The way it works seems like the 1% end up with the money, and the rest of us end up paying for it, no matter what "it" is. So easy to add a few cents here and there to 300 million tabs to pay 2 or 3 people!
Mar 14, 2023·edited Mar 14, 2023Liked by Rudy Havenstein
SVB is merely the proverbial canary evidencing fundamental forces.
After pushing rates of interest lower for decades most recently to the ludicrous level of nil nominally, and thereby profoundly distorting financial asset prices, central banks are finally painted into a corner. They cannot raise rates substantially longer term because the leveraged financial system, borne by shrinking financial paper values, will collapse; yet another iteration of the long history of financial collapses though notably extreme in the present instance. The alternative is mass debasement of fiat currencies at increasing rates to avoid collapse, which will ultimately result in collapse of the currency (price inflation) and, again, financial markets.
Short rates having been driven to zero we should now anticipate decades of monetary distortion being wrung from the global financial system via a decade plus long secular financial collapse, if history is any guide. The avoid hangovers stay drunk charade is over. Tragically most won't be able to avoid now inevitable pain. Somebody, meaning most everyone, must hold all the paper all the way down; to the extent it isn't converted into oceans of fiat currency conjured out of thin air.
I don’t discount the notion that many of these people are in many ways stupid, but given how many centuries we have watched the exact game be played in different forms with the exact same results in terms of where wealth & power flows…one has to assume much of this was the game plan all along.
"Maybe it’s no big deal, as insurance companies aren’t likely to have runs like banks(?)"
Sure, until it becomes common knowledge and policy holders decide to move their business to more solvent insurers. At that point, the insurer just becomes another insolvent Central Bank...
So hobest question and maybe this isn't the place for it but if you don't back up deposits from businesses that did nothing wrong and lots of other banks go the way of the DoDo don't we end up in a world where all the money is deposited in 3-4 banks? Aka what's the solution and would we be putting up such a fuss backing up deposits if it weren't called Silicon Valley Bank?
As I wrote the other day, uninsured deposits are first in line after insured deposits. I'm sure the FDIC could've accomodated funds "needed for payroll", but to blanket backstop irresponsible, very wealthy (and connected) depositors create too much of a moral hazard nightmare, which, despite what Yellen says, is absolutely going to be paid for by taxpayers in the long run. Also I understand there were private offers for Silicon Valley Bank which the Biden Admin refused. All we do now every few years is bail out very wealthy, connected people. In addition, the fact that these banks got to this point shows again how atrocious Fed bank "regulation" is. Mary Daly should be fired immediately.
Rudy's point about uninsured deposits being first in line is also key. The Rational Walk's substack predicted depositors would have received 90%+ back of their full deposits after the FDIC liquidated SVB's assets. Unfortunate for the depositors to not be made whole but shit happens when you run a bank poorly.
But, but, but...the losses that accrue after their long dated assets run off will be paid for by "the banks" presumably in higher FDIC fees or whatever. I use a bank so now an overdraft will go to $100!
Of course it was, but the political propaganda machine persists. What is Orwell's main point in Politics and the English Language?
Orwell argues the English language is subject to a vicious cycle ⇒ Language becomes inaccurate because our thoughts are imprecise, and the inaccurate language makes it easier for us to have imprecise thoughts. Political language is designed to: make lies sound truthful.
I am not sure where/how he comes out on the pragmatic end of this incredible transition. Somehow I don't believe he's an eat bugs and live without heat kind of guy. Brilliant though, and it would be interesting to hear him explain how we get there with only moderate deprivation
The way it works seems like the 1% end up with the money, and the rest of us end up paying for it, no matter what "it" is. So easy to add a few cents here and there to 300 million tabs to pay 2 or 3 people!
Very astute comment Anne Keller. Rudy’s work tends to paint a good picture of the 💩 we the people must eat from the powers that be.
Angry yet?
I wish my grocery bill went up a few cents here or there.
We’re gonna be wishing that’s all our taxes increased soon too.
Just got this from Wells Fargo
https://www.wellsfargo.com/online-banking/updates/
Summary: your money is not yours, it's ours...
SVB is merely the proverbial canary evidencing fundamental forces.
