Don't Worry, Be Happy!

[Kathianne]

Oh dear:

https://hotair.com/tree-hugging-sister/2023/03/10/oh-nothing-just-the-second-largest-bank-failure-in-u-s-history-today-n536171

Glad I'm working until Wednesday, this is the sort of thing that can get me obsessed.

[fj1200]

I think that piece greatly overstates the actual risk to the overall economy.


What have we learned?One of the big questions coming out of this will be which banks misjudged the match between the cost and lifespan of their deposits and the yield and duration of their assets. This is very different from the questions about bad lending that haunted the 2008 financial crisis.
As money flowed into banks during the pandemic, buying the shortest-term Treasurys or keeping the money in cash would have insulated them from the risk of rising interest rates. But it also would have depressed their income. Banks’ reach for “safe” yield may be what haunts them this time around.
https://www.wsj.com/articles/silicon-valley-bank-svb-financial-what-is-happening-299e9b65

[fj1200]

Investors implore the government to step in after Silicon Valley Bank failure


https://www.cnbc.com/2023/03/11/silicon-valley-bank-failure-has-investors-calling-for-government-aid.html

Of course they do. :rolleyes:

[Black Diamond]

14301

[Black Diamond]

https://www.cnbc.com/2023/03/11/silicon-valley-bank-failure-has-investors-calling-for-government-aid.html

Of course they do. :rolleyes:

When you're too big to fail, you're more likely to take bad risks. Should I call them risks at all ?

[fj1200]

When you're too big to fail, you're more likely to take bad risks. Should I call them risks at all ?

I don't think SVB falls into that category as a regional bank. And from what I read they didn't seem to have assets in the truly risky category; government bonds that are getting crushed because of interest rate hikes, throw in an old fashioned run and they have to shut the doors. Some tech people are going to have to learn the lesson that you don't just toss millions of dollars into the bank and call it good. But what's a little moral hazard between friends.

Experts flag moral hazard risk as U.S. intervenes in SVB crisis
U.S. regulators may have stemmed a banking crisis by guaranteeing deposits (https://www.reuters.com/business/finance/regulators-urged-find-silicon-valley-bank-buyer-industry-frets-about-fallout-2023-03-12/) of collapsed Silicon Valley Bank (SVB), but some experts warn that the move has encouraged bad investor behaviour.Following a weekend of discussions over the future of SVB owner SVB Financial Group , banking regulators unveiled emergency funding plans for the bank.
Billionaire hedge fund manager Bill Ackman wrote on Twitter that if authorities had not intervened, "we would have had a 1930s bank run continuing first thing Monday causing enormous economic damage and hardship to millions."

"More banks will likely fail despite the intervention, but we now have a clear roadmap for how the gov't will manage them."
Yet by guaranteeing that depositors would lose no money, authorities have again raised the question of moral hazard - removal of people's incentive to guard against financial risk.

...
https://www.reuters.com/business/finance/experts-flag-moral-hazard-risk-us-intervenes-svb-crisis-2023-03-13/
:rolleyes:

[Gunny]

https://www.cnbc.com/2023/03/11/silicon-valley-bank-failure-has-investors-calling-for-government-aid.html

Of course they do. :rolleyes:Saw where the Dem rep for the district is standing on high, proclaiming no bailout BUT the Fed government needs to have investors' money ready to go for each and all first thing Monday AM. Bank execs' heads on platters makes the latter not a bailout?

If karma was ever real, seeing Yellen and other DC Dem bigmouths proclaim "no Federal bailout no matter what" would do the trick just as soon as they flip flop on it. They'll turn this into another Republican't bad guy moment and the Republicant's will play right into it.

[fj1200]

Saw where the Dem rep for the district is standing on high, proclaiming no bailout BUT the Fed government needs to have investors' money ready to go for each and all first thing Monday AM. Bank execs' heads on platters makes the latter not a bailout?

If karma was ever real, seeing Yellen and other DC Dem bigmouths proclaim "no Federal bailout no matter what" would do the trick just as soon as they flip flop on it. They'll turn this into another Republican't bad guy moment and the Republicant's will play right into it.

They say stuff without actually saying stuff. "No bailout!!!" but I'm guessing FDIC has enough money to cover any shortfall which is really unlikely to be very much anyway. A $200 billion bank but actual risk is miniscule.

