A little sanity on the latest bank “crisis”

[Tom Paine 1949]

The devil is always in the details when we talk about “bailouts” and “arranged buyouts” of banks and failing corporations.

The two special Fed funds provided for recent bailouts and for borrowing to prevent regional bank runs offered to loan money to banks at very high rates (around 4.75%) which most banks don’t want and will not touch. Those that do temporarily need these primary “discount borrowing windows” will as soon as things re-stabilize very quickly pay off these debts as in the past — there is cheaper money widely available to banks in the system.

What we are seeing now is an accelerated flight of assets to larger banks, a well-recognized historic development. Most of the $17 trillion or so of U.S. bank assets are in checking accounts or savings accounts which still pay almost nothing to ordinary customers, though as customers wise up and the Fed tightening policy works its way through the system middle-class folks are becoming aware that much higher interest rates are available through Treasuries and “Brokered CDs,” or even just “internet” divisions of the biggest banks.

This is a positive development, as the goal should be to align savings closer to inflation and to increase the cost of borrowing, discouraging and not encouraging the speculative investments that have led to an “everything asset bubble” since 2008. Banks themselves finally are becoming more careful about lending — another positive, since the effect of money “printing” and “easy credit” depends not just on the amount but on the velocity of money in circulation which is related to the expected profitability of using it.

Here is a graph showing how fast the special money provided to banks (to stabilize them) by the Fed in the recent past was returned, along with some expert commentary by Wolf Richter:

***

Banks have $17 trillion in deposits. Much of it is commercial checking accounts that pay 0%. And the national average for savings accounts (Feb) is 0.35%.

A small number of banks of the 5,000 banks offer savings accounts with 3-4%. All the big banks — they hold the majority of deposits — are close to 0% with their savings account interest. Banks offer some brokered CDs to raise some cash at 5% but that’s a minuscule portion of their deposits.

As the panic settles down, you will see bank borrowing at the Fed plunge because this is A BAD DEAL FOR BANKS.

It keeps them alive, and that’s why they’re borrowing, but as soon as they can, they pay back those loans. Look at the chart, how it plunged the last two times!!!

***

In short, financial doomsday has not arrived. Powell and the Fed have been doing a reasonable job since they were surprised by the spike in inflation, which had 15 years of unsustainable easy money pressure behind it, as well of course as Covid and Covid re-opening disruptions, a war in Europe, etc.

I am hoping for a healthy big slide in the irrepressible (and deluded) stock market, and a return to the social ethic of hard work and saving, as opposed to investing in distorted and speculative financial products. The rich will remain rich. The poorest and least able to compete will remain desperate. The first priority must be for the working class, skilled workers and professionals — and the real economy — to be protected.

 

[Rambunctious]

These same words were spoken by many in 2008 while Biden was VP.... all while we watched every Sunday as another bank failed....

 

[MarathonMike]

What we are seeing now is an accelerated flight of assets to larger banks, a well-recognized historic development.

You mean like the 167 year old Credit Suisse that just failed? There's lots of window dressing, smoke and mirrors being thrown in the air to distract from the incompetence and corruption that is creating this latest banking crisis. Banks, just like our Federal Government have abandoned their fundamental guiding principles and have become corrupt, politically biased and too full of themselves to think they can fail. We are living in VERY dangerous times.

 

[Tom Paine 1949]

You mean like the 167 year old Credit Suisse that just failed? There's lots of window dressing, smoke and mirrors being thrown in the air to distract from the incompetence and corruption that is creating this latest banking crisis. Banks, just like our Federal Government have abandoned their fundamental guiding principles and have become corrupt, politically biased and too full of themselves to think they can fail. We are living in VERY dangerous times.

There is a continuing historical flight of assets to larger banks and these are dangerous times.

“Incompetence and corruption” are not limited to one country or one party in one country. At Credit Suisse scandals and losses have gone on for years, despite repeated changes of management. It must be understood that the “politics” of this supposedly “conservative & traditional” Swiss bank, which serviced the world’s richest clients, was the complete opposite of the “politics” of the “liberal” Silicon Valley Bank.

Credit Suisse counted billionaires and sovereign-wealth funds among its biggest clients. It lost 40% of these clients funds just last year as clients pulled out their money, and the Saudi refusal to backstop them recently was the last straw. As the Wall Street Journal wrote this week:

“Most of its loan portfolio is in ultraconservative Switzerland, where it was the country’s No. 2 bank by assets…. It also had large investment-banking and asset-management arms.

