Reasons the banking crisis isn’t a repeat of 2008
chase.com
chase.com
It's also quite true - the banking crisis won't be a repeat of 2008.
But, unlike 2008 which was fairly limited to (arguably huge) banking and residential mortgage sectors, this crisis will hit hard everywhere - valuations are still insane, the % of zombie companies is off the charts, inflation is everywhere, FED and governments have much less room to manoeuvre (contrary to what the article claims).
In the past 3 weeks, 3 fairly big US banks were seized by regulators, and a 166 year old Suisse bank was rescued.
My personal indicator for when the shit is really hitting the fan, is when Warren Buffett starts buying stuff.
Credit Suisse was troubled for a long time, their controversy section on Wikipedia is pretty crazy ( https://en.wikipedia.org/wiki/Credit_Suisse#Controversies )
Global oil prices have been steadily declining for months, electricity is much cheaper again in Europe and many supply chain bottlenecks have been resolved. This will put a strong break on inflation going forward
Every action taken in the last 50 years has been to slowly but surely move the banking sector to consolidate banking in the smallest number of hands to consolidate power.
2008 provided the perfect excuse for them to pass legislation that prevented new banks from being chartered. If you look at the requirements, the only way you can charter a bank is to accept personal liability for all outcomes of your board decisions and you are prohibited from receiving any compensation for it. If you can't find people for your board, you can't charter a bank, and you can't pay them for their time or risk. The only reasonable people that would charter banks are the people that lie, if they have no credibility why would you ever give them your money.
Worse, the stock market has a mechanic that allows any exposed company to be at the mercy of faceless entities even if they are in perfect financial health and follow good practices. Synthetic shares.
FRC was a most recent example of this. They had conveniently timed media packages and youtube videos posted in feeds that were edited showing bank runs on a Sunday, and the reflected window text was the wrong direction.
Worse, inflation is out of control, and the data and measures for it have been corrupted to show significantly lower percentages, and there are collusive options and shorted shares are being used to induce volatility halts when the price might exceed a resistance level, its very algorithmic.
The SEC is toothless, the currency will hyper-inflate, and we will be the next Argentina. Its what the Fed wants.
Why is the Fed trying to move the banking sectors to consolidate banking for the last 50 years?
The President of the United States nominates the members of the board of directors. The US Senate confirms those choices.
No two governors may come from the same Fed District. They are 14 year terms and staggered. No board member can be re-appointed.
You would have to have the entire US presidents from Nixon to Biden in on it. All 100 Senators (or the majority) would have to be in on it. Every Fed governor would have to be in on it. All the people around those decisions - POTUS staff, Senators' staff, everyone working at the Fed - all working in unison and no one talking for 50 years - no books written that they want to put all small banks out of the way. It's easy to say "The Fed" but the current members are Jerome Powell, Michael Barr, Michelle Bowman, Lisa Cook, Philip Jefferson, and Christopher Waller. What can you tell me about each of them? Why would they be in lockstep? Have they all been told that they would be assassinated by the CIA if they didn't follow orders from some shadowy group? Who exactly is this shadowy group that will assassinate them. Please name names instead of saying "shadowy group." I only use this term because I don't know what their names are and if they have an actual group name.
And most importantly, who and why would someone want to have us be the next Argentina? Why does - not the fed - but Jerome Powell, Michael Barr, Michelle Bowman, Lisa Cook, Philip Jefferson, and Christopher Waller want to destroy the USA? Why does every single president and every single Senator every single Fed Member, and all of their staffs, for the last 50 years, want to destroy the USA? I'd love to know this. If you could list every single member of Senate and all the Fed Board members, by name (Senators and Fed board members and their staffs), and tell me why each and every single one of them want the destruction the USA, I'd love to hear it. I also assume since the USA is destroyed, it would also take out Western Europe and most countries around the world - like, almost all of them.
The simple answer is no it wont. The liabilities that matter the most have COLA so when inflation goes up so do payments.
The only thing it actually does is make worthless any existing bonds so anyone holding them is out the money with special corrupt deals for critical infrastructure that might have exposure (i.e. blackrock having 1% bonds being swapped for current interest rate bonds). That would primarily be China, and the Saudis. I'd imagine that is what prompted segmenting the bond market with TIPS vs non-TIPS bonds.
The burden of inflation is placed on the populace, and when people are unable to afford basic necessities, and have to work as slaves (because currency is no longer a store of value and the crown of shadow government in effect seized property), unrest inevitably occurs.
The Fed is a private institution, not an actual branch of government, but they are seizing money from every wage-earner through inflation, and government does the same since percentages increase the basis amount taxed.
Its unfortunate but all the historic factors are slowly lining up with many of the same conditions previously seen between 1767-1776.
Don't get me wrong, this is beyond stupid, but I've come to realize the people in the positions that could stop this simply have no interest in doing so. Its more profitable for them to allow this to progress because "what are you going to do about it".
> Or is this a follow on from recent currency wars
What currency wars? The "gas wars" are far more significant.
To the extent that the debt is denominated in the national currency (for example, US debt is denominated in dollars), yes. Historically this has been the main way that the US has dealt with its debt--by inflating the currency to decrease the actual real value of past debts.
I think it's clear that it won't hit "everywhere" specifically because... it will not hit huge banking. After 2008 every huge bank was required to hold much more massive amounts of cash on hand specifically to fend off bank runs. And that's working.
But I very much agree with you -- and with Chase bank -- that this will not in any way be a repeat of 2008.
Most of the value from the pandemic pump has already been dumped. Some valuations are already too low.
In terms of companies, term sheets have already been halved in many cases or withdrawn. As always the scrappy and research and development focused companies will win.
The slowdown will probably keep going for a while due to the bigger reason, geopolitical market and trade changes. The funding inflows and outflows have changed dramatically and companies that relied on sometimes foreign authoritarian money will be hurting the most, that was the risk and it is present. Though this is also increasing investment in markets and manufacturing in the West. Long term growth will be immense. The market is almost falsely being held down at this moment due to these influence/attack/change vectors.
Should you trust meta about monopolism in the social media space, data ownership, child safety, the effects of new media on professional journalism, etc. etc. Big political questions intertwined with his companies' interests.
In any case, both in the hypothetical fb case and the real chase case: (1) you should listen, because they're in a position to have knowledge and insight. (2) You should also be extremely skeptical, and assume that they are making statements in pursuit of their interests.
That said, the content of this particular article is quite worth listening to. It's not really about the what. It's about the why.
