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The whole thing with Repo is their
facility. They are you know, accessible

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liquidity, you know cash equivalent almost
and it's look super important that that element

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stay in place or that wouldn't work. So this is just for people to

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know about stuff that isn't normally written
about in the main stream. You're listening

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00:00:18,320 --> 00:00:23,679
to Carrie Lutz's Financial Survival Network,
where you get valuable information you just can't

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00:00:23,719 --> 00:00:29,679
find anywhere else to thrive in today's
trying times. You need the Financial Survival

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00:00:29,760 --> 00:00:35,000
Network now more than ever. Go
to Financial Survival and Network dot com and

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00:00:35,039 --> 00:00:41,520
get your free newsletter and gift.
Financial Survival Network now more than ever,

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00:00:45,000 --> 00:00:49,600
and welcome. You are listening to
watching the Financial Survival Network. I'm your

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00:00:49,600 --> 00:00:55,399
host, Carrie loves you know.
September is the month of crashes. September

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and October there's going to be a
crash. It's going to happen then or

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the runner up is March. For
some reason, these three months where most

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of the crashes of recently have taken
place and very well might take place again.

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You never know. So there's a
book that you gotta get. I'm

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about to interview the author. It's
called Repo Madness. And Wall Street's Wicked

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Ways, which kind of is redundant
if you ask me. But she wrote

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the book and her name is Mary
Ellen Tuttle. Mary Ellen, You're been

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a financial journalist for decades. You
basically found yourself out of a job but

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not too long ago, and you
wrote to started writing this book. We're

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really thrilled to have you on.
Hey, so system out of control.

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It's kind of like imagine you had
five engineers running one locomotive and everybody was

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kind of trying to go their own
way. What's going to happen? The

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train's going to come off the tracks? Right? Yeah, And basically the

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book is not haimed at people who
normally read finance books. One of the

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one of the takeaways from the recent
forum Better Markets did on the anniversary Lehman

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was that, you know, reforms
need to be put in place. Everybody

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was shaking their head. I was
really kind of amazed, and how you

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know, all these people were experts
and they all came to the same conclusion

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that there's no political will, We're
stuck with it and it's unsustainable. So

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that was really encouraged. So unsustainability, all right, I guess the first

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thing is to say, we're highly
critical as system. Tell us what this

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system is, how it works,
and why it's unsustainable. Well, because

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we just keep you know, you
can't keep doing trillion dollars. Baila.

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I'm not like I said, I'm
not any well, I don't know.

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I just think that, you know, I don't think it could go on

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forever. And you know, this
this thing ordered it sure is good while

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it until it stops, everything's fine, right, No, it's not fine

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obviously. But my book has aimed
at looking at even you know, even

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if it were sustainable, it's completely
you know, unjust, an unjust system,

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an undemocratic system. It's a club
you know, a clubby system,

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and it has and there are studies
that show obviously that it has had a

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huge negative impact on the real economy. And but what I like to put

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in the reader's mind is that when
someone says, you know, we spend

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eight trillion dollars on forever wars,
you know, you can imagine what we're

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spending that money on weapons and contracts
and so on and so forth, But

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people aren't really aware. I mean, it's sort of like a monolo it,

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you know, the the shadow banking
system and all that people aren't taught

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about it or and it's not written
about the mechanics of it. So what

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I tried to do in the book
is to aim this as a person who

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doesn't normally read financial books, and
when they finished reading my book, they

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have an idea of how the repo
markets started and what the mechanics are.

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I cover rebo in one chapter,
the short term collateralized loans that provide liquidity

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I like to call liquidity at the
altar of arbitrage and securities lending is another

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arm and the collateral that's a big
business, you know, getting collateral for

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all these rebos and the how they
you know, they basically are the lifeblood

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of the financial system. So they'll
have a basic understanding, a rudimentary,

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I'm sure, because but at least
it will open their eyes, you know,

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how it evolved and how it evolved
without any regulation, and that in

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the nineteen eighties they was a bankruptcy
where they seal security when bankrupt. And

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we don't have a lot of time, so I'm just going to you know,

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basically, the papers of the day
wrote that this would destabilize the entire

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government securities market because of this bankruptcy, and so they bailed it out.

