“There Will Be Liquidity” Mnuchin Vows As He Urges Banks To Use Discount Window

We found it quite odd when, in the last week of February, JPMorgan – which just a few months earlier received a repo and “NOT QE” bailout for breaking the repo market – unexpectedly said it wanted to use the discount window again in hopes of breaching the stigma associated with the Fed’s liquidity facility that is best associated with the global financial crisis. Jennifer Piepszak, JPM’s CFO and the woman who certainly was involved in the bank’s decision to drain repo markets and eventually force the Fed to inject hundreds of billions in repo and QE4 funds thus ensuring JPM’s most profitable year on record, said the bank would borrow from the discount window from time to time this year and had discussed the plan with regulators. “We think this is an important step for us to take to break the stigma here.”

Two weeks later, we now know the reason behind JPM’s bizarre push to thaw use of the discount window: speaking to CNBC on Friday morning in an attempt to boost investor spirits and lift America’s confidence, Treasury secretary Steven Mnuchin urged banks to use the discount window, while noting that markets are working orderly and will stay open, while promising that markets and 401(k)s will be up a year from now and that “for long-term investors, this will be a great investment opportunity”.

The Treasury secretary also said that the government wants to help airline industry, and hinted that suspending student loan payments is among steps considered.

Zoom in. Steve Mnuchin calling. pic.twitter.com/wrwyF4dHx0

— Marc Baures. (@BauresMarc) March 13, 2020

More importantly, Mnuching said that “we’re very close to getting this done.” Treasury Sec. Mnuchin says negotiations between the White House and Congress on a coronavirus stimulus deal “are going very well.”

“I think we’re very close to getting this done.” Treasury Sec. Mnuchin says negotiations between the White House and Congress on a coronavirus stimulus deal “are going very well.” https://t.co/PSRrV2nmsB pic.twitter.com/xzI2gPnc9F

— CNBC (@CNBC) March 13, 2020

The punchline: when asked by Jim Cramer if he will guarantee to Americans that there will be liquidity in order to restore confidence, as was the case in 1987, Mnuchin said that 1987 was a “much scarier time” but he did indeed vow that “there will be liquidity available.“

“For long-term investors, this will be a great investment opportunity,” Treasury Sec. Mnuchin says, comparing the coronavirus sell-off with the 1987 market crash. https://t.co/NeZILPccez pic.twitter.com/yECA7U5d7p

— CNBC (@CNBC) March 13, 2020

The only problem is that as today’s massively underutilized repo operations showed, it may be the wrong kind of liquidity.

Here are all the key highlights from his CNBC interview below, courtesy of Bloomberg:

• MNUCHIN SAYS WAIVERS COMING TO HELP LIMIT VIRUS IMPACT
• MNUCHIN: MORE COMING TO BOOST LIQUIDITY
• MNUCHIN: WE WANT TO KEEP MARKETS OPEN
• MNUCHIN: MARKETS ARE WORKING ORDERLY
• MNUCHIN EXPECTS ECONOMIC REBOUND BY END OF YR
• MNUCHIN: SUSPENDING STUDENT LOAN PMTS AMONG OPTIONS CONSIDERED
• MNUCHIN: THERE WILL BE LIQUIDITY AVAILABLE