“It is considered a systemically important bank by global regulators given its size and interconnectedness with the financial system.

“Silicon Valley Bank was a regional bank, serving U.S. venture capitalists and technology startups.

“Credit Suisse, as is typical in the industry, had placed bets to hedge against rising interest rates; Silicon Valley Bank reported virtually no interest-rate hedges on its massive bond portfolio at the end of 2022.”

In short it is not a question of being “too politically biased” (or even of similar banking cultures). It is rather that greed & corruption — which is endemic to modern finance capitalism — finally struck down these two vulnerable but very different kinds of banks.

The incentive structures that bankers operate under in very different environments often lead them, and their customers too, to take actions that ultimately destroy parts of the financial system.

Of course, nobody knows for sure if contamination may spread — given the abstruse and mostly hidden world of “derivative” trading — which in the case of Credit Suisse may be the reason the Swiss National Bank stepped in to broker the USB takeover.

 

[MarathonMike]

There is a continuing historical flight of assets to larger banks and these are dangerous times.

“Incompetence and corruption” are not limited to one country or one party in one country. At Credit Suisse scandals and losses have gone on for years, despite repeated changes of management. It must be understood that the “politics” of this supposedly “conservative & traditional” Swiss bank, which serviced the world’s richest clients, was the complete opposite of the “politics” of the “liberal” Silicon Valley Bank.

Credit Suisse counted billionaires and sovereign-wealth funds among its biggest clients. It lost 40% of these clients funds just last year as clients pulled out their money, and the Saudi refusal to backstop them recently was the last straw. As the Wall Street Journal wrote this week:



In short it is not a question of being “too politically biased” (or even of similar banking cultures). It is rather that greed & corruption — which is endemic to modern finance capitalism — finally struck down these two vulnerable but very different kinds of banks.

The incentive structures that bankers operate under in very different environments often lead them, and their customers too, to take actions that ultimately destroy parts of the financial system.

Of course, nobody knows for sure if contamination may spread — given the abstruse and mostly hidden world of “derivative” trading — which in the case of Credit Suisse may be the reason the Swiss National Bank stepped in to broker the USB takeover.

I agree with much of what you say here. My point is, you have to look for root cause in failures like SVB and Credit Suisse. In both cases you have profound mismanagement that disregarded the most basic of sound banking priniciples. Greed and corruption most certainly but Political bias also played a role in the setup for failure. How many millions (billions?) did both banks donate to Liberal/Democrat causes? Also The CEO who was brought into fix Credit Suisse's problems was fired for "violating Covid protocols". That may have been the final straw for that 167 year old bank. Ultimately all the factors add up to an erosion of trust.

 

[Rambunctious]

Biden = bank failures...

 

[Tom Paine 1949]

A concrete suggestion for restructuring supervision of state and regional banks, from a non-partisan expert who is fully knowledgeable of the need for a Federal Reserve central bank system, and has criticized artificially repressed interest rates and QE policy since 2010:

The Fed Should Be Fired as Bank Regulator. Powell’s Discussion of Silicon Valley Bank & Regulatory Failure Shows Why …

The collapse of Silicon Valley Bank laid bare how inept and conflicted the Federal Reserve is as banking regulator, and why it can never be deconflicted the way the Federal Reserve System is structured, and why it will always be inept – willfully inept.

The structural problem with the Fed as top-dog banking supervisor is that the Federal Reserve System consists of the Board of Governors, which is a federal agency that Powell chairs; and 12 regional Federal Reserve Banks (FRBs), such as the San Francisco FRB, whose shareholders are the financial institutions in their districts, such as SVB Financial, whose CEOs sit on the board of directors of the regional FRBs …

The bank examiners employed by the FRB of San Francisco were examining Silicon Valley Bank. They were squealing about the risks at SVB for a few years, as we now know, and they escalated, and they tried, but it was all muffled.

The Fed should never be a bank regulator because … it’s too conflicted: The regional FRBs are governed by the CEOs of the banks in their districts, whose primary objective is their own wealth, not effective regulation that could cut into their own wealth. And this came out big time in the wake of the collapse of Silicon Valley Bank.

Powell alluded to these issues during the post-meeting press conference, when he was being pushed by reporters about Silicon Valley Bank and the Fed’s regulatory failure….