And I don't think there's anything criminal in this whole debacle.

[Gunny]

They say stuff without actually saying stuff. "No bailout!!!" but I'm guessing FDIC has enough money to cover any shortfall which is really unlikely to be very much anyway. A $200 billion bank but actual risk is miniscule.

And I don't think there's anything criminal in this whole debacle.I haven't come to any conclusion regarding blame. But, this is America. It cost money. Presumably, it's going to cost the Federal government money. In the name of only, the Federal government will have to take it out on someone that its going to have to give up some of our tax dollars it has otherwise earmarked for Federal fraud, waste and abuse.

The simple math to how banks function states this can happen without any wrongdoing. People who don't understand the bank doesn't take your money and put that specific amount in cash in a vault for your use only probably shouldn't be doing business at all.

Not sure how SVB specifically operates. My banks have specific daily limits on withdrawals. Not sure how that applies to businesses.

[Gunny]

https://thehill.com/homenews/administration/3897534-biden-stresses-that-silicon-valley-bank-is-not-getting-a-bailout/

[fj1200]

https://thehill.com/homenews/administration/3897534-biden-stresses-that-silicon-valley-bank-is-not-getting-a-bailout/

They should have summarized all of that with "Standard Operating Procedure."

[fj1200]

Bernie:


“Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed. Five years ago, the Republican Director of the Congressional Budget Office released a report finding that this legislation would ‘increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail.’
...
https://www.sanders.senate.gov/press-releases/news-sanders-statement-on-silicon-valley-bank/

Liz:


Elizabeth Warren: Silicon Valley Bank Is Gone. We Know Who Is Responsible.


https://www.nytimes.com/2023/03/13/opinion/elizabeth-warren-silicon-valley-bank.html

I just might, might, be able to give these two any credit if they hadn't written these op-eds 5 years ago and were just waiting to be able to release them to the press after inserting the correct faux banking crisis of the day.

[Black Diamond]

I don't think SVB falls into that category as a regional bank. And from what I read they didn't seem to have assets in the truly risky category; government bonds that are getting crushed because of interest rate hikes, throw in an old fashioned run and they have to shut the doors. Some tech people are going to have to learn the lesson that you don't just toss millions of dollars into the bank and call it good. But what's a little moral hazard between friends.

Experts flag moral hazard risk as U.S. intervenes in SVB crisis
https://www.reuters.com/business/finance/experts-flag-moral-hazard-risk-us-intervenes-svb-crisis-2023-03-13/
:rolleyes:

Or Oprah. :)

Yeah i saw the whole 'investors want a bailout" and I got excited.

[Black Diamond]

14302

[Gunny]

They say stuff without actually saying stuff. "No bailout!!!" but I'm guessing FDIC has enough money to cover any shortfall which is really unlikely to be very much anyway. A $200 billion bank but actual risk is miniscule.

And I don't think there's anything criminal in this whole debacle.It would not surprise me one bit to find out the FDIC is as underfunded as social security, and/or the supply rats (Congress) has been ratfucking the seabag.

To clarify the last for those not in the know, when you go out in the field/ashore, you stow your gear in your seabag and its warehoused at supply. When you return and find a hole in your seabag and items missing, it's been ratfucked, usually by those assigned to safeguard it. Their reasoning? Must've been rats:rolleyes:

Anyway, I haven't much faith in the US government responsibly handling the people's money, and not without obvious and innumerable reasons.

[fj1200]

It would not surprise me one bit to find out the FDIC is as underfunded as social security, and/or the supply rats (Congress) has been ratfucking the seabag.

To clarify the last for those not in the know, when you go out in the field/ashore, you stow your gear in your seabag and its warehoused at supply. When you return and find a hole in your seabag and items missing, it's been ratfucked, usually by those assigned to safeguard it. Their reasoning? Must've been rats:rolleyes:

Anyway, I haven't much faith in the US government responsibly handling the people's money, and not without obvious and innumerable reasons.

In order of confidence for those governmental involved in this affair... 1. Federal Reserve. 2. FDIC. And a distant 3. Treasury. and an even distanter 4. Anything the administration or anyone in Congress yammers on about.

I'm not worried about all of this.

And to BD. The banking system's stability > biden trying to walk.

