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0. Preface

I am not a financial advisor, and I do not provide financial advice. Many thoughts here are my opinion, and others can be speculative.
TL;DR - (Though I think you REALLY should consider reading because it is important to understand what is going on):

• The market crash of 2008 never finished. It was can-kicked and the same people who caused the crash have still been running rampant doing the same bullshit in the derivatives market as that market continues to be unregulated. They're profiting off of short-term gains at the risk of killing their institutions and potentially the global economy. Only this time it is much, much worse.
• The bankers abused smaller amounts of leverage for the 2008 bubble and have since abused much higher amounts of leverage - creating an even larger speculative bubble. Not just in the stock market and derivatives market, but also in the crypt0 market, upwards of 100x leverage.
• COVID came in and rocked the economy to the point where the Fed is now pinned between a rock and a hard place. In order to buy more time, the government triggered a flurry of protective measures, such as mortgage forbearance, expiring end of Q2 on June 30th, 2021, and SLR exemptions, which expired March 31, 2021. The market was going to crash regardless. GME was and never will be the reason for the market crashing.
• The rich made a fatal error in way overshorting stocks. There is a potential for their decades of sucking money out of taxpayers to be taken back. The derivatives market is potentially a $1 Quadrillion market. "Meme prices" are not meme prices. There is so much money in the world, and you are just accustomed to thinking the "meme prices" are too high to feasibly reach.
• The DTC, ICC, OCC have been passing rules and regulations (auction and wind-down plans) so that they can easily eat up competition and consolidate power once again like in 2008. The people in charge, including Gary Gensler, are not your friends.
• The DTC, ICC, OCC are also passing rules to make sure that retail will never be able to to do this again. These rules are for the future market (post market crash) and they never want anyone to have a chance to take their game away from them again. These rules are not to start the MOASS. They are indirectly regulating retail so that a short squeeze condition can never occur after GME.
• The COVID pandemic exposed a lot of banks through the Supplementary Leverage Ratio (SLR) where mass borrowing (leverage) almost made many banks default. Banks have account 'blocks' on the Fed's balance sheet which holds their treasuries and deposits. The SLR exemption made it so that these treasuries and deposits of the banks 'accounts' on the Fed's balance sheet were not calculated into SLR, which allowed them to boost their SLR until March 31, 2021 and avoid defaulting. Now, they must extract treasuries from the Fed in reverse repo to avoid defaulting from SLR requirements. This results in the reverse repo market explosion as they are scrambling to survive due to their mass leverage.
• This is not a "retail vs. Melvin/Point72/Citadel" issue. This is a "retail vs. Mega Banks" issue. The rich, and I mean all of Wall Street, are trying desperately to shut GameStop down because it has the chance to suck out trillions if not hundreds of trillions from the game they've played for decades. They've rigged this game since the 1990's when derivatives were first introduced. Do you really think they, including the Fed, wouldn't pull all the stops now to try to get you to sell?

End TL;DR
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A ton of the information provided in this post is from the movie Inside Job (2010). I am paraphrasing from the movie as well as taking direct quotes, so please understand that a bunch of this information is a summary of that film.
I understand that The Big Short (2015) is much more popular here, due to it being a more Hollywood style movie, but it does not go into such great detail of the conditions that led to the crash - and how things haven't even changed. But in fact, got worse, and led us to where we are now.
Seriously. Go. Watch. Inside Job. It is a documentary with interviews of many people, including those who were involved in the Ponzi Scheme of the derivative market bomb that led to the crash of 2008, and their continued lobbying to influence the Government to keep regulations at bay.
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Inside Job (2010) Promotional
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1. The Market Crash Of 2008

1.1 The Casino Of The Financial World: The Derivatives Market

It all started back in the 1990's when the Derivative Market was created. This was the opening of the literal Casino in the financial world. These are bets placed upon an underlying asset, index, or entity, and are very risky. Derivatives are contracts between two or more parties that derives its value from the performance of the underlying asset, index, or entity.
One such derivative many are familiar with are options (CALLs and PUTs). Other examples of derivatives are fowards, futures, swaps, and variations of those such as Collateralized Debt Obligations (CDOs), and Credit Default Swaps (CDS).
The potential to make money off of these trades is insane. Take your regular CALL option for example. You no longer take home a 1:1 return when the underlying stock rises or falls $1. Your returns can be amplified by magnitudes more. Sometimes you might make a 10:1 return on your investment, or 20:1, and so forth.
Not only this, you can grab leverage by borrowing cash from some other entity. This allows your bets to potentially return that much more money. You can see how this gets out of hand really fast, because the amount of cash that can be gained absolutely skyrockets versus traditional investments.
Attempts were made to regulate the derivatives market, but due to mass lobbying from Wall Street, regulations were continuously shut down. People continued to try to pass regulations, until in 2000, the Commodity Futures Modernization Act banned the regulation of derivatives outright.
And of course, once the Derivatives Market was left unchecked, it was off to the races for Wall Street to begin making tons of risky bets and surging their profits.
The Derivative Market exploded in size once regulation was banned and de-regulation of the financial world continued. You can see as of 2000, the cumulative derivatives market was already out of control.
https://www.hilarispublisher.com/open-access/investment-banks-and-credit-institutions-the-ignored-and-unregulateddiversity-2151-6219-1000224.pdf
The Derivatives Market is big. Insanely big. Look at how it compares to Global Wealth.
https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/
At the bottom of the list are three derivatives entries, with "Market Value" and "Notional Value" called out.
The "Market Value" is the value of the derivative at its current trading price.
The "Notional Value" is the value of the derivative if it was at the strike price.
E.g. A CALL option (a derivative) represents 100 shares of ABC stock with a strike of $50. Perhaps it is trading in the market at $1 per contract right now.

• Market Value = 100 shares * $1.00 per contract = $100
• Notional Value = 100 shares * $50 strike price = $5,000

Visual Capitalist estimates that the cumulative Notional Value of derivatives is between $558 Trillion and $1 Quadrillion. So yeah. You are not going to cause a market crash if GME sells for millions per share. The rich are already priming the market crash through the Derivatives Market.

1.2 CDOs And Mortgage Backed Securities

Decades ago, the system of paying mortgages used to be between two parties. The buyer, and the loaner. Since the movement of money was between the buyer and the loaner, the loaner was very careful to ensure that the buyer would be able to pay off their loan and not miss payments.
But now, it's a chain.

1. Home buyers will buy a loan from the lenders.
2. The lenders will then sell those loans to Investment Banks.
3. The Investment Banks then combine thousands of mortgages and other loans, including car loans, student loans, and credit card debt to create complex derivatives called "Collateralized Debt Obligations (CDO's)".
4. The Investment Banks then pay Rating Agencies to rate their CDO's. This can be on a scale of "AAA", the best possible rating, equivalent to government-backed securities, all the way down to C/D, which are junk bonds and very risky. Many of these CDO's were given AAA ratings despite being filled with junk.
5. The Investment Banks then take these CDO's and sell them to investors, including retirement funds, because that was the rating required for retirement funds as they would only purchase highly rated securities.
6. Now when the homeowner pays their mortgage, the money flows directly into the investors. The investors are the main ones who will be hurt if the CDO's containing the mortgages begin to fail.

Inside Job (2010) - Flow Of Money For Mortgage Payments
https://www.investopedia.com/ask/answers/09/bond-rating.asp

1.3 The Bubble of Subprime Loans Packed In CDOs

This system became a ticking timebomb due to this potential of free short-term gain cash. Lenders didn't care if a borrower could repay, so they would start handing out riskier loans. The investment banks didn't care if there were riskier loans, because the more CDO's sold to investors resulted in more profit. And the Rating Agencies didn't care because there were no regulatory constraints and there was no liability if their ratings of the CDO's proved to be wrong.
So they went wild and pumped out more and more loans, and more and more CDOs. Between 2000 and 2003, the number of mortgage loans made each year nearly quadrupled. They didn’t care about the quality of the mortgage - they cared about maximizing the volume and getting profit out of it.
In the early 2000s there was a huge increase in the riskiest loans - “Subprime Loans”. These are loans given to people who have low income, limited credit history, poor credit, etc. They are very at risk to not pay their mortgages. It was predatory lending, because it hunted for potential home buyers who would never be able to pay back their mortgages so that they could continue to pack these up into CDO's.
Inside Job (2010) - % Of Subprime Loans
In fact, the investment banks preferred subprime loans, because they carried higher interest rates and more profit for them.
So the Investment Banks took these subprime loans, packaged the subprime loans up into CDO's, and many of them still received AAA ratings. These can be considered "toxic CDO's" because of their high ability to default and fail despite their ratings.
Pretty much anyone could get a home now. Purchases of homes and housing prices skyrocketed. It didn't matter because everyone in the chain was making money in an unregulated market.

1.4 Short Term Greed At The Risk Of Institutional And Economic Failure

In Wall Street, annual cash bonuses started to spike. Traders and CEOs became extremely wealthy in this bubble as they continued to pump more toxic CDO's into the market. Lehman Bros. was one of the top underwriters of subprime lending and their CEO alone took home over $485 million in bonuses.
Inside Job (2010) Wall Street Bonuses
And it was all short-term gain, high risk, with no worries about the potential failure of your institution or the economy. When things collapsed, they would not need to pay back their bonuses and gains. They were literally risking the entire world economy for the sake of short-term profits.
AND THEY EVEN TOOK IT FURTHER WITH LEVERAGE TO MAXIMIZE PROFITS.
During the bubble from 2000 to 2007, the investment banks were borrowing heavily to buy more loans and to create more CDO's. The ratio of banks borrowed money and their own money was their leverage. The more they borrowed, the higher their leverage. They abused leverage to continue churning profits. And are still abusing massive leverage to this day. It might even be much higher leverage today than what it was back in the Housing Market Bubble.
In 2004, Henry Paulson, the CEO of Goldman Sachs, helped lobby the SEC to relax limits on leverage, allowing the banks to sharply increase their borrowing. Basically, the SEC allowed investment banks to gamble a lot more. Investment banks would go up to about 33-to-1 leverage at the time of the 2008 crash. Which means if a 3% decrease occurred in their asset base, it would leave them insolvent. Henry Paulson would later become the Secretary Of The Treasury from 2006 to 2009. He was just one of many Wall Street executives to eventually make it into Government positions. Including the infamous Gary Gensler, the current SEC chairman, who helped block derivative market regulations.
Inside Job (2010) Leverage Abuse of 2008
The borrowing exploded, the profits exploded, and it was all at the risk of obliterating their institutions and possibly the global economy. Some of these banks knew that they were "too big to fail" and could push for bailouts at the expense of taxpayers. Especially when they began planting their own executives in positions of power.

1.5 Credit Default Swaps (CDS)

To add another ticking bomb to the system, AIG, the worlds largest insurance company, got into the game with another type of derivative. They began selling Credit Default Swaps (CDS).
For investors who owned CDO's, CDS's worked like an insurance policy. An investor who purchased a CDS paid AIG a quarterly premium. If the CDO went bad, AIG promised to pay the investor for their losses. Think of it like insuring a car. You're paying premiums, but if you get into an accident, the insurance will pay up (some of the time at least).
But unlike regular insurance, where you can only insure your car once, speculators could also purchase CDS's from AIG in order to bet against CDO's they didn't own. You could suddenly have a sense of rehypothecation where fifty, one hundred entities might now have insurance against a CDO.
Inside Job (2010) Payment Flow of CDS's
If you've watched The Big Short (2015), you might remember the Credit Default Swaps, because those are what Michael Burry and others purchased to bet against the Subprime Mortgage CDO's.
CDS's were unregulated, so AIG didn’t have to set aside any money to cover potential losses. Instead, AIG paid its employees huge cash bonuses as soon as contracts were signed in order to incentivize the sales of these derivatives. But if the CDO's later went bad, AIG would be on the hook. It paid everyone short-term gains while pushing the bill to the company itself without worrying about footing the bill if shit hit the fan. People once again were being rewarded with short-term profit to take these massive risks.
AIG’s Financial Products division in London issued over $500B worth of CDS's during the bubble. Many of these CDS's were for CDO's backed by subprime mortgages.
The 400 employees of AIGFP made $3.5B between 2000 and 2007. And the head of AIGFP personally made $315M.

