Around 30 years ago....some Japanese folks discovered that you could go and borrow money for a very cheap rate (less than 1-percent for a year). So they got this idea....you go and borrow $10,000 (in relationship of the Yen to the dollar). It could be more, but I'm just showing an example.
Once the loan is approved....you take the Yen and buy dollars. You then buy $10k of US Treasury Bonds for a year....getting roughly 5.5-percent gain. You sell, transfer back the dollars to Yen, then pay for the cheap loan. You basically clear 5-percent....on a 'free-deal'.
I'm not saying this was a perfect deal...just that it was a cheap loan and easily made 5-percent.
You can imagine a guy taking $100,000 loan and making $5,000 profit. Or taking a one-million dollar loan, and clearing $50,000 profit.
So last week....the problem occurred....the Yen to dollar rate rippled in a mess. So when you sold the treasury bond and had the $500 profit (assuming $10k relationship)....you needed to find a minimum of $2000 to make up for the loss of value (dollar to Yen).
The more you borrowed....the bigger the debt. So some of these guys were looking for $100k to $200k of cash 'somewhere'.
Where they took it from? Well....their portfolio or their Bitcoin account (yeah that dropped harshly as well).
This cause a huge market collapse on stock prices.
Fixing this via a 3/4 fed point point deal? Why.....it has nothing to do with the Wall Street guys. But the fed appears to be headed this way.
Two drops in the Fed point rate? Why?
Did some people see this coming? I'm not convinced they saw the Yen-Dollar rate problem. Most expect a US bank problem, but later in the year.
How many Japanese folks were screwing around with the cheap loans? Unknown....that would be interesting to know.
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