You’ll find ways in which the analogy is “wrong”, but that’s just noise.
Analogies are a pretty good rhetorical device, IMO because we kind of think in abstract analogies anyway. We could have both made our points without analogy, but I don't think much content is lost.
His point is that Bankers are the professionals. This is true. I "complicated" the analogy/comment to highlight the tension between "bankers are knowledgeable professionals" and "bankers are an interested party."
In any case, I feel that analogies are ok. The problem with my comment might have been an overly combative or nitpicky tone, especially given that we probably agree of most of it.
You put your money with the bank, but only out of necessity, and usually it works out, and they have you by the balls the whole time
Drink one finger very time you find a bank mentioning the Glass-Steagall Act, and ten bottles every time you find them admitting they lobbied Congress hard to repeal it. [0]
"Why didn’t any Wall Street CEOs (or executives) go to jail after the financial crisis?" (also a list of criminal and civil charges, and which banks got fined) [1]
...and here's some shameless revisionism by Cato [2] ("It wasn't the banks [being allowed to issue the CDOs], it was the securities salesmen who spontaneously invented and sold CDOs"). I must remember that compelling excuse if I ever get busted running a casino in my own living-room.
> "In any case, the 2008 financial crisis had precious little to do with Glass‐Steagall, one way or the other. It was caused primarily by bad lending policies, which in turn led to the growth of the subprime market to an extent that neither the lawmakers nor regulatory authorities recognized at the time. The commercial banks and parent holding companies that failed — or had to be sold to other viable financial institutions — did so because underwriting standards were abandoned."
[0]: https://blogs.law.ox.ac.uk/business-law-blog/blog/2018/11/de...
[1]: https://features.marketplace.org/why-no-ceo-went-jail-after-...
[2]: https://www.cato.org/policy-analysis/repeal-glass-steagall-a...
"In bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk."
https://www.theguardian.com/business/2008/sep/20/wallstreet....
And of course now she's in crypto.
https://www.thisismoney.co.uk/money/markets/article-9263487/...
Pre-GLB’s LTCM is a potent counterfactual to this claim. Truth is, the topology of our banking system changed with computerisation. This enables tremendous opportunity. But it introduced novel fragility.
(and I clearly didn't say Glass-Steagall would have done anything for SVB or Signature; I was saying banks like Chase's selective edit of the chain of events around 2008 was a whitewash because it omitted mention of key events.)
They argue that "nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements" and if "big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble." But nonbank funding channels were already alive, well, and causing chaos in the 1990s (LTCM) and before (S&Ls). Sure, banks juiced the problem. But it didn't start the fire, it didn't bring the fire home and it didn't meaningfully alter the fire's trajectory. And there is no evidence that their large depositors would have sat there if nonbanks offered competitive rates fueled by their nonsense.
As we've seen this cycle, banks and nonbanks will chase yield when rates are low and credit is cheap. To argue that e.g. SoftBank wouldn't have SoftBanked if JPMorgan and JPMorgan Securities were separate misses the forest for the trees.
> securities firms selling CDOs backed by subprime MBS
Bank originates mortgage. Bank sells mortgage to securities firm. Securities firm issues as CDO. Nothing about this requires the lending arm and securities arm be under the same roof. Mortgage CDOs became a thing because of computers, not Glass-Steagall.
Proponents of reinstating Glass-Steagall are broadly well intentioned. But there are real financial regulations that have real impact that this discussion crowds out.
Sure, but I really don't. And a lot of other folks are the same. I know they are both biased and have financial incentives to lie or mislead me. As much as I might try, I know I might not be able to parse out the bullshit from the facts. Those facts are gonna stink of the bullshit even if I can verify it.
At least with something like a plumber, I can get a second opinion and so on, and I might just be able to take care of the issue myself instead. This just isn't the case with a bank.
We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008.
There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
PS: My personal CPI (rent + food) is 23% so I'm already experiencing this. I would advise everyone to calculate their personal CPI because that's what affects your standard of living...The government numbers are rigged and everyone's reality differs...
* Ports on both the Atlantic and Pacific
* A very effective transportation system in between
* In the big growth sector where points 1 and 2 don't matter, tech, it's still #1 in the world anyway
* A market of 350 million high income people (by global standards) under one regulatory framework
No other country can compare. No one else has this. These in-built advantages are incredibly hard to beat.
There will be crises but the key insight for me was that because of these advantages the US is almost always going to be better prepared to weather those crises than the rest of the world. That is why it enjoys such a huge inflow of capital and immigration (currently #1 recipient of FDI in the world, most immigrants of any country in the world).
It's just a big risk to bet your money against the success of the US, no matter how dumb its leaders get.
It probably also helps that Americans tend to flip out and go full doomsday mode when anything goes wrong inside of their borders, I mean it's stressful, it's not very well planned, but it does make problems hard to ignore.
It's why it's on our currency - "e pluribus unum".
It's also why Russia and China are constantly working to erode the unity of the American people, whether it's through false narratives that "we're more divided than ever", driving a wedge into political parties, fomenting rage-mode across social media, utilizing Twitter for propaganda or TikTok to keep American minds drained of their creative motivation while they ban the apps in their own countries... the list really goes on.
A cord of many stands is not easily broken, but others will do their damnedest to try.
It can not be overstated how good this is for an economy, and it's something emerging markets struggle with, and even some of the advanced economics.
It'll always be easier to start and run a business where you can rely on tribunals to solve problems quickly and somewhat fairly.
But the total net worth per person in the States is even further ahead of the rest of the world. Only Switzerland is ahead of the US in per-capita net worth (only by a hair though) and one suspects that’s partly due to so many Americans parking their money there.
Having had the biggest GDP for decades led to a amazing amount of wealth being concentrated in the USA.
For example, South Korea’s USD reserves has been sharply going down as they’ve been trying to resist following the recent rate hikes to soften the blow to the economy. This is happening all across the globe.
However, US can do (and seems to be doing) whatever they want.
* Issues the global reserve currency
* Maintains the largest military
* Has the widest media reach
* Has significant natural resources
There are problems too, but the unfair advantages are quite strong, and self-perpetuating.
Which is fortunate for Americans, because very few countries could be so haphazardly managed, without failing.
You left out the most important advantage: the US has plenty of oil and gas;
Seems like in economics it’s also useful to analyze qualitatively. Of course you cannot run doomsday headlines with that.
Indeed. American doomerists are just ridiculously parochial. Panicking about the dollar when it's the currency that everyone else runs to as a safe haven. The biggest risk to America is its debt ceiling mechanism; the opportunity to completely destroy America's credit and economy to own the libs is very tempting to some people.
