Word: repos
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...group's main activity was to speculate in the volatile and complex world of repurchase agreements. In a typical repo, a brokerage firm raises cash by selling some Treasury notes or bonds to another dealer or bank with the understanding that it will repurchase them a few weeks or months later. The bank thereby, in effect, gives a short-term loan to the brokerage firm, and the collateral for it is the Government securities...
Since the bank legally owns the securities during the period covered by the deal, it can use them to create a so-called reverse repo with a third party, and that party can do the same with yet a fourth buyer. The firm buying the securities from the bank speculates that it will be able to sell them for more than it paid...
...Though repo deals can wind up involving dozens middlemen, the interest that the U.S. Treasury pays regularly on the certificates always goes back to the original owner of the note or bond. Whenever the Treasury sends out interest checks to the holders of its securities, that amount is paid by each repo buyer back to the preceding seller in the chain...
...A.s.C. as a potential bonanza that could yield $250 billion in new deposits, and they began offering the big interest bonuses as a way to sign up customers early. The key to the deal that the bankers used was an obscure financial instrument known as repurchase agreements or repos, which are short-term loans to financial institutions backed by Government securities. Early A.s.C. depositors were actually buying part of a repo with their money, and the funds were to be turned into an A.S.C. automatically on Oct. 1. Repos are currently paying a return of about 18%, but savings institutions...
With the "Repo" Men Your American Scene [Aug. 20] on the way the men who repossess cars work was extremely informative - probably too informative. How many people actually know how to break into a car? If I lived in Houston I wouldn't appreciate your letting everyone know when the best times are to "repo" or rip off cars. Stan W. Unruh Santa Ana, Calif...