“At a basic level, Silicon Valley Bank management failed badly,” Powell said. “They grew the bank very quickly. They exposed the bank to significant liquidity risk and interest rate risk, didn’t hedge that risk,” he said. This bank “was an outlier in terms of its percentage of uninsured deposits and in terms of its holdings of duration risk,” he said.

“We now know that supervisors saw these risks and intervened,” he said…. “Supervisors did get in there and were on this issue,” he said….

When asked if he could confirm whether or not the Fed’s Board of Governors (which Powell chairs) knew about these escalations by the bank supervisors at the FRB of San Francisco, Powell said: “We’ll have to come back to you on that. I don’t know.”

And when he was asked how the Fed would ensure that banks comply with these citations, how the Fed would enforce them, Powell said: “That is a great question.”…

“We’re doing a review of supervision and regulation,” Powell said. “My only interest is that we identify what went wrong here.…

But wait… we know “what went wrong.”

… We don’t need any more reviews and investigations and reports and recommendations. What went wrong is that an FRB regulates the banks that own it. That’s structural. You cannot fix that with a report. The FRB of San Francisco regulated one of its shareholders, SVB Financial, whose CEO was on the board of directors of the FRB of San Francisco …

The Fed should be fired as banking supervisor and regulator; the FDIC should get that top job along with tiger teeth to bite CEOs heads off.

… Congress should restructure banking supervision. The Fed should remain lender of last resort for the banks, and focus on monetary policy. But it should be fired as bank supervisor and regulator. It had its chance and blew it. Over and over again.

The full regulatory and supervisory power should be given to the FDIC, which has long been one of the three bank regulators, but junior to the Fed. And it should be given some real teeth.

The FDIC’s priority has been to minimize the losses to the deposit insurance fund. Effective and tough-love supervision that reduces the magnitude of the fallout if a bank fails, and that prevents many bank failures in the first place, is in line with the FDIC’s priority of minimizing the losses to the deposit insurance fund. The FDIC is not structurally conflicted – unlike the Fed.

Wolf Richter [excerpted from WolfStreet.com], 3/24/2023

 

[Nobody911]

A nation's balance of payments is the record of all financial transactions between its residents or businesses and the rest of the world. It includes trade in goods, services, and investments, as well as transfers such as foreign aid and remittances. A negative balance of payment reflects ECONOMIC VULNERABILITY ( about 30 yrs now ).

Impact of war on a nation's balance of payments is the increased costs of military operations. Governments must spend more money on weapons, equipment, and personnel, which can strain the national budget. This can lead to inflation or a decline in the value of the country's currency, making imports more expensive and exports less competitive.

Perhaps the most significant impact of prolonged wars on a nation's balance of payments is the drain on resources. Wars require a significant amount of time, money, and personnel, which can divert resources away from other areas of the economy. This can lead to a decline in production and investment, as well as a reduction in research and development. Moreover, wars often lead to an increase in debt, as governments borrow money to finance their military operations.

Overall, prolonged wars have a significant impact on a nation's balance of payments. They can disrupt trade, increase costs, and drain resources, leading to a decline in economic growth and development. As such, it is important for governments to consider the long-term economic consequences of war when making decisions about military intervention or conflict resolution.

Yeah, US itself may collapse because of prolonged wars. Amen!

Source:
1. Nov 4, 22 | Balance of Payments for United States (USABCAGDPBP6) | FRED | St. Louis Fed – https://archive.ph/CrcIF
2. FY2023 Defense Budget – https://archive.md/snCVs
3. List of US Wars and Interventions Since WW2 - GeopolEconTech – https://archive.md/pqPlO

 

[Ringo]

Ellen Brown: The Looming Quadrillion Dollar Derivatives Tsunami

By Ellen Brown / Original to ScheerPost On Friday, March 10, Silicon Valley Bank (SVB) collapsed and was taken over by federal regulators. SVB was the 16th largest bank in the country and its bankr…

scheerpost.com

"...In 2002, mega-investor Warren Buffett wrote that derivatives were “financial weapons of mass destruction.” At that time, their total “notional” value (the value of the underlying assets from which the “derivatives” were “derived”) was estimated at $56 trillion. Investopedia reported in May 2022 that the derivatives bubble had reached an estimated $600 trillion according to the Bank for International Settlements (BIS), and that the total is often estimated at over $1 quadrillion. No one knows for sure, because most of the trades are done privately..."