Except canada. The coasts. The transportation system, the tech industry... and canada has a far better-regulated banking sector, one that surfed past 2008 almost without incident. And for every natural resource, from water to uranium, Canada has more than it will ever need. I would far rather ride out the comming climate/economic crisis in calgary/vancouver than LA/SF.
China almost has the same number of millionaires. Per capita it’s not as good, but in terms of volume. And I’d say they’re closer to a single regulatory framework than the US which has all sorts of conflicting state laws which get in the way of interstate commerce (despite the commerce clause). Sure there are a lot of advantages as you say. But they’re not indefinitely insurmountable.
He predicted dollar collapse, hyperinflation for 11 years, and a bunch of other stuff the didn't come true. Major broken clock syndrome on his part. Inflation finally spiked, but after being wrong since 2008. Gold still has not done much in a decade. The inflation was from the post-covid recovery, which was so strong that supply chain could not keep up, not as a consequence of 2008.
It's very easy to predict something will eventually happen. Anyone can do that. Way harder to predict when,
The fundamental problem is that price controls never work and the interest rate is the price of money. If you understand this, then it's easy to predict the endgame, whether it takes 10 or 20 yrs to fail, you will still be right once you position yourself for the windfall.
Peter Schiff gets to laugh despite being wrong for 9 out of the last 10 years because he's not the one deciding monetary policy. For all we know, if he had his way, the US would be in a perma-recession and made into a vassal state of China by now.
Also, the business cycle is something acknowledged by literally every economist. The fact that we have mild economic turmoil after a global pandemic shouldn't be a prediction that Peter Schiff is proud of.
Let's say Alice will be wrong several times and then right once, and Bob will be right several times and wrong once. Both of them start with $10k.
To give Alice every advantage, let's say her bets pay out 10x or nothing, and Bob's bets pay out 4x or nothing. We'll also say Alice magically knows which time she'll be right, but Bob won't know which time he'll be wrong.
Alice will obviously bet all her money on the time she's right, and come out with $100k.
Bob can invest 2/3 of his money each time, repeating every time he's right. Let's say he happens to be right 8 times, then is wrong. After those 8 right bets, he'll have $6.6M. After he makes his wrong bet, his fortune will drop to $2.2M. Then he'll retire.
Looks like Bob has a much better windfall to me.
The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
At the same time, you have the Alice strategy wrong: Alice makes regular, extremely leveraged hedge purchases - perhaps even 500:1 or more - and just ignores the steady outflow of her premia.
Eventually, Bob gets hit by a black swan event and loses 80 or 90 percent of his principal and Alice has a 500:1 return on her hedge.
These are the two strategies that are interesting to compare.
It may interest you to know that Taleb performed this in real life with his own money at risk[1]:
"A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices."
[1] https://www.bloomberg.com/news/articles/2020-04-08/taleb-adv...
If Alice wins after 10 bets, with 200:1 return, and she bets the same percent each time, the absolute best she can get is an 8x return on her initial bankroll.
> The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
For Bob to be "picking up nickels" that means Bob is getting ripped off on the things he's right about. If "right until you're wrong" involves tiny little rights and an enormous wrong, then sure it's not very appealing. But that needs to be stated explicitly. Without a qualifier, I expect "being right" to be at least coin flip odds. Because who cares if you can predict something that's 95% likely to happen?
Oh and Bob did not save 1/3 of his gains. To be fair, he spent it, living high on the irrational market all these years.
Meanwhile, Alice scrimped and saved and warned and was mocked.
She turned out to be right all along, and now she’s the queen of Barter town. Which isn’t a great place to be.
But the little guy who controls the resources and his muscle don’t need Alice, and want her wealth.
Who said that? I was just responding to "It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh."
I assumed that "right" in the first half is at least somewhat similar to "right" in the second half. And that "wrong" in the first half is at least somewhat similar to "wrong" in the second half.
If they're supposed to have inverse odds, then that wording is very misleading.
> Last I checked, Bob’s investments so closely tracked inflation, its indistinguishable.
???
Please elaborate on who you think Bob is, because whatever you think it was not my intent.
I love how confident people are with their predictions.
Since you're so confident about what's going to happen, why does CPI matter to you? You can invest in the market in such a way you're going to be rich anyway.
Anyway, I'll happily help make you richer: do you want to make a long term bet that there won't be double digit inflation for the next decade (let's say there won't be annualized inflation >= 10% over the period from March 25th, 2023 to March 24th, 2033)?
My understanding this time around is the depositors rightfully got bailed out (both to maintain peoples' trust in banking, and because losing your money to others' failures fucking sucks), but the banks themselves were left out to dry.
If the FED didn't step in, every regional bank in the country would experience a bank run as people would withdraw everything and deposit in the "too big to fail" banks for safety.
Why I think the depositors should've suffered a haircut: What the FED did, was implicitly guarantee the deposits, this incentivize banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail. This is like a real life cheat code for bankers and unfair to the rest of us regular folks who has to suffer the consequences of our actions.
This isn't true, is it? While they do get to keep profits, if the bets don't pay off, the bankers - shareholders, bondholders, employees, executives - all get wiped out (as happened with SI, Signature and SVB). The depositors get bailed out.
They get to keep profits if they win, but lose everything if they don't. No moral hazard, right?
And are you talking about people with more than 250k, or everyone else?
The former wouldn't destroy banks, and if you think insurance for everyone else is a problem then why has it taken 90 years to be such an issue?
Citibank equity holders (one of the the more egregious bailouts from the GFC) 15 years later are still down 90%. So it’s not like in the bad old days of 2008 investors were getting off scot free.
Depositors don't stand to benefit from a bank engaging in stupid risky bets with depositor money.
Investors do (on the upside of those bets).
This is why depositors should (and do) have moral priority for their money.
Investors also are able to directly control the degree of stupid risk-taking behaviour taken by the bank, by virtue of their control of the board. Depositors have no such leverage.
If you make depositors (or the public at large) pay for the sins of the bank's management, you get a classic conflict of interest problem. If you make investors pay, it goes a long way towards aligning their interests with keeping the bank running well.
Peter Schiff is always predicting doom. It's not that he's talking complete nonsense, but objectively he is more wrong than right. His opinions corelate less to being correct and more to the fact that he invests a lot in gold, and his interest is that everyone else gets scared and does too.
As for the first part - yes, it would count. Timing of things is impossible to predict of course. But being right in the first place, shouldn't be underestimated !
