2008 Quarterly Refunding, we asked the TBAC for their view on actions taken by market participants to date. Committee members were encouraged by the collaborative efforts undertaken by the private sector industry groups to formulate viable solutions to address chronic fails, and members broadly accepted that the initiatives outlined by SIFMA and TMPG would improve market practices for fails monitoring and remediation in the near-term.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3782644139927778760.post-64525138075886095792008-05-07T01:07:00.000-04:002008-05-07T01:07:00.000-04:00So, who's really the vulture at last? Reminds me of an old British comedy routine that I've been unable to track down.<BR/><BR/>As I recall, an auctioneer was intoning the goods in some estate lot: "...two volumes, <I>How to Tame Vultures</I> ... four volumes, <I>How to Leave Vultures Alone</I> ..."prostratedragonnoreply@blogger.com