Mismatch … is that going to be a problem …?

Mismatch – definition: 

“a failure to correspond or match; a discrepancy.
“a huge mismatch between supply and demand”
Mismatch is something we’ve all encountered before, and in the world of finance, it can cause very significant problems …
Remember the ABCP fiasco back in 2007 in Canada? As a refresher – Have a look by clicking HERE!
Of course there is other more “pedestrian” mismatch – such as banks borrowing depositors’ money (short term funds) and lending them out longer term (Mortgages for instance). In that case, aside from hoping to earn the spread between cost of funds and interest earned, the key factor obviously has to be that your short term funding doesn’t experience any “bank run” scenario … For if it did, evidently, a significant funding gap would be brought to light, with losses piling up very fast if people smelled blood (aka short term funding costs would spike forcefully).
Anyways – why can we only hope that mismatch (which is often present – even for that matter in inventory backed lending and other asset backed scenarios – after all, the hope there is you never have to use that collateral … which … if you did, then the worst case would be you are trying to “realize” on the collateral in a non-receptive market aka: bid prices drop, respectively result in need to mark down the value of said inventory / collateral …) isn’t going to turn into a big problem immediately ahead?
Interesting development in the Real Estate market:
1) Starlight Capital, despite significant increases in rents collected in several of its US apartment funds, recently announcing that distributions would be suspended => click HERE!
have a peak at interest costs and you’ll see live what happens when you are at the receiving end of seeing overnight funding costs rocket higher …
2) Blackstone … last week pretty much doing the same (presumably also caught in that sharp reversal in FED Fund rates in 2022) => click HERE!
Liquidity, liquidity, liquidity … as anyone who has ever looked for a bid in very volatile market conditions can attest … the quality of that bid becomes very questionable … respectively, the bid can drop rather rapidly (would hate to see any such situation when we are dealing with the proverbial rush to the exit in a theater on fire context…)
Be careful out there … after all, it isn’t as if we haven’t taken ages to build up massive pools of debt, with investors increasingly starved for yield (yup, ZIRP forever wasn’t exactly the source of boundless cash flow generations for teh masses needing the income … sadly …).
Anyway, The rapid repricing exercise we’ve all witnessed this year could … could it not? … suggest that some will find themselves in trouble. How that trouble gets handled, respectively how much liquidity is needed and at what cost remains the question – look at the 2007 case of the Canadian ABCP market for a sense as to what can happen … and keep your fingers crossed that Central bankers didn’t succeed in inflating the mother of all bubbles which may yet have to burst … (and unfortunately, on that front, they do appear to have gotten really good at creating the bubbles they post facto say can’t be seen / predicted …)