What Is The SVB Collapse About?
Explanations of how the Silicon Valley Bank (SVB) collapse was triggered are starting to come out. I picked this one up from a link I found at MoA:
Here’s the basic idea—at least, the part that I understood, and I’m not sure I agree with all of it, but:
The average bank in the US has about 50 percent of its deposits insured [through FCIC]. …
At SVB at the end of 2022 only 2.7 percent of deposits were covered by FDIC insurance! …
Why did SVB have so many uninsured deposits? ...
As I understand it, a huge amount of the deposits consisted of cash from startups that were selling there equity and were parking large amounts of cash at SVB.
So SVB was a big accident waiting to happen. What pushed it over the edge?
Did SVB make speculative loans? Yes, some. But not enough by itself to blow it up. Did it engage in adventurous financial engineering? No! A large part of its depositors’ money was invested in what is supposed to be the safest part of the financial system, Treasuries and government-backed bonds like agency-backed Mortgage Backed Securities.
SVB adopted this strategy precisely in the hope of always having the cash on hand it needed to meet any cash withdrawals from its large depositors. …
The problem is that SVB bought fixed rate, long term bonds.
A portfolio of government backed bonds will be something you can sell. The question is what price do you sell it at and will you suffer a loss? In 2021 interest rates were still low and bond prices were high. SVB’s bonds looked like a safe piggybank. Then came the great inflation scare of 2022. The Fed hiked rates, bonds suffered their worst year in history. Why? Because bond prices go down as prevailing interest rates go up. At a rough guess SVB suffered at least a $1bn loss on its books every time interest rates went up by 25 basis points and the Fed has hiked by 450. So if they had to sell their “safe” portfolio of bonds they would actually suffer a huge loss.
Of course, SVB were not the only ones in this position. And for that reason there is a big market in interest rate hedges. Did SVB have interest rate hedges? No it didn’t.
It was not holding a safe piggybank. It was, in effect, taking a huge $100-billion-plus, one-way bet on interest rates.
So, these guys took depositors money and made a huge unhedged bet. Nice. Their depositors get shafted. (But see below for a contrary view. Hey, what do I know?)
It seems plausible to me, but a bigger picture of what’s going on is a lot more fun. Now, for some people the big picture would be, What chance is there that this will be another Lehman bust? I was listening to Tom Luongo and Crypto Rich earlier and Luongo was saying, No, this won’t be systemic. There may be some more bank failures. There may be some funds set up to help out the depositors. But it won’t be a system wide problem. And, sure enough:
No bailout for the bank. N. B. this contrary view that I mentioned above. As I understand it, Bianco is saying the underlying bonds, and therefore the money, didn’t vanish. There will be repercussions, so the purpose of funds for the depositors may be to get them past defaulting on their obligations while things get sorted:
Lots of really bad takes about SVB. Let’s try and correct This is not a solvency crisis like 2008. Bad loans or poor investments were not made. Money was not lost. So, everyone is going to get their money back. (And please no takes about no interest rate hedging. Asset/liability mismatches are how banking works.) Instead this is an old fashion 1930s liquidity crisis.
Too many depositors demanded cash at once (as in right now) and SVB (and SI) could not convert loans and securities (and crypto) to cash that quickly. So, everyone is getting their money back from SVB (and SI), just not at 8AM Monday. And, yes this is a big problem as this is working capital for a lot of companies. They have payrolls to meet and vendors to pay next week. And if they don’t pay bills and employees, they in turn don’t pay their bills and this can quickly cascade into a major economic problem.
LOTS more at the link.
But about those depositors, Luongo had something very interesting to say. I said that a lot of them were deeply involved in crypto and that SVB happened, in part, because the Fed wants to destroy crypto. That, he says, is what was behind what he described as the Fed takedown of FTX. Luongo’s position is that crypto is simply a form of Eurodollar and, since the Fed is at war with the Eurodollar, crypto has to go, to. This makes sense to me in light of something else he said, and which brought a lot outraged libertarians down on him: Crypto was simply a frontrunner for a global CBDC total surveillance system. That’s something I could never understand—How could a digital currency (crypto) ever be private? Luongo’s explanation—that the idea was to get people used to digital currency as a concept, a bit like boiling a frog—makes sense to me. And this makes sense of his tweet from Friday:
And in response to some clown predicting a Fed pivot …
The NY Guys are gangsters, but for the time being their our gangsters because they’re fighting out bigger enemy—Davos. If crypto was a stalking horse for the WEF’s plan for a global CBDC, and Jay Powell is on a jihad against what empowers Davos (Eurodollars), well, he’s our guy. As Luongo says, Powell isn’t Luke Skywalker, but this is the real world, not a movie.
Luongo also expanded a bit on this tweet that I quoted:
According to Luongo, this is the biggest tell yet that Wall St. is back in control of DC. And strangely, or not, it follows Jamie Dimon going to Davos and flipping them all off by telling them: Oil is here to stay for at least another 50 years.
The other tell Luongo cited in that regard—Wall St. back in control—was Kev McCarthy flipping off the US Senate by turning the J6 tapes over to Tucker. Luongo repeated what he said before, and what I keep quoting: McCarthy is owned by the NY Guys. Releasing those J6 tapes to Tucker, sending Schumer and Turtle into foaming at the mouth rages—that only happens because the NY Guys told him they’d have his back and so he’d better do it. It certainly explains McCarthy’s repeated snubbing of the Senate, his lack of interest in the debt ceiling, his enabling of bomb throwing populists. It’s all grist for the mill if the object is kicking the Zhou regime to the side.
Luongo’s bottom line ran something like this. The Fed and the NY Guys know that globalism is going down and that the dollar will become—maybe within ten years—another regional reserve currency. Remember? Powell has already said he’s OK with multiple reserve currencies. That means, as I read it, that the NY Guys—unlike Davos, that dies without Eurodollars—really doesn’t have a dog in the Ukraine fight. They know they’ll still be able to make money. And that’s all they care about. Not you and me, but the good news is they don’t want to force us to eat bugs like Bill Gates and Klaus Schwab want us to.
Question: Is this a credit to hardworking Congressmen digging deep in the interests of good government, or do powerful people want this guy gone? And then there's the Kama Sutra problem--somebody else's problem.
https://www.zerohedge.com/political/its-bad-we-thought-ccp-money-flowed-biden-family-according-bank-records-documents
Republicans on the House Oversight Committee have been working with four witnesses with close ties to the Bidens, who have provided documents and other evidence tying the Bidens to the Chinese Communist Party.
"It’s as bad as we thought… Since we’ve last spoken we have bank records in hand. We have individuals who are working with our committee," Committee chair James Comer (R-KY) told Fox News' Maria Bartiromo on "Sunday Morning Futures."
"In the last two weeks we’ve met with either these individuals personally or with their attorneys. And that would be four individuals who had ties in with the Biden family in their various schemes around the world. So now we have in hand documents We have in hand documents in hand that show just how the Biden family was getting money from the Chinese Communist Party."
https://youtu.be/jKr0YEhIItA
Macgregor totally on fire.