What tools does the Fed have left to fight off a financial meltdown like 07-08 considering they can’t get inflation down.
The collapse of SVB is nowhere near the scale of 2008
Washington Mutual and Bear and Lehman and AIG and literally hundreds of other banks which took many months before it caused any sort of bank contagion.
To your question, the recent Fed action consisted of
- guaranteeing both large and small deposits at SVB (previous limit $250,000)
- opening up a brand new Fed “lending” program to guarantee all bad bankers will get a one-time free pass for the next 12 months.
The Fed could have stopped with the first, and could have done that in limited form.
4 hours ago
It’s a longish article but the first part reads
Large US banks are being inundated with requests from customers trying to transfer funds from smaller lenders, as the failure of Silicon Valley Bank results in what executives say is the biggest movement of deposits in more than a decade.
JPMorgan Chase, Citigroup and other large financial institutions are trying to accommodate customers wanting to move deposits quickly, taking extra steps to speed up the normal sign-up or “onboarding” process, according to several people familiar with the matter.
A package of emergency measures unveiled by the US government on Sunday, including a new Federal Reserve lending facility for banks, appears to have passed its first major test for now by staving off the failure of a third bank following the implosion of SVB and Signature Bank.
However depositors are still attempting to move balances into larger banks such as JPMorgan, Citi and Bank of America, as well as money market funds, the people said. That is especially the case when balances exceed the $250,000 threshold that is guaranteed by federal insurance.
Is it just the $250,000 guaranteed by the fdic or is it full deposited amount lost at the bank.
The $250,000 has long been guaranteed that is nothing new.
Now at these two banks 100% is guaranteed.Roblox, for example had $150 million in its checking account.
(TANGENT: That is huge. That is dumb. and that is what happens when “money is free” leads to "people who never had 3 business classes get to run a business and are not even required to hire business people or buy cash management software.)
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There are several stories here.
The one I was alluding to in the beginning of the thread is that
lazy reporting is making this sound like a simple matter of “mark to market” long term bonds.
I believe the real story goes deeper it has to do with
- VCs who set up a bank to use as their personal piggy bank
- really bad, overly-optimistic 1) auditors, 2) bond raters and 3) Wall St stock analysts (not unlike the phony bond ratings of 2008 fame)
I don’t think there is any sort of secret conspiracy here. I think this is just one of those cases where the truth will come out slowly (and possibly be jumped-on for political purposes as it does)
.
.
.
Example 1) from above of bad, overly-optimistic, auditing:
SVB had just been audited. It passed with fluing colors
Silicon Valley Bank failed just 14 days after KPMG LLP gave the lender a clean bill of health. Signature Bank went down 11 days after the accounting firm signed off on its audit.>
Example of 2) from above bad, overly-optimistic bond-rating
SVB had a Moody’s credit rating of “A” just three days ago when it first revealed it needs to sell stuff to stay in business.
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This is a multiact play. Act 1 is in the US.
Act 2 may be overseas with banks that are outside of any aid from the Fed or the US Treasury:
https://www.msn.com/en-us/money/companies/credit-suisse-runs-into-new-problems/ar-AA18Djo2
https://twitter.com/TFL1728/status/1635302975089545216?cxt=HHwWgMDQpYjZ4bEtAAAA
For several months, Tom Luongo has been ranting about how the Fed has declared war on the Davos-dominated European Central Bank. The likely results of the Fed’s actions will be collapse of the eurodollar banking system, a drop in the value of the euro, and the movement of capital back to the US financial system.
SOFR (Secured Overnight Financing Rate) knocked out the Eurodollar because that was the Fed’s and New York’s ultimate goal; to replace the global rate for dollars with a domestic one where the capital would have to trade here. The globe takes its cues, not from what Europe or Hong Kong wants, but what America needs.
This stabilizes our banking system, taking back power the Fed had ceded under Greenspan, Bernanke and Yellen and reminding everyone else just who runs Bartertown.
Most importantly, it pulls liquidity from around the world back into US markets, providing a foundation for a future where Davos doesn’t control DC. There are further implications of this but I’ll leave that for Part II.
The War for the Dollar is Already Over Part I - Gold Goats 'n Guns
It will be interesting to see of Luongo is proven right.
Ya that’s ■■■■■■■■ then if they are going past the fdic limits they haven’t learned anything from last time.
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It is pretty easy for a business to go beyond $250,000 in bank deposits.
Years ago the Walmart produce section I worked in grossed just over $20,000/day the whole store grossed over $250,000/day.
IOW it is pretty easy for a business to go over $250,000 in checking deposits.
- There are fewer than 120 banks in America of any substantial size
- So a business is gonna have to do something other than open a whole lotta small accounts in a whole lotta banks. That approach won’t work.
What is “supposed to” happen is that,
- Each business can use just 1-3 banks and
- each bank is “supposed to” keep their clients’ money in a safe place, plus buy insurance (aka swaps),
- These days, bank gross about 3% for doing this. (Back in the days when computer screens either had either green letters or orange letters, it was 3.5 - 4%.)
- Silicon Valley Bank was doing this for 2%, (the lowest rate in the business) and was not buying swaps.
More in a bit
The major media narrative (and the social media narrative) is focused on the fact that SVB did not buy swaps…
The major narrative is
- The FDIC is supposed to insure the first $250,000
- The bank is supposed to insure the rest
- Businesses shouldn’t even have to worry about this stuff, they should not have to hire professionals or buy cash management software.
- That’s what banks are supposed to do, that is the bank’s entire job.
Personally I think that is “can’t see the forest for the trees” sorta thing, but I gotta admit, when I try to make the case, I “sound like” the folks who have an agenda (blame Trump or blame ESG.) I don’t think that’s what I am doing, but yeah it sounds like.
Sigh, maybe the major narrative is right and I am wrong this time.
I wonder where the Robinhood trading platform does it banking.
- Can’t get paid for a month’s work because your bosses bank is uninsured.
- Can’t get paid for a profitable trade because your broker’s bank is uninsured.
Not a whole lotta difference.
It looks like Act 2 is moving forward in Europe:
The Fed’s increase in interest rates is stressing Eurodollar banks as well as US banks, but overseas banks receive no help from the US.
Credit Suisse has been in trouble for a long time (at least a year)
and for the exact same reasons as many US banks are.
The same pool of economists and bankers who make decision
- at the Fed
- at the European Central Bank
- at the Bank of Turkey
are all the same pool of economists and bankers and they have all been trained by the same mildly left-of center (READ: Keynesian) textbooks.
It really does go that deep.
It does not help much that the alternative-to-Keynesian discussion
has often been “taken over” by illiterate conspiracy theorists.
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Possibility:
Silicon Valley Bank might force depositers to come back.
It has been widely reported that start-ups did business with SVB
because SVB introduced lenders to them and the lenders required teh start=ups to bank with SVB.
Nothing in the recent days’ developments changes that. If it is a legal obligation it can legally be forced upon them.by whomever winds up owning SVB or its parts.
“In extreme scenario, SVB or loans’ future owners could demand immediate repayment of debt (&) terminate any other lending commitments, if borrowers fail to remedy breaches.”
https://finance.yahoo.com/news/svb-clients-risk-default-may-172639705.html
