The great bear Burry reveals: what the Federal Reserve calls RMP actually masks systemic banking problems

Financial markets are on edge. Repo market rates fluctuate, the term structure is expanding, and year-end concerns about funding shortages reemerge. The prototype hero of “The Big Short” film, Michael Burry, has decided to tell the truth: what the Federal Reserve calls “Reserve Management Purchases” (RMP) is not an ordinary technical operation but a hidden attempt to conceal a collapse in the banking system.

What is really hidden behind the name RMP?

The Federal Reserve announced it would start buying short-term government bonds “as needed” to maintain adequate reserves. The New York Fed specified the plan: purchase $40 billion of short-term securities over thirty days. Officially, this is a routine reserve management operation.

But the big bear Burry sees the real essence: it’s disguised quantitative easing (QE), dressed up in technical language. In his view, if the US banking system cannot operate without over $3 trillion in reserves or without constant support from the central bank, this is not strength — it’s a fundamental weakness.

Numbers confirm his concern. Before the 2023 crisis, bank reserves were only $2.2 trillion, now exceeding $3 trillion. The paradox: more reserves, and the liquidity shortage does not disappear. This means the problem is deeper than just a cash shortage.

Dependency chain: each crisis — new Federal Reserve investments

Burry detects a dangerous trend: after every crisis, the Federal Reserve is forced to expand its balance sheet, or the system will break down. This is no longer cyclical support — it’s a constant feature of the financial apparatus.

The reason lies in a trust deficit within the banking sector. When one bank or part of the system begins to weaken, panic ensues, deposits flow out, and everything collapses. At every step, the central bank must intervene.

This mechanism explains why the stock market remains strong despite all fears: liquidity from the Federal Reserve “floods” the system, boosting asset prices. But this is an unreliable foundation. It’s a dependency masked as health.

Yield curve manipulation strategy

The US Treasury and the Federal Reserve move in sync: the former sells more short-term bills, the latter buys them. The goal is to prevent the yield on 10-year bonds from rising.

The expected result: the yield on 2-month bills has risen, while that on 10-year bonds has fallen. This is pure yield curve engineering aimed at calming markets and protecting long-term borrowing.

Some analysts expect the Federal Reserve to resort to even more aggressive measures to combat liquidity shortages at year-end. Burry sees this as clear evidence of systemic fragility — such actions demonstrate panic, not strength.

How to protect yourself: a smart strategy in times of uncertainty

The big bear offers a concrete tip: do not listen to Wall Street recommendations to buy bank stocks. Instead, for amounts exceeding the FDIC insurance limit ($250,000), consider money market funds investing in government bonds. It’s less profitable but much safer.

This is not just a financier’s doubt — it’s a warning from someone who correctly predicted the 2008 crisis.

Technical detail worth knowing

Unlike traditional QE, aimed at lowering long-term rates through buying long-term bonds, RMP focuses on purchasing short-term securities to ensure technical liquidity. Based on 2019 experience, when the Federal Reserve injected liquidity similarly, the overnight repo rate (SOFR) sharply fell, while the federal funds rate lagged behind. This time lag created arbitrage opportunities.

But these are details. The main point is — the system requires constant inflows and outflows. And those who understand this will have an advantage.