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As dollar woes get worse, why don't the Fed's swap lines work? Let's answer that question.

Eurodollar University

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What Happens in Sofa?

As money markets become more difficult, weaker quality borrowers find that they're being charged more and more at higher premiums. The first alternative they look for is the dealer bank, right? If Citigroup was able to re-lend or is willing to re- lend, that's probably the path of least resistance. Those with eligible collateral obviously are having trouble finding funding, so they're accessing these dollar swaps at the Swiss National Bank because it offers them somewhat a lower rate. So what we see when dollar swap balances go up like they have this year, what we're seeing is the system telling us it's starting to go wrong.

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