Bernanke/Yellen’s Bear Trap Ensnares SVB And Other Banks (Bets Taken During Pandemic Blow Up As Long Duration Debt Gets Scorched)

Confounded Interest ^ | 03/11/2023 | Anthony B. Sanders

[Kaiser8408a]

Silicon Valley Bank (SVB) got caught in Ben Bernanke and Janet Yellen’s bear trap, the trap set when Bernanke/Yellen kept interest rates 25 basis points for too long (from December 2008 through December 2015) and then raising rates only once during Obama’s Presidency, only to raise rates 8 times after Trump was elected President. Then Covid struck in early 2020 and Powell dropped rates to 25 basis points again until inflation struck and Powell started raising rates at the fast pace in history.

Crucially, the Federal Reserve pinned interest rates at unprecedented lows. And, in a radical shakeup of its framework, it promised to keep them there until it saw sustained inflation well above 2% — an outcome that no official forecast.

The KBW Bank index shows the slaughter of most banks on Friday.

Of course, the notorious Too Big To Fail (TBTF) banks JP Morgan Chase and Wells Fargo actually rose in value on Friday while regional banks got clobbered like Signature Bank, First Republic and Western Alliance Banks all losing over 10% in price on Friday.

How did this happen? Well bets placed during Covid with The Fed keeping rates at 25 basis points got clobbered when The Fed finally started raising rates again. Modified duration, a risk measure indication the weighted-average life of a bond and mortgage-backed securities (MBS), has been increasing steadily since the initial Covid shock.

The most terrifying thing was when former Treasury Secretary Larry Summers and current Treasury Secretary Janet Yellen went on TV to exclaim “Remain calm! All is well … in the banking sector.” You know when they wheel out Summers and Yellen that all is NOT well.

[Kaiser8408a]

Where were the GD regulators??? Oh, probably bought off like Biden himself with taxpayers having to foot the bill.

[sauropod]

Bkmk

[BBB333]

“Remain calm! All is well”

---

“You’re new Delta Tau Chi name is: ‘Coal Miner!’”

[dblshot]

Fiat money is a scam. The Fed’s role is to keep the scam going by not stealing all the money at one time. Its a tough task, there are always going to be loosers and winners and picking them is hard when political goals keep changing. They have to contend with pandemic spending, federal budget deficits, international banking cartels, etc. etc.

[eyeamok]

Nothing to see here, just moneychangers doing what moneychangers do, Stealing from the public

[Tilted Irish Kilt]

Don't forget that the hysteria of the pandemic
was mostly all "man made" by the government agencies, pharma, and the Media
They all helped and contributed to creating "the Perfect Storm" (!)
and this is the expected result

[Alberta's Child]

This wasn’t a regulation problem. It was a simple bank run that forced the bank to sell off reserves that had already lost a lot of value due to rising interest rates.

Most of SVB’s reserves were in long-term bonds. A bank regulator would consider those to be extremely safe investments. The problem is that if you are holding $1 billion worth of government bonds paying 2% interest and interest rates rise to 5%, then your bonds may only be worth $800 million if you have to sell them on the open market today.

[mass55th]

I have a very small number of credit cards. Within the past 9-12 months, four of them changed bank affiliations, and I had to be issued new cards. The four cards are Williams Sonoma store care, B.J.’s Rewards credit card, AAA credit card, and a Bed, Bath & Beyond credit card. I don’t ever remember any of my credit cards ever changing hands like this in all the years I’ve had credit cards.