Crack... Crack... Crack...
Silvergate Bank... Silicon Valley Bank... Signature Bank... ???
Bill Bonner, reckoning today from San Martin, Argentina...
Was that the ‘something’ we were waiting to ‘break?’ Business Insider:
The Silicon Valley Bank meltdown may incite the Federal Reserve to cut rates by 100 basis points by December to prevent contagion in the financial system, Larry McDonald said.
That would mark a sharp reversal from the central bank's current course of aggressive tightening to rein in inflation.
Recall our forecast: the Fed will continue raising rates ‘until something breaks.’ A California bank broke on Friday. This morning comes news of more breakage. Deadline:
New York State regulators took over Signature Bank today, the second financial institution to fold in less than a week as the FDIC and Treasury, however, assured depositors at both that they would be made whole in an attempt to stem the growing crisis.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation said in a joint statement Sunday.
A Bear in a China Store
Both banks were shut down by regulators – after big losses. The bonds of SVB, for example, fell to 31 cents on the dollar.
But that’s what happens when the Fed raises rates. This is the same Fed, by the way, that enticed everyone to borrow trillions of dollars by dangling low interest rates in front of them – for more than 10 years.
Having created a dangerous and debilitating debt bubble, the Fed is now determined to take the air out of it…as long as higher interest rates don’t cause too much trouble.
But in an economy with $90 trillion of delicate chinaware, bought on credit, even a small increase in interest rates is bound to cause a lot of breakage. That is the cracking noise we hear coming from California and New York. And while we doubt these are the ‘breaks’ that will cause the Fed to pivot, they help us understand how the crackpots at the Fed crack the pots.
Dan explained in his Friday note that it was under the watchful eyes of the Fed’s thousands of bank regulators…and thousands more analysts on Wall Street…that the “second biggest bank collapse in US history [Silicon Valley Bank]...unfolded … without a single person issuing a peep of warning.” Dan Denning:
“Looking at the numbers, deposits at SVB went from $60 billion in 2019 to $189 billion in 2022. The IPO/SPAC/tech boom was good to SVP. But what does a bank do with all that depositor cash?”
What could it do? It bought bonds. And then, as interest rates rose, bonds fell.
On the Bright Side
Dan and Joel have provided us with the detail we need. For our part, we will continue our jaunt down the sunny side of the street, looking at only that part of the glass that has something in it. And let us begin by looking at more of the absurd, the ridiculous and the sublime events of the last week.
If there were ever any doubt that Congress is composed of lamebrains, Rep. Mark Takano is doing his best to dispel them. CNBC reports:
…his 32-hour Workweek Act to Congress, which, if passed, would officially reduce the standard definition of the workweek from 40 hours to 32 hours by amending the Fair Labor Standards Act.
His proposal would mandate overtime pay for any work done after 32 hours, which would encourage business to either pay workers more for longer hours, or shorten their week and hire more people.
It will “increase the happiness of humankind” says its sponsor.
What a hoot it must be to spend time in Congress. A laugh a minute. How on earth would Mr. Takano know what would increase human happiness? And if a shorter workweek would do the trick….why not a 25-hour week…or a 10-hour week…or a week with no work in it at all? How is it that Mr. Takano, who otherwise seems to be a person capable of tying his shoelaces and driving a car, can know that a 32-hour week would result in maximum happiness for humans on planet earth?
We don’t know. But how the members of Congress must chuckle! Like guards at a Gulag…they amuse each other by devising new ways to abuse their constituents.
“Let’s see how the dopes back home will like this,” they say to each other, with a wink and an elbow.
“How about we give $52 billion to US defense companies so the Ukrainians can fight for freedom?
“Hah…ha…ha…”
“No….we’ll say ‘fight for democracy.’
“Hah…ha…ha…”
“And let’s ban Tik Tok…and force American companies to buy their chips from the companies that give us campaign donations.”
“Hey, wait….isn’t that unconstitutional?”
“Who cares…?”
“Hah…ha…ha…”
Yes, the US Congress is corrupt and incompetent, but what’s new? That glass sprang a leak years ago.
Another Tall Tale
Probably the biggest joke last week came from The New York Times newsroom. And here too, there’s good news: no one can take the Times seriously ever again.
The Ol’ Gray Lady gave such a fairytale account of how the Nord Stream Pipeline got blown up, even she seemed embarrassed to report it. Reporters checked no facts, interviewed no sources, challenged no details; the paper simply passed along the government’s latest misinformation.
Joe Biden said he would blow up the pipeline. He had the means to do the crime. And Seymour Hersh – a seasoned, Pulitzer prize winning investigative reporter – revealed, in detail, how he did the deed. But the Times – acting as a propaganda agency for the Deep State – ignored Hersh’s very credible story and instead reported an unlikely yarn from unnamed ‘sources’ in the government about people who probably couldn’t do the job and probably don’t even exist. Supposedly funded by a “Ukrainian oligarch,” the terrorists allegedly rented a yacht, loaded on ultra-high-powered explosives and somehow escaped notice as they planted them on the pipeline in one of the most carefully guarded seas in the world.
We doubt that Joe Biden will ever fess up. And maybe his team will come up with a better way to put the blame on someone else. But for now, we suspect that some oligarch is going to have to take the rap so the Times won’t be forced to look any further.
Stay tuned...
Bill Bonner
Literally spilled my coffee at "a person capable of tying his shoelaces" metaphor. Thank you Bill for the wholeheartedly laugh. You're awesome!
Bill asks why so many bank regulators were asleep at the wheel. From several articles on conservative websites about the SVB matter that I’ve read, many commenters are wondering if this lack of oversight has something to do with a sneaky push for digital currency. A few pointed to a recent sneaky attempt by someone or some group trying to get digital currency started in, of all places, conservative South Dakota. Fortunately, SD Gov. Kristi Noem stopped it. But apparently she told Tucker Carlson that this nonsense was being attempted in nineteen other states. Scary stuff. I know that Dan Denning closely watches the digital currency matter, so I’m sure he’d let us know if he thought there was something to bank failures and digital currency; or, if this was just another conspiracy theory. Of course, it takes time to connect any dots here because of the complexity of financial matters. (And Dan’s reporting on digital currency is one of many reasons why BPR is such a valuable service.)