patrick.net

https://slaynews.com/economy/audit-firm-clean-bill-health-svb-signature-bank-days-before-collapse/

One of America’s leading audit firms, KPMG, is defending giving both Silicon Valley Bank (SVB) and Signature Bank a clean bill of health just days before they collapsed last weekend.

The banks imploded when customers rushed to withdraw their savings in panic-fueled bank runs.

The two banks collapsed shortly after their respective annual reports were certified by KPMG.

KPMG is one of the so-called “Big Four” accounting firms.

https://alexberenson.substack.com/p/capitalism-except-for-the-capitalists

Why do those seven words matter so much?

The reason that depositors started pulling money from Silicon Valley Bank last Thursday wasn’t because they suddenly woke up and decided Silicon Valley had a weird-looking logo. It was because Silicon Valley had lost huge amounts of money buying low-yielding Treasury notes and mortgage-backed securities.

Bonds carry two kinds of risk, credit and interest rate risk. (Bearer bonds carry a third kind of risk, that they will be stolen, ala Die Hard. But bearer bonds don’t really exist anymore.)

Credit risk is obvious - if a company goes bankrupt and can’t pay back a bond, it’s worthless, give or take. Interest rate risk is more subtle. Bond prices rise as interest rates fall and fall as rates rise.

For a person who owns a bond and just plans to hold it until it matures, interest rate risk doesn’t matter much.

But for a bank, interest rate risk matters hugely.

A bank takes money from depositors and uses it to make loans or buy bonds (or other, more esoteric financial instruments). If the depositors want their money back, the bank has to give it to them. If it has to get that money by selling bonds when their value has dropped because interest rates have risen, it will lose money. A bond for which it paid $100 might only be worth $90.

But not to the Federal Reserve.

The Federal Reserve just told the world that it will pretend that a bond which is really only worth $90 is actually worth $100 - “par.” That’s what “these assets will be valued at par” means.

This program is similar to the way the Fed started to bail out banks in 2008, when it bought mortgage-backed securities that no one else would. That program, like this one, was supposed to be a temporary response to a crisis that threatened to destroy much of the banking system.

How’d that work out for us? Before the banking crisis of 2008, the Fed had under $1 trillion in assets. In bailing out banks that fall, it more than doubled the size of its balance sheet - to over $2 trillion.

Today the Federal Reserve has over $8 trillion in assets - loans and bonds that it has taken from banks (and since Covid, from companies directly). It is a larger and more crucial backstop to the banking system than it was 15 years ago.

For a long time, all that extra help didn’t seem to matter. Yes, interest rates were artificially low, mightily benefitting to the richest people in the world - on Wall Street and in Silicon Valley. But inflation was also low.

In 2021, though, the bill came due. Inflation suddenly spiked, and it has stayed high since.




To get inflation under control, the Federal Reserve has had no choice but to raise interest rates - and even more importantly, to reduce the size of its balance sheet and thus the amount of money in the banking system.

But the interest rate increases have caused a massive problem for banks. Over the last decade, they grew addicted to paying nothing - as in zero percent interest - on more deposits than they knew what to do with. They parked the money in Treasury notes and other low-risk bonds.

Low credit risk, that is. Those bonds had interest-rate risk like all the others. And when the Fed began to raise interest rates, they lost value. Some banks did a better job managing that risk than others, and - coming back to last week - Silicon Valley Bank did a particularly bad job.

As of last week, the bonds that Silicon Valley held were worth about $16 billion less than it had paid for them.

Coincidentally, Silicon Valley’s entire equity capital base - all the money it had to backstop depositors against all losses - was also about $16 billion. Thus Silicon Valley was effectively broke before the run on its deposits started.

The only question was who would get out whole and who wouldn’t. ...

What happens next? Where and how does all this end? I don't know. But it WILL end. Eventually these excesses will have to be unwound, gradually or suddenly. When they are, you can bet that all the people who have made fortunes from cheap cash for the last 15 years will be reaching into someone else’s pockets to save themselves - just as they did over the weekend.

And the only pockets left will be the federal government’s.

In other words, yours.

Biggest Banks Bail out First Republic Bank
https://thehill.com/business/economy/3903884-first-republic-bank-getting-bailed-out-by-large-banks-report/

Probably because it's the recorder for a shitload of debt they own. Also, guaranteed the Fed/Fed Gov is going to comp the big banks for this.

This article somehow seems appropriate for this thread:
https://novum.substack.com/p/what-if-worldview-zero-interest-rates

"What if your entire worldview was just because of near-zero interest rates?"

