https://www.cnn.com/2023/03/10/investing/svb-bank/index.html

Ouch. Not a great sign of things to come.

https://www.cnn.com/2023/03/10/investing/svb-bank/index.html

Ouch. Not a great sign of things to come. Don't take pre-IPO shares as collateral, folks.

Gaining 311,000 new jobs last month isn't going to help either. This how screwed up the current economic climate is. 311,000 new jobs should be a welcomed sign, but because of inflation it just means interest rates will have to go that much higher that much faster.

It is kind of like trying to kill a cockroach. You just can't scare it to death or kill it with a so-called soft landing. You got to smack the crap out of it as hard and as fast as you can or it will run behind the baseboard and reproduce.

Gaining 311,000 new jobs last month isn't going to help either. This how screwed up the current economic climate is. 311,000 new jobs should be a welcomed sign, but because of inflation it just means interest rates will have to go that much higher that much faster.

It is kind of like trying to kill a cockroach. You just can't scare it to death or kill it with a so-called soft landing. You got to smack the crap out of it as hard and as fast as you can or it will run behind the baseboard and reproduce.

Many of the new jobs were in the leisure/hospitality and retail industries. These are usually low paying jobs and are likely due to people taking second jobs because higher inflation is eroding their real income.

The failure of Silicon Valley Bank is a result of the Fed aggressively raising interest rates to fight inflation. Banks fund long-term assets with short-term liabilities, so when interest rates rise rapidly, banks must pay more for deposits while still receiving a fixed smaller interest rates on their loans. The large banks are well capitalized so they should not have problems. The mid-sized and small banks are where the concern lies. In fact, the big banks might be called upon to buy some of these smaller banks as a way to help the FDIC clean up this mess.

Gaining 311,000 new jobs last month isn't going to help either. This how screwed up the current economic climate is. 311,000 new jobs should be a welcomed sign, but because of inflation it just means interest rates will have to go that much higher that much faster.

It is kind of like trying to kill a cockroach. You just can't scare it to death or kill it with a so-called soft landing. You got to smack the crap out of it as hard and as fast as you can or it will run behind the baseboard and reproduce.

Regarding inflation, the jobs report was a bit of a mixed bag. 311,000 new jobs created but wage growth was down. It will be interesting to see how the fed interprets that data.

Bank sector getting crushed. Examples:

SIVB – Stock halted. Looking for a rescue buyer. ~$200b in assets.
PACW- Trading halted due to volatility. Down -24%. ~$40b in assets.
First Republic- Stock Halted. Down -54%. ~$200b in assets.
SBNY- Down -18%. ~$110b in assets.
WAL- Trading halted. -23%. ~$67b in assets

Yea, we’re definitely looking at a hard landing. Pretty unfortunate that the “leaders” of this country—on both sides—have shown little to no interest in any semblance of fiscal discipline. At some point, bills must be paid.

Yea, we’re definitely looking at a hard landing. Pretty unfortunate that the “leaders” of this country—on both sides—have shown little to no interest in any semblance of fiscal discipline. At some point, bills must be paid.

I mean, they printed trillions to give to corporations and gave us like, $1600 a couple times. That is a ton of money to have to pay back.

I mean, they printed trillions to give to corporations and gave us like, $1600 a couple times. That is a ton of money to have to pay back.
$8 trillion to be exact. And Biden budget just released shows a $50 trillion national debt within 11 years. It is like Washington DC is addicted to spending.

We are accelerating all the way to impact.

Maybe some of these large real estate investment companies will need to start selling off their properties.

Many of the new jobs were in the leisure/hospitality and retail industries. These are usually low paying jobs and are likely due to people taking second jobs because higher inflation is eroding their real income.

The failure of Silicon Valley Bank is a result of the Fed aggressively raising interest rates to fight inflation. Banks fund long-term assets with short-term liabilities, so when interest rates rise rapidly, banks must pay more for deposits while still receiving a fixed smaller interest rates on their loans. The large banks are well capitalized so they should not have problems. The mid-sized and small banks are where the concern lies. In fact, the big banks might be called upon to buy some of these smaller banks as a way to help the FDIC clean up this mess.

No, it was the 15 years of Fed and Congressional policy that got us to this point. Fed was just finally forced to act on market conditions.

