We couldn’t let the week pass without acknowledging Bloomberg’s November 25th article by Tracy Alloway “The Ballad of the Repo Trader”. Published just before Thanksgiving, we wonder if a lot of people were around to see it. It conjures up images of minstrels with flutes, Clement Clark Moore’s “Twas the Night Before Christmas” and just a little bit of Monty Python.
At SFM we tend to comment on articles, regulations, markets and the like. But Alloway’s ditty just needs to read (sung?) to be appreciated. Without further adieu….
Oh, it sucks to be a repo guy in post-financial crisis days,
New rules are being implemented, and everything’s a haze.
Regulators have no sympathy (for them our goose is cooked),
But stick with me, oh reader, I think some things are overlooked.
For years I’ve been a repo trader, this is what I do,
I’m the oil that greases markets (you all know it’s true).
A hedge fund has an asset, whatever that might be,
They come to me for financing, and I help them out, you see.
Like a pawnshop in Harlem, collateral is my game,
(If you want to be specific, “matched book repo” is the name).
For years I’ve done my thing, I’m liquidity to a T,
But things are getting harder, it’s not easy being me!
The turning point, I think, was back in two thousand eight,
We all got a little nervous, and that helped seal our fate.
A pullback in the repo market meant one big funding crunch,
An investment bank collapsed (and we all ate their lunch).
Stuff went down with Lehman Bros., it took a little dive,
But lots has changed since then, there’s no more 105.
A litany of woes have I endured, some sympathy would be nice;
I set them out before you, maybe you have some advice.
Regulators do not like us repo guys, that much I do know,
They decided to take aim at us with the net stable funding ratio.
Instead of holding capital against all our riskier stuff,
We have to hold it against everything—it is truly very rough!
Then we have the Fed, you see, they’ve muscled in as well,
RRPs are fine by me (I’ll see you all in repo hell).
Bill Dudley wants us to reform, we are trying to do our best,
But how do you have a clearing house with no backstop for stress?
Doing my job is harder now, please shed a tear for me,
I’ve had to tell my clients that I can’t do stuff for free.
Prime brokerage is more difficult, the hedgies are all mad,
My business is in tatters—I’m a repo guy gone bad!
My market has been shrinking, it’s so embarrassing,
Other traders point and laugh (I was in the pool, I scream),
There’s other strange stuff that’s happening, you should really take glance,
Look at swap spreads in the red, for instance, such strange happenstance.
I’d like to urge the regulators to reconsider what they’ve wrought,
Basel III can’t be undone, but us repo guys think it ought.
Broken repo markets are no good, you see, especially for me,
They’re not great for U.S. debt either; won’t somebody think of Treasury?
Perhaps I should give up, there’s no compassion to be had,
In the words of one of my brethren, it’s “game over,” don’t be sad.
You’ve listened to my story so here’s a takeaway I plea:
The next time a swap spread’s negative, I hope you think of me!