KW: In mid-September, the overnight lending rate suddenly spiked near 10%, dramatically higher than the usual 2%. The Fed rode in on a white horse to bail out the “repo” market. At the time, it said its actions would only be temporary. Well, they’re still going on and there’s no sign of letting up. In fact the overnight amounts have expoded much higher.
What caused the overnight lending market to unexpectedly seize up? There’s good reason to believe JPMorgan Chase may have been at the heart of it. The mega-bank had gone on a stock buyback spree. The money it used for buybacks was therefore unavailable to be loaned out in the repo market. The Fed had to intervene to supply it.
Buybacks, which are designed to boost stock prices, are enabled by the Fed’s artificially low interest rates. So ultimately the Fed is responsible for the crisis.