$150 BILLION NOT INSURED
>$150 BILLION NOT INSURED
Poof! Annnnnnd it’s gone...
Jim Rickards
@JamesGRickards
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54m
Master Class: Many (not all) depositors at SVB were also loan customers. That’s “relationship banking.” Their owners can file bankruptcy, wipe out loans, wait for partial recovery of deposits, and pocket a nice profit. One of the unintended consequences of new “bail-in” rules.
https://twitter.com/JamesGRickards
Being Woke is just an aside from the ultimate problem — THE MASSIVE SPENDING AND MONEY PRINTING OF UNCLE SAM UNDER JOE BIDEN AND THE DEMOCRAT CONTROLLED CONGRESS!!
Looking at it clinically, I would not call SVB a fraudulent business. Ok, they indulged in woke nonsense but the bottom line is, they were a victim or of their own initial success and poor risk management of excess liquidity.
And Congress and the free spending Biden administration are ULTIMATELY the culprit here.
It’s all an extension of Fed policy to curb inflation, reversing a 13-year zero-rate policy. And why did inflation occur? Isn’t it because of the massive increase in government spending, which resulted in huge printing of money ?
This of course pushed up rates in the middle and right side of the yield curve, devaluing existing bond holdings locked into older rate patterns. Investors noticed and then depositors too. The high-flying institution that specialized in providing liquidity in industries that have lost their luster suddenly found itself very vulnerable.
In addition, the SVB and probably other banks were exposed with a portfolio of collateralized mortgage obligations and mortgage-backed securities. But with rates rising, those are coming under stress too as high leverage in housing and real estate become untenable amidst falling valuations. Borrowers are finding themselves under water and that in turn adds to stress on lenders.
And where did SVB, and the entire banking industry, get the funds to bulk up their portfolios with such debt holdings? You guessed it: STIMULUS PAYMENTS!’
Hundreds of Billions flooded in and it had to be parked somewhere making some return. At the time it seemed like a good deal, until Fed policy changed.
Immense government spending which produced debt that was quickly monetized and eventually caused inflation, prompting the Fed to reverse course with the largest/fastest rate increases in history. And guess what? IT’s STILL GOING ON!
This destabilized (or restabilized) production structures away from the right side of the yield curve toward the left, shifting capital in search of return to the consumer-goods sector. Labor has begun to follow, thus creating a surplus of resources in information tech and a shortage in retails.
It was always naïve to think that this shift would take place without touching the banking institutions that shoveled leverage in the direction of industries that thrived during lockdowns but are cutting back massively