Eurodollar University This Is What "Always" Happens Before Every Financial Crisis
Nov 4, 2025
A cash squeeze in wholesale money markets is escalating, with interest rates spiking, challenging the Fed's strategies. Jeff Snider dives into the signals of systemic stress and the implications of increased dealer risk aversion. He examines historical money market crises, linking them to current tensions. Recent fraud revelations raise questions about collateral safety, suggesting this tightness could indicate a brewing financial crisis. Insights into repo rates and shadow credit could provide clues to future market movements.
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Fed Facility Didn't Prevent The Spike
- Money-market tightness spiked sharply on Friday, showing the Fed's program failed to prevent it.
- Spare reserves existed but did not enter the market, underscoring a breakdown in flow.
Shadow Credit Collateral Fraud Example
- BlackRock's HPS and BNP Paribas wrote off hundreds of millions after fraud-tainted collateral in private credit deals.
- That example links shadow credit problems to rising money-market risk aversion.
Reserves Don't Force Dealers To Lend
- Repo and SOFR jumped while the Fed's reverse repo accepted $50 billion of spare reserves.
- That shows reserves alone don't guarantee interbank lending or dealer willingness to lend.