Sign up for our daily briefing

Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Stay on top of the latest market trends

Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sports news worthy of your time

Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tech news worthy of your time

Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Get the inside stories

Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Denver news?

Get a daily digest of the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Des Moines news?

Get a daily digest of the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Twin Cities news?

Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Tampa Bay news?

Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Charlotte news?

Get a daily digest of the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Illustration: Aïda Amer/Axios

The big lesson of this week: Don't trust the markets.

What's happening: U.S. money markets fell into chaos this week as risk-free overnight interest rates spiked to almost 10%. But, while market information is a very important signal, it should never be taken as being definitive.

  • In the stock market, public order books on "lit" markets — where all the buy and sell orders for any given stock are theoretically visible to all traders — have been functionally useless for years. High-frequency traders place and withdraw millions of orders every second, and there's a mini "flash crash" in some stock or other every day, with the price plunging and then recovering within the blink of an eye.
  • In precious metals futures, criminal racketeering and market manipulation went on for some 8 years, according to a complaint this week against JPMorgan traders, including the former head of the bank's precious metals desk.
  • In fixed-income markets, banks have been fined billions of dollars — and 5 bankers have gone to jail — for manipulating the key Libor interest rate.

Where it stands: This week's chaos was largely due to a series of technical factors, including the fact that the Treasury issued some $54 billion of new bonds at exactly the same time that companies started withdrawing cash in order to make their Sept. 15 quarterly tax payments.

Context: Until the financial crisis in 2008, the Fed conducted open market operations every day to keep interest rates at their target level. Those operations ended when quantitative easing massively expanded the central bank's balance sheet.

  • Now that its balance sheet is shrinking and banks need abundant reserves for regulatory reasons, the Fed is going to have to step in more frequently to ensure that rates are where they should be.

My thought bubble: The Fed's traders could probably have told Treasury's liability-management team that the timing of their bond issues would be problematic for the money markets.

  • But we no longer live in a world where Tim Geithner could move effortlessly from Treasury to the New York Fed and back again. President Trump is waging war against the Fed, which makes things very awkward at Treasury.

What they're saying: "There are some advantages to just asking banks to make up the interest rate," writes the indispensable Bloomberg columnist Matt Levine. "To the extent that reality is messy and idiosyncratic there is something nice about abstracting away from it."

The bottom line: Multitrillion-dollar financial markets often look reasonably stable from afar. But they're always slapdash and human, and prone to deliberate or accidental breakage.

  • When that happens, governments and technocrats need to be able to step in to fix what's broken. Governments aren't perfect, but taking them out of the system entirely, as some Bitcoin true believers would like to do, seems like a terrible idea.

Go deeper

Mike Allen, author of AM
7 hours ago - Politics & Policy

Biden adviser Cedric Richmond sees first-term progress on reparations

Illustration: "Axios on HBO"

White House senior adviser Cedric Richmond told "Axios on HBO" that it's "doable" for President Biden to make first-term progress on breaking down barriers for people of color, while Congress studies reparations for slavery.

Why it matters: Biden said on the campaign trail that he supports creation of a commission to study and develop proposals for reparations — direct payments for African-Americans.

Cyber CEO: Next war will hit regular Americans online

Any future real-world conflict between the United States and an adversary like China or Russia will have direct impacts on regular Americans because of the risk of cyber attack, Kevin Mandia, CEO of cybersecurity company FireEye, tells "Axios on HBO."

What they're saying: "The next conflict where the gloves come off in cyber, the American citizen will be dragged into it, whether they want to be or not. Period."

Cedric Richmond: We won't wait on GOP for "insufficient" stimulus

Top Biden adviser Cedric Richmond told "Axios on HBO" the White House believes it has bipartisan support for a stimulus bill outside the Beltway.

  • "If our choice is to wait and go bipartisan with an insufficient package, we are not going to do that."

The big picture: The bill will likely undergo an overhaul in the Senate after House Democrats narrowly passed a stimulus bill this weekend, reports Axios' Kadia Goba.