The top story leading every news publication today is the collapse of an obscure bank you’ve probably never heard of before. As of an hour ago, Silicon Valley Bank is the largest bank to close its doors since 2008 and the 16th biggest in the country. Banking and legal experts tell me SVB went heavy on short-term bonds that collapsed in value as interest rates continue to rise. To make matters worse, SVB specialized in tech deals that have essentially become nonexistent as the fed pushes forward with additional rate hikes.
Late Breaking News on Sunday Evening. Fed just signaled they are stepping in to guarantee SVB for everyone who steps up to the withdrawal window. AND... they just shut down a bank in NY.
It's going to be interesting seeing how they get around the $250k limit to FDIC account coverage. Maybe from the same magic beanstalk fund the student loan money came from???
This could have been a horrific worldwide banking event if they had let it sit until Monday morning.
Speaking of which, I'm pretty sure I heard Greg Palkot use a neologism, "conflatulate" when he meant, "conflate" on Bret Baer news hour last night. Did anyone else catch that?
Its worse than you think, Erick. SVB might be the snowflake which triggers the avalanche; if the Fed continues its policy of rate hikes, Treasury bond prices could fall to a level that endangers the major regional banks with the same fate as SVB. If the Fed cuts rates to protect the banks, it probably sets off a sharp increase in inflation, possibly to hyperinflationary levels. Either way, we lose. I think I’m going to add to my precious metal position.
I know a bit about the situation. It wasn't the quality of the portfolio that was a problem (loan defaults, etc.) it was the pricing when the bank needed liquidity. They thought they had the investors lined up, but it fell through. It was the steep rise in the yield curve in short period is what killed the bank. And where do we go to blame the policies that resulted in the steep yield curve?
You go to Fed chief Jerome Powell. He’s the one who kept piling one 75 basis point (.75% interest rate) increase after another. The Fed’s anti-inflation policy is officially as dead as is SVB. Things aren’t as good as Erick and you may think; continued rate hikes may have the same impact on regional banks, which are the banks that dominate a given region of the country, e. g. Huntington, PNC and Fifth Third here in the Midwest. If enough of those banks fail, then the strain moves to the large national banks (Chase, Citi, BOA, et al). This is how you wind up with a nationwide bank run as we saw in the early 1930s. This process is often called “contagion” by market pros, because it resembles how an epidemic of disease begins. The war on inflation is over, and inflation has won; unable to keep rates high without risking many more Silicon Valley Banks, the Fed will cut rates almost as fast as it raised them, and that will cause a surge in inflation - and possibly lead to hyperinflation. Got precious metals?
Would say that avoiding concentrations in the investment portfolio and loan portfolio can be detected and be the focus of regulators. Shocking the balance sheet to gauge the effects of rising interest rates one would think would have made the risk of rising interest rates abundantly evident.
This collapse again points to the inability by regulators to address inherently unsound balance sheets and practices. This bank would have been examined multiple times by state, FDIC, if not FED regulators, and all the time and expense expended by the bank and regulators in all these exams still resulted in a collapse.
So much examination time is spent on rather useless matters rather than focusing on balance sheet concentrations and other identifiable risk factors and then addressing unhealthy characteristics.
Disagree. We have banking regulations and oversight aplenty. Did regulators turn a blind eye like they did for FTX? Google SBF, he is an American entrepreneur, Google Bernie Madoff, he is a fraudster.
Silicone Valley has been running tantamount to a Ponzi scheme. A hand full of start-ups, Uberr, Lyft, Casper, Blue Apron, Poshmark were collectively loosing a billion dollars a year, because customers were the currency, not profit margin. Because there was at least a unicorn farts chance of getting a payback when interest were near zero. They had "investors" lined up like PT Barnum had customers/suckers.
Now you can't borrow money and grow your bottom line revenue without an actual plan beyond "get more suckers to invest", that money has gone greener pastures where real profit grazes.
I agree that this is likely a unique situation with a unique bank; however, there are cracks. The Biden cabinet clown show is breaking things. Really... dumping trillions into the economy... many billions of which was handed out to fraudulent recipients... changing many aspects of the economy on purpose to support the boneheaded WEF globalist Great Reset woke agenda. And then hiking rates to cool the inflation caused by the previous. And the regulatory bloat on top of it. And then the Biden budget proposal... tax hikes through the roof... that has to be GREAT for business certainty and capital investment.
Well, what did we expect would happen eventually?
Given the success of the Uniparty cabal for leveraging fear generated by fake news to push authoritarian rules on the sheeple, it seems to me that they are actually gunning for a big recession. I think they think that they can effectively spin the message to blame it on the banks, corporations and Republicans... "see, capitalism sucks!" And with more people economically miserable they will obviously come to the Democrats for more handouts... and just give up accepting that the old US system of individual economic independence is gone... to be replaced with that collectivist utopia controlled by Brussels.