Let's take crypto as an example - one can predict it's going to 0, and one can say it will go to 1M$. Even though you don't know when, being right is the only chance you make something out of it.
Show me anyone that predicted two consecutive macroeconomic trends, ever.
dollar collapse, $5k+ gold, emerging markets boom, bitcoin crash, hyperinflation, bear market, recession, etc. every year
He never deviated from his predictions or view even when shown to be wrong. He never stopped to consider maybe he was wrong, not that the economy is wrong.
The dollar has never been at a more precarious position (on a hyper-inflation course and the BRICS are pondering about adopting the Yuan).
Bitcoin (who knows what's coming next, but for sure never seeing 70K again)
Hyperinflation (pretty obvious)
Bear market (most of 2022 was in one, and most probably this year will follow)
Recession (high certainty this will happen. Fed's soft landing is a mirage, history shows a rate cut after aggressive hiking usually leads into one)
Schiff is not outright wrong on his predictions. He just never gave time stipulations for his predictions.
February US inflation is 6% year over year. This is orders of magnitude below "hyper".
The FED cannot win the inflation fight (confirmed by their recent soft pivot back to QE) and gold will not go up until the traders realize this fact.
Literally every economic misprediction can be blamed on not accounting for the way people actually behave in real-world economies, but…that’s not something that adds credibility for the next prediction by the same predictor.
Simple heuristic: if it’s easily digestible, it probably doesn’t serve true understanding. I think that especially true for newspaper articles related to economics.
We have gotten 1 and 2 but we haven't gotten to 3 because traders believe that the FED can win the inflation fight. The FED abandoned the inflation fight with a soft pivot yet traders are still not buying gold. This is what Peter couldn't foresee...traders' unwillingness to go against the FED.
This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
Keynes mentioned "animal spirits" and "the market can stay irrational longer than you can stay solvent" almost a hundred years ago. If your prediction doesn't account for reality and well know facts it's a bad prediction.
It would be like guessing that the next election will favor candidate X and when they don't win explaining it away with "well but people are dumb".
If he is as smart or knowledgeable as he claims or held up to be, then he should have factored that into his forecast and advice. IF the fed is going to do everything in its power to save the economy, why fight it?
This is a popular sentiment among traders...why fight the FED? Because there is nothing they can do to bring inflation back to 2%. They all but admitted this with their return to QE. When the masses realize this...gold will surge.
Alas if, for some inexplicable reason, those unwashed masses don't realize that the gold I bought cheap, isn't the only thing worth buying (at my inflated price) then I will be most disappointed.
I guess it doesn't help that gold-hawking is looking more and more scammy everyday, like when c-level political celebrities with large followings seem happy to flog their "sponsors gold" during political messaging.
How on Earth is providing short-term liquidity[1] until the long-term low-yield bonds owned by those banks mature translates into double-digit inflation?
And why should we listen to this [2] prediction of double-digit inflation?
[1] At least in the US. Switzerland is doing its own thing with the UBS/CS merger, good luck to those folks, that sounds like a fun garbage dump to dig through.
[2] Similar comments predicted 15 of the past ~1 years of double-digit inflation.
if Peter Schiff was any good at predicting this type of stuff, Peter Schiff wouldn't have to work for a living.
0% interest can work just fine, but not in the trickle down model.
Got any names or search terms for the 0 interest point? What political economy does it work with?
I'm asking because I've had these thoughts on my mind ever since Ray Dalio uploaded his video Principles for Dealing with the Changing World Order [0].
[0] (Video length: 43:43) https://youtu.be/xguam0TKMw8
See the big oil and its record profits last year for an example.
If crypto isn't the answer, what is? I think inflation and deflation are awful levers of monetary policy and should not be wielded by government institutions like the fed. They've proven themselves time and again bad stewards.
It's more like asking why patients think they know more about hospital processes when management is making (perceived) bad decisions that don't solve real problems
We are users of the service, not people who work within the financial system
When it keeps going down, same - until it becomes obvious to everyone there is no further down to go.
With lots of head fakes along the way of course.
Humans tend to be kind of terrible at being consistent over long periods of time.
My understanding is that it’s a standardized basket of goods that supposedly represent the average household, and it calculates inflation on this basket on a regular basis.
This doesn’t reflect anyone’s reality however and I think a quick and dirty way to calculate your own CPI would be to check the difference year on year for all your rent and living expenses (including fuel if relevant etc) + your groceries (food toiletries etc), and figure out how has this changed year on year.
Correct.
Broadly speaking RPI is CPI + mortgages & rent prices, but actually there's a newer one that's exactly that which tracks lower. They're different 'baskets of goods', used in differnt cases, but generally CPI is what's meant. (RPI is used for student loan repayments for example.)
Someone doesn't understand how averages work...
Living standards are going to drop unless the AI hype is real and AI actually manages to improve productivity dramatically
also laughed at this line from the post
>While there is tremendous uncertainty, given that the banking sector drives credit creation and subsequent economic growth
bankers really think they are the drivers of growth, that's how you end up with all your manufacturing in China. These people are clowns
Where did you get that idea?
Capitalism is based on people who have more money/wealth (aka capital) making more money.
In our system as it exists today, the capital owners have managed to use their vastly disproportionate wealth to influence the government to prioritize their needs over all others. This is a nearly inevitable outcome of unfettered capitalism, combined with legalized bribery of elected officials (lobbying, PACs, etc).
Now, it's certainly true that no system is going to remain in balance long if people can make decisions that hurt the system and suffer no negative consequences themselves—all the moreso if those decisions actually benefit them. But that's not at all the same as saying that capitalism—or any economic system—is based around those kinds of feedback loops.
What constitutes a bad decision in your view?
My perspective is that Capitalism actively encourages and rewards the kind of behaviour most would consider to be morally and ethically bankrupt. The simplest example would be monopolising control of a limited but necessary resource, thereby granting you what is effectively absolute power over those who need it. Think oxygen supply on a moon base or fresh water on deserted island.
Take cigarette companies also. The "good" decision under capitalism was for them to knowingly deceive society on the health risks of their product. All so they could continue to profit.
The fed knows this. They should make it explicit to the common, ~100 IQ, joe six pack American. It's infuriating watching them act so carefully as to pretend to try and not spook anyone.
And there is no indication of either of these suppositions.
The fucking owners of capital seem bound and determined to destroy their own system.
Why would GDP(a lagging indicator) and a current event(a wave of banks over the last two week) be mutually exclusive?