1.6 The Crash And Consumption Of Banks To Consolidate Power

By late 2006, Goldman Sachs took it one step further. It didn’t just sell toxic CDO's, it started actively betting against them at the same time it was telling customers that they were high-quality investments.
Goldman Sachs would purchase CDS's from AIG and bet against CDO's it didn’t own, and got paid when those CDO's failed. Goldman bought at least $22B in CDS's from AIG, and it was so much that Goldman realized AIG itself might go bankrupt (which later on it would and the Government had to bail them out). So Goldman spent $150M insuring themselves against AIG’s potential collapse. They purchased CDS's against AIG.
Inside Job (2010) Payment From AIG To Goldman Sachs If CDO's Failed
Then in 2007, Goldman went even further. They started selling CDO's specifically designed so that the more money their customers lost, the more Goldman Sachs made.
Many other banks did the same. They created shitty CDO's, sold them, while simultaneously bet that they would fail with CDS's. All of these CDO's were sold to customers as “safe” investments because of the complicit Rating Agencies.
The three rating agencies, Moody’s, S&P and Fitch, made billions of dollars giving high ratings to these risky securities. Moody’s, the largest ratings agency, quadrupled its profits between 2000 and 2007. The more AAA's they gave out, the higher their compensation and earnings were for the quarter. AAA ratings mushroomed from a handful in 2000 to thousands by 2006. Hundreds of billions of dollars worth of CDO's were being rated AAA per year. When it all collapsed and the ratings agencies were called before Congress, the rating agencies expressed that it was “their opinion” of the rating in order to weasel their way out of blame. Despite knowing that they were toxic and did not deserve anything above 'junk' rating.
Inside Job (2010) Ratings Agencies Profits
Inside Job (2010) - Insane Increase of AAA Rated CDOs
By 2008, home foreclosures were skyrocketing. Home buyers in the subprime loans were defaulting on their payments. Lenders could no longer sell their loans to the investment banks. And as the loans went bad, dozens of lenders failed. The market for CDO's collapsed, leaving the investment banks holding hundreds of billions of dollars in loans, CDO's, and real estate they couldn’t sell. Meanwhile, those who purchased up CDS's were knocking at the door to be paid.
In March 2008, Bear Stearns ran out of cash and was acquired for $2 a share by JPMorgan Chase. The deal was backed by $30B in emergency guarantees by the Fed Reserve. This was just one instance of a bank getting consumed by a larger entity.
https://www.history.com/this-day-in-history/bear-stearns-sold-to-j-p-morgan-chase
AIG, Bear Stearns, Lehman Bros, Fannie Mae, and Freddie Mac, were all AA or above rating days before either collapsing or being bailed out. Meaning they were 'very secure', yet they failed.
The Fed Reserve and Big Banks met together in order to discuss bailouts for different banks, and they decided to let Lehman Brothers fail as well.
The Government also then took over AIG, and a day after the takeover, asked the Government for $700B in bailouts for big banks. At this point in time, the person in charge of handling the financial crisis, Henry Paulson, former CEO of Goldman Sachs, worked with the chairman of the Federal Reserve to force AIG to pay Goldman Sachs some of its bailout money at 100-cents on the dollar. Meaning there was no negotiation of lower prices. Conflict of interest much?
The Fed and Henry Paulson also forced AIG to surrender their right to sue Goldman Sachs and other banks for fraud.
This is but a small glimpse of the consolidation of power in big banks from the 2008 crash. They let others fail and scooped up their assets in the crisis.
After the crash of 2008, big banks are more powerful and more consolidated than ever before. And the DTC, ICC, OCC rules are planning on making that worse through the auction and wind-down plans where big banks can once again consume other entities that default.

1.7 The Can-Kick To Continue The Game Of Derivative Market Greed

After the crisis, the financial industry worked harder than ever to fight reform. The financial sector, as of 2010, employed over 3000 lobbyists. More than five for each member of Congress. Between 1998 and 2008 the financial industry spent over $5B on lobbying and campaign contributions. And ever since the crisis, they’re spending even more money.
President Barack Obama campaigned heavily on "Change" and "Reform" of Wall Street, but when in office, nothing substantial was passed. But this goes back for decades - the Government has been in the pocket of the rich for a long time, both parties, both sides, and their influence through lobbying undoubtedly prevented any actual change from occurring.
So their game of playing the derivative market was green-lit to still run rampant following the 2008 crash and mass bailouts from the Government at the expense of taxpayers.
There's now more consolidation of banks, more consolidation of power, more years of deregulation, and over a decade that they used to continue the game. And just like in 2008, it's happening again. We're on the brink of another market crash and potentially a global financial crisis.
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2. The New CDO Game, And How COVID Uppercut To The System

2.1 Abuse Of Commercial Mortgage Backed Securities

It's not just atobitt's "House Of Cards" where the US Treasury Market has been abused. It is abuse of many forms of collateral and securities this time around.
It's the same thing as 2008, but much worse due to even higher amounts of leverage in the system on top of massive amounts of liquidity and potential inflation from stimulus money of the COVID crisis.
Here's an excerpt from The Bigger Short: Wall Street's Cooked Books Fueled The Financial Crisis of 2008. It's Happening Again:

A longtime industry analyst has uncovered creative accounting on a startling scale in the commercial real estate market, in ways similar to the “liar loans” handed out during the mid-2000s for residential real estate, according to financial records examined by the analyst and reviewed by The Intercept. A recent, large-scale academic study backs up his conclusion, finding that banks such as Goldman Sachs and Citigroup have systematically reported erroneously inflated income data that compromises the integrity of the resulting securities.
...
The analyst’s findings, first reported by ProPublica last year, are the subject of a whistleblower complaint he filed in 2019 with the Securities and Exchange Commission. Moreover, the analyst has identified complex financial machinations by one financial institution, one that both issues loans and manages a real estate trust, that may ultimately help one of its top tenants — the low-cost, low-wage store Dollar General — flourish while devastating smaller retailers.
This time, the issue is not a bubble in the housing market, but apparent widespread inflation of the value of commercial businesses, on which loans are based.
...
Now it may be happening again — this time not with residential mortgage-backed securities, based on loans for homes, but commercial mortgage-backed securities, or CMBS, based on loans for businesses. And this industrywide scheme is colliding with a collapse of the commercial real estate market amid the pandemic, which has business tenants across the country unable to make their payments.

They've been abusing Commercial Mortgage Backed Securities (CMBS) this time around, and potentially have still been abusing other forms of collateral - they might still be hitting MBS as well as treasury bonds per atobitt's DD.
John M. Griffin and Alex Priest released a study last November. They sampled almost 40,000 CMBS loans with a market capitalization of $650 billion underwritten from the beginning of 2013 to the end of 2019. Their findings were that large banks had 35% or more loans exhibiting 5% or greater income overstatements.
The below chart shows the overstatements of the biggest problem-making banks. The difference in bars is between samples taken from data between 2013-2015, and then data between 2016-2019. Almost every single bank experienced a positive move up over time of overstatements.

Unintentional overstatement should have occurred at random times. Or if lenders were assiduous and the overstatement was unwitting, one might expect it to diminish over time as the lenders discovered their mistakes. Instead, with almost every lender, the overstatement increased as time went on. - Source

https://theintercept.com/2021/04/20/wall-street-cmbs-dollar-general-ladder-capital/
So what does this mean? It means they've once again been handing out subprime loans (predatory loans). But this time to businesses through Commercial Mortgage Backed Securities.
Just like Mortgage-Backed Securities from 2000 to 2007, the loaners will go around, hand out loans to businesses, and rake in the profits while having no concern over the potential for the subprime loans failing.

2.2 COVID's Uppercut Sent Them Scrambling

The system was propped up to fail just like from the 2000-2007 Housing Market Bubble. Now we are in a speculative bubble of the entire market along with the Commercial Market Bubble due to continued mass leverage abuse of the world.
Hell - also in Crypt0currencies that were introduced after the 2008 crash. Did you know that you can get over 100x leverage in crypt0 right now? Imagine how terrifying that crash could be if the other markets fail.
There is SO. MUCH. LEVERAGE. ABUSE. IN. THE. WORLD. All it takes is one fatal blow to bring it all down - and it sure as hell looks like COVID was that uppercut to send everything into a death spiral.
When COVID hit, many people were left without jobs. Others had less pay from the jobs they kept. It rocked the financial world and it was so unexpected. Apartment residents would now become delinquent, causing the apartment complexes to become delinquent. Business owners would be hurting for cash to pay their mortgages as well due to lack of business. The subprime loans all started to become a really big issue.
Delinquency rates of Commercial Mortgages started to skyrocket when the COVID crisis hit. They even surpassed 2008 levels in March of 2020. Remember what happened in 2008 when this occurred? When delinquency rates went up on mortgages in 2008, the CDO's of those mortgages began to fail. But, this time, they can-kicked it because COVID caught them all off guard.
https://theintercept.com/2021/04/20/wall-street-cmbs-dollar-general-ladder-capital/

2.3 Can-Kick Of COVID To Prevent CDO's From Defaulting Before Being Ready

COVID sent them Scrambling. They could not allow these CDO's to fail just yet, because they wanted to get their rules in place to help them consume other failing entities at a whim.
Like in 2008, they wanted to not only protect themselves when the nuke went off from these decades of derivatives abuse, they wanted to be able to scoop up the competition easily. That is when the DTC, ICC, and OCC began drafting their auction and wind-down plans.
In order to buy time, they began tossing out emergency relief "protections" for the economy. Such as preventing mortgage defaults which would send their CDO's tumbling. This protection ends on June 30th, 2021.
And guess what? Many people are still at risk of being delinquent. This article was posted just yesterday. The moment these protection plans lift, we can see a surge in foreclosures as delinquent payments have accumulated over the past year.
When everyone, including small business owners who were attacked with predatory loans, begin to default from these emergency plans expiring, it can lead to the CDO's themselves collapsing. Which is exactly what triggered the 2008 recession.
https://www.housingwire.com/articles/mortgage-forbearance-drops-as-expiration-date-nears/

2.4 SLR Requirement Exemption - Why The Reverse Repo Is Blowing Up

Another big issue exposed from COVID is when SLR requirements were leaned during the pandemic. They had to pass a quick measure to protect the banks from defaulting in April of 2020.

In a brief announcement, the Fed said it would allow a change to the supplementary leverage ratio to expire March 31. The initial move, announced April 1, 2020, allowed banks to exclude Treasurys and deposits with Fed banks from the calculation of the leverage ratio. - Source

What can you take from the above?
SLR is based on the banks deposits with the Fed itself. It is the treasuries and deposits that the banks have on the Fed's balance sheet. Banks have an 'account block' on the Fed's balance sheet that holds treasuries and deposits. The SLR pandemic rule allowed them to neglect these treasuries and deposits from their SLR calculation, and it boosted their SLR value, allowing them to survive defaults.
This is a big, big, BIG sign that the banks are way overleveraged by borrowing tons of money just like in 2008.
The SLR is the "Supplementary Leverage Ratio" and they enacted quick to allow it so banks wouldn't fail under mass leverage for failing to maintain enough equity.