[Gunny]

In order of confidence for those governmental involved in this affair... 1. Federal Reserve. 2. FDIC. And a distant 3. Treasury. and an even distanter 4. Anything the administration or anyone in Congress yammers on about.

I'm not worried about all of this.

And to BD. The banking system's stability > biden trying to walk.

You don't ever seem to be worried about much of anything. Pass the bong, bogart :poke:

The worry for me is too many avoidable failures at all levels that in the end add up. Government insurance money doesn't appear out of thin air. It generally appears out of our pockets. Attached to some innocuous Bill in fine print completely hidden by the larger albatross the Bill represents as a whole. As reported to us by the MSM:rolleyes:

[Gunny]

Another take. My money's on the Biden admin caving to PR and bailing out the investors, and the Republican't's caving to PR and going along with it.

https://www.foxbusiness.com/markets/silicon-valley-bank-committed-elementary-errors-banking-larry-summers-says

[fj1200]

You don't ever seem to be worried about much of anything. Pass the bong, bogart :poke:

The worry for me is too many avoidable failures at all levels that in the end add up. Government insurance money doesn't appear out of thin air. It generally appears out of our pockets. Attached to some innocuous Bill in fine print completely hidden by the larger albatross the Bill represents as a whole. As reported to us by the MSM:rolleyes:

You do have quite the point there. :420: But that is because so much of what is whined about nowadays is completely overblown. There are a million youtube channels, bloggers, morons on 24 hour "news" stations, etc. who based on having zero actual knowledge are getting clicks and views by people who want to and probably will believe whatever drivel that they find. Sadly, there are countless topics that I could repeat that exact sentence and completely stand behind the accuracy of it.

But FDIC isn't really government money because they collect fees from the banks that they oversee. If you're going to have government involved then that is not the worst way to do it. The "government money" comes in when we have major crises; '87 S&L bailout, 2008 TARP, etc. which I would argue are because government has screwed something else up. Which leads me to another axiom that comes in handy. "When socialism fails, blame capitalism, and demand more socialism." That's when I worry. Pass the bong bro.

[Kathianne]

If it were one bank with just this weird anomaly of so many rich investors with well over $250k limit on FDIC the discussion of extended payouts might MIGHT be discussion worthy. It's not one bank and it also is a fact that arguing against such an exception in any circumstances is foolhardy.

This morning, after Credit Suisse self-reporting, the financials are taking serious hits thus far.

https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-dive-on-renewed-banking-fears-as-credit-suisse-crashes/?src=A00220&yptr=yahoo

https://www.wsaz.com/2023/03/15/us-stock-fall-bank-worries-spread-europe-dow-down-500/

https://www.wsj.com/articles/global-stocks-markets-dow-update-03-15-2023-8d3042ec?siteid=yhoof2&yptr=yahoo

[Kathianne]

Relief?

https://babylonbee.com/news/leadership-biden-calls-on-banks-to-stop-collapsing/


WASHINGTON, D.C. — Many are praising President Biden for his swift and decisive leadership this morning. In a set of forceful and clear remarks to the country's financial system, he called on all banks to stop collapsing immediately."Hey there, banks! Yeah, you! Stop it! I mean it! Not a joke!" said the President to a smiley face written on his thumb in Sharpie he mistook for one of his nieces. "You've collapsed long enough! I say, no more! That's enough, banks! Cut it out right now, or so help me I'll count to ten!"
The President then attempted to count to ten but got lost somewhere around the number four when he became distracted by the smiling face on his thumb and began sniffing it. "Oohh honey I like your shampoo! What was I saying again?"
Mainstream media, politicians, and Wall Street bankers all joined the call for banks to stop collapsing and vowed to never hold anyone accountable for any of this if it's the last thing they do.
At publishing time, the banks had still not heeded the President's command.

[Kathianne]

fj1200 Well it looks like there's some pretty smart folks that are finding themselves more and more concerned:

https://www.wsj.com/articles/another-banking-crisis-was-predictable-thomas-hoenig-fdic-interest-rate-duration-risk-bailout-svb-64e2cdac?st=qbv2f13i57orfg1&reflink=desktopwebshare_permalink

[Kathianne]

First I've seen regarding QE:

https://www.wsj.com/articles/desantis-vs-faucian-dystopia-8a684799?st=rcoeee5i9tf0r2u&reflink=desktopwebshare_permalink


...

The failure of a few banks has inspired the Fed to bail out the undeserving and also to crank up the money printing once again at a breakneck pace. “The Fed Just Did Massive QE” is the headline on a note to clients today from SMBC economist Joe LaVorgna, who writes:


Last night the Fed published its H.4.1 release. This is the report that provides a weekly snapshot of the Fed’s balance sheet for the week ending Wednesday. So, we have what the Fed balance sheet looks like as of March 15th and boy was it a doozy. The Fed effectively just did $318 billion of quantitative easing (QE). Yes, you read it correctly. The Fed effectively added $318 billion in reserves to the financial system. It is no wonder that risk assets responded as they did. Once again, the system is awash in liquidity.
Will the government-created emergency ever end?

[Gunny]

@fj1200 (http://www.debatepolicy.com/member.php?u=728) Well it looks like there's some pretty smart folks that are finding themselves more and more concerned:

https://www.wsj.com/articles/another-banking-crisis-was-predictable-thomas-hoenig-fdic-interest-rate-duration-risk-bailout-svb-64e2cdac?st=qbv2f13i57orfg1&reflink=desktopwebshare_permalink

Good article. IMO, the general American public wants to have its cake and eat it too. Guaranteed cradle to grave nurse-maiding, and are willing to sell their souls to the government to get it. I think it doesn't even go as far as risk/gain, or how the system works. They don't care. They care only that the Nanny State bail out any and all losses. An unrealistic expectation nurtured by the Nanny State itself.

Sooner or later the rubber band breaks.

[Gunny]

First I've seen regarding QE:

https://www.wsj.com/articles/desantis-vs-faucian-dystopia-8a684799?st=rcoeee5i9tf0r2u&reflink=desktopwebshare_permalink


Will the government-created emergency ever end?

Not if the current administration has anything to do with it. Minus its created "emergencies", people might notice this admin/government has done nothing in the interest of the US and everything in strengthening its own hold on power.

[Black Diamond]

Any losses we incur as investors will be the fault of climate change. Yellen has already covered everyone's asses from future blame.

[Gunny]

The attention whore pimping more government regulation. But we're all about ethics in Congress these days, right?

https://thehill.com/homenews/senate/3905611-warren-takes-center-stage-in-banking-fight-after-svb-collapse/

[Black Diamond]

The attention whore pimping more government regulation. But we're all about ethics in Congress these days, right?

https://thehill.com/homenews/senate/3905611-warren-takes-center-stage-in-banking-fight-after-svb-collapse/

Don't pick on native Americans.

Oh wait.

[Black Diamond]

Any losses we incur as investors will be the fault of climate change. Yellen has already covered everyone's asses from future blame.

Also you can count on the administration and MSM promoting this excuse/reason.

[fj1200]

@fj1200 (http://www.debatepolicy.com/member.php?u=728) Well it looks like there's some pretty smart folks that are finding themselves more and more concerned:

Nice find. Meltzer was smart. Hoenig looks to be pretty smart and we need plenty more of guys like him. I'll have to hold this up to my benchmark:


Which leads me to another axiom that comes in handy. "When socialism fails, blame capitalism, and demand more socialism." That's when I worry. Pass the bong bro.

This is definitely concerning but I'm still fairly positive that contagion doesn't break out. I think the initial efforts to blame capitalism have been blunted by the reality on the ground but how long that can hold out against the "blame capitalism" narrative is the ultimate question. I'm going to lay this at the feet of the next election and if the Republicans can keep from muffing the next round of elections.


First I've seen regarding QE:

I'm not sure this the QE of yesteryear because if all there doing is throwing some cash at the balance sheet then it doesn't seem that it would flow into the inflation numbers. I could easily be wrong.

[Kathianne]

Some differences with 2008 and today:

https://www.ft.com/content/dda3415a-0e23-4eb7-8e68-fec392ae9a5a?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9


...



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https://www.ft.com/content/dda3415a-0e23-4eb7-8e68-fec392ae9a5a?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9


The Fed’s expansive actions to prevent the Silicon Valley Bank collapse from becoming systemic, followed by the Suisse National Bank’s massive lifeline to troubled Credit Suisse, left little doubt this week that financial leaders are determined to act decisively when fear starts to set in. Let us leave moral hazard for another day.