You also seem to have overlooked some significant details and context. To date there have been four bank rescues not two - Signature Bank, First Republic, SVB and Credit Suisse.
The Credit Suisse collapse resulted in 17 billion in AT1 bonds being written down.[1].
SVB’s uninsured deposits(anything over 250k) accounted for 94% of its total deposits and the FDIC took the extraordinary step of insuring those deposit after the fact.
We witnessed the US Treasury Secretary this week suggest that the government would backstop all uninsured deposits at smaller banks.[2]. She then later had to walk that back.
The First Republic rescue saw three of the largest US banks depositing 30 billion dollars into it in order to prop it up.
[1] https://www.reuters.com/business/finance/credit-suisse-write...
[2] https://www.reuters.com/markets/us/treasurys-yellen-says-com...
Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders. All the bank's equity would have been wiped out sure (and it was anyways) but losses to depositors would likely be slim to none. If folks lost anything it would worst case have been like a 5-10% haircut, not 100% of un-insured deposits.
The FDIC was using this as an opportunity to say "we've got your back no matter what" to reassure the public.
It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position.
> The first republic rescue saw three of the largest US banks depositing 30 billion dollars to prop it up.
The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses - which are an issue if folks are trying to withdraw since they can't be liquidated for face value. However if they're held to maturity there's no loss. So the Fed provided a facility where banks can borrow against the maturity value of long-term debt instead of market value.
That makes the problem basically solved.
When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age."
From the FDIC's IndyMac Resolution:
"If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate. This certificate entitles you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank, F.S.B. This means that you will eventually recover some of your uninsured funds. The FDIC declared a 50% advance dividend for uninsured deposits."[2]
It's bizarre to argue that what was literally an exceptional decision(SRE) by the FDIC could not have been otherwise.
[1] https://www.ocregister.com/2009/07/13/indymac-customers-stil...
[2] https://www.fdic.gov/resources/resolutions/bank-failures/fai...
[3] https://www.brookings.edu/2023/03/21/how-does-deposit-insura...
And after that banking rules became a lot stricter to reduce the risk of this happening again.
That's kind of the point, 2008 isn't "this day and age."
Except that Dodd-Frank legislation was continuously chipped away at, ultimately resulting in the 2018 "Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018."[1].
This 2018 bit of legislation is notable in that it completely loosened the regulatory regime and oversight of small and midsize banks - the exact profile of institutions being discussed here!
Specifically this new legislation reduced the number of banks that were subject to stronger federal oversight. Under the Dodd-Frank legislation, banks with assets of more than $50 billion were subject to stress tests and higher capital requirements.
The newer 2018 legislation contained a section that basically eliminated that stronger regulation for banks with assets between $50 billion and $100 billion and moved the goal posts of "discretionary oversight" out to financial institutions with assets between $100 billion and $250 billion instead.
It's fascinating that you are arguing points without seeming to have an understanding of all that has changed since Dodd/Frank 13 year ago. You seem to be completely unaware of the developments since 2018 i.e the exact things that enabled the developments of the last two weeks.
[1] https://www.investopedia.com/terms/d/dodd-frank-financial-re...
Do you realize how many tech companies used SVB as their primary banking facility? There were plenty of companies who would not have made pay role. So yes real regular people would have been affected.
>"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position."
The FDIC invoked a "systemic risk exception" in order to make SVB and Signature Bank depositors whole. Federal law requires the FDIC to resolve failed banks by choosing the method the least costly to the Deposit Insurance Fund. Here "resolved" means making only insured depositors whole. The only exception to this is the systemic risk exception. This is law not just some shit you can make up.
>"The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses "
Uh no, the issue that is that there's a lot of uncertainty. I don't think nobody really knows the extent of it at this point because a lot of midsize banks haven't really been under strong regulatory scrutiny until very recently. A crisis of confidence is still a crisis. A crisis of confidence is precisely what causes a run on banks.
All depositors had $250k guaranteed at the bat. But sure maybe that’s short for 2 weeks of payroll for many companies.
Well FDIC was already cash payout warrants against the size of of their deposit assets (something like 50% would be available). If you need more than 50% of available cash to make payroll, you were already a dead firm walking.
With liquid assets like long term treasuries, they could have been liquidated quickly, and at worst most companies would have seen a 10-15% haircut.
A haircut hurts. But running a business includes all sorts of risks. You could have a lawsuit. You could have a fire. Your cloud provider could shutdown. They knew about the risk of being uninsured (since many companies have corporate treasurers who manage multiple banks and portfolio of treasury bills to manage bank risk), and this was just the one risk their company faced that came to fruition.
If you reread the thread and the context of what I was responding to it was the OP stating "It's not clear anyone would have lost anything at all ..."
Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people.
That is a very interesting question. I agree it is not clear, but it is not in ' not clear' status due to some legalistic formality. It is unclear, because it would appear treasuries around the world[1] are basically making up rules as they go. It does not inspire confidence.
The question is definitely open and I honestly do not know the answer.
[1]https://www.marketwatch.com/story/contracts-are-made-to-be-h...
Exactly. Jeff Snyder pointed out that folks were puzzled over this exact thing in the 08-09 timeframe. And in fact, Janet Yellen talked about why it wasn’t a contradiction. She seems to have forgotten her own analysis, though.
so when I said two and a half banks with two rescued it was actually two and a half banks with two and a half rescued.
feels to me like even less of a banking crisis.
Well yeah, everything worked out fine for them last time they did. Some got very rich. Why not try again?
Nah. These disruptions are a means to an ends. That is, shifting still more wealth to the top. Follow that graph. Everything else is a means to that ends or a distraction.
As a personal anecdote:
In the wake of 2008 massive layoffs flooded the market driving down costs for... not necessarily skilled but educated labor. Target for instance suddenly decided that being an ETL required a college degree, a requirement that they relaxed in 2021.
I'm aware creating a public justification for creating a mass of unemployed skilled (read: otherwise expensive) laborers is in their benefit. It's just that the public face of this is destroying their own systems then claiming literally any and everything other than their own actions are at fault while simultaneously positioning themselves to benefit from any attempt at preventing economic disaster.
"Remember the great resignation? Good! You shouldn't! Now damn you proles, don't you forget that you can't remember it."
As for your last paragraph, it's about control. Regardless of what's being "destroyed", they are creating more wealth and power, and the majority of that goes to the top. Again, this isn't opinion. It's the data.
The Public's fault is believing what they hear instead of watching what is happening. Actions speak louder than words. Or they should.