After pushing rates of interest lower for decades most recently to the ludicrous level of nil nominally, and thereby profoundly distorting financial asset prices, central banks are finally painted into a corner. They cannot raise rates substantially longer term because the leveraged financial system, borne by shrinking financial paper values, will collapse; yet another iteration of the long history of financial collapses though notably extreme in the present instance. The alternative is mass debasement of fiat currencies at increasing rates to avoid collapse, which will ultimately result in collapse of the currency (price inflation) and, again, financial markets.
Short rates having been driven to zero we should now anticipate decades of monetary distortion being wrung from the global financial system via a decade plus long secular financial collapse, if history is any guide. The avoid hangovers stay drunk charade is over. Tragically most won't be able to avoid now inevitable pain. Somebody, meaning most everyone, must hold all the paper all the way down; to the extent it isn't converted into oceans of fiat currency conjured out of thin air.
Great post.
Great piece, love the quote by Jeremy Grantham.
https://youtu.be/RZ2oXzrnti4
I don’t discount the notion that many of these people are in many ways stupid, but given how many centuries we have watched the exact game be played in different forms with the exact same results in terms of where wealth & power flows…one has to assume much of this was the game plan all along.
"Maybe it’s no big deal, as insurance companies aren’t likely to have runs like banks(?)"
Sure, until it becomes common knowledge and policy holders decide to move their business to more solvent insurers. At that point, the insurer just becomes another insolvent Central Bank...
AIG is approaching it's pre-bailout, share-adjusted price of 2009, deja-vu?...
So hobest question and maybe this isn't the place for it but if you don't back up deposits from businesses that did nothing wrong and lots of other banks go the way of the DoDo don't we end up in a world where all the money is deposited in 3-4 banks? Aka what's the solution and would we be putting up such a fuss backing up deposits if it weren't called Silicon Valley Bank?
As I wrote the other day, uninsured deposits are first in line after insured deposits. I'm sure the FDIC could've accomodated funds "needed for payroll", but to blanket backstop irresponsible, very wealthy (and connected) depositors create too much of a moral hazard nightmare, which, despite what Yellen says, is absolutely going to be paid for by taxpayers in the long run. Also I understand there were private offers for Silicon Valley Bank which the Biden Admin refused. All we do now every few years is bail out very wealthy, connected people. In addition, the fact that these banks got to this point shows again how atrocious Fed bank "regulation" is. Mary Daly should be fired immediately.
Mary Daly is still looking for inflation. Not a chance she has time for regulation
I dunno. She seems like a nice lady. Free spirit, if not free marketeer. https://splashpad.org/2021/05/neighbor-mary-c-daly-uses-escape-velocity-to-increase-economic-mobility/
I'm sure she's a nice person, she just shouldn't be anywhere near any position of power and influence.
Wasn't aware of the private offers - they def should have allowed a private bailout buyout or whatever
Rudy's point about uninsured deposits being first in line is also key. The Rational Walk's substack predicted depositors would have received 90%+ back of their full deposits after the FDIC liquidated SVB's assets. Unfortunate for the depositors to not be made whole but shit happens when you run a bank poorly.
But, but, but...the losses that accrue after their long dated assets run off will be paid for by "the banks" presumably in higher FDIC fees or whatever. I use a bank so now an overdraft will go to $100!
Of course it was, but the political propaganda machine persists. What is Orwell's main point in Politics and the English Language?
Orwell argues the English language is subject to a vicious cycle ⇒ Language becomes inaccurate because our thoughts are imprecise, and the inaccurate language makes it easier for us to have imprecise thoughts. Political language is designed to: make lies sound truthful.
Moral hazard has no place in Fantasyland. Crony capitalism is welcome, however.
The pain exiting Fantasyland will be something to behold.
You said that Jeremy Grantham likes the green stuff. What green? Pot, cash, or energy?
He's a big climate change guy.
I am not sure where/how he comes out on the pragmatic end of this incredible transition. Somehow I don't believe he's an eat bugs and live without heat kind of guy. Brilliant though, and it would be interesting to hear him explain how we get there with only moderate deprivation
Great question James Twmann.
I’m willing to bet in addition to being a climate guy, Mr. G likes cash. Maybe pot as well.🤭