Glass half full is I'll get to buy at a nice discount again on SEP IRA distributions. Things could get very ugly before too long. Debt showdown looming, FED possibly going back to larger rate hikes, although SVB deal may keep a lid on that for time being, and a lot of market turmoil and uncertainty. Hooray for more man made financial crises & booms/busts in the market. One extreme or the other on monetary policy. If we see a bunch of contagion and fallout with the SVB deal or these ongoing rate hikes force some other type of financial crisis the FED might not have any choice but to go the other way. Sure is a crappy time to be in the markets with no end in sight.

I see 90% of the people on Twitter and in the news stories blaming this solely on the Fed and their rate increases and almost no one talking about the fiscal policy/spending and massive debt incurred that got the country here. I guess tech is an industry that uniquely thrived on “free money,” so they tend to view this event through the monetary policy lens.

I see 90% of the people on Twitter and in the news stories blaming this solely on the Fed and their rate increases and almost no one talking about the fiscal policy/spending and massive debt incurred that got the country here. I guess tech is an industry that uniquely thrived on “free money,” so they tend to view this event through the monetary policy lens.

Good point, there's no doubt the trillions gifted & spent during covid is having massive implications now. I think it's also fair to say it was rather obvious to everyone but the FED that the economy was way overheated in '21 and rates should not have been at zero for such an extended period. Yet we kept printing money and they remained that way for a year too long. On the flip side surely these guys are smart enough to realize that reversing & unraveling the accommodative monetary policy we've had for the last 15 years in a matter of a few months was going to create problems. Also, nothing is ever done to address the supply side economics, only the demand side via interest rates as if that will just fix everything.

I think a lot of things contributed to the failure, but wouldn’t the management of the bank be the prime reason? Penn Square went down betting on the oil industry. So if that bet fails the bank fails. 200 Billion in assets, and a 48 hour collapse? That’s poor management.

I think a lot of things contributed to the failure, but wouldn’t the management of the bank be the prime reason? Penn Square went down betting on the oil industry. So if that bet fails the bank fails. 200 Billion in assets, and a 48 hour collapse? That’s poor management.

Sure, but a lot of things were going on that management had no say in, like rate increases lowering the demand for loans, or inflation fears causing people to pull their money out in droves.

I see 90% of the people on Twitter and in the news stories blaming this solely on the Fed and their rate increases and almost no one talking about the fiscal policy/spending and massive debt incurred that got the country here. I guess tech is an industry that uniquely thrived on “free money,” so they tend to view this event through the monetary policy lens.

I think that reflects the fact that despite what the media would have you believe, Twitter is still dominated by leftists that believe in Keynesian economics and see nothing wrong with excessive federal spending. For example, the Inflation Reduction Act that increases inflation.

It’s amazing. People tend to boil down these highly complex issues into a talking point or two that they think they understand. Usually their understanding boils down to some political BS that they buy into. It is just ignorance and political propaganda. This kind of analysis is like first graders telling everyone how to build a rocket …. Just put gas in a tube and light the fuse. LOL. Left or right, republicans or democrats, old or young, blue color or professional… their take is pretty predictable based on your belief system and propaganda source, not on actual real study and comprehensive analysis of what is ACTUALLY taking place.

It’s amazing. People tend to boil down these highly complex issues into a talking point or two that they think they understand. Usually their understanding boils down to some political BS that they buy into. It is just ignorance and political propaganda. This kind of analysis is like first graders telling everyone how to build a rocket …. Just put gas in a tube and light the fuse. LOL. Left or right, republicans or democrats, old or young, blue color or professional… their take is pretty predictable based on your belief system and propaganda source, not on actual real study and comprehensive analysis of what is ACTUALLY taking place.

Ouch. How much did you have tied up in SVB?

It’s amazing. People tend to boil down these highly complex issues into a talking point or two that they think they understand. Usually their understanding boils down to some political BS that they buy into. It is just ignorance and political propaganda. This kind of analysis is like first graders telling everyone how to build a rocket …. Just put gas in a tube and light the fuse. LOL. Left or right, republicans or democrats, old or young, blue color or professional… their take is pretty predictable based on your belief system and propaganda source, not on actual real study and comprehensive analysis of what is ACTUALLY taking place.

100% correct. And we all know who is at fault and who needs to sacrifice.

Someone else.

Yeah it is fascinating to watch libertarian-leaning or free market types suddenly demand strong government socialism to bail them out. No atheists in foxholes I guess.