It's because they imply hubris, arrogance, control.
Let's just realize that we all have a lot less control over our environment than we think we do, and some things are just forces beyond anyone's control.
I think it's more likely that every person at every link in the chain is following some incentive: financial experts within banks are saying whatever they think will get governments to stop putting up interest rates (we're in a banking crisis), journalists are repeating interesting and dramatic news from their sources (that we're in a banking crisis), their editors are careful not to block an important message (that we're in a banking crisis), and so on.
The net effect is possibly going to be moving wealth to the top, but if you take a conspiratorial view, the solution seems like it's "find the shadowy council working behind the scenes and force them to stop". If it's just distributed rational decision-making you have to take a systems-level view of what the incentives are and work to change the overall behaviour of everyone, which is a much more complicated problem.
Close willing coordination between a whole bank or a whole newspaper is less believable. Small-scale coordination is possible, yeah: PR firms pitching articles, revolving-door hiring, conflicts of interest, bias upstream in academia, or even an editor meeting a banker for golf and squashing a story; these things are all believable. These are not the same as a statement like "the news media is helping shift wealth to the top", or at least they have many caveats.
No conspiracy theories required.
It's a distraction to point fingers at left or right.
I hate the implications of dated mental models.
Like entities with like goals are going to take like actions. There doesn't have to be back room top-secret coordination.
FFF starlings do it. Starlings!!!
but the idea that rich people are acting in a manner to maintain/increase their wealth aint exactly a conspiracy theory.
The question becomes identifying zero sum games and finding optimal solutions for the public at large.
This is the correct statement and it's not a conspiracy theory, it's a banality.
What's the pattern?
That's the pattern.
Read something like Anarchy - the East India Company. Sheer luck got them to where they ended up, despite them being a) a literal "conspiracy" (a corporation) and b) bumbling fools on repeated occasions.
What happened after 2007/ 2008?
What happened during / after Covid?
There is zero reason to imply any of those things. The data speaks for itself.
The data points to wealth redistribution but the causes are larger than some dark cabals. Globalization is the biggest one and globalization is such a huge topic not even 1000 CEO out together could begin to understand it.
>Let's just realize that we all have a lot less control over our environment than we think we do
Do the privately run secretive organization that sets the time value of money and the people that influence it not have "control"?
To be clear, I'm talking about the central bank.
Fed is 98% talk and 2% action.
I disagree. Any organization that can unilaterally set interest rates and add infinite assets to its balance sheet (two actions capable of moving the largest markets significantly) has tremendous amounts of control over the economy.
The vast majority of people are just unaware how much of an impact monetary policy has on their behavior.
The business cycle is a well-documented fact of the economy, caused by basic microeconomics. The busts have as good a reason to be there as do the booms.
Plus the business cycle has booms which are on average much longer than the busts, an angle which conspiracy theorists frequently choose to ignore.
The business cycle is not a conspiracy theory, thinking the business cycle is somehow "made" or "artificial" or "controlled" is a conspiracy theory.
We've all been trained to not even look at the "do you accept cookies" thing anymore and just blindly press it. On this website, it's actually an ad link to their paid services that looks just like one of those accept cookies buttons.
If you are a habitual cookie clicker there is also this:
https://addons.mozilla.org/en-US/firefox/addon/istilldontcar...
Americans don’t even have money in the bank. Median savings is $4500.
Many people who perform socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation.
> Median savings is $4500.
The average American family has a $748,000 net worth, according to Federal Reserve data, median $121,000. Savings isn't just what's in your 'savings' account. Mine definitely isn't.
Money is a medium of exchange and unit of account. It's not a tool for building wealth, and it's not a long-term store of value. It never was. They shouldn't have money in the bank, they should have it productively invested.
121k net worth is NOT a good number to be sitting at when you are 45, let alone at 65. that is. savings rate faaaaaaar below what you need to provide for yourself in old age one you can no longer earn income. we do not want to generate a class of people reliant on aid for basic subsistence. also note that net worth is not liquid for most people. people can't live without shelter, or without transportation to their jobs, and so they cannot liquidate their car to tap into their net worth for food costs. 121k median means peoples net worth doesn't even come close to covering their shelter requirements.
for most people money isn't even working to get them by day to day, let alone working two functions of today, and saving for tomorrow.
> Many people who materially contribute by doing socially useful jobs can barely afford the basic basket of goods like rent, food, and transportation.
I... hate that this is so accurate...
But M1 is about three times M0; the difference, about $12T, comes to about $400K per American, so some Americans do have significant money in the bank.
In other words, a significant amount of Americans have little-to-no money saved.
As far as how that affects the calculation I made, from what I can find online, total cash on hand for US businesses is about $1T, so that would have to be subtracted from the difference between M1 and M0 to find average cash deposits per person for individual accounts.
Note that it's plotting medians of those who hold the asset, so i.e. "non-residential real estate" (held by 7% of households) is median $70k.
[1] https://www.federalreserve.gov/econres/scf/dataviz/scf/chart...
Recall the elevated marketing hype from those trimming portfolios knowing full well what was happening. What I see is a short term 30% sales bump in real-estate (ratio of debts in negative amortization) as the amateur tries to find inflationary shelters after getting disappointed by laggard bond markets.
Kind of reminds one of giving sugar-cubes to raccoons... knowing they wash their food in water as habit.
Rule #9: if people start answering odd questions you didn't ask, than one probably should be extra cautious.
My bag of popcorn is ready. =)
If individuals aren't being "excessively enriched" by conditions it's unlikely to become another spectacular market wide blow-up.
Social causes are a proxy for froth. A short Friday memo probably isn't.
Exuberance is in the hands of price gougers right now, and even that's mostly confined to California,... and eggs.
Sure we're back to "grocery delivery" (which marked the height of the .com bubble) but it's the biggest players involved, the technology is practically free these days, and the immunocompromised benefit!
We have Doge and memestocks as movements for the "common man" that are preemptively subveted.
I know, I know. Snark isn’t allowed. Feel free to downvote if you love how Chase Bank treats you as a customer.
The primary function of central banks isn’t managing
inflation and employment, it is acting as a lender of
last resort. In this way, central banks provide the
bedrock for the banking system. The Fed’s ability to
perform this role expanded during the Global Financial
Crisis. They created many different types of lending
facilities to provide liquidity to banks, and many
former broker-dealers (like Morgan Stanley and Goldman
Sachs) became bank holding companies so that they could
access them.
Doesn't this say that when a bank makes a poor investment, they can borrow from the taxpayer so they don't have to realize their loss?
The creature from Jekyll Island by G. Edward Griffin is a book that describes the creation of the FED, how it was done in secret.
And I don't even want to touch the question of fiscal deficits, which not only do not show signs of moderation, but accelerate even further. It either ends in a real default, or persistent high inflation, with negative real rates, which in a sense is also a default.
You’re completely right about still being stuck with the low yield paper at the end of the year and the relatively high (to the paper) interest rate in the meantime (my read is that the banks continue to hold the paper and get the yield over the year rather than handing it over to the Fed, partially offsetting the interest cost, but I’m uncertain if that’s correct).
For that reason my speculation is the BTFP will be rolled over to keep kicking the can down the road at least until the proportion of debt sitting in long-term low yield held to market assets decreases (basically via the bank version of dollar cost averaging as they buy new treasuries/MBSs over time) or interest rates drop sufficiently that the haircut on their current low yield assets meaningfully reduces.
The interest rate charge by the Fed right now is effectively making the bank realise the haircut on their paper over that year while keeping up the illusion that their assets are still worth par value. This gives the banks the liquidity they need without having to write down the value of all their HTM assets as they would have to do if they actually sold any. In reality this also means those balance sheets, assuming conditions continue rather than return to ultra low inflation (or deflationary) conditions, are overstated.
The FDIC suggests this is by around $620bn for US banks which is smallish compared to the total US banking assets of $23,245bn but sizeable when you consider the sector has “only” $2,175bn residual assets after liabilities and imagine the distribution of unrealised losses against net positions across different banks.
With that said, the interest payments of leveraging the BTFP will presumably add to liquidity pressure, while even banks not using the facility but holding low yield HTM assets will be feeling the squeeze of needing to pay depositors current interest rates backed by a portfolio weighted down by low yield paper. For that reason if things worsen it wouldn’t surprise me if the Fed dropped the interest rate fee for BTFP towards the average yield of the pledged paper, effectively turning low yield paper into current yield assets and pretending 2020-22 never happened while shoring up the profitability of banks that managed their way healthily through this saga.
What I find a little confusing is how commentators seem to think there’s no problem because banks can hold/could have held these assets to maturity and get back the par value then - that the problem is simply that people wanted their money back at the wrong time. I guess that’s true in the strict sense of “why now” but unless conditions change again the unrealised loss will be realised eventually - either in one hit by conversion to today dollars or over time by inflation. The only way I can see this not being a problem is if banks were going to keep paying depositor interest rates as if it were 2021 until these low yield assets came to maturity, but the challenge of doing that without bailing in depositor funds over that time window when someone down the street will otherwise pay something closer to the current Fed rate seems obvious. It seems like the only game once yields rose was spinning plates and wearing the loss slowly hoping their portfolio sufficiently turned over in the meantime.
As I see it in the simplest sense, a bunch of banks have traded 2021 dollars for Timeline A 2051 dollars, where Timeline A has 30 years of extremely low inflation. People have now asked for 2023 dollars back. But it turns out we now live in Timeline B where we’re looking at moderately low inflation over the next 30 years, and the value of a Timeline A 2051 dollar in 2023 dollars is around 80c.
Pretending they can sit on their low yield paper for 28 years while slowly wearing the loss against the current Fed rate, yet alone inflation, is somehow okay because they’ll have the same numeric dollars at the end seems a fallacy unless we’re assuming a hugely deflationary environment from peak population that is not current priced in by markets (i.e. speculating that we’re actually in Timeline C).
I assume given the consistency of commentators saying there would be no issue if the assets were held to maturity means I must be overlooking something.
| this probably isn’t 2008, for three key reasons:
(1)Policymakers have tools to solve banking crises, (1.5) and the bigger banks are much stronger (2) The economy is in a much different place (3) The magnitude of the problem is, so far, much smaller |
His take on reason #1 is that MMT has won. Monetarism is over now. Dollars in the bank are dollars in the Fed and these are infinite. They're still pretending in the rhetorical, political and legal sense... but the policies are not that anymore. The Fed can, if it wants, increase rates but as it does it will fully back banks.
Banks are no longer limited by the value of securities on their books. This is now known not to cause hyperinflation, and regular inflation is either tolerable or someone else's job.
reason #2 - For Non-banks like a company with a loan or a human with a mortgage, "Monetarism is dead" means nothing. They're affected by rate increases and can run out of money and get wiped out. Luckily, debt is not super high like it was in 2008.
He charts household debt, but I think the bigger "story" is company debt. Google, Amazon, even Tesla are all about equity. They're don't care about interest rates.
Reason # 3 needs no commentary: "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis. This episode has been driven by price declines in high-quality assets with pristine disclosure leading to a liquidity issue."
Turns out, the real nature of money is debt. And debt is just a relation between people, so there's no natural limit to it, other than confidence.
Since 2008, the real inflation has been in asset prices - housing, equities, startup valuations have been up massively across the board.
This has societal consequences. The divide between the asset owning class and the non-asset owning class has never been greater. Stretch that out and you get populists getting elected all over the world.
Donald Trump didn’t get elected in a vacuum.
"Policymakers have tools to solve banking crises [...]"
"The economy is in a much different place"
"The magnitude of the problem is, so far, much smaller"
In conclusion, "we still don't see it coming" avoiding the term, "subprime" or acknowledging that predatory lending ever occurred, and this weird typo:
"[...] the primary facility *though* which banks can borrow [...]"[1] https://www.macrotrends.net/countries/USA/united-states/infl...
This has social and political consequences. Populists haven’t started popping up across the western world for no reason. Half the country feels priced out of basic dignities like housing.
Anywhere I can read about why things are so bad they had to publish this?
The proposal is to eliminate fractional-reserve banking, which usually requires public accounts at the central bank [1][2], though in practice, there is no reason each state couldn’t open an account at the Fed, to keep the Fed out of the business of retail banking.
[1] https://www.econstor.eu/bitstream/10419/197911/1/1043494065....
[2] https://www.reuters.com/article/us-swiss-vote-sovereign/swis...
Unsure. Clearly, Credit Suisse and Deutsche Bank aren't making a case for big banks right now. But in light of TBTF, and the sole benefit of public ownership being scale, the tradeoff just doesn't seem to make sense for mid-sized banks.
First Republic is sweating every down tick. You know who aren't? OneWest. FirstBank. MidFirst. Eastern. Nobody is writing stories about their stock price because it's not publicly traded.
Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in. We’re practically seeing it play out again with Deutsche Bank.