The supplementary leverage ratio is the US implementation of the Basel III Tier 1 leverage ratio, with which banks calculate the amount of common equity capital they must hold relative to their total leverage exposure. Large US banks must hold 3%. Top-tier bank holding companies must also hold an extra 2% buffer, for a total of 5%. The SLR, which does not distinguish between assets based on risk, is conceived as a backstop to risk-weighted capital requirements. - Source

Here is an exposure of their SLR from earlier this year. The key is to have high SLR, above 5%, as a top-tier bank:

Bank	Supplementary Leverage Ratio (SLR)
JP Morgan Chase	6.8%
Bank Of America	7%
Citigroup	6.7%
Goldman Sachs	6.7%
Morgan Stanley	7.3%
Bank of New York Mellon	8.2%
State Street	8.3%

The SLR protection ended on March 31, 2021. Guess what started to happen just after?
The reverse repo market started to explode. This is VERY unusual behavior because it is not at a quarter-end where quarter-ends have significant strain on the economy. The build-up over time implies that there is significant strain on the market AS OF ENTERING Q2 (April 1st - June 30th).
https://fred.stlouisfed.org/series/RRPONTSYD
Speculation: SLR IS DEPENDENT ON THEIR DEPOSITS WITH THE FED ITSELF. THEY NEED TO EXTRACT TREASURIES OVER NIGHT TO KEEP THEM OFF THE FED'S BALANCE SHEETS TO PREVENT THEMSELVES FROM FAILING SLR REQUIREMENTS AND DEFAULTING DUE TO MASS OVERLEVERAGE. EACH BANK HAS AN ACCOUNT ON THE FED'S BALANCE SHEET, WHICH IS WHAT SLR IS CALCULATED AGAINST. THIS IS WHY IT IS EXPLODING. THEY ARE ALL STRUGGLING TO MEET SLR REQUIREMENTS.

2.5 DTC, ICC, OCC Wind-Down and Auction Plans; Preparing For More Consolidation Of Power

We've seen some interesting rules from the DTC, ICC, and OCC. For the longest time we thought this was all surrounding GameStop. Guess what. They aren't all about GameStop. Some of them are, but not all of them.
They are furiously passing these rules because the COVID can-kick can't last forever. The Fed is dealing with the potential of runaway inflation from COVID stimulus and they can't allow the overleveraged banks to can-kick any more. They need to resolve this as soon as possible. June 30th could be the deadline because of the potential for CDO's to begin collapsing.
Let's revisit a few of these rules. The most important ones, in my opinion, because they shed light on the bullshit they're trying to do once again: Scoop up competitors at the cheap, and protect themselves from defaulting as well.

• DTC-004: Wind-down and auction plan. - Link
• ICC-005: Wind-down and auction plan. - Link
• OCC-004: Auction plan. Allows third parties to join in. - Link
• OCC-003: Shielding plan. Protects the OCC. - Link

Each of these plans, in brief summary, allows each branch of the market to protect themselves in the event of major defaults of members. They also allow members to scoop up assets of defaulting members.
What was that? Scooping up assets? In other words it is more concentration of power. Less competition.
I would not be surprised if many small and large Banks, Hedge Funds, and Financial Institutions evaporate and get consumed after this crash and we're left with just a select few massive entities. That is, after all, exactly what they're planning for.
They could not allow the COVID crash to pop their massive speculative derivative bubble so soon. It came too sudden for them to not all collapse instead of just a few of them. It would have obliterated the entire economy even more so than it will once this bomb is finally let off. They needed more time to prepare so that they could feast when it all comes crashing down.

2.6 Signs Of Collapse Coming - ICC-014 - Incentives For Credit Default Swaps

A comment on this subreddit made me revisit a rule passed by the ICC. It flew under the radar and is another sign for a crash coming.
This is ICC-014. Passed and effective as of June 1st, 2021.
Seems boring at first. Right? That's why it flew under the radar?
But now that you know the causes of the 2008 market crash and how toxic CDO's were packaged together, and then CDS's were used to bet against those CDO's, check out what ICC-014 is doing as of June 1st.
ICC-014 Proposed Discounts On Credit Default Index Swaptions
They are providing incentive programs to purchase Credit Default Swap Indexes. These are like standard CDS's, but packaged together like an index. Think of it like an index fund.
This is allowing them to bet against a wide range of CDO's or other entities at a cheaper rate. Buyers can now bet against a wide range of failures in the market. They are allowing upwards of 25% discounts.
There's many more indicators that are pointing to a market collapse. But I will leave that to you to investigate more. Here is quite a scary compilation of charts relating the current market trends to the crashes of Black Monday, The Internet Bubble, The 2008 Housing Market Crash, and Today.
Summary of Recent Warnings Re Intermediate Trend In Equities
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3. The Failure Of The 1% - How GameStop Can Deal A Fatal Blow To Wealth Inequality

3.1 GameStop Was Never Going To Cause The Market Crash

GameStop was meant to die off. The rich bet against it many folds over, and it was on the brink of Bankruptcy before many conditions led it to where it is today.
It was never going to cause the market crash. And it never will cause the crash. The short squeeze is a result of high abuse of the derivatives market over the past decade, where Wall Street's abuse of this market has primed the economy for another market crash on their own.
We can see this because when COVID hit, GameStop was a non-issue in the market. The CDO market around CMBS was about to collapse on its own because of the instantaneous recession which left mortgage owners delinquent.
If anyone, be it the media, the US Government, or others, try to blame this crash on GameStop or anything other than the Banks and Wall Street, they are WRONG.

3.2 The Rich Are Trying To Kill GameStop. They Are Terrified

In January, the SI% was reported to be 140%. But it is very likely that it was underreported at that time. Maybe it was 200% back then. 400%. 800%. Who knows. From the above you can hopefully gather that Wall Street takes on massive risks all the time, they do not care as long as it churns them short-term profits. There is loads of evidence pointing to shorts never covering by hiding their SI% through malicious options practices, and manipulating the price every step of the way.
The conditions that led GameStop to where it is today is a miracle in itself, and the support of retail traders has led to expose a fatal mistake of the rich. Because a short position has infinite loss potential. There is SO much money in the world, especially in the derivatives market.
This should scream to you that any price target that you think is low, could very well be extremely low in YOUR perspective. You might just be accustomed to thinking "$X price floor is too much money. There's no way it can hit that". I used to think that too, until I dove deep into this bullshit.
The market crashing no longer was a matter of simply scooping up defaulters, their assets, and consolidating power. The rich now have to worry about the potential of infinite losses from GameStop and possibly other meme stocks with high price floor targets some retail have.
It's not a fight against Melvin / Citadel / Point72. It's a battle against the entire financial world. There is even speculation from multiple people that the Fed is even being complicit right now in helping suppress GameStop. Their whole game is at risk here.
Don't you think they'd fight tooth-and-nail to suppress this and try to get everyone to sell?
That they'd pull every trick in the book to make you think that they've covered?
The amount of money they could lose is unfathomable.
With the collapsing SI%, it is mathematically impossible for the squeeze to have happened - its mathematically impossible for them to have covered. atobitt also discusses this in House of Cards Part 2.
https://www.thebharatexpressnews.com/short-squeeze-could-save-gamestop-investors-a-third-time/
And in regards to all the other rules that look good for the MOASS - I see them in a negative light.
They are passing NSCC-002/801, DTC-005, and others, in order to prevent a GameStop situation from ever occurring again.
They realized how much power retail could have from piling into a short squeeze play. These new rules will snap new emerging short squeezes instantly if the conditions of a short squeeze ever occur again. There will never be a GameStop situation after this.
It's their game after all. They've been abusing the derivative market game for decades and GameStop is a huge threat. It was supposed to be, "crash the economy and run with the money". Not "crash the economy and pay up to retail". But GameStop was a flaw exposed by their greed, the COVID crash, and the quick turn-around of the company to take it away from the brink of bankruptcy.
The rich are now at risk of losing that money and insane amounts of cash that they've accumulated over the years from causing the Internet Bubble Crash of 2000, and the Housing Market Crash of 2008.
So, yeah, I'm going to be fucking greedy.

Plans to raise around CHF4.0B of capital ... here
get those PUTS going
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https://preview.redd.it/mhnm04j65aw91.png?width=612&format=png&auto=webp&s=493fc4c0a50aaaf5fa25858abce6b95f47ae51fc

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0. Preface

I am not a financial advisor. I do not provide financial advice. Many thoughts here are my opinion, and others can be speculative.
I'm personally happy to see that there is a shift from GME DD to macro-economics DD. Because it provides a much wider insight into how the market is behaving, and how GME would NOT be the cause of a market crash. Everything has been a pressure cooker over the past decade, ready to burst, and the new DD provides insight on when things might go down.
The new DD also diverges from the expectations of things to shoot up in price every week, where everyone is watching T+21/T+35/Net Capital cycles. It gives a general "MOASS will most likely occur when everything falls due to liquidation of defaulting Banks / Hedge Funds / Financial Institutions".
It gives me peace of mind, because I do not watch for specific dates around GME to cause the surge. I watch the economy at the macro scale to understand when things could blow.
And to any skeptics - yes, it is possible that GME could never blow up. Do I think it will blow up? Sure I do. But I encourage YOU to read this post, disregarding GME, and to instead understand what is going on with the economy on the macro scale.
Even if the GME play is wrong in your eyes, it is good to understand how the economy could crash harder than it did in 2008. I don't care if you don't believe in GME. I care about you, and don't want YOU to be hurt.
Me IRL - Maybe - Sometime

1. Before We Begin: An Overview of Repo And Reverse Repo

Repo and Reverse Repo might be a bit confusing. You probably saw on this subreddit or in news that the reverse repo market has been blowing up, and it's a bit concerning.
It's not too complicated if you just imagine it between two entities: the Federal Reserve and Banks.
For both Repo and Reverse Repo, it is an agreement between two parties for one of them to sell some security for a price, and they agree to buy that security back at a later date at a higher price based on some interest rate (usually). This is called a "Repurchase Agreement", where "Repo" is a standard "Repurchase Agreement" and the "Reverse Repo" is a "Reverse Repurchase Agreement", the inverse of a "Repo".
The length of these Repurchase Agreements can be various lengths. Such as overnight, one month, three month, etc.. But what we're seeing is short-term overnight Reverse Repos. The parties swap, and then the next trading day they swap back. It is not a permanent extraction of the underlying security. It is an overnight swap. A permanent extraction comes from Quantitative Easing or Quantitative Tightening, both of which I will discuss later.

• Repo (Repurchase Agreement) - This is where the bank swaps collateral (such as US Treasuries) for cash. This is used when the banks have too much collateral and not enough cash, or when the banks want to generate profit off of giving loans to other parties in the repo market.
• Reverse Repo (Reverse Repurchase Agreement) - This is where the bank swaps cash (liquidity) for collateral (such as US Treasuries). This is used when the banks have too much cash (liquidity) and not enough collateral. The main reason behind this behavior is to pump balance sheets for the night.

Below is a diagram I made which might make this more clear. It is between the Fed (left) and Banks (right):
Edit: I have a typo here. QT and QE should be flipped in the diagram. QT is permanent extraction of liquidity. QE is permanent extraction of collateral.
Repo and QT Versus Reverse Repo and QE
​

2. Quantitative Easing Can-Kick of 2008, Slowly Draining Collateral From The Market

Note: If you want an overview of what led to the 2008 crash, check out my previous post which has a summary of the documentary "Inside Job (2010)". It also describes where we're probably headed based on SLR, the DTC, ICC, OCC, NSCC rules, and mortgage default protections expiring June 30th, 2021.
Zoom back in time to 2008. The economy took a massive dump due to Wall Street's abuse of derivatives and leverage. They created a bunch of toxic CDOs mostly consisting of subprime Mortgages to create an economic apocalyptic scenario around Mortgage Backed Securities (MBS). Everything was overleveraged and was a massive balloon of bets based on the performance of the MBS's.
Currently, there's evidence of Wall Street doing the same abuse of toxic CDO's but this time with Commercial Mortgage-Backed Securities (CMBS). [See above linked post for this detail]
The economy was hurting pretty bad from the 2008 crash, and it was going to continue going into a complete death spiral until the Federal Reserve (Fed) introduced Quantitative Easing (QE):

The Fed announced QE1 on November 25, 2008. Fed Chairman Ben Bernanke announced an aggressive attack on the financial crisis of 2008. The Fed began buying $500 billion in mortgage-backed securities and $100 billion in other debt. QE supported the housing market that the subprime mortgage crisis had devastated. - Source

If you're still scratching your head on what QE is, here's the Wikipedia overview definition, as well as (hopefully) a more simplified definition.
Quantitative Easing (QE) - is a monetary policy whereby a central bank purchases at scale government bonds or other financial assets in order to inject money into the economy to expand economic activity.

• This is what the Fed will do to extract collateral (including US Treasuries) from the economy in order to push in liquidity. The Fed started doing this in 2008 to extract toxic collateral from the market and encourage economic growth because it allowed more cash flow in the economy.
• This pulls out collateral from the economy, and pushes cash (liquidity) in.
• It was a ticking timebomb ever since it started, because it extracts collateral from the market, slowly creating a collateral shortage issue.

Check out the effects of QE on the Dow Jones Industrial Average ($DJI):
DJI Before And After Quantitative Easing Begins
It was helping the economy reverse the death spiral, and it has been pumping the economy ever since the introduction of QE. The problem is, of course, that collateral would continue to be sucked out of the market through the mechanics of QE.
And QE can't continue forever, because collateral is a fundamental part of the repo market which allows cash to flow in the economy. When you don't have collateral, you can't post the collateral in the market for cash from banks, and thus the flow of cash basically shuts down. You cannot perform a normal repo transaction between a Bank / Hedge Fund / Financial Institution.
The Fed tried to stop QE after a while. Instead of pulling collateral out of the economy, they needed to try to push collateral back into the economy. In order to stop QE, they tried what was, in essence, the "reverse" of QE called Quantitative Tightening (QT).
Quantitative Tightening (QT) - (or quantitative hardening) is a contractionary monetary policy applied by a central bank to decrease the amount of liquidity within the economy. The policy is the reverse of quantitative easing (QE), aimed to increase money supply in order to "stimulate" the economy.

• This is what the Fed will do to extract liquidity from the economy in order to push in collateral. It is used to attempt to reverse the effects of QE, to try to regain balance in the economy.
• This pulls out cash (liquidity) from the economy, and pushes collateral in.
• The Fed attempted QT in 2018, but it proved to have very bad consequences on the economy. So, they went back to QE in 2019, continuing to can-kick the effects of the 2008 crash.

This is a chart showing the Fed's "Total Assets", where collateral is an asset for the Fed. So when collateral was extracted from the economy through QE, it went onto their "Assets" side of their balance sheet. When collateral was pushed back into the economy through QT, it was extracted from their "Assets" side of their balance sheet.

1. At the start of QE in 2008, there is a surge of assets due to the buying up of MBS's and treasuries.
2. Around 2018 the assets began to decline because the Fed attempted QT by pushing collateral back into the economy and sucking liquidity out.
3. Around September 2019 the assets began to increase again because the Fed went back to QE after realizing the negative effects it was having on the economy due to causing a liquidity shortage.

So... what happened in September of 2019? Why did QT fail after a decade of QE?
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

3. Quantitative Easing Cannot Be Reversed. The Can-Kick Continues Until The Economy Crashes

Despite pumping in a bunch of liquidity into the market through QE, the economy was still lacking liquidity. When the Fed started to reverse QE through QT, the liquidity in the market tightened and thus the negative effects on the economy began to surface in September of 2019.
https://blog.pimco.com/en/2019/09/repo-rate-spike-a-tail-of-low-liquidity
Less than a year after starting QT, a liquidity crisis emerged on September 15th, 2019, when the repo rate spiked up severely. This was a clash of events surrounding the lower liquidity issue.

Banks’ “reporting” dates are known inflection points in the short-term funding markets and typically fall at the end of the month, quarter, and of course the year. But periodically, the 15th of the month is also a pressure point. Such was the case this past Monday when a short-term funding rate that had been hovering around 2.21% soared as high as 10%.
The funding market succumbed to a trifecta of pressures:

1. Payments on corporate taxes were due on 15 September, leading to high redemptions of more than $35 billion in money market funds.
2. Cash balances increased by an additional $83 billion in the U.S. Treasury general account, which reduces excess reserves and simultaneously acts to reduce the aggregate supply of overnight liquidity available in funding markets.
3. Dealers needed an additional $20 billion in funding to finance the settlement of recent scheduled U.S. Treasury issuance.

...
...
On September 15, as so many institutions needed funding, repo rates climbed well above the fed funds upper-end target at the time of 2.25% to briefly touch 5%. The following day, cash repo markets traded as high as 10% for those looking to finance agency mortgage positions overnight. Later that morning, the Federal Reserve Bank of New York acknowledged the pressures and conducted its first Open Market Operation (OMO) in more than a decade to add reserves to the funding markets that were clearly in need of the liquidity. Subsequently, after its meeting Wednesday, the Federal Open Market Committee (FOMC) announced a cut in the interest on excess reserves (IOER) of 0.30% – five basis points more than its cut in the fed funds rate – providing some relief to the upper bound of money-market yields. - Source

Due to the reduced liquidity from QT, because it sucks out liquidity and pushes in collateral, the markets hit a critical point where there was too much cash that was needed and not enough to supply those who needed the cash. There was huge amounts of strain on the economy.
This was most likely due to continued large leverage + derivatives abuse stemming from what led to the 2000-2007 Housing Market Bubble. The Fed realized that QT could not continue because of the liquidity shortage that was arising. They had to stop QT and continue QE in order to continue to pull out collateral and pump in liquidity. And thus, the collateral shortage time bomb continued ticking.
Below is the figure of when the repo rate shot up to ~10% within a day. This was awful, because it was much more expensive for loans to go out. The repo market would have shut down from nobody wanting to spend 10% on a repurchase agreement to get cash for the day. How would ANYONE get 10% return overnight to pay for these loans? The flow of cash was about to halt.
https://www.federalreserve.gov/econres/notes/feds-notes/what-happened-in-money-markets-in-september-2019-20200227.htm

4. COVID Initiated A Liquidity Crisis In The Banks, Which Now Fights With The Collateral Shortage

QE continued on until 2020, when suddenly, COVID came in. Nobody expected it.
And boy, oh boy, did COVID wreak havoc on the economy and the financial world. While the Fed was slowly approaching a collateral crisis through QE, COVID exacerbated the issue due to the sudden impact it had on liquidity. COVID increased liquidity, and when you have a sudden surge of liquidity, you need to balance it with collateral. The economic balance was tipping as of March of 2020.
This does not even take into account the effects of many people losing their jobs, being unable to pay rent/mortgages, and other issues that arose from COVID. Those all apply to another ticking time bomb: the CMBS issue, equivalent to the MBS bubble of 2000-2007, which I discussed in my other post.
The COVID pandemic caused a surge of money being printed from stimulus packages in the US. When you print a bunch of money into the economy on a whim, you risk driving inflation of the currency itself. What does inflation encourage? Less spending from companies, due to the higher price. This leads to less loaning of cash in the repo market, and banks obtaining an ever-surplus of cash.
COVID caused a sudden surge of trillions of dollars worth that the economy couldn't handle naturally. Compare the treasury balance versus the deposits over time, and the surge that occurred in 2020 in response to the pandemic. The COVID stimulus bills pumped in a massive amount of money into the economy at the risk of inflation. And we're already seeing the effects of inflation occur on the supply chain:
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Stimulus checks were sent out to retail. Companies were bailed out. Unemployment increased, resulting in more unemployment benefits going out due to the relief bills. More money printed. More money deposited at banks.
There was a ton of cash (liquidity) being pumped into the economy over the past year from March 2020 to June 2021. Because of this, due to inflation and an excess of cash, banks began to get a surplus of cash deposited. People had more cash. They didn't need to spend money on rent/mortages. Companies didn't want to spend more due to fears of inflation. So, bank deposits went up.
The main problem with this is that the cash deposited with the banks became a liability on their balance sheets. When you have a surplus of liabilities on your balance sheet, you need to 'balance' it out with assets, such as US Treasuries.
The banks were now in trouble because they had way, way too many deposits. They were at risk of defaulting due to their SLR requirements. Here is a figure showing how deposits (liabilities) of banks increased over time. It mushroomed during the COVID pandemic:
https://www.ft.com/content/a5e165f7-a524-4b5b-9939-de689b6a1687
To combat this issue, the Fed decided to introduce a relief program for banks regarding SLR because of the massive increase of liquidity due to the uppercut that COVID created on the financial world.

The supplementary leverage ratio (SLR) is the US implementation of the Basel III Tier 1 leverage ratio, with which banks calculate the amount of common equity capital they must hold relative to their total leverage exposure. Large US banks must hold 3%. Top-tier bank holding companies must also hold an extra 2% buffer, for a total of 5%. The SLR, which does not distinguish between assets based on risk, is conceived as a backstop to risk-weighted capital requirements. - Source

In more of a simplified summary, SLR is a requirement of total equity that a bank must hold compared to their total leverage exposure. If they are exposed to leverage, they need to hold enough capital for that position otherwise they are at risk of defaulting. In this case, they only need to hold a measly 3%-5%, dependent on how large of a bank they are. Just like in 2008 - these banks can have massive leverage and SLR is to "help protect the economy" from them abusing leverage.
But hey, the Fed put in place some protections for the year to help these banks since they were obviously overleveraged to begin with. These protections expired on March 31st, 2021.
https://www.fool.com/investing/2021/03/29/the-fed-is-ending-one-of-its-pandemic-relief-prog

The Fed's relief program last year allowed banks to exclude U.S. Treasuries and central bank reserves from the SLR calculation. The relief program was a response to the many non-banking institutions selling Treasuries to raise cash, and coincided with other measures, including the $2.2 trillion CARES Act, which resulted in even more Treasuries being sold into the market. - Source

Right after the expiration of the protection plans of SLR, the Reverse Repo market began to blow up because the banks had way too much liquidity and not enough treasuries on their balance sheets.
The argument that the banks were "parking their money at the Fed" was a reasonable explanation at first. Though, with 0% ROI from the RRP at the time, the banks would literally get no return on their investments. So for that argument, all of their other investments would have had to yield negative in order for RRP to be more enticing. Does this make sense to you that they'd use 0% RRP to be an 'investment'?
The fact that the RRP began to ramp up and then explode after the SLR protections lifted makes this look like a collateral shortage issue. And of course, with QE occurring over the past decade, makes it more likely, because collateral was sucked out of the economy and onto the Fed's balance sheet over the years.
That was of course questionable on whether it was a liquidity or collateral issue, until, the RRP rate dropped negative in March of 2021, as well as in April of 2021.
​

5. Reverse Repo Rate Flips Negative; Warnings Of Collateral Shortage

Think about it quite simply in a supply/demand factor and the reverse repo when the RRP rate dropped negative.
You are a bank. You want to get Collateral from the Fed to balance your sheets. The Fed says they'll give you a small amount of interest for borrowing their collateral overnight. But now, imagine that the supply of collateral is too low and demand is too high. The Fed will no longer want to pay you for borrowing its collateral so it will shift the interest rate down. If demand really outweighs supply, then the Fed would then want cash from YOU in order for YOU to borrow the collateral.
https://www.reuters.com/article/us-usa-bonds-repo-explaineexplainer-u-s-repo-market-flirts-with-negative-rates-as-fed-seeks-to-absorb-excess-cash-idUSKBN2C32AI
This was just one of the warning signs that a collateral issue was arising. The RRP rates were already at 0%, so the only way for them to move was either up or down. An increase in treasury demand could shift it down, into the negatives, which it did.
​

6. The Fed Is Fudging The Numbers And Hiding A Collateral Shortage

The drop in RRP interest rates to the negative came after the Fed increased the total borrowing amount of counterparties in the RRP from $30 Billion to $80 Billion.
https://finadium.com/fed-increases-rrp-limits-from-30-billion-to-80-billion-to-ensure-supply-at-near-0-rates/
Why did they do this? Think of it again as a supply versus demand issue. For simple math, imagine the Fed has 50 members.