Size of American Bank Failures, Adjusted for Inflation

https://babylonbee.com/news/man-survives-bank-failure-crisis-by-not-having-any-money-in-the-first-place

https://kunstler.com/clusterfuck-nation/svb-ftx-sbf-wtf/

As if all the operations around finance in this land were not already unsound and degenerate enough, the alleged president just cancelled moral hazard altogether. It’s now official: from here forward there will be no consequences for banking fraud, poor decision-making, fiduciary recklessness, self-dealing, or any of the other risks attendant to the handling of other people’s money. Bailing out the Silicon Valley Bank and Barney Frank’s deluxe Signature Bank means that the government will now have to bail out every bank every time something goes wrong.

The trouble, of course, is that the government doesn’t have the means to bail out every bank. Its only resort is to ask the Federal Reserve to summon new money from a magic ether where the illusion of wealth is conjured to paper-over ever greater fissures in the splintering matrix of racketeering that America has become. That will quickly translate into US dollars losing value, that is, accelerating inflation, which is how nature punishes you when your government lies and pretends that it has a bad situation well-in-hand. ...

The disorder may go on for quite a while, but eventually the survivors will synergetically fix their circumstances themselves working in-step with the emergent mandates of reality. Having lived through a reality-optional period of history, it will come as an ecstatic shock to learn that the world requires us to pay attention to what is really happening and to act accordingly. We’ll find ways to get food, make some things work, and shine some lights in the darkness, if perhaps not by means we’re familiar with now.

In the meantime, expect more disordering tragi-comedy from the “Joe Biden” led psychotic regime ruling over us with its drag queen commissars, lawless Lawfare vandals, race hustlers, agents provocateurs, informers, censors, prosecutors, inquisitors, jailers, and propagandists — the worst collection of imbeciles, grifters, and villains ever assembled into political party.

The economy is heading towards correction for sure now!

Get Mila at a discount!

https://www.frontpagemag.com/svb-went-woke-then-broke-then-got-a-bailout/

SVB Went Woke, Then Broke, Then Got a Bailout
Americans can’t afford food, but leftist and Chinese companies get bailed out.
March 17, 2023 by Daniel Greenfield

Patrick says

Americans can’t afford food

Eh? Americans most definitely can afford more food then they need. Look at that beach picture someeone posted in the funny pictures thread.

Eating processed garbage does not count as food.

NuttBoxer says

Eating processed garbage does not count as food.

That's mostly because of laziness, not cost of basic ingredients. An 8 oz bag of Lays at Safeway costs $4.47. A 5 lbs bag of Russet potatoes at the same store costs $3.99. Same $3.99 buys a pound of organic chicken drumsticks.

Processed shit is waay more expensive.

Apparently UBS is in the process of emergency bailout of Credit Suiesse to prevent economic meltdown Monday.

BTW, contagion is a medical term, specifically used in relation to pandemics(real ones, not the fake BS we just saw). So why the fuck use it to describe banking collapse? See one health conspiracy for details.

Sounds like UBS bailout is not happening, on to plan B, destroy the Euro!

NuttBoxer says

Sounds like UBS bailout is not happening, on to plan B, destroy the Euro!

That would be OK. The EU unelected crony traitors have done nothing but harm to the countries. The EU should have been a purely economic union with the Euro as additional common currency, the EU countries should have never given up their currencies and sovereignty.

UBS to buy CS for 2 billion, a fraction of its 8 billion close on Friday. UBS and CS shareholders will be shafted as no vote allowed. Probably all in all a positive development as some losses, bad spec money and debt will be flushed out.

https://www.zerohedge.com/markets/ubs-offers-buy-credit-suisse-1bn-025-share-takeunder-cs-balks-offer

mell says

UBS to buy CS for 2 billion, a fraction of its 8 billion close on Friday. UBS and CS shareholders will be shafted as no vote allowed. Probably all in all a positive development as some losses, bad spec money and debt will be flushed out.

Looks like 3 million was the final number. Exchange on the shares is over 20/1.

Also saw central banks opening up some "currency swap" lines, whatever the fuck that's supposed to mean. These guys seem fucking nervous..

https://www.cnbc.com/2023/03/17/svb-listed-remote-work-as-a-business-risk-before-collapse-its-a-convenient-excuse-experts-say.html

First Republic continues to circle the toilet, seems likely they will not last another week.

https://slaynews.com/economy/former-fdic-chair-speaks-out-against-svb-bailout-says-biden-admin-overreacted/

The former chair of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair, has criticized the Biden administration’s “bailout” of Silicon Valley Bank (SVB).

Bair denounced the Biden admin’s decision to guarantee all deposits at the failed SVB, labeling the move an “overreaction.”

Bair made the comments during a recent appearance on “The Washington Post Live” series.

