Bill Ackman personifies everything wrong with our financial system.
"Hell is coming" Redux
First off, please read Fragile Capitalists: Silicon Valley Bank's shareholders and creditors should not be bailed out, by Rational Walk, one of the best financial observers around.
So anyway, one of the worst people on Earth, Bill Ackman, posted this the other day, which is why I’m going to pummel him for bit before moving on…
…the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank.
OK, so Bill’s talking about some of the most sophisticated investors in the world, supposedly ignorant that any bank deposit above $250K was an unsecured illiquid claim on a failed bank.
For Ackman to suggest he and the others did not know this is complete horseshit. I know people with 1/100,000th the net worth of Bill Ackman who are aware of this.
I’ve observed over the years that the FDIC is one of the more competent government institutions. They are very experienced in resolving failed banks.
Typically, after the FDIC recoups administrative costs and insured depositors are paid, customers with uninsured deposits are paid before any general unsecured creditors or equity shareholders. In SVB’s case, there are reports of an existing loan owned to the Federal Home Loan Bank of San Francisco*, which will be afforded “super lien” status and therefore will be resolved first.
This is from the FDIC itself in 2019:
Since 2007, the FDIC has served as receiver for over 525 banks. Only 9 of these failed banks had assets over $10 billion. Thus, the overwhelming majority, over 98 percent, had assets under $10 billion.
Approximately 95 percent of resolutions conducted by the FDIC since 2007 involved purchase and assumption transactions, generally involving a single acquirer assuming nearly all of the failing bank's liabilities. This resolution approach, particularly applicable to community banks, is generally the least disruptive both to depositors and the local community, and the easiest for the FDIC to execute. Only 25 banks since 2007 were resolved through insured deposit payouts, reflecting the general availability of acquirers for purchase and assumption transactions for smaller institutions.
In only three resolutions since 2007 was a bridge bank utilized
Here’s the FDIC today:
Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023.
Perfect. Exactly how this should work. As for the rest:
The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
What we’re seeing here, from Ackman and others, as in every “crisis” lately, is some very, very, very wealthy speculators who’ve gorged like pigs at the trough throughout the worst monetary policy in history, suddenly crying for another bailout because their own net worth might be momentarily declining.
Rules aren’t meant for people like Ackman. They are special.
People like Ackman aren’t free-market capitalists.
They’re corporatist fascists, used to a cozy big business/big government partnership they’ve cheered on, as it has massively expanded, especially since Greenspan came along.
It’s a big club.
Screenshot I took when Billionaire Bill Ackman was melting down in March 2020:
As I wrote that day, these guys only seem to give a shit about everyone else when their own net worths are threatened.
ONE week later…
Bill Ackman, March 18, 2020: "Every one of their companies has a lot of leverage." Maybe they shouldn't have so much of leverage.
Here’s the video:
Let's just say there's one restaurant company out there that was scared [pre-Covid] and had a war-chest of money - an activist investor [like Bill Ackman] would've rolled through and kicked them out and demanded buybacks and dividends and a more efficient capital structure...
Bill’s best line of all is, tearfully, “private-equity goes bankrupt!” Would that be such a bad thing? Maybe more kids could afford a house.
When Jim Grant - who is not a communist - starts referring to private equity as "leeches," you know the system is f'd up. - Yours truly, in December 2020
Guess who is on the Investor Advisory Committee on Financial Markets of the New York Fed?
I bet they’re giving John Williams an earful of bailout pleas right now.
It’s not that unusual.
Cliff’s fine now.
Hey, you ever notice that billionaires don’t worry about the cost of living?
If you were wondering if Bill Ackman is a raging warmonger, he is. Your kids can go fight - he has CNBS appearances to do.
Amusing: Confidence: The Achilles' Heel of Capitalism Written by Silicon Valley Bank’s Chief Investment Officer and Head of Portfolio Management, December 5, 2008
…infuse a significant amount of fear into the equation, which decreases the confidence level of investors, and a potential house of cards is revealed. If enough investors pull their funds from the markets, funds stop flowing through the system and contagion effects take hold. This is what we are experiencing today.
Alright, let’s move on: Yellen rules out bailout for Silicon Valley Bank: "We're not going to do that again"
It’s from Janet Yellen, so it’s probably a lie. Oh, wait: US Discusses Fund to Backstop Deposits If More Banks Fail
Who Killed Silicon Valley Bank? Chris Whalen.
Why did Silicon Valley Bank, the 18th largest bank in the US fail last week? Because the bank’s management naively invested half the bank’s assets in “risk free” securities. The bank had 43% of total assets in mortgage-backed securities vs an average of 12% for the 132 largest banks in the US. Extension risk killed Silicon Valley Bank. What is now the most sought-after list on Wall Street by short-sellers? The list of banks with above-peer holdings of MBS.
Maybe the Federal Reserve shouldn’t have monetized over $2.6 trillion MBS from 2008-2022.
Moody's gave Silicon Valley bank an A rating until its collapse Of course they did.
From one of the best 2008-era blogs, now posting again:
Two US banks failed this week: Silvegate specialized in crypto financing and transactions, Silicon Valley in tech startups. Are the two events connected?
Yes: they were emblematic institutions in the two market sectors that experienced the most rabid bubble speculation. Their failure comes on the heels of their respective bursts.
The question now is this: are there more dominos to fall? Yes, there are. Our financial system is highly interdependent and leveraged, so it is only a matter of time until losses surface elsewhere.
Normally, when things get precarious the Fed immediately steps in and provides liquidity to the banking system. Can it do so today? With inflation where it is? No, objectively it can’t - but, it will if things get nasty. The Fed simply isn’t wired to be a truly tough taskmaster.
Fed-induced asset bubbles have serious consequences when they pop.
Random links
Silicon Valley Bank chief pressed Congress to weaken risk regulations
Michael Cembalest JPM Report on SVB Being an Outlier “The liability issue: extreme reliance on institutional/VC funding rather than traditional retail deposits”
BlockFi’s Uninsured $227 Million In Silicon Valley Financial institution Raises Considerations
Summers Warns Consequences ‘Severe’ If SVB Deposits Not Released Barf. Larry is one of the worst financial war criminals around (and a longtime very close friend of Jeff Epstein)
While Silicon Valley Bank collapsed, top executive pushed ‘woke’ programs A head of risk management at Silicon Valley Bank spent considerable time spearheading multiple “woke” LGBTQ+ programs, including a “safe space” for coming out stories, as the firm catapulted toward collapse.
Bank Failure Blues Recorded on January 6, 1928 in New York; Martha Copeland being accompanied by Porter Grainger on piano. Written by Henri Jackson.
Had to be said, and I’m glad you are the one saying it!
One of your best