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But my point was when this repos
started really growing in the eighties, flooding

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the markets with like again no regulation. So why didn't the regulators when they

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saw that this was a threat to
the freasury markets step up and take a

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look. But they didn't, and
then another bankruptcy occurred in a couple of

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months later, where repos are.
The whole thing with rebo is their facility.

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They are you know, accessible liquidity, you know cash equivalent almost and

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it looks super important that that element
stay in place or that wouldn't work.

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So this is just for people to
know about stuff that isn't normally written about

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in the main stream. And this
is another bankruptcy might be familiar with Lombard

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Wall and when that occurred, it
was disruptive Juripo because the judge determined that

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it was a secured loan and that
it would be subject to the automatic stay

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in bankruptcy law, which is really
bad because because you got the counterparty risk

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and these are supposed to be as
supposed to risk free as you can get.

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So a repo is I'm holding securities, I want to get cash for

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the securities but still earn a return. So I effectively sell it to you

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for a fixed amount with a fixed
return for X number of days. Generally

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these are really short terms, right
overnight, and then and then I agreed

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to repurchase it from you to buy
it back. At the end of that

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time, you made your return,
which is higher than the Fed funds rate,

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which is why people do these things, because they're at search of yield.

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So a reverse repo just tell us
how's that work? Well? In

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the reversary volume and securities for cash
and the cash is the collateral, and

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you know that's a reversary call.
Right. So one of our favorite people,

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who was the former governor of the
state of New Jersey, Core Design,

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had a zillion of these. I
can't even remember the name of his

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company now, but I'm sure you
do nothing global, Yeah, MFS global,

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And they had billions and billions and
they did. And there's hypothecation.

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That's where you put the security,
and they do. And if that's when

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you have the collateral and you use
the same collateral for different transactions, which

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is you know hypothecation, yes,
yeah, and and and there you know,

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against studies and observations that you know, when a crash occurs there,

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like with Lehman, you know,
you don't know who has what collateral,

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where it is. It's not trackable, so that leads to a lot of

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confusion. And then liquidation of Lehman
yielded hundreds of billions of dollars in dividends

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payouts to the creditors of the company. I'm not even sure that the creditors

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were net negative at the end of
the Lehman liquidation, but it was years

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and years later. So that uncertainty
really undermined the faith in markets. And

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we started seeing like municipalities where they
put tens of millions of dollars on deposit

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with a bank and they get a
letter of credit from a third party bank,

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believing that these letters of credits are
similar to a repo in many respects,

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letter of credit has no value anymore, and it really completely undermined faith,

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whatever faith there was prior in the
financial system. Right. Yeah,

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Well, it's interesting that you brought
up Lehman because back to the Lombard Wild

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bankruptcy, so the judge grows the
collateral and this caused a human to cry,

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obviously, and the financial industry prevailed
and Congress past a regulation that would

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exempt collateral in REPO from the automatic
stay. But it was fun to book

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collateral like CDs and conservative so that
went on. So they were saved.

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Repo went on to live another day. By nineteen eighty six, the market

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was two hundred billion and it was
the largest securities market in the world and

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nobody knows about it. Well,
that's another point your base. That's really

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funny is like, you know,
the biggest and the brightest at these banks

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are not at the repo desk.
It's a sleepy or used to be a

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sleepy backwater where you put the not
even the B grade executive, you put

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the C and D guys running the
repo desk because it's basically idiot proof.

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It's kind of like it's somebody's brother
in law. You can't fire this guy,

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you know, because then your sister
going to hate your guts, or

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it's somebody's sister in law. Your
brother in law is going to hate you.

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So you got to give him a
job somewhere. Oh, I know

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what, We'll stick him at the
REPO desk. You can't do any damage

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there, right. Well, interesting, you brought up Leaman because I found

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in my research that the attorney who
oversaw the Lehman bankruptcy underscored that the exemption

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from the automatic stay caused massive destruction, in his words, of the unwinding

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of everything, because in two thousand
and five, Congress decided that they would

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exempt all collateral from the automatic stay. So the scholar who writes about this,

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Jane Cecicco, said, basically,
the US Congress, if they think

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it's okay to tell the financial services
industry that they can exempt any transaction and

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they want from bankruptcy, it's okay
with Congress. And she didn't say that

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in an approving way, you know. And I can't help but think this

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exemption from bankruptcy. I'm not an
expert on flows and shifts in trading strategies,

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but it seems not too much of
a reach to think that more of

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the investments would go towards collateralized structure
just for that reason alone. So then

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can cause for a major shift in
how the markets behave I gotcha, And

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well, but the thing is okay, Harry Allen, like, as a

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recovering attorney myself, I can tell
you that these bankruptcy attorneys and judges are

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not suited really to be running a
bank and receivership all right, in conservatorship.