Yeah it is fascinating to watch libertarian-leaning or free market types suddenly demand strong government socialism to bail them out. No atheists in foxholes I guess.

This just shows you they are not actually free marketers or libertarian. They pay lip service to the ideas, but the moment their money is on the line, everybody else needs to pay up to save them; they like the government intervention/making others pay to save their butts for their risk-taking. David Sacks has been particularly egregious in this respect.

The bank would work hand in glove with technology companies and venture capital firms, frequently lending companies money after they had raised capital from venture capital firms. This meant working with companies that larger, more conservative banks may have been reluctant to do business with because they didn’t have the assets or cash flow necessary to underwrite a traditional corporate loan. Silicon Valley Bank would work with startups instead based on their ability to raise venture capital.
But it wasn’t this relatively high-risk behavior that got the bank in trouble — or at least not just that. Instead, what blew out a giant hole in its balance sheet was what the bank did with the deposits it got from venture-backed companies: buy long-term bonds. The Federal Reserve’s interest rate hikes meant that the value of these bonds was lower, and as depositors fled, the bank had to recognize large losses as it sold its bond portfolio.
The Managers made the choice to invest in long term bonds, assuming that interest rates would stay low. The assumption didn’t work out.

The bank would work hand in glove with technology companies and venture capital firms, frequently lending companies money after they had raised capital from venture capital firms. This meant working with companies that larger, more conservative banks may have been reluctant to do business with because they didn’t have the assets or cash flow necessary to underwrite a traditional corporate loan. Silicon Valley Bank would work with startups instead based on their ability to raise venture capital.
But it wasn’t this relatively high-risk behavior that got the bank in trouble — or at least not just that. Instead, what blew out a giant hole in its balance sheet was what the bank did with the deposits it got from venture-backed companies: buy long-term bonds. The Federal Reserve’s interest rate hikes meant that the value of these bonds was lower, and as depositors fled, the bank had to recognize large losses as it sold its bond portfolio.
The Managers made the choice to invest in long term bonds, assuming that interest rates would stay low. The assumption didn’t work out.

Bingo.

Ouch. How much did you have tied up in SVB?

None there, but we can talk about Penn Square Bank. :(

Should the FDIC increase the coverage from quarter of a million to half a million? I realize that's still a drop in the bucket in this case as 97% of SVB accounts were over the FDIC covered amount. Just wondering how long it's been since FDIC adjusted for inflation.

Yellen says no bailout :Smiley171:

This should be a lesson to anyone with these types of funds sitting in a bank to make sure it's FDIC insured & to diversify them between multiple accounts/banks backed by the FDIC.

And the average person is thinking 250,000? That must be a nice problem to have.

Should the FDIC increase the coverage from quarter of a million to half a million? I realize that's still a drop in the bucket in this case as 97% of SVB accounts were over the FDIC covered amount. Just wondering how long it's been since FDIC adjusted for inflation.

Last time the insured amount was adjusted was in 2008, when it increased from $100,000 to $250,000. Doubling it again could make a little bit of sense but yeah as you mentioned that would be a drop in the bucket for the amounts at stake here

And the average person is thinking 250,000? That must be a nice problem to have.

I think you might be surprised at how many "average" people have that amount laying around. A quarter mil doesn't quite have the same ring to it that it once did.

I think you might be surprised at how many "average" people have that amount laying around. A quarter mil doesn't quite have the same ring to it that it once did.

the "average person" . doesn't have anywhere close to that ..

more than half of woking americans make less then 75k the median man earns 50k women 36k


42% of americans have less then 1k in savings ..

more then half of americans have under 6k in the bank

I think you might be surprised at how many "average" people have that amount laying around. A quarter mil doesn't quite have the same ring to it that it once did.

It's still a number that only the top 30% or so have, and most of that is in 401ks and IRAs. In fact, taking out retirement funds, only 20% of Americans have savings in excess of 50k, so the number having excess of $250k is still very, very low.

the "average person" . doesn't have anywhere close to that ..

more than half of woking americans make less then 75k the median man earns 50k women 36k


42% of americans have less then 1k in savings ..

more then half of americans have under 6k in the bank


It's still a number that only the top 30% or so have, and most of that is in 401ks and IRAs. In fact, taking out retirement funds, only 20% of Americans have savings in excess of 50k, so the number having excess of $250k is still very, very low.

Top 30% is nearly 100 million people- thats a huge percