Looking Back at 'Repo Madness' One Year Later

Dear Free Readers, I’m returning to a weekly schedule of premium pieces. There will still be regular free pieces, but you will miss something I write each week. Additionally, I have more perks coming for paid subscribers in October. Below is an excerpt from today’s premium piece. It’s never been a better time to take out a paid subscription to Notes on the Crises.

Last week someone reminded me that we were coming up on the one year anniversary of “repo madness”, the time period last September where the interest rate on overnight lending secured by treasury securities spiked (for the basics of collateralized lending see here). It feels like far more than a year ago. In 2019, repo madness was the most sudden and exciting thing going on in monetary policy. It is amazing how quickly things can change. Repo madness is memorable for me because I wrote a long thread that “went viral” on financial twitter explaining what was going on. Yesterday, in fact, is the anniversary of that thread. The night before I had attended the first “live show” of Bloomberg’s oddlots and decided after talking to a number of financial journalist friends there that it was worth doing a big thread on the topic (If I’m being honest, I hyper-focused and stayed up all night to write the thread).

This episode served as a kind of prequel to my 2020 career as a Federal Reserve commentator during the Coronavirus Depression. However, the unexpected spike in repo interest rates is not simply an episode of nostalgia. It’s an important event to analyze and understand the financial system in order to understand the importance of what happened at the onset of the Coronavirus Depression. The reason I was so prepared to jump feet first into writing about what had been going on in March is that I had spent the six months between Repo Madness and the Coronavirus Depression writing and thinking about monetary policy as it functioned today. To explain what I mean by that, it’s worth recounting the story I told in September at length.

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