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The bankruptcy systems not designed to ensure
the smooth functioning of the financial system.

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Its purpose, purportedly, and granted
it's corrupted like everything else. I

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have personal experience, is to gather
up the assets of the bankrupt a state

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as they call it, and gather
up the liabilities the money owed, figure

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out what gets paid within the framework
of bankruptcy and what gets discarded, and

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then the balance will go to freditors
first, and then if there's anything left

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over, the shareholders get it.
So that system is really poorly adapted to

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mass financial calamities that potentially could disrupt
the system. But we're in a position

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where these things happen more and more
and we got like one person running the

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show. That's not a good thing
either. We need a system for unwinding

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these things without bringing the whole system
down right, Well, I would disagree

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and say we just need a whole
new system, period. And there are

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there are footprints out there blueprints I
shouldn't say footprints blueprints, but people that

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whole better markets for them. Like
I said before, didn't have one reformer

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on the panel. Yeah, it
was like the idea. And I found

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out in my research that anyone who
who writes about these reforms, you know,

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in a sincere way to supplant the
entire system and make it work,

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like you know, putting glass,
stiegeling stuff like that, they are they

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are silenced by their peers, Academics
disinvite them to conferences, They're not allowed

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to get their word out. So
I have a new blueprint and I just

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discover that I'm very enthusiastic about.
So I would like to share my emails

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do it. It's author M.
E. Toud Hill at gmail dot com,

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and anyone interested in reading it can
email me and I'll send that.

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And I have another paper on financialization
in the economy which is very quick.

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It's not too complicated, but it
makes really good points. So I'd be

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happy to mix. But but you
know, and this has come to me

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kind of recently. I mean,
I was shocked at that at that forum,

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and it stuck with me because I
thought, all these people are,

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you know, plugging a leaky boat. If it doesn't if it's sustainable,

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like you saying we can keep doing
the bailouts, it's not sustainable. From

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from a sociological point of view that
still some point people are going to just

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say enough. But my book's aim
is to open the door to people who

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do not read finance books. It's
only one hundred and forty nine pages.

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It really just you know, goes
in. It's it's basically a relation of

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fifteen years of me working as a
financial writer, and when I'd come across

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interesting quotes and stuff, I put
him in boxes. And then after I

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put my job, I went through
all the boxes and pulled the most compelling

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quotes. So I have great testimony
in the second half of the book Professor

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Edward Kine, he recently passed away, a well respected fellow. His testimony

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before the Senate Committee in twenty sixteen
is unequivocal and not disputable in any way,

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and it's so cogent and clear that
it's wonderful, I think, for

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people to see it because he outlines
very specifically, it's brilliant, you know,

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all of the flaws and the unfairness
of the program of the of the

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financial system. But he does it, you know, and it's not a

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lung chat. You know, I
take excerpts obviously, but you know,

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it's I want people to see this
because I want them to know that this

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pro this financial system is insane.
You know, it's nuts, and that

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if you think it's nuts, you're
not the crazy one. And once you

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read my book, you'll know that
you're not the crazy one. And people

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with a lot of esteem economists agree
with you and me. They're just not

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their voices just aren't heard. I
mean, Kane is the one. Luigi's

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and Galis from the University of Chicago
wrote a paper then I stumbled on,

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called does finance benefit society? And
he basically said, there is no evidence

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that it has for the last fourteen
years. What are we doing with it

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if it doesn't benefit society? I
mean that's the bottom line, all right,

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So and totally agree with you on
that financialization is a net negative,

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gross negative, because he got people
pushing around paper, both figuratively and literally,

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who really contribute zero to society.
And and you know, if you

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ever saw that movie Margin call right, you got a guy who figures out

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all the mortgage backed securities are worthless
ergo where your repos are kind of worthless.

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And he's an aerospace engineer who should
be designing airplanes. But the Muddy

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was on Wall streets and he finds
himself on Wall Street and he unleashes all

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this and then supposedly this was if
you had to pick a bank that it

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was, it was Goldman. They
discover it before anyone else, They sell

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out all their position, they take
their hits, and then the crash results

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from it. I don't know how
much of it was fictional and how much

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of it was real, but it
definitely struck a note with me. Yeah,

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I like that movie. That's what
I also would like to point out.