Or maybe I have grown too conspiratorial and cynical and this is just a one-off bank failure and everything is fine.
Late Breaking News on Sunday Evening. Fed just signaled they are stepping in to guarantee SVB for everyone who steps up to the withdrawal window. AND... they just shut down a bank in NY.
It's going to be interesting seeing how they get around the $250k limit to FDIC account coverage. Maybe from the same magic beanstalk fund the student loan money came from???
This could have been a horrific worldwide banking event if they had let it sit until Monday morning.
I'm not looking forward to the collapse of SBD.
Speaking of which, I'm pretty sure I heard Greg Palkot use a neologism, "conflatulate" when he meant, "conflate" on Bret Baer news hour last night. Did anyone else catch that?
Its worse than you think, Erick. SVB might be the snowflake which triggers the avalanche; if the Fed continues its policy of rate hikes, Treasury bond prices could fall to a level that endangers the major regional banks with the same fate as SVB. If the Fed cuts rates to protect the banks, it probably sets off a sharp increase in inflation, possibly to hyperinflationary levels. Either way, we lose. I think I’m going to add to my precious metal position.
I know a bit about the situation. It wasn't the quality of the portfolio that was a problem (loan defaults, etc.) it was the pricing when the bank needed liquidity. They thought they had the investors lined up, but it fell through. It was the steep rise in the yield curve in short period is what killed the bank. And where do we go to blame the policies that resulted in the steep yield curve?
You go to Fed chief Jerome Powell. He’s the one who kept piling one 75 basis point (.75% interest rate) increase after another. The Fed’s anti-inflation policy is officially as dead as is SVB. Things aren’t as good as Erick and you may think; continued rate hikes may have the same impact on regional banks, which are the banks that dominate a given region of the country, e. g. Huntington, PNC and Fifth Third here in the Midwest. If enough of those banks fail, then the strain moves to the large national banks (Chase, Citi, BOA, et al). This is how you wind up with a nationwide bank run as we saw in the early 1930s. This process is often called “contagion” by market pros, because it resembles how an epidemic of disease begins. The war on inflation is over, and inflation has won; unable to keep rates high without risking many more Silicon Valley Banks, the Fed will cut rates almost as fast as it raised them, and that will cause a surge in inflation - and possibly lead to hyperinflation. Got precious metals?
Would say that avoiding concentrations in the investment portfolio and loan portfolio can be detected and be the focus of regulators. Shocking the balance sheet to gauge the effects of rising interest rates one would think would have made the risk of rising interest rates abundantly evident.
This collapse again points to the inability by regulators to address inherently unsound balance sheets and practices. This bank would have been examined multiple times by state, FDIC, if not FED regulators, and all the time and expense expended by the bank and regulators in all these exams still resulted in a collapse.
So much examination time is spent on rather useless matters rather than focusing on balance sheet concentrations and other identifiable risk factors and then addressing unhealthy characteristics.
Disagree. We have banking regulations and oversight aplenty. Did regulators turn a blind eye like they did for FTX? Google SBF, he is an American entrepreneur, Google Bernie Madoff, he is a fraudster.
Silicone Valley has been running tantamount to a Ponzi scheme. A hand full of start-ups, Uberr, Lyft, Casper, Blue Apron, Poshmark were collectively loosing a billion dollars a year, because customers were the currency, not profit margin. Because there was at least a unicorn farts chance of getting a payback when interest were near zero. They had "investors" lined up like PT Barnum had customers/suckers.
Now you can't borrow money and grow your bottom line revenue without an actual plan beyond "get more suckers to invest", that money has gone greener pastures where real profit grazes.
I agree that this is likely a unique situation with a unique bank; however, there are cracks. The Biden cabinet clown show is breaking things. Really... dumping trillions into the economy... many billions of which was handed out to fraudulent recipients... changing many aspects of the economy on purpose to support the boneheaded WEF globalist Great Reset woke agenda. And then hiking rates to cool the inflation caused by the previous. And the regulatory bloat on top of it. And then the Biden budget proposal... tax hikes through the roof... that has to be GREAT for business certainty and capital investment.
Well, what did we expect would happen eventually?
Given the success of the Uniparty cabal for leveraging fear generated by fake news to push authoritarian rules on the sheeple, it seems to me that they are actually gunning for a big recession. I think they think that they can effectively spin the message to blame it on the banks, corporations and Republicans... "see, capitalism sucks!" And with more people economically miserable they will obviously come to the Democrats for more handouts... and just give up accepting that the old US system of individual economic independence is gone... to be replaced with that collectivist utopia controlled by Brussels.
Or maybe I have grown too conspiratorial and cynical and this is just a one-off bank failure and everything is fine.
I hope you’re right Erick, but bank contagion is a bit unpredictable. Fingers crossed.