 

[Toddsterpatriot]

Ellen Brown: The Looming Quadrillion Dollar Derivatives Tsunami

By Ellen Brown / Original to ScheerPost On Friday, March 10, Silicon Valley Bank (SVB) collapsed and was taken over by federal regulators. SVB was the 16th largest bank in the country and its bankr…

scheerpost.com

"...In 2002, mega-investor Warren Buffett wrote that derivatives were “financial weapons of mass destruction.” At that time, their total “notional” value (the value of the underlying assets from which the “derivatives” were “derived”) was estimated at $56 trillion. Investopedia reported in May 2022 that the derivatives bubble had reached an estimated $600 trillion according to the Bank for International Settlements (BIS), and that the total is often estimated at over $1 quadrillion. No one knows for sure, because most of the trades are done privately..."

Is $1 quadrillion in "notional" value dangerous? Why?

 

[C_Clayton_Jones]

financial doomsday has not arrived.

Correct.

And two months later this is proven to be true.

Indeed, if there is a financial doomsday it will be the consequence of Republicans forcing the nation into default.

 

[Ringo]

Well, how do you capitalists and their cult servants sleep well in the "war of all against all"? This is your blessed marketplace, the endless squabbling of psychopaths over resources and markets. Until the destruction of life on the planet.
This current hell was predicted 150 years ago when Marx dissected the black soul of capital. But, for morons, Marx is, haha, obsolete. Morons who have not produced ONE fundamental new thought regarding the world order in 30 years.
They are like the blind men in the parable, groping the elephant for individual body parts, but unable to see the whole. "Oh, that soullessness," "Oh, that aggression," "Oh, that greed." That's your capitalism, you idiots, where the basest things, greed and fear, are elevated to a virtue. The result is hell.

 

[Toddsterpatriot]

Well, how do you capitalists and their cult servants sleep well in the "war of all against all"? This is your blessed marketplace, the endless squabbling of psychopaths over resources and markets. Until the destruction of life on the planet.
This current hell was predicted 150 years ago when Marx dissected the black soul of capital. But, for morons, Marx is, haha, obsolete. Morons who have not produced ONE fundamental new thought regarding the world order in 30 years.
They are like the blind men in the parable, groping the elephant for individual body parts, but unable to see the whole. "Oh, that soullessness," "Oh, that aggression," "Oh, that greed." That's your capitalism, you idiots, where the basest things, greed and fear, are elevated to a virtue. The result is hell.

Marx? A failure being followed by other failures.
We looked at his "new thought" and it doesn't work.
Your Russian shithole is more proof.

 

[Ringo]

Republicans passed that corporate tax cut and in spite of having control of the Gov't for 2 years the Dems didn't overturn it.

 

[Ringo]

Your Russian shithole

Yeah... Videos from the Russian streets confirm this...

 

[Oddball]

In short, financial doomsday has not arrived. Powell and the Fed have been doing a reasonable job since they were surprised by the spike in inflation, which had 15 years of unsustainable easy money pressure behind it, as well of course as Covid and Covid re-opening disruptions, a war in Europe, etc.

If they were surprised by the spike in inflation, they are either totally incompetent or lying....or both.

I am hoping for a healthy big slide in the irrepressible (and deluded) stock market, and a return to the social ethic of hard work and saving, as opposed to investing in distorted and speculative financial products. The rich will remain rich. The poorest and least able to compete will remain desperate. The first priority must be for the working class, skilled workers and professionals — and the real economy — to be protected.

Thar model won't keep the neo-Marxist technocratic oligarchy in high cotton...The working class got just a little to uppity in voting for Trump....They must be crushed.

 

[Toddsterpatriot]

Yeah... Videos from the Russian streets confirm this...

And yet, Russia is still a shithole.

 

[Tom Paine 1949]

If they were surprised by the spike in inflation, they are either totally incompetent or lying....or both.

Thar model won't keep the neo-Marxist technocratic oligarchy in high cotton...The working class got just a little too uppity in voting for Trump....They must be crushed.

You seem to forget that Wall Street and the Federal Reserve and finance capitalism as a whole are generally indifferent to partisan politics … if anything they have historically leaned Republican. The (aggrieved white) working class voting for Trump did not threaten these capitalists at all, as Trump was willing to protect all their interests, as in his tax cuts to the rich and corporations. But chaos and excessive division in society, and Trump pressuring his own appointed head of the Fed — Jerome Powell — to embrace “Zero Interest Rates” … this was not much appreciated and this was properly resisted by the system and almost all of its elites. Ditto with this “King of Bankruptcy” urging Republicans to go all the way even to forcing a default on Uncle Sam’s debt … as a mere partisan maneuver.

