It’s Not The “Plumbing”, Stupid! It’s The Tsunami Of Treasury Paper

What happened? The dealers were already stuffed to the gills with inventories of Treasuries. Those inventories had reached levels that were an order of magnitude greater than at any time in history. The dealers never had the cash to buy that paper outright. They are always leveraged to the hilt. Therefore, with more paper coming all the time, they, and other bigly leveraged players in the Treasury markets, used short term bank repo funding and other margin loans to fund those purchases.

Then somebody said, “No mas!”