• At a limit of $30 Billion per member, that is a total of $30B * 50 = $1.5 Trillion that can be borrowed.
• At a limit of $80 Billion per member, that is a total of $80B * 50 = $4 Trillion that can be borrowed.

What is this doing? Why did the Fed increase the limit?
It's artificially inflating the total "supply" of treasuries that can be borrowed by counterparties in the RRP. It is attempting to keep the interest rate positive because there is so much demand for collateral and not enough supply in the markets and on the Fed's balance sheet. The RRP was already at 0%, there was nowhere for it to go besides negative, which as you know implies a shortage of collateral and a red flag for the financial world.
Not only did they artificially inflate the total supply to combat the demand by increasing the total borrow amount, the Fed decided to not affect the assets side of its balance sheet during these RRP transactions. This effectively leaves the supply of treasuries on the Fed's balance sheet the same. This is another method to can-kick to avoid interest rates going negative and flashing a collateral issue.

When the Desk conducts RRP open market operations, it sells securities held in the System Open Market Account (SOMA) to eligible RRP counterparties, with an agreement to buy the assets back on the RRP’s specified maturity date. This leaves the SOMA portfolio the same size, as securities sold temporarily under repurchase agreements continue to be shown as assets held by the SOMA in accordance with generally accepted accounting principles, but the transaction shifts some of the liabilities on the Federal Reserve’s balance sheet from deposits held by depository institutions (also known as bank reserves) to reverse repos while the trade is outstanding. - Source

We can see this visually from the Fed's balance sheet that they're not affecting their assets during the RRP. They're allowing counterparties to borrow treasuries WITHOUT affecting the supply - desperately trying to get away from the rising demand for treasuries and avoid treasury yields from snapping down (and likewise the price of treasuries up):
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
On top of this, the Fed showed their hand ONCE AGAIN of fudging the numbers on June 16th when they bumped up the RRP rate to 0.05%. The short-term treasury yields briefly went BELOW the RRP interest amount of 0.05% on June 17th when the new RRP ROI was in effect.
This is a BAD sign because now overnight RRP had a higher return than 2-month and 3-month treasury bonds.
The Fed is fudging the numbers trying to hide the treasury bond shortage.
The Fed cannot keep this up. They're trying to keep the T-bill yield curve propped up despite the treasury shortage. They're not affecting their balance sheet, and they also artificially increased the amount of treasuries in their "supply" by increasing the counterparty borrow limit from $30 Billion to $80 Billion.
https://alhambrapartners.com/2021/06/17/the-fomc-accidentally-exposes-itself-reverse-repo-style/
https://www.treasury.gov/resource-centedata-chart-centeinterest-rates/Pages/TextView.aspx?data=yield
The Fed is also planning on increasing interest rates. This starts to scare the economy, which is most likely why we're now seeing the dump of the stock market over the past few days and the dump leading into the week of June 21st. This is bad for the markets because it means it's going to cost more for the economy to function (e.g. what happened in 2019 when Repo Rates spiked to 10%). Companies have to spend more to hire, produce, etc. It costs the economy more to function.
The Fed is pinned between a collateral issue from QE sucking out collateral, and a liquidity issue and COVID pumping in too much liquidity for the banks to handle.
https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html
https://www.bbc.com/news/business-57090421

7. Quarter Ends Explode The Reverse Repo. The Next Quarter End Is June 30th, 2021.

This is not a date to look forward to for GME potentially rising. This is a date of "Holy shit. The RRP could explode to the point where treasury supply vs demand is unable to take it any more".
About 3-4 days prior to quarter ends, the RRP explodes up in the amount of collateral that is borrowed from the Fed. This is because of the underlying plumbing of the financial markets, identified in Section 3 above, causes additional strain on the financial markets. The banks need more collateral to prop up their balance sheets for the night of the quarter-ends.
The RRP borrowed amount can shoot up almost 2-4x the current levels. The amount of RRP at the moment is $747 Billion. The RRP could explode 2-4x the amount it is at upon June 25th, 2021. What if it's $1 Trillion by then due to the massive amount of collateral needed by the banks? More?
Can the Fed handle it?
Can they still prop the yield curve up?
Will the short-term treasuries dip below the RRP amount once more due to this shortage and flash red flags to the world of financial instability in the US?
https://www.reddit.com/Superstonk/comments/nylihz/previous_rrp_behavior_on_quarter_ends_massive/
If the US Treasury yield curve snaps down from this instability and the Fed no longer able to prop up the yield curve, then it can drive treasury prices up.
If atobitt's "Everything Short" is true and they're actually shorting treasuries, then that can lead to banks defaulting due to the price of treasuries shooting up. When they default, they'll be forced to buy up all the treasuries that they've shorted into the market.
And it is very possible that they are shorting treasuries.
When performing RRP of 0%, the repo market was most likely shut down due to nobody needing cash loaned out. The banks only profitable move was to perform the RRP with the Fed and then short treasuries into the market, rehypothecating the treasuries to other parties. This would have also helped prop up the market by artificially increasing the supply of treasuries (collateral) in the market.
If it's true, and they have truly been performing the "Everything Short", then it could initiate a Global Financial Crisis equivalent to The Great Depression.
Do I want that to happen? No. But is there a chance? Yes, there is.
Is GME going to squeeze? Is the DD just false hopium? I don't think it's just hopium. I believe in the DD.
But some users might think otherwise and not believe in GME or the DD. Hello users outside of /superstonk! If you're reading this, check out the DD on the subreddit!
Even if there's a slight chance of a GME squeeze in your eyes, and all of these signs are pointing to a market crash...
Why not give it a shot?

My first post on this topic about 2 weeks ago had its flair changed to speculation by the mods as there was not sufficient evidence to support my theory that tokenized "GME" shares were being used as locates for short sales in the stock market. Fair enough.
I'm labeling this one as DD and I stand by it.
https://i.redd.it/ay42izyd0t4a1.gif
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Same as last time, here's a legend for the post;

1. Prologue
2. Tokenized Equities
   1. BIS & Tokenized Equities
   2. Project Helvetia
3. Uniswap & Liquidity Pools
4. "GME" tokens
5. Wrapping it up with FTX

---

1 - Prologue

I am fascinated by TOKENIZED STOCKS.
Quick reality check for all the immediate naysayers;
Member when we discovered the GameStop NFT landing page in May 2021? The one that evolved into the NFT marketplace?
member?
And member when we discovered a series of easter eggs that led to the hidden bananya cat game game and this message?
member?
Well the Ethereum contract listed on the official landing page was 0x13374200c29C757FDCc72F15Da98fb94f286d71e, which just happens to be one of the many "GME" tokens - Gamestop
And the solidity code for this contract has the same message from the website easter egg;
member?
And and it was minted on May 25, the same day Ryan Cohen Tweeted 'Don't Try This At Home';
And and and the contract for this token has multiple interactions, all of which oddly failed due to lack of gas, including 3 directly from Matt Finestone on Dec 2, Dec 4 and Dec 7, 2021;
tOkEnIzEd GaMeStOp ToKeNs ArE a NoThInG bUrGeR
Yeah, no, yeah, they're not a nothing burger. They're a something burger.

2 - Tokenized Equities

What the heck is even that? Well, officially;

Tokenized equity refers to the creation and issuance of digital tokens or coins that represent equity shares in a corporation or organization.
With the growing adoption of blockchain, businesses are finding it convenient to adapt to the digitized crypto-version of equity shares. Tokenized equity is emerging as a convenient way to raise capital in which a business issues shares in the form of digital assets such as crypto coins or tokens.

In theory, they offer flexibility in and better access to fundraising, decrease restrictions that may genuinely hinder some businesses and bring all other benefits of blockchain to equities like verified voting, dividends, mergers, acquisitions, etc., but like all things, people can be shitty when given the chance.
And this gives them a big chance.
IMO DEX tokenized shares would be a great idea, but what we got was CEX tokenized shares.
And CEX is for dummies.

2.1 - BIS & Tokenized Equities

In case you missed my post on the Bank for International Settlements (BIS), here is a great video again of the author, Adam LeBor, of the book The Tower of Basel, summarizing the history and the current structure of the BIS. Watch it.
He explains how the BIS is the central bank for central banks. What they say goes.
And what they're saying is that tokenized equities are meaningful and CBDCs are 100% coming.
---
The following two documents are BIS's updated global legislation on crypto assets and tokenized securities from June 2021 and June 2022, respectively;
---
Consultative Document #1 - Prudential treatment of cryptoasset exposures;
https://preview.redd.it/7vp994zuge4a1.png?width=646&format=png&auto=webp&s=05bbba2af5be07cef1c7946fff03e375bbe1f1ba
Ok firstlies, banks have limited exposure to crypto assets, yet banks face increased risks with the growth of crypto assets? Hmm.
Secondlies, it is BIS's official stance that the risks involved are;

• consumer protection
  • Protect who exactly? Protect them how? from what? They conveniently left out any elaborations. I wonder why.
• money laundering
  • Takes one to know one.
• terrorist financing
  • See above.
• carbon footprint
  • Fixed that.

What's next? Oh wait, that's all they had... Terrorists and energy consumption. Fucking L-O-L.
https://preview.redd.it/hs7q5mijhe4a1.png?width=624&format=png&auto=webp&s=65ce59cc13cd91f6ba0e7087db2e262d73ad187c
The BIS says tokenized assets must have adequate reserves. Take that, SBF.
https://preview.redd.it/p5vcblq7ur4a1.png?width=702&format=png&auto=webp&s=f746c498185d9b7008d921f891571cf4112361fb
"If you (any Central Bank) even look at anything crypto, we have legal access to your books, because fuck you, we're the BIS.."
---
Consultative Document #2 - Second consultation on the prudential treatment of cryptoasset exposures'
https://preview.redd.it/cxg0zht8wr4a1.png?width=667&format=png&auto=webp&s=621a22f81f06a9819d63176c5feb57c722f05db9
"We're still worried about being out of a job but don't want you to know we're worried about being out of a job."
"Also tokenized assets are for real for real."
https://preview.redd.it/83dgn8szxr4a1.png?width=747&format=png&auto=webp&s=f9e3f83ec3a224a2a9dab242facfc45d3630b04b
Look, there's a whole whack of legalese that, to be honest, is well above my pay grade, however the point I want to emphasize is simply that the bank of banks has been working hard to define crypto and tokenized asset definitions, exposure limits, risk calculations, etc.
If someone ever tells you these assets are just fluff, show them these documents.

2.2 - Project Helvetia

SIX? More like DIX amirite?
Project Helvetia (Latin for Switzerland) is a joint experiment by the BIS Innovation Hub (BISIH) Swiss Centre, SIX Group AG (SIX) and the Swiss National Bank (SNB), exploring the integration of tokenised assets and central bank money on the SDX platform ^{see below}
Quick recap on these 3 entities;

• BISIH identifies, in a structured and systematic way, critical trends in technology affecting central banking in different locations, and develop in-depth insights into these technologies that can be shared with the central banking community.
• SIX operates the infrastructure for the Swiss financial centre. The company provides services relating to securities transactions, the processing of financial information, payment transactions and is building a digital infrastructure. The company is owned by ~130 domestic and international financial institutions (can't find specifics?), which are also the main users of its services. (Like the FED?)
  • SIX Board of Directors, Governance, 2021 Annual Report
  • SDX **(**SIX Digital Exchange), "the world’s first fully regulated Financial Market Infrastructure offering issuance, listing, trading, settlement, servicing, and custody of digital assets"
• SNB - Swiss Central Bank

Wait a second, a lof of Switzerland happening here? Isn't that where FTX had its custodian CM-Equity AG "hold" it's "stock reserves" for its tokenized stocks?...
u/tjoma90 I would love to know your thoughts. Post for reference.
---
I won't go into the all of the details because that's not what I want to focus on (totally not because I don't understand it...), but the TL,DRS is that BIS, SIX and SNB have conspired cOlLaBoRaTeD to create a private, permissioned, peer-to-peer blockchain for central banks with hierarchical access to the ledger and SDX as the central authority.
https://preview.redd.it/66prae3lgd4a1.png?width=399&format=png&auto=webp&s=ad881ce76d91cc907356903e5383c8ecded13115
Yeah, this is going to be fine. PAUSE NOT!
https://preview.redd.it/opj0yah9cd4a1.png?width=469&format=png&auto=webp&s=0cffdbcbf327d4da1070f0f99269d8fa6d1e0931
https://preview.redd.it/8lfqhp36nd4a1.png?width=541&format=png&auto=webp&s=6e801c472942ee62b7769dc902cadf5b9cb985b4
There you have it folks. Don't ever let someone tell you that CBDCs aren't coming or tokenized assets are meaningless. Here you have the tippy top of the pyramid of modern global financial institutions discussing the topics, and how they already went live with part of their intervention solution to stay modern back in November 2021.
\"we need to change the laws to allow CBDCs\"
\"we need to change the laws to allow CBDCs\"
Aside from the mechanics of their proposals, let's look at the language they use in the following legal sections;
\"CBDCs won't be bad at all!\"
\"we will need a global effort to change all the laws to allow CBDCs\"
They want CBDCs, badly.
Why? IMO they saw the writing on the wall. "Join or die" is ever prevalent in this transition away from fiat currency to cryptocurrency, and CBDCs are a last-ditch effort to "compromise". Well, tough luck asshats, you're trying to offer better horse-drawn carriages when Henry Ford has already showcased his automobile - the Ford Broncass.
No thanks. I'll take the car.

3 - Uniswap Liquidity Pools

Before we hop into the matter at hand, we need to review what Uniswap is. The mechanics are not overly important but you'll see why this is relevant in section 4. If you know what Uniswap is or don't care about its mechanics, skip ahead.
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Uniswap is a decentralized cryptocurrency exchange (DEX) that facilitates automated and permissionless transactions of ERC20 tokens through the use of smart contracts.
It's like a currency exchange booth at an airport except it's decentralized and you exchange Ethereum tokens on the blockchain rather than cash, and you pay a very small fee (~0.3%). Meaning if you wanted to exchange $1,000 of XYZ token, it would cost you around $3. All automatic, trustless and guaranteed by math.
Traditional exchanges price assets based on the order book model, where all bid and ask prices are recorded and once there's a match, a trade is conducted. In this model, liquidity is determined by the amount of offers on both sides of a trade and the price of the assets is based off of the most recent trade.
Uniswap prices assets differently. Rather than having the last trade determine the price of an asset, a deterministic mathematical formula is used, called an Automated Market Maker (AMM). Assets stay in liquidity pools, which are a shared pool of assets deposited by liquidity providers (LPs). Why would you want to become an LP? Pretty simple - because you can collect fees. Anyone can create a liquidity pool or become an LP.
More specifically, Uniswap uses an AMM called Constant Product Market Maker Model, which is represented as "X*Y=K". This can get quite complicated but in a nutshell this means that any one specific liquidity pool has a constant ratio of assets, K, comprised of a pair of two tokens, X and Y. K is called the constant because the amounts of X multiplied by Y is always the same.
If X is purchased from the pool, there is a lower supply making it more valuable, so the price goes up (within that liquidity pool).
https://preview.redd.it/h7mi67891t4a1.jpg?width=1400&format=pjpg&auto=webp&s=af9d78987d34177f29b1014ba2acad03f0071d38
For example, let's say I want to make a liquidity pool with 100 apples and 10,000 oranges, so people who have either can exchange for the other, in this instance at a ratio of 1:100. Using the AMM model the constant K would be 1,000,000 (100*10k). If person A buys 10 apples, there are only 90 left in the pool. Our constant has to stay at 1,000,000, so the cost for this transaction will be 11,111.11 oranges (X/K*Y). This means person A would need to deposit 11,111.11 oranges to buy 10 apples.
Ok yes yes yes math, but why do we do this? Well, it's because the price of assets in liquidity pools are determined by how much you want to buy, not by how much someone else wants to get for it. This keeps liquidity in the system without the need for external market makers regardless of the order size or amount of liquidity. If someone uses your assets to trade 10 times a day, that's a direct peer-to-peer, permissionless and taxless 3% ROI per day, 9% per month, 108% per year, etc. Not bad.
This model makes it infinitely expensive to consume the whole amount of a certain token because algebra. If someone buys most of the apples, the contract just makes the next person pay more oranges for the amount of apples they want. This happens until someone wants to trade a bunch of oranges for apples and balance is restored.
There have been 3 different formulas that Uniswap has used;
V1 Formula (Nov 2018) - Trading of ETH to ERC20 tokens only
V2 Formula (May 2020) - Trading of ERC20 to ERC20 tokens added
V3 Formula (May 2021) - Adjustments to the math to incentivize providing liquidity

4 - "GME" tokens

From my previous post I thought there were only a handful of GameStop-related tokens. Well, I found a few more, as well as a buttload of sequential "GME" liquidity pools from Uniswap...

Token Name	Supply	Uniswap Liquidity Pool	LP Contract Creation
Gamestop	0
GameStop Token	100,500	Uniswap V2: GME	Jan 26, 2021
Wrapped GameStop	10,000,000	Uniswap V2: GME 2	Jan 26, 2021
GameStop	20,000,000	Uniswap V2: GME 3	Jan 27, 2021
		Uniswap V2: GME 4	Jan 27, 2021
GAME-STOP	61,500,000	Uniswap V2: GME 5	Jan 28, 2021
GameStonk	21,212,121	Uniswap V2: GME 6	Jan 28, 2021
		Uniswap V2: GME 7	Jan 29, 2021
GameStop.Finance	1,000,000	Uniswap V2: GME 8	Jan 29, 2021
		Uniswap V2: GME 9	Jan 31, 2021
		Uniswap V2: GME 10	May 12, 2021
Gamestop NFT	1,000,000,000,000	Uniswap V2: GME 11	May 25, 2021
		Uniswap V2: GME 12	May 25, 2021
		Uniswap V2: GME 13	May 26, 2021
Gamestop NFT	1,000,000,000,000,000	Uniswap V2: GME 14	May 26, 2021
GameStop	69,420,000	Uniswap V3: GME 2	July 3, 2021
GME Coin	12,000,000	Uniswap V3: GME 3	July 10, 2021
Gamestop Inu	1,000,000	Uniswap V2: GME 19	Sept 29, 2022
		Uniswap V2: GME 20	Sept 29, 2022
GAMESTONK	1,000,000,000,000	Uniswap V2: GME 21	Oct 2, 2022
GME Token	1,000,000,000,000,000	Uniswap V2: GME 23	Nov 6, 2022

Fun facts:

• Every one of these swaps involve Wrapped Ethereum because Eth is not an ERC20 token and Uniswap only deals with this standard.
• Gamestop, the token and contract listed on the official GameStop NFT parking page currently holds 69,420.69 GameStop (~0.1% of the supply) and 6M GME Coin (50% of the supply)
• Uniswap V2:GME 7 was ENS registered as "GameStop: Delpoyer" on Jan 27, and sent 500k of GameStop.Finance tokens to a contract called PostBootstrapRewardsDistributor
• Liquidity pool Uniswap V2: GME 23 holds 438 million % of the supply of GME Token
• The Uniswap icon and ticker is the same on all of the above tokens

5 - Wrapping it up with FTX

Ok ok ok, let me onceuponawrapitup for you.
On Jan 26, 2021, FTX minted 10M Wrapped Gamestop tokens, depositing 2.5M tokens each to 4 addresses; FTX Exchange, FTX Exchange 2, Serum Deployer... and a 4th address... whose first order of business was to DEPOSIT THESE ('add liquidity') INTO THE UNISWAP LIQUIDITY POOL FOR THIS TOKEN.
The following day, Jan 27, 2021, SBF himself released the "official" "tokenized GME" on the FTX platform, product "GME-0326".
The same product that recently (pre-bankruptcy) had a discrepency between the token price and share price.
The same product that was possibly used as locates under DTCC eligibility of hybrid securities.
The same product that can be used by JP Morgan for collateral.
The same product that was included in the W5B-1230 FTX futures contract that increased linearly from $795 to $52.6k a few weeks ago (outlined in my first post section 4, ^{the screenshots of which look to be scrubbed? oh well hehe, I still have them saved hehe} ).
^{Also, all FTX webpages now conveniently redirect to legal filings due to the bankruptcy, not surprising, but what's odd is even the multiple confirmed screenshots saved on the wayback machine for this FTX webpage won't load...}
Anyways, another point, "wrapping" a coin allows it to be used on a non-native blockchain. Wrapping a token is essentially swapping one token for another token in an equal amount via a smart contract, or code on the blockchain that can store and send funds.
Why is that relevant? Because I can't find anything regarding GameStop on Serum/Solana/Synthetix/Kwenta, where the original Wrapped Gamestop token was minted, or even in the ERC20 contract on Etherscan, suggesting there is actually nothing "wrapped" about this token, it's not an actual wrapped token, it just has the name "wrapped" to have the appearance of being legitimate, and in addition to the intentionally complicated systems, cross-blockchain transfers, multiple Uniswap liquidity pools and more, is all likely just to obfuscate the data.
---
And going back to a specific section from document #1 in section 2a real quick (banking exposure to cryptoassets);
https://preview.redd.it/9hqoctdbtr4a1.png?width=710&format=png&auto=webp&s=4cd82803df81977fd84ad4859731086e2ec7241f
Wait wait wait, "redeemers" (holders) of cryptoassets (GME tokens?) backed by traditional assets (GME shares?) held in a bankruptcy vehicle (FTX?) have zero credit risk exposure due to that bankruptcy? Wow. How convenient.
tOkEnIzEd StOcKs ArE a NoThInG bUrGeR
Yeah, no, yeah, they're not a nothing burger. They're a something burger.
---
I probably need one more brief post following the specific transactions to link the tokens to each other, but the teaser for that is that the most recent token has 1 quadrillion tokens in circulation, yet the uniswap liquidity pool for this token has 4.383 sextillion tokens in it.
That is 4,383,561,655,088,940,000,000 tokens.
That's a lot of fucking tokens.
Stay tuned.

