Over the last couple of weeks we have highlighted that the effective Fed Funds rate has been bumping up against the top end of the Fed's target range (o.25%) Although, since the start of July it has pulled off the highs. We called it a "low grade fever" and "something to monitor."
Now comes word from WSJ that last week Tuesday, a "bank charged another bank an overnight rate of 7% on a loan. The New York Fed doesn’t disclose which bank borrowed what; it doesn’t disclose how big the loan was. The NY Fed did say that the last time a bank charged another bank 7% on a loan was Sept. 15, the day Lehman Brothers Holdings Inc. filed for bankruptcy."
If you have good collateral, you go to the Fed and you don't pay 7% for overnight money. It appears that the system is real scared about somebody out there.
These kinds of things don't stay quiet for very long. Will rumors start to swirl that takes someone down? If there is a problem out there, it is likely to break open soon.
On July 9 09 (one day after the Eskimo PPIP announcement), ex-Carlyle Ned Kelly was promoted from CFO to vice chairman of Citi, a role that includes guiding its strategy, acquisitions and sales. Some say this was a demotion because the CFO position has more operational power. However, the move to this new position would be consistent with Kelly facilitating a massive unwinding/transfer of Citi assets in the near future and/or restructuring of Citi. This could be the form of putting bad assets in a bad Citi bank and using PPIP to hand off the better ones, or bankruptcy as news outlets have reported over the weekend.
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