Your convenient ultra-partisan conspiracy “thinking” misses everything important about the way U.S. and world economic systems and competition and trade work. Not understanding all this is natural — nothing is more complicated than human society, and even the Fed experts have made terrible mistakes in trying to manage economic affairs. They — like all of us — have their own interests. But those interests rarely line up in the way idiot ideologues imagine.

 

[Oddball]

You seem to forget that Wall Street and the Federal Reserve and finance capitalism as a whole are generally indifferent to partisan politics …

No they don't...They fund big corporate oligarchy, which is partisan left AF, and always has been.

The (aggrieved white) working class voting for Trump did not threaten these capitalists at all, as Trump was willing to protect all their interests, as in his tax cuts to the rich and corporations. But chaos in society, Trump pressuring the his own appointed head of the Fed — Powell — to embrace “Zero Interest Rates” was not much appreciated. Ditto with this “King of Bankruptcy” urging Republicans to go all the way even to forcing a default on Uncle Sam’s debt … as a partisan maneuver.

None of that means that the Wall Street corporate oligarchy (they're not "capitalists", sucker) doesn't hate the hoi polloi in general, and Trumpsters in particular.

Your convenient ultra-partisan conspiracy thinking misses everything important about the way U.S. and world economic systems and competition and trade work. Not understanding all this is natural — nothing is more complicated than human society, and even the Fed experts have made terrible mistakes in trying to manage economic affairs. They — like all of us — have their own interests. But those interests rarely line up in the way idiot ideologues imagine.

It's no conspiracy....It has been going on for at least a century...We're only now watching the rapid acceleration of the centralization of banking power to the east.

 

[Tom Paine 1949]

[T]he Wall Street corporate oligarchy (they're not "capitalists", sucker) hate the hoi polloi in general, and Trumpsters in particular.

It's no conspiracy....It has been going on for at least a century...We're only now watching the rapid acceleration of the centralization of banking power to the east.

“Wall Street” is the very embodiment of modern capitalism. It is the evolved, now almost out-of-control wildly beating heart and “soul” of the American economic empire. Its financial machinery pumps capital out into and across the world and takes a profit at most every stage. Its tentacles intersect with foreign capital as well. It is not the “government” either.

The U.S. “oligarchy of capitalists” are spread out across the country, as are Federal Reserve Banks. All you need to do is look at the biggest capitalist families and private and corporate firms to see this. With a Bloomberg terminal, there is no need to live on either coast anymore. But old regional and cultural divisions still remain, especially among your “hoi polloi,” much of it with roots going back to the Civil War or even earlier.

These cultural issues are by themselves little more than provincial curiosities to most really big capitalists, whose greatest loyalty is … to money. Same with the political hustlers who push culture wars or even talk about “terminating” our Constitution — these are also chasing money and power above all.

Your sketch was drawn in 1911 by the famous Texas-born Robert Minor in his young semi-anarchist days. A distant relative of Sam Houston, at 27 he did indeed still have populist views opposing central banking and believed in conspiracy theories like you do.

“Wall Street bankers” and the “Wall Street corporate oligarchy” absolutely are capitalists. The “Wall Street Journal” has not merely been very Conservative and Republican for decades, it is owned by the Murdoch family — which supported the Trump presidency from 2016-2020 and beyond. Great corporations today and their boards and stock owners live everywhere and do not share a single political perspective. Their managers and technocrats also are capitalists paid in stock options, and they serve the interests of soulless capital, not the biddings of the DNC or RNC.

In a way we all are trapped in this corrupting system, since in a thousand ways it pushes us to go into debt, or use whatever little “savings” we may accumulate to “invest” in Wall Street’s “casino capitalism.”

Robert Minor some eight or nine years after he drew that cartoon abandoned his Western populist and anarchist impulses and embraced “Marxism” body and soul. He become a leading Communist Party leader — a hack for Joseph Stalin until the day he died.

You already are a hack … for Donald Trump and other anti-liberal nationalist “strongmen” like Putin. Well, I confess I don’t normally pay much attention to your comments, so I really shouldn’t speculate about Putin and such.