As I am sure everyone saw, last Friday the Fed’s O/N Reverse Repo figure hit a record $1 Trillion, shattering all previous records. In my first ever DD in May (here) I hypothesized that the reason for the sharp increase in RRPs was due to Citadel and other SHFs shorting the Treasury Market (from Atobitt’s The Everything Short)- my idea was that they were likely hitting FTDs on their shorts (since they may have shorted more bonds than exist) and needed to locate Treasuries to kick the can on the FTDs. Thus, the SHFs were using banks as intermediaries in order to get these treasuries on their books on the day they needed a locate.
It looks like I was wrong. Their shorts may have been contributing tangentially to the issue, but are not the driving reason for this record scramble for collateral. The amount and diversity of participants is evidence that this is a systemic issue for Money Market Funds/Banks/Broker-Dealers- not just a few large SHFs needing Treasury collateral. The real issue is worse. Much worse. There are signs that the entire banking system is straining under the weight of the massive liquidity injections from the Fed.
Let’s take a trip-
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https://preview.redd.it/ym0yjv5j9cf71.jpg?width=1280&format=pjpg&auto=webp&s=861edcff728a52d6c8782db0aa42bb70aeec5b7c
​

RRPs

Reverse Repos are extremely similar to short term cash loans. The Financial Institution (most often a Money Market Fund (read here if you don't know what MMFs are) takes $1M of cash, and gives it as a loan to a counterparty, who coughs up $1M of Treasuries as collateral to the MMF. Then the MMF gives the Treasury back to the counterparty at the maturity date of the RRP contract (in this case, the maturity is only one day) in exchange for the payback in full of the original loan. (These have been covered at length in other DDs, read this if you’re still confused)
(Money Market Funds are massive- they manage nearly $5 Trillion dollars as of the end of 2020)
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https://preview.redd.it/wylpbj0w9cf71.png?width=624&format=png&auto=webp&s=65749897e7b271ef9c328648788e6ed135cfe56e
The end result from a RRP is that the MMF is able to use its cash in order to secure Treasuries, and the counterparty gets a loan they can use to cover a short term obligation. The terms Repo and Reverse Repo are interchangeable, they just mean opposite sides of the Repo trade.
(Another way of thinking of it is the entity borrowing the cash (loan) and giving collateral can be called a “Repo Party”, the entity lending cash and receiving collateral can be called the “Reverse Repo Party”. Sorry if these terms are confusing)
Credit to u/leisure_rules for this great explanation:
​
https://preview.redd.it/bviglo50acf71.png?width=1404&format=png&auto=webp&s=93c4042b33df71e507a994d3c6bc7402a5468423
As many have pointed out, this massive figure is concerning because it is a symptom of a serious issue in the market. MMFs typically operate by taking cash and lending into the “money markets”, aka short term (cash-like) loans, such as AAA+ corporate debt, T-bills, or overnight bank loans. Some MMFs are “government MMFs”, meaning they have to put the majority of their funds into government securities with short durations (SPAXX for example, as pointed out by u/Criand)
The MMFs are the largest investors at the RRP Facility- accounting for more than 80% of total volume. Since the govt MMFs have to invest the vast majority (99.5%) of their funds into T-bills (another name for short duration treasuries), they are scrambling to park as much money as possible into the RRP facility to maintain their legally required ratio of T-bills to cash.
​
https://preview.redd.it/e8uds0m1acf71.png?width=608&format=png&auto=webp&s=5f53182e9ff91225ee65b8bde50e806b62f1fc72
Typically, these MMFs trade Repos with primary dealers (basically these are banks that are allowed to directly buy Treasuries from the Federal Government- primary dealers are also explained in Part 3.5 of my Dollar Endgame Series) as these researchers explain-
“MMFs conduct the great majority of their repo investments with securities dealers, and primary dealers in particular. Nondealer counterparties include insurance companies, educational institutions, government-sponsored enterprises (GSEs), and the Federal Reserve. Some MMF repos are centrally cleared and novated to the Fixed Income Clearing Corporation (FICC).”
“Access to MMFs in the repo market facilitates a range of dealer’s financing and market making strategies, indirectly connecting MMFs to a broader set of activity in the financial system. As of December 31, 2020, MMFs held $877 billion of repo investments, or 82% of the total, with securities dealers. Of that amount, $642 billion repo investments were with primary dealers. Historically, primary dealers have been by far the largest MMF repo counterparties.” (Source- SEC Money Market and Repo Research Paper- also where I get these charts).
As stated above, MMFs are Repo counterparties for dealers/banks/corporations. Thus, the MMFs are lending cash to the dealers, and receiving T-bills as collateral (occasionally other types of collateral). Remember, a Repo from the counterparty’s (MMFs) point of view is basically a Reverse Repo since they take the opposite side of the Repo trade. MMFs always want to LEND cash in order to get T-bills and debt securities, or just buy them outright.
​
https://preview.redd.it/n30gqp94acf71.png?width=300&format=png&auto=webp&s=55145106ebb5edcea9787e3ae079cef3a217bb20
All these transactions occur in the “Money Markets”- the opaque, hidden and secretive world of plumbing that runs throughout the entire financial system. Reporting here is very spotty- large parts of the markets are lightly regulated, and very few people actually know what is going on in them. This is concerning since large parts of the financial system rely on these markets- for example large corporations such as General Electric, PG&E, and even McDonalds use this markets to roll their short term debt, ensuring that they can borrow enough cash to pay bills each month.
Because this world is so unknown and opaque to most in the financial world, this market has been coined the “shadow banking system”. This is because entities in the system, such as MMFs, ACT as banks (ie depositors put money in, MMFs loan cash to corps/banks for collateral (Reverse Repos). Some retail clients of MMFs can even write checks from their MMF account, just like a checking account!) but they are NOT REGULATED like banks- thus, MMFs (along with other institutions) are called “shadow banks”.
They fall under much lighter regulation standards as “collateralized debt funds”. Post-2008, there was an effort to more tightly regulate these funds as banks/bank substitutes, but the bill failed (See: The Payoff- Why Wall St Always Wins).
In the midst of the 2008 Financial Crisis, Zoltan Pozsar, a Senior Analyst who was hired to work at the New York Fed, started diving deep into the Shadow Banking System. Obsessed with understanding it, he worked day and night for weeks, building a map of how it works, which NO ONE had ever done before. Here it is pictured below, from his seminal paper “The Rise and Fall of the Shadow Banking System”
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https://preview.redd.it/m49ugz6dacf71.png?width=929&format=png&auto=webp&s=6b9cab66b56ea5b678a4daaeca409abfd3c9f422
As you can see, this system is INCREDIBLY complex. The map pictured above is just the executive summary map. The real map is very big (4ft by 3ft or so). I saw the real map in an online research paper years ago, but now it appears that the link to it is broken on the NY Fed’s website (same issue with a FT article). Weird.
If anyone finds it, please let me know. (Extra Credit Reading- Shadow Banking: The Money View by Pozsar)
This system is huge- trillions pass through it every day, and it directly touches most major banks, insurance corporations, broker-dealers, MMFs, and even some pension/hedge funds. Pozsar is one of a few experts who have a deep understanding of how this system works (along with Jeff Snider and Steven Van Metre)
Pozsar predicted a month ago that RRPs would rise above $1T, and eventually climb to $1.3T or more. Looks like he was right.
I’m not going to dive deep into the Shadow Banking system- as I have nowhere near the knowledge that the aforementioned experts have, and it would take FAR too long for one DD. If you would like to know more I suggest you read the above resources (or check out George Gammon’s interviews with Jeff Snider or Steven Van Metre). My focus is more macro-economics + financial history.
OK, Back to Reverse Repos- what’s going on?

Three Driving Reasons for RRP Blowup:

​

1. Loss of Faith in Primary Dealers/Repo Counterparties- Bank Credit Contraction beginning. CDS Rising.

​

2. Collateral Supply Shortage- Caused by the Treasury drawing down the TGA (Treasury General Account) and hitting the Debt Ceiling (Treasury not issuing more bills/bonds). SLR exemption expired.

​

3. Massive Treasury Demand- Spawned by “flight to quality” from FIs, Fed continues to pump $120B a month into the banking system. The Fed is EATING the Treasury Market.

​

Let’s cover these one by one.

​

Loss of Faith in Primary Dealers

Typically, the MMFs can use the primary dealers to source a large portion of their treasury demand. They would only occasionally use the Fed RRP window when their demand exceeded the market supply- this is because the Primary Dealers will usually pay a decent interest rate (like 1-3%) for the RRP, while the Fed’s RRP was pinned at 0.00% for years (until this July, which we will get into later).
So why are the MMFs and other FI’s with cash to spare using the Fed’s RRP facility at near-zero interest rates when they could potentially make much more in RRP to banks? They’re noticing something happening in the banking system.
The entire banking system has begun entering a credit contraction. Despite the trillions injected by the Fed, major commercial banks are afraid to make loans, and have been letting older loans mature without lending more- You can see this for yourself here.
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https://preview.redd.it/xo70glafacf71.png?width=2334&format=png&auto=webp&s=9a72b010984abb8a50d172c5fe743a09ba9faad0
This is typical of a credit cycle, (explained in depth in Part 3 of my Dollar Endgame Series). In a recession, companies that are overleveraged start to go under, banks get worried about credit risk again and slow down/stop lending. What is weird about this contraction is that it is occurring in the midst of the greatest fiscal and monetary stimulus ever- the Fed is printing billions and shoving it into the banking system. The economy is supposed to be growing again and lockdowns are being lifted.
Further, notice that the credit contraction is more severe (steeper) than either 2001 or 2008. Banks are pulling back commercial and industrial loans more rapidly than in either previous recession.
Zooming in, we can see an initial spike in loans from banks due to Fed Stimulus in March 2020, then a steady downward contraction in bank credit even into July 2021- despite the $120B being plowed into the system every month, and a reopening from the lockdowns of 2020.
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https://preview.redd.it/y0bgv2pgacf71.png?width=2334&format=png&auto=webp&s=1a9c43851e88fa73825f62440b4ade573a0e4b05
Several important events have occurred in the past few months, notably the closing down of personal lines of credit by Wells Fargo, and JP Morgan deciding to hoard cash (ie, not lend) because it believes that “inflation is here to stay”. These are just more signs of the widening credit contraction. Why?
In periods of high inflation, the value of debt gets wiped out. This is great for borrowers (consumers) but horrible for banks, since they rely on the interest and principal payments to retain their purchasing power so that they can buy other investments or make new loans. Inflation (in the real economy) is almost always horrible for banks/credit lenders.
Thus, the big banks are starting to decide not to lend (for consumer loans) for fear of their investments being wiped out. This could be due to fear of counterparties defaulting, or fear of inflation continuing to soar. Banks are many things, but they aren’t stupid. (also, hint, inflation is MUCH higher than even the Fed reports- likely real inflation is around 12-14% right now. I can make a post on this later). The great ape u/Dismal-Jellyfish has been making amazing posts on inflation- I suggest you go check them out.
If inflation keeps climbing higher and is not transitory, the banks will be faced with the prospect of losing hundreds of billions of dollars in their commercial loan portfolios as inflation eats away the value of the debt (that they OWN). This will squeeze margins on them drastically, maybe even forcing a few into bankruptcy, and where they can, they will drastically raise interest rates (which a system this over indebted cannot support) just to survive.
More ominously, the Credit Default Swap Rates (Yes, THOSE things from 2008) on the major investment banks are rising. (Notice how they also spiked earlier in the chart, during the last week of January when RH prevented buying of GME.)
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https://preview.redd.it/j66sbbaoacf71.jpg?width=1055&format=pjpg&auto=webp&s=cdf31a66216bbda8905a90031e8bf9c499e46966
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The market views the banks’ credit risks as rising- likely the reason why bank ETFs like KBE are down >10% in the last two months. Credit Suisse’s credit risk is rising the fastest of all of them (elaborated on in this post).
Another interesting fact reported by Jeff Snider (mentioned by George Gammon in this interview at 6:20) is that T-bills received from the Fed’s RRP facility CANNOT be rehypothecated. All other collateral in the shadow banking system (aka collateral provided by primary dealers, banks, or others) can be rehypothecated 1-30x (or more, no one knows the exact multiplier), but T-bills from the Fed are specially marked to prevent rehypothecation.
Therefore, by using the Fed as their counterparty, MMFs get T-bills that aren’t (and cannot be) rehypothecated by anyone, and are thus MUCH safer. Further, they have basically no counterparty risk, because if the Fed runs out of money, it can just print more.
Why in the world would the MMFs use the banks as counterparties for RRPs when the collateral is rehypothecated and the counterparties could (potentially) default, when the Fed’s RRP facility is an option? It makes sense why they chose the Fed’s RRP facility.