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The brain drain is really sad.
I mean when you think of all

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the smart people who were in finance. I mean I read a recent I

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can't remember, maybe it was mid
two thousands or earlier, but the average

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salary for someone in financial services was
six thousand a week. And at the

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time the average salary for the average
American was eight hundred and eighty four dollars,

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and in New York it was sixteen
thousand a week. So there's another

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that's another aspect of it, the
brain drain. I mean, I wrote

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about money market funds for a long
time, and I did a lot of

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research. Again, most of my
book comes from those years. But what

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I what I also was very familiarized
with are the ancillary companies that are out

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there just service you know, collateral
collateralization optimization companies. Yeah, algorithms doing

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all oh yeah, yeah, the
collateral Highway. And there's a there's a

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really kind of funny segment in the
book where I just lived. I stumbled

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on this meeting among financial institution fellow
with software fellow I can't remember, but

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it was like four or five people, and they were all different roles,

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and they were talking about collateralization and
the challenges and I just excerpted at the

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end of the collateral chapter and just
throw it on the pages because it's funny.

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I mean, it's so ridiculous the
way they're talking you can't even understand

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it. And the massive education and
people are going to need for this,

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and it's really complicated, and the
dialogue amogenum is just kind of hilarious because

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it just shows you how completely nuts
this whole thing is. Yeah, totally

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all right, So all of you
out there, the book is Repo Badness,

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A Simpleton's Guide to the Street's Wicked
Ways. Do I have time for

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a quote or are we're running out? Yeah? We got one more quote,

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sure, okay, this is what
I really like. It's by economist

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John Kay, and he writes,
we need a finance sector to manage our

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payments, finance our housing stock,
restore our infrastructure, fun retirement, and

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support new business. But very little
of the expertise that exists in the finance

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industry today relates to the facilitation of
payments, the provision of housing, the

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management of large construction projects, the
needs of the elderly, or the nurturing

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of small businesses. The process of
financial intermediation has become an end in itself.

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Okay, So if I can sum
up and interpret what that says,

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Once upon a time, the financial
sector's purpose was allocation of capital, and

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they were an They were a middleman, and they got capital from deposits from

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banks and all. And then they
found worthy borrowers who who could take that

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money and help the economy grow.
And now it's just a giant sino and

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the only ones benefiting from it,
or the interested parties. Hence why they're

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probably if there's two lobbyists, two
industries that lobby the most, it's big

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00:21:07,400 --> 00:21:14,119
pharmat and big wall sting, And
the public needs to get involved because that

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was the takeaway from better markets.
Until the public is more knowledgeable and active

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in fighting this and so you know, I'll send you this new blueprint for

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00:21:26,400 --> 00:21:30,200
a complete up change, pulling the
tree from the roots, and you can

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00:21:30,240 --> 00:21:36,200
send it to your congressman and congresswoman. You know. Hey, do you

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have a website Mariel Hotel, but
I want to wreak involved one. But

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I've got you. We're on LinkedIn
of course. Yeah, your LinkedIn.

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00:21:45,240 --> 00:21:52,319
We'll throw your LinkedIn. We'll throw
the Amazon link so you can buy the

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book. And hey, if you've
got a question for Mariel and you can

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00:21:56,920 --> 00:22:02,359
just or from myself for that matter, just send me an email kl at

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00:22:02,440 --> 00:22:06,799
carry Lutz dot com. We'll get
you an answer on the site. To

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00:22:07,640 --> 00:22:11,599
show notes this interview on Financial Survival
Network dot com. Just click through the

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00:22:11,680 --> 00:22:15,720
Amazon link is there, the LinkedIn
link is there, and send us any

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00:22:15,799 --> 00:22:19,160
questions while you're there. Sign up
for your free newsletter. Mary Ellen.

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Had been an absolute pleasure. Great
luck you. Thank you very much for

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00:22:23,119 --> 00:22:27,759
having me. I appreciate it.
Thanks for listening to carry Lutz's Financial Survival

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00:22:27,839 --> 00:22:33,960
Network your solution to today's trying times. For the latest go to Financial Survival

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00:22:34,039 --> 00:22:38,960
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