It's not a "bailout!!" It's a backstop.

March Madness

Rudy Havenstein

Mar 13, 2023

Bill Ackman wins again.

Flashback Monday: John **Mack** and Vikram **Pandit** leaving a US Treasury meeting in October 2008, after obviously getting everything they asked for, and then some.

I sent this back in 2016, when Janet ran the private bank cartel. The Fed’s record on bank regulation is abysmal.

**'Joe probably wants to put them in his cabinet.**

Looks like I’m writing headlines for the FT now…

**I should get royalties for this headline (although I do not endorse the article)**

Talking about Cliff Asness in the last big heist, March 2020

If you’ve missed my last few Substack posts, and haven’t unsubscribed yet, check ‘em out. It may add some “color” to these posts.

**Sir - Rudy Havenstein is still out there on Substack.**

So was there a “bank bailout”?

The Fed “created a facility to allow ALL banks to borrow money from the Federal Reserve at the face value of their bonds that nobody wants to buy. It's like allowing people with 10 year old cars to borrow against the sales price of the car from 10 years ago. That is effectively a bailout because every person in the country will pay for it via inflated cost of all goods and services.”

And that was just a random Reddit comment. Let’s see how the WSJ phrases it:

…the Federal Reserve said it would create a new lending program for banks: the Bank Term Funding Program, or BTFP.
The facility will allow banks to take advances from the Fed for up to a year by pledging Treasurys, mortgage-backed bonds and other debt as collateral. By allowing banks to pledge their bonds, they can meet customer withdrawals without having to sell their bonds at a loss, which is what Silicon Valley Bank did last week, sparking a run on the bank.
The biggest draw of this facility is that banks can borrow funds equal to the par value of the collateral they pledge, according to the Fed's announcement. This means that the Fed won’t look to the market value of the collateral, which in many cases reflect big unrealized losses due to the jump in interest rates.

Well, there certainly was a big depositor (e.g., Bill Ackman) bailout. Sounds much better.

They should’ve made the acronym BTFD. Really rub it in the serfs’ faces.

**No worries. Janet’s got this nailed down.**

I’m going to cancel my homeowner’s insurance. If my home burns down, I’ll just call Janet Yellen for a “backstop.”

**Trivia: Chapter 2 of the 1994 book "The Creature From Jekyll Island" is titled "The Name of the Game is Bailout."**

…by guaranteeing that depositors would lose no money, authorities have again raised the question of moral hazard - removal of people's incentive to guard against financial risk.

For the record, I oppose yelling “fire” in a crowded theater…unless the theater is actually on fire. I might prefer, “Hey everybody - let’s calmly exit” though.