But even if risks of a 2023 financial Armageddon have been contained, not all the differences with 2008 are quite so reassuring. Back then, inflation was a non-issue and deflation — falling prices — quickly became one. Today, core inflation in the US and Europe is still running hot, and one really has to strain the definition of “transitory” to argue that it is not a problem. Global debt, both public and private, has also skyrocketed. This would not be such an issue if forward looking, long-term real interest rates were to take a deep dive, as they did in the secular stagnation years prior to 2022.


Unfortunately, however, ultra-low borrowing rates are not something that can be counted on this time around. First and foremost, I would argue that if one looks at long-term historical patterns in real interest rates (as Paul Schmelzing, Barbara Rossi and I have), major shocks — for example, the big drop after the 2008 financial crisis — tend to fade over time. There are also structural reasons: for one thing, global debt (public and private) exploded after 2008, partly as an endogenous response to the low rates, partly as a necessary response to the pandemic. Other factors that are pushing up long-term real rates include the massive costs of the green transition and the coming increase in defence expenditure around the world. The rise of populism will presumably help alleviate inequality, but higher taxes will lower trend growth even as higher spending adds to upwards pressure on rates.


What this means is that even after inflation abates, central banks may need to keep the general level of interest rates higher over the next decade than they did in the last one, just to keep inflation stable.


Another significant difference between now and post-2008 is the far weaker position of China. Beijing’s fiscal stimulus after the financial crisis played a key role in maintaining global demand, particularly for commodities but also for German manufacturing and European luxury goods. Much of it went into real estate and infrastructure, the country’s massive go-to growth sector.


Today, however, after years of building at breakneck speed, China is running into the same kinds of diminishing returns as Japan began to experience in the late 1980s (the famous “bridges to nowhere”) and the former Soviet Union saw in the late 1960s. Combine that with over-centralisation of decision-making, extraordinarily adverse demographics, and creeping deglobalisation, and it becomes clear that China will not be able to play such an outsized role in holding up global growth during the next global recession.


Last, but not least, the 2008 crisis came during a period of relative global peace, which is hardly the case now. The Russian war in Ukraine has been a continuing supply shock that accounts for a significant part of the inflation problem that central banks are now trying to deal with.


Looking back on the past two weeks of banking stress, we should be thankful that this did not happen sooner. With sharply rising central bank rates, and a troubled underlying economic backdrop, it is inevitable that there will be many business casualties and normally emerging market debtors as well. So far, several low-middle income countries have defaulted, but there are likely to be more to come. Surely there will be other problems besides tech, for example the commercial real estate sector in the US, which is hit by rising interest rates even as major city office occupancy remains only about 50 per cent. Of course the financial system, including lightly regulated “shadow banks,” must be housing some of the losses.


Advanced economy governments are not all necessarily immune. They may have long since “graduated” from sovereign debt crises, but not from partial default through surprise high inflation.


How should the Federal Reserve weigh all these issues in deciding on its rate policy next week? After the banking tremors, it is certainly not going to forge ahead with a 50 basis point (half a per cent) increase as the European Central Bank did on Thursday, surprising markets. But then the ECB is playing catchup to the Fed.


If nothing else, the optics of once again bailing out the financial sector while tightening the screws on Main Street are not good. Yet, like the ECB, the Fed cannot lightly dismiss persistent core inflation over 5 per cent. Probably, it will opt for a 25 basis point increase if the banking sector seems calm again, but if there are still some jitters it could perfectly well say the direction of travel is still up, but it needs to take a pause.


It is far easier to hold off political pressures in an era where global interest rate and price pressures are pushing downwards. Not anymore. Those days are over and things are going to get harder for the Fed. The trade-offs it faces next week might only be the start.

[Gunny]

Some differences with 2008 and today:

https://www.ft.com/content/dda3415a-0e23-4eb7-8e68-fec392ae9a5a?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9Interesting article. Not one mention of the idiot in chief thinking he has a blank checkbook though.

T's my thought that some actual fiscal accountability and responsibility from the US government could alleviate almost all of this. But silly me, the only want to tighten our belts and explain to us why we should. Not their own.