Public ownership lets these banks access cheaper capital. But the operational effects of volatility make it seem a bad deal. For the largest banks, if closely supervised, I can see the risks balancing. But for mid-sized banks I don’t.
You have the cause & effect wrong, the stocks tanks because the bank is failing. Tons of banks that are not publicly traded fail too.
Never has is been so easy to shit talk a stonk online and have it matter. We are in the meme stonk phase of capitalism.
The real pros at the grift create SPACs and become stock market influencers.
What we are seeing now is a retail run on the bank, the electronic equivalent of people hearing rumours on the street and queuing in front of branches (except now with twitter and their banking app). In some cases for good reason, others not so good.
I think the difference is that retail depositors don't look at financial ratios (and shouldn't be expected to be able to understand them). So how do you convince them?
One thing that is certain is that contrary to what the article says, none of the regulations introduced in response of the financial crisis helped. Higher capital ratios? Credit Suisse had 14% CET1 ratio and there was still a run. Higher liquidity requirement? Credit Suisse had over 200% LCR and there was still a run. Bailin? The swiss regulator judged that doing a full bailin of a large financial institution would be too disruptive to financial markets so only bailed in a small tranche of the CS capital stack (AT1). So what tools exactly are available to regulators that weren't in 2008?
Does anyone remember the sign boards outside every bank offering up to 10% interest on short term CDs in the fall of 2008?
When my mom called in February this year about opening a “savings account” for the grandkids at 5 1/2% interest, I knew something was up. Because the going rate the month before (and ever since 2009) was something like 1/10 of 1%
2. Because chase wasn't writing listicles in 2008
fwiw chase's actual argument is 'bank stocks are in the shitter'. This is not what I would write if Chase hired me to write a listicle about Chase being a safe and good place to store things.
https://www.nytimes.com/2008/03/17/business/17bear.html
Credit Suisse shareholders were paid in shares of UBS, in a major value writedown, quite comparable to the JPMChase deal for Bear. Certain select shareholders (Saudi Arabia and Qatar) seem to have been protected while others (AT1 bondholders) were not.
Patrick Boyle's YT channel is doing a great job on this, first became aware of it during the SBF spectacle, just as good now:
> "UBS was clear from the very start that they would only participate in the deal if it was cheaply priced and if UBS could be indemnified from any of the legal issues that Credit Suisse was potentially facing... 'This is no bailout', the Swiss finance minister said, 'This is a commercial solution'"
So the difference is what, it's more globalized this time around? Note that indemnity provision was likely informed by fallout from the JPMChase deal for Bear, see this 2013 Reuters Blurb:
> "New York state’s lawsuit against JPMorgan Chase & Co. alleging fraud in mortgage-backed securities sold by Bear Stearns may be one of the broadest cases to come out of the financial crisis..."
It seems quite familiar. Investment capitalism goes belly up once again due to short-sighted greed and a lack of regulation, and the government steps in to cover the losses for the fearless risk-taking entrepreneur class (who have bought most of the politicians) in what certainly looks like an 'entitlement program'... while libertarians everywhere remain curiously silent. Con artist much?
Social safety nets for the billionaire investors are needed to prevent societal collapse, it seems. But who cares about all the homeless encampments, they should have learned how to program... it's their own fault, and people need to take responsibility for their actions...
The reason this could be worse than 2008 is that those methods will not work as well.
Part of the reason SVB failed so fast was because they held a lot of long term government debt, mortgages etc.
When they tried to sell it to provide liquidity for deposits they found there were not many buyers for it.
Since 2008, foreign purchases of long term debt have dropped from many of the main credit countries with no real replacement other than the federal reserve.
If the Fed moves from a buyer of last resort to the only buyer then that is game over. QE won't help because it will cause inflation. Inflation will move people, foreign countries and institutional investors away from long term debt.
Basically a hyperinflationary environment with systemic bank failures all caused by a sovereign debt crisis. Before long just funding the Govt will be impossible because the debt will no longer be seen as safe as it once was.
The difference is that the collapse won't be as immediate as 2008. It can be much more of a controlled demolition, until the methods they have used stop working.
It all just has to collapse at some point and reach an equilibrium again. It's only a matter of time...
What? That’s nonsense. There is an extremely liquid market for the securities and selling them was no problem.
The problem is that they lost value when interest rates rose, were held in a “hold to maturity” portfolio to avoid having to mark down prices as interest rates rose, and the bank didn’t properly hedge its interest rate risk.
But it mainly happened fast because once word was out on social media that they were bleeding out, it had stoked depositors to withdraw their deposits.
As long as they aren’t offering higher returns than their existing investments can support, the only thing they have to fear is bank runs.
Thus they both really messed up and happened to get punished, but it really doesn’t reflect the wider banking system.
The results from this strategy will keep becoming worse and worse every year, however. Unlike 2008, America is too politically divided, there is too little distrust in USD after the confiscation of Russia’s reserves, and there are too many alternate currencies and power centres for the US to still print away.
Wait we have been through this before. The 2000 dot.com boom, 2008 subprime banking crisis where we bailed out the banks and the banking bonuses. 2023 silicon valley bank, credit suisse. Central bank zero interest policy caused this. Somehow it started in 1980-1990 Japan with their real eastate crisis and japanese bonds central banks going towards zero interest rates. Hopefully it will be better this time.
I guess now we will have a mix of startup bubble, real estate bubble, obligation bubble, stock proce inflation of p/e rates valuations.
You can not export your problems to the world all the time and expect no consequences
I am not sure about that. In 2008, it was only a crisis in the US real estate lending market that became contagious. Now, it is a crisis of global inflation. All long-term loans were granted by the banks in recent years with the expectation of much lower interest rates. Their prices were ment to cover the risks. Sinces all such loans were too cheap, they actually do not cover the risks appropriately. This means that banks worldwide will face large deficits in the foreseeable future.
This time, it’s US monetary policy being the fuel to the house of cards built on top of the burning wreck of 2008 that was papered over.
CS AT1 bondholders now have gigantic $17bn hole in their balance sheet/portfolio
The whole AT1 bond market is experiencing losses of similar size to the treasury bond market
If anybody collateralized those? Bigger losses
Losses aren't controversial, but they are when theyre losses with other people’s money who arent investors
here is a tools that is showing interest rates over several decades: https://tradingeconomics.com/united-states/interest-rate
It is a repeat of the Savings and Loan Crisis of the 1980s and 1990s.
I am not sure they can write and publish that piece however
Please try again later. Thanks for your patience.