Could low repo haircuts on US Treasury collateral actually be a source of potential danger? That it might be is itself a profound statement in the ongoing saga of shadow money and its key component of money dealer capacities. Bills and Treasury futures, hedge funds and money market funds, basis trades, repo, and, most of all, balance sheet constraints. A saga truly for the ongoing imperfections of a global money system never quite able to get over itself.
In the worst parts to the first global financial crisis, repo and haircuts found their way into the mainstream if only briefly. To briefly recap: toxic waste of subprime mortgage securities had been thought less risky than they really were and in the ensuing revaluation of those risks haircuts on them were raised (and not just for the toxic stuff) akin to a systemic collateral/margin call which could not be processed in anything resembling an orderly fashion.
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