Banks Might Be About to Ruin the Economy Again

Time ^ | 3/22/23

[EBH]

Just about anyone whose job it is to pay attention to financial news should have known that interest rates would go up over the course of the last year.

A year ago, when the Federal Reserve raised interest rates for the first time in three years to combat inflation, it said that the banking industry should expect “ongoing increases,” and by September, the Fed projected that it wouldn’t stop heightening rates until they topped 4.5%—from near zero in early 2022. The Fed did what was largely predicted March 22, when it announced it would raise interest rates by 25 basis points, pushing them to the range of 4.75% to 5%.

The people running Silicon Valley Bank (SVB) did not understand that this was coming, since the bank stowed its deposits in U.S. government bonds. The value of older government bonds plummets as the Fed raises interest rates, because new bonds pay out more as interest rates grow. But SVB kept its deposits in government bonds, despite warnings from the Federal Reserve that it might not be able to come up with enough cash in a crisis.

Now, forecasters are warning of a potential recession from this extremely avoidable banking crisis.

The idea that banking mistakes could plunge the U.S. economy into a recession is familiar—the Great Recession that began in 2007 was caused when banks made risky home loans and then sold to lenders who did not understand exactly what they were buying. Indeed, the current banking crisis has some parallels to 2008, says Neil Fligstein, a sociologist at the University of California, Berkeley who has extensively studied the financial crisis.

[rolling_stone]

svb 3.6 year duration 1.79 % yield
55% of investments in treasuries
march 8th report.
https://s201.q4cdn.com/589201576/files/doc_downloads/2023/03/Q1-2023-Mid-Quarter-Update-vFINAL3-030823.pdf

[Presbyterian Reporter]

“””If the SVB loan portfolio is sound, then, the bank was destroyed by panicked depositors.”””

---

Yes, SVB was destroyed by panicked depositors. And who were these panicked depositors???

These panicked depositors were the ones who had deposited multi-millions of dollars into SVB while they knew full well that FDIC only insured their deposits for $250,000.

SVB knew the risks of having these multi-million dollar deposits as did the people who made the deposits.

SVB knew the risk of buying 30 year treasury bonds and mortgages using the multi-million dollar demand deposits.

When interest rates go up, bond prices go down.

[Vermont Lt]

Do you think FR will be the end of it? The Fed moved rates up again yesterday, and that will impact the exact same thing that took out the last ones. Or do you think the $318b that was injected last week will float them?

[Varsity Flight]

☑️☝️⬆️

[Varsity Flight]

☝️☑️

Deflection. Well said.

[Recovering_Democrat]

Time RAGazine can shove it. Demon Rat policies are ruining the economy.

The pretend journalists are trying to blame business for a situation created by the Democrat party.

[zeestephen]

Re: "SVB knew the risk of buying 30 year treasury bonds and mortgages using the multi-million dollar demand deposits."

I have yet to see any public accounting of the SVB bond and mortgage portfolio.

Do you have a credible link - CNBC, Bloomberg, Reuters, WSJ - that confirms SVB was heavily invested in long bonds and commercial office building mortgages?

Thanks.

[Presbyterian Reporter]

google svb and bond holdings and you will answer your question

here is one source-—

https://www.foxbusiness.com › markets › feds-powell-silicon-valley-bank-management-failed-badly
Fed’s Powell: Silicon Valley Bank management ‘failed badly’
1 day agoFederal Reserve Chairman Jerome Powell said Wednesday the management of Silicon Valley Bank “failed badly” by exposing the firm to substantial risks from its bond holdings and deposit base.

[Presbyterian Reporter]

here is another source-—

https://www.barrons.com › articles › svb-silicon-valley-bank-rates-securities-693c931c
How SVB Was Doomed By a Bad Bet on Mortgage Securities and the Fed’s ...
Mar 11, 2023How SVB Was Doomed By a Bad Bet on Mortgage Securities and the Fed’s Rate Hikes. The demise of Silicon Valley Bank wasn’t driven by credit problems but by an old-fashioned mismatch of assets ...

[cgbg]

It is a bit more complicated than you presented it.

For starters some banks still do hold commercial mortgages—we are talking office buildings with very high vacancy rates.

The large banks have a wide variety of derivative holdings—easily susceptible to a wide range of counter-parties that could fail to meet their end of the deal.

That (plus the obvious interest rate risk—loaned long term, owe depositors short term) is the reason .gov had to step in to protect all depositors—the banks have—again—taken on more risk than they can handle—and large depositors trust them as far as they can throw them.

So—while the original article probably overstated the similarities to 2008 imho you understated it.

[Sirius Lee]

Heightening?

More biggering.

[zeestephen]

I do not need to Google anything.

I read business news all day, every day.

I have yet to see a public accounting of the SVB loan portfolio or the SVB investment portfolio.

I will be glad to continue our discussion after I see the portfolios.

[hollywood12345]

Should read “Democrats about to ruin the economy again.”

[cgbg]

“public accounting of the SVB loan portfolio or the SVB investment portfolio.”

That will probably take a year or longer as the bankruptcy court grinds through the liquidation process.

[Boogieman]

Anyone with even a functioning brain stem would have known that you can’t stay at zero interest forever.

[Boogieman]

“And those ten CAN be bailed out with fiat paper?”

The problem with this idea is that it just involves printing more money, which will cause more inflation, which requires raising the interest rates again, and the cycle continues.

In 2008 when we were bailing out banks, we weren’t already at a high rate of inflation, so we could tolerate some, and the Fed was still able to pursue its little financial trickery to delay when the inflation would hit, to give the economy room to grow to offset it. Neither of those are the case anymore.

[Boogieman]

'Great writing skills. The word is “highifying”, you morons. Or “uppifying”.'

[Vaduz]

Banking mistakes

So that’s what they call it now

[Sam Gamgee]

Andrew Jackson was right to fear the banking establishment.