Get hard assets.

All predictable under a debt backed standard and with more to come.

Yes Yellen said no bailout. But she also has said that the FDIC, with the Treasury and the Fed, may setup other facilities to "backstop" depositors...uninsured or not. In my mind that is a bail out

At least that is my interpretation of what CNBC has posted online


"One potential option could be to use the FDIC’s systemic risk exception tool to backstop the uninsured deposits at SVB. Under the Dodd-Frank Act, that move would need to be made in concert with the Treasury Secretary and the Federal Reserve."

https://www.cnbc.com/2023/03/12/heres-what-could-happen-next-for-silicon-valley-bank-customers.html

The story is the Federal government recouped all the bailout money from 2008 and made a profit for the taxpayers?

I saw some talking heads claiming the run on the bank is what sunk it because their losses on bonds was only 1% of their ho!dings. Is this true?

Lots of moving parts here and some complex.....not intuitive............constructs of financial instruments complicating things.

Cliff notes.

Banks take deposits from customers and pay a fraction of a percent interest. They invest those funds in long term ...30 years.... treasury bonds and MBS paying 4.1 %....if held to maturity. Just an example.

Now the Fed starts raising rates and the depositors realize they can earn 5% on 90 day T-bills (annualized rate) so they pull their deposits and reinvest in Tbills. This is referred to as cash-sorting. Bottom line is the bank is losing its deposits in the space of HOURS..........whereas its revenue from the bonds it has purchased will be realized over decades. This is the mismatch of duration that I mentioned somewhere above. The bank no longer has that source of cheap money from its depositors.
It needs to raise cash to meet the depositor's demand. So the bank starts selling its MBS and Treasury bonds. But since interest rates have gone up, those bonds are now worth less than they paid for them.
( as interest rates rise, the value of a bond declines)

The treasuries and the MBS are easy to sell but only at a loss. Should be able to do that in a day.

The loans that are assets to the bank could take months to sell.......again at a loss.

I don't know whether the difference was 1% or 15 %. But clearly they could not raise enough capital to make everyone whole.

A complete breakdown of risk management by the bank. But, by doing what they did.....it made the bank appear more profitable on paper than it really was.

The bank should have raised their rates to be competitive; then depositors would not move their money. In the past, when the fed raises rates, banks follow. Of course slowly.

How will the stock market react to this?

Exactly right Dirt. That would not have solved the issue of the bonds being underwater but it would have likely not induced the run.

It's possible but at what cost. Those bailouts are partly responsible for what is and has been going on.

Also The Fed is losing money at the rate of at least 2 billion a week. We will be bailing them out soon enough.

Those bonds are more than likely not to be underwater forever. I predict the FED will go back to zero when they have to due structural problems in the U.S. economy and continued deficit spending by Uncle Sugar.

On paper they are losing money. In reality you can't lose money that you just make up. Just make up more.

That's right. If rates go back down those bonds will increase in value

Yellen is good at parsing words but, in my opinion, is not the right "face" to instill confidence in a scenario like this. She projects weakness and timidity. That is precisely what we don't need right now.

If the Fed doesn't hold it's guns ala Voelker it's over IMHO, inflation will get away from them.

Tuesday's numbers should be interesting.

X2


Also agree Yellen is a poor poster girl for resolve and competence

the current government is not weak and timid they are the opposite...strong, bold and woke. Maybe they want to burn down rome and rebuild a new utopia...

transitory inflation - still waiting for that....

I'm just glad Yellen got the visit to Ukrain and climate change speeches done so she can actually do her job now.

Remember guys, if we don't have the most competent government atleast we can hang our hat on the diversity of our government. Remember that if we go into a crisis.

A friend had a month of landscape work cancel this weekend, this may hit harder than people are expecting

The Feds have stepped in. Futures are up this evening. Still will be an interesting week. Sun will set tonight. Will rise tomorrow. Another crisis will be on the horizon