Danielle DiMartino Booth—a trenchant critic of the Fed with an insider’s experience and knowledge—offers an explanation of what’s going on with the banking system and the Fed. In a lengthy tweet. I won’t pretend I understand this stuff, but I’ve framed her exchanges in the full thread as a Q&A. Before we get started, here’s a link to her book to establish her cred in this regard, for people unfamiliar with her:
As an addendum to the SVB meltdown, Kim Strassel goes for woke regarding the lack of oversight (SF out to lunch) and the gushing of free money out of DC (climate worship-biotech etc), all leading to a kinda “California” type disaster:
Giddey up Mr. Powell. Giddey up
Thank you, Mark (and posters) for writing about this.
I am belatedly trying to educate myself, forcing myself to read/listen to reputable sources, in an attempt to understand what has and is happening. This is not an area where I excel hence the forcing. Must admit I get to a point where my brain starts shutting down like I am listening to Karine Jean-Pierre, the difference being I don't feel like a stooge for trying and I may eventually learn something of relevance.
Everything about this is Big.
Big problems, caused by Big Ideas.
Big people (of influence) with Big Egos being involved.
Big moves being made, by Big people, with Big Consequences.
No one can rightly predict what is going to happen, as Egos and Self Protection is involved.
I don’t have the expertise or experience of someone like DDMB, but something doesn’t smell right here. It just so happens that this backstopping of bank deposits only applies to the big banks. Looking like this is a move toward banking consolidation — i.e., this new policy actually incentivizes bank runs among smaller institutions.
Janet Yellen’s congressional testimony yesterday was an eye-opener:
Thank you...VERY helpful analysis. Like the questioner here, I failed to appreciate that the at-par collateralization was completely captured, bank-to-bank, by the Fed's Bank Term Loan Program. So, in my rudimentary understanding, the stepped-up collateral value can only be used vis-a-vis the Fed, on the Fed's negotiated terms, rather than the market (which I feared would be inflationary/further QE). Seems kind of brilliant, actually, considering all bad-to-worst options available.
1) Banks bellying up to the Discount Window for loans larger than 2006-09 tells me this is definitely a massive NPL problem that came due vs a HTM mismatch.
2) TBTFs “injecting” $30 Billion into FRC was the end of “socializing the losses” a la JPM circa 1907 bank stopping, a very good thing. I’m willing to bet that the TBTFs that hit the Discount Window were arm twisted to deposit at FRC instead of making them the scapegoat for a bad restricted stock loan portfolio at ALL the banks.
Going to get interesting.
Oh, that Ackman’s still squealing about not all SIVB deposits are guaranteed tells me the use of “eligible” by the Fed was not “transitory” and not everyone was made whole.
ZEROHEDGE: Buyers Emerge For First Republic Bank After Big-Bank Bailout: Report
LUONGO: So, no buyers for SVB b/c the Fed and Wall St. didn't bail it out. They file Chapter 11.
And on the same day $FRC, after a major capital injection by those same guys on Wall St. sees multiple buyers emerge.
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