Thread by @CringleKitten

(Part 1) What is the REPO market?

Consider this area of the financial world being a pawn shop or a plumber of the stock market.

In my last lesson, we have discussed the necessity of maintaining liquidity requirements under the rules of a clearing corporation via the SEC.

(Part 2) REPO stands for Repurchase Agreement.

Consider the financial world as being a network between institutional parties, with pipelines transferring liquidity in and out. Once a pipeline falters and someone runs out of cash, that's where the REPO comes in.

(Part 3) There is typically a lender and a borrower.

Lender = Central banks, money market funds, insurance companies, reserve banks, FED etc.

Borrower = Hedge funds, investment banks, brokers, mortgage REITs.

(Part 4) Let's throw a hypothetical that a lender has more cash than they need (ideally the FED) and the borrower could exchange their treasury bonds in order to raise cash in a repurchase agreement.

Eventually, that lender expects that money back (usually overnight to 48 hours)

(Part 5) What happens if the world is running on credit, margin, and debt - overextending themselves - needing to meet their liquidity requirements -constantly asking for maintenance plumbers more than what the REPO market could possibly offer.

The system implodes.