She stated that insuring all deposits at SVB and at the failed Signature Bank was an unnecessary “bailout.”

Bair warned that the move would be paid for by extra fees on all banks, even well-run community and regional banks.

The former FDIC chief also threw cold water on proposals to waive the current $250,000 deposit insurance lid and for the FDIC to provide unlimited guarantees for all deposits across the entire $17.5 trillion U.S. banking sector.

“We need market discipline to complement the supervisory process,” Bair said.

I think market discipline should be the supervisory process. No bailouts, ever. No FDIC. If you put money in a bank, you should be WARNED in big letters that you are making an unsecured loan to the bank. The bank officers and shareholders should all be personally legally liable for all the deposits.

https://babylonbee.com/news/banks-begin-calling-customers-to-ask-for-loan

Patrick says

https://babylonbee.com/news/banks-begin-calling-customers-to-ask-for-loan

Offer them a Rhodium bar:

Sounds like after all that Credit Suisse is still going under...

https://wallstreetonparade.com/2023/03/as-senate-banking-committee-convenes-hearing-on-exploding-banks-an-fdic-chart-shows-the-banking-crisis-is-far-from-over/

A lot of banks lending to commercial real estate (CRE) will suffer loses.

Real Estate Select Sector SPDR Fund is down about 29%. It was down 37% in October 2022 when the S&P 500 was down about 25%. Granted, not all the fund is invested in commercial high rise buildings.

Union Bank Plaza in Los Angeles sold recently for a 50% loss. It is a 40-story, 701,888-square-foot office building.

Read more about commercial real estate woes at :

https://www.zerohedge.com/markets/manhattan-office-vacancy-hits-record-marquee-la-office-tower-sells-50-loss

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ad says

Union Bank Plaza in Los Angeles sold recently for a 50% loss. It is a 40-story, 701,888-square-foot office building.

That is insane as it is 50% off the 2010 price according to the article.

That said, still wondering if (when?) it is time to buy the REIT indexes...

EBGuy says

ad says

Union Bank Plaza in Los Angeles sold recently for a 50% loss. It is a 40-story, 701,888-square-foot office building.

That is insane as it is 50% off the 2010 price according to the article.

That said, still wondering if (when?) it is time to buy the REIT indexes...

Outside of prime locations across the country a lot of buildings are going to be torn down. The McDonalds campus in IL a few years back moved to downtown Chicago from Oak Brook, IL. Either who they sold it to or were leasing from tore it all down. Whoever picked it up is now building on it though. Not sure what they would put there, but likely office and hotel. It's nicer area than Rosemont for O'hare business travelers and only 10-15min away.

A lot of incentives to get companies to move into Chicago are going to look like shit once they start moving back out of urban centers. I'm sure it's the same out in CA. Commercial was always going to get hammered after covid became a thing. Smart businesses can manage remote workers. Most notes are 5 years. So depending when the note comes due we're probably at the start and 1-2 years from a potential bloodbath.

Warehouses though will help keep the floor high with online shopping. We'll see.

I think multifamily REITs are fine, other REITs might need more investigation. I suspect it might be safe to get into more traditional REIT in six months, but REITs I think can hid a lot of losses more than publicly traded company with commercial and retail building. SVB went down in a rising interest rate environment and I think a lot of building were mortgage out in a high interest rate environment and they are losing money because occupancy is down.

I like multifamily because it's housing, retail could be good if done right, commercial seems scary and industrial seems great.

WookieMan says

Oak Brook, IL. Either who they sold it to or were leasing from tore it all down. Whoever picked it up is now building on it though. Not sure what they would put there, but likely office and hotel. It's nicer area than Rosemont for O'hare business travelers and only 10-15min away.

At least 33% of Oak Brook, IL's population is Asian. More like causation and not correlation or happenstance in regards to your observations about it being a nicer area compared to other Chicago areas.

https://en.wikipedia.org/wiki/Oak_Brook,_Illinois#Demographics

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cisTits says

We get years of cheap money and start to think cheap money is normal. We see the endlessly rising asset prices and believe we’re skilled investors

7 out of 8 years of the Obama admin was with a Fed Funds rate of 0.25% and an average annual inflation rate of about 1.5%.

I do not know of any other extended period where the Fed Funds rate that was less than the inflation rate.

I agree it is problematic, as they should have raised rates in 2012 as that was more than enough time for the economy to recover from the Great Recession.

Right now the Fed Funds rate is 5% and CPI (12 months) is 6%. The Fed should at least hold the Fed Funds rate steady and wait to see CPI to drop below 5% within the next 6 months.

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The big banks lost 90 billion the last week of March from depositor withdrawals. Loss of confidence is system-wide, and growing.