Collateral Supply Shortage

The second thing driving the RRP figures into the trillions is the tightening of new supply of treasuries. This is because of a couple of reasons.
- First, the Treasury is drawing down the TGA (Treasury General Account) instead of issuing T-bill/bonds. The Treasury General Account is the general checking account of the U.S. Government, which the Department of the Treasury uses and from which the U.S. government makes all of its official payments. The Federal Reserve Bank of New York holds the Treasury General Account.
It’s basically where the Treasury stores cash raised from issuing bonds, so that this cash can be disbursed to fund government programs (like Social Security, or the Dept. of Defense), along with making payments on the over $28.5 Trillion National Debt. Typically, the TGA sits between $200-$400B, giving the government a small cash hoard in the case that it can’t issue bonds for a time.
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https://preview.redd.it/axiaxr2sacf71.png?width=1930&format=png&auto=webp&s=15ac0de03c8e8ccf443350484a8336903affe458
Treasury Secretary Mnuchin built this massive war chest during Covid because the government was able to borrow basically unimpeded, but Congress was unable to pass the second stimulus package until December 2020. At the peak, the TGA reached $1.8 Trillion, and hovered around $1.6 Trillion for months after. In February 2021, Yellen stated that she wanted to spend the money in this account rather than issuing new bonds, and that’s exactly what the Treasury started doing.
So, since the beginning of this year, there has been less Treasury bond issuance than there otherwise would be, since Yellen can just pay for govt programs through the cash in the TGA rather than issuing new bonds. Supply of Treasuries has thus been reduced since the beginning of the year.
-The second reason for the collateral shortage is that the Fed now cannot issue any more bonds. Just last week, as I am sure everyone saw, Congress adjourned for vacation without raising the debt ceiling. This is crucial since it means that now, the Treasury legally cannot issue any more debt. Since the United States is running large budget deficits, it does not have the funds to pay for government programs and interest payments on the massive Federal debt- it typically borrows more (issuing new bonds) in order to pay off older bonds that are maturing (Like paying off your credit cards by getting a personal line of credit- genius right?).
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https://preview.redd.it/waw1gh23bcf71.png?width=1678&format=png&auto=webp&s=0aa65553239feea9d5e6f30e5cff54a9fe4d8e63
Now, with the debt ceiling left at around $28.5 trillion (basically exactly where the current debt level is) the Treasury has no room to issue additional bonds. New supply of T-bills and T-bonds is completely cut off. Yellen will now have to take extraordinary measures to avoid defaulting. This is why I am not surprised that the RRP figures posted by u/pctracer keep showing ~$900B figures. The figures will likely keep climbing as the collateral shortage gets worse.

SLR

-Third, due to the SLR rule exemption expiring in late March 2021, banks need to hold billions of $ more in Treasuries on their balance sheets to remain within legal SLR limits.
What is the SLR? Glad you asked. Let’s use the explanation I gave in my first DD as a guide:
"The SLR (Supplementary Leverage Ratio) is the U.S. version of BASEL-III capital adequacy norm and a Tier-1 leverage ratio; it varies from 3-5% common equity capital U.S. banks must maintain relative to their total leverage exposure. This is like a backstop to risk-weighted capital requirements”
Tier-1 Capital means the highest quality bank capital, i.e. bank reserves, shareholder equity, AAA+ bonds (in some cases) and Treasuries.
Pulling from my DD again: *"On April 1, 2020, the Federal Reserve Board of Governors (Fed) released an interim final rule (IFR) that allowed bank holding companies to exclude U.S. Treasuries and deposits held at Federal Reserve Banks from the calculation of their Supplementary Leverage Ratio (SLR) *through March 31, 2021....**This change resulted in a $55 billion reduction of capital requirements for the largest banks. The stated rationale for this change was to allow banks to “expand their balance sheets as appropriate to serve as financial intermediaries and serve their customers.”
So, U.S. banks were allowed to temporarily exclude holdings of UST and cash kept in reserve at the Fed from their assets when calculating the ratio. Basically, this meant that the treasuries they owned could now be lent out to hedgies to short in the market for the duration of the Covid-19 crisis. The banks were allowed to go down to a 0% reserve ratio, meaning they could have a portfolio of 100% liabilities backed by NO assets, (theoretically, though this didn’t happen in practice- banks were just able to leverage themselves up even further). Here’s a quick explainer on how SLR is calculated.
But, this SLR exemption (which lasted for a year) expired on March 31st, 2021- now they HAVE to have a higher amount of reserves at the Fed (reserves are like a bank account that cannot be withdrawn), a large section of which are in the form of treasuries. They MUST maintain a minimum amount of Tier-1 Capital at the Fed.
Since these bank reserve accounts cannot be withdrawn, the treasuries that sit there are locked in the system- they can potentially move between accounts at the Fed, but they can’t leave.
The Fed can use its own Treasuries for Reverse Repos, but not Banks’ Treasuries, since these need to be kept on hand to maintain the SLR.
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https://preview.redd.it/mchtpc07bcf71.png?width=1480&format=png&auto=webp&s=70514931163ab4067156aa8f5a5837c099d94bef
In fact, it’s interesting to note that the SLR rule being reinstated coincides almost perfectly with the beginning of the meteoric rise in RRPs. Check out the graph here.
Once SLR was re-implemented, the banks pulled back all the treasuries they loaned out in the Repo market, in order to put these treasuries in their bank reserves so they could be compliant with the SLR.
The SLR rule was heavily fought by the big banks, but the Fed passed it anyway. It’s likely that even Powell knew that exempting the banks from the SLR forever would be a bridge too far, and create horrific risks for the banking system.

Massive Treasury Demand

Lastly, the Fed is driving massive Treasury demand through its Open Market Operations. It is plowing $120B of liquidity into the markets every single month, $80B of which go into directly buying Treasuries (the rest in MBS).
Why? Well, bond prices and interest rates are inversely correlated. So, by pushing up the price (buying up massive amounts) of Treasury bonds, the Fed insures that the interest rate on them stays low. This is necessary given how overleveraged the system (and the Federal Govt) is; if interest rates climb too much, this could cause 2008 all over again (massive defaults and deleveraging as no one can pay the high interest rates).
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https://preview.redd.it/yfcvjkndbcf71.png?width=597&format=png&auto=webp&s=67a3c634b5b4b08f008e69be31788db34fed6292
They say they will slow down “taper” bond purchases, but it looks like the pace of the buying is accelerating, not slowing down. So far, the Fed has purchased literally trillions of dollars of Treasuries in order to prop up the market and ensure the Federal Govt has enough money to pay interest and fund government programs (which it can’t do now that the debt ceiling is in place.
In fact, the Feds’ actions here are so aggressive that they are literally EATING the Treasury market. So far, they own about 30% of the ENTIRE Treasury bond market- and rising!
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https://preview.redd.it/l6p7d2uibcf71.png?width=729&format=png&auto=webp&s=18858997ae6f03403c85a555e9a857f50cec76ac
Thus, they are sucking billions of dollars of Treasuries out of the system EVERY DAY, ensuring that T-bill rates stay near-zero and as a byproduct taking all the pristine collateral out of the system. Now, they are having to re-inject that collateral back into the system through the RRP facility to make sure that the Money Market Funds don’t blow up. Powell knows this and it’s why he promised to keep the RRP facility open to all participants.
In fact, they have already started to get worried about this- they raised the % on RRP from 0.00% to 0.05% in mid-July, marking the first time in more than a year that the Fed has raised this rate. This may seem trivial- such a small amount doesn't matter, right?
WRONG. They did this to prevent a collapse of Money Market Funds. Currently the 1 month T-bills are trading around 4.5 basis points (basis points are 1/100th of a percent), or 0.045%- extremely close to 0%.
This matters because MMFs have what is called a Net Asset Value of 1.00 (ie $1 asset for every $1 liability)- this means that they aren’t supposed to lose money. People who put money in expect them to act like a bank account, and when the NAV goes below 1.00 (called breaking the buck), this means that the fund has started to lose money. Very quickly, people panic and start pulling their money out. Soon, a system-wide “run on the Money markets” begins with millions of depositors clamouring to get their money out.
This actually started happening in 2008- several money market funds broke the buck, a run on the funds ensued, and the companies that relied on the MMFs for short term funding (like Ford or McDonalds) suddenly found themselves strapped of cash- they couldn’t make their payroll.
Failure of the MMFs would be catastrophic to the banking system. With T-bill rates near 0%, a spike in demand could easily push the T-bills into the negative interest rate territory- which means that MMFs would be making a nominal loss in their portfolio, thus breaking the buck. The Fed simply CANNOT allow this to happen, as this could quickly start a second 2008 financial crisis. Thus they raised the RRP rate to 0.05% to prevent any potential losses the MMFs might have had.
The MMFs don’t want to buy T-bills outright (the original way they got them on their books) because the T-bills could enter negative interest rate category, or the Treasury could default on the payments. By using the Fed’s RRP Facility, they can essentially own the T-bill for a day, make the same amount as buying it outright, and be certain that their collateral is not rehypothecated. They can repeat this process every day to give the appearance that they own the T-bills and make some guaranteed interest. THIS is why they are rushing to the Fed EVERY DAY.
How does all this play out? No one knows exactly. What we can see clearly here is that the entire money market is being violently pulled around by the Fed and Treasury, who are trying to prevent bigger issues (i.e., a Debt Default) from occurring.
TL;DR: The Treasury and the Fed are creating massive collateral shortages in the shadow banking system which is driving Money Market Funds to use the Fed’s RRP Facility in record numbers. The huge liquidity injections from the Fed are putting enormous weight on the system and sucking collateral out, so MMFs are using RRP to get the T-bill collateral back on their books. Risks to the primary dealers are rising. New collateral (Treasury bond) supply is all but cut off for the foreseeable future.
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BUY, HODL, BUCKLE UP!!

Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person.
Here is an anonymised link to a Google Docs version of this post. I know y’all apes like PDF more so feel free to make this into a PDF and share it. (This is a dummy account, not linked to my personal email, I am not THAT stupid)
Side Note: A LOT of you have been asking me for updates on Part 4 of my Series “Hyperinflation is Coming- The Dollar Endgame” I just made the outline for Part 4 and will begin working on it, but this will take some time as I am extremely busy with work and trips this month. I promise you it is coming! I am running my arguments by former econ professors and colleagues of mine in finance to make sure my points are rock solid- this takes time unfortunately so it will be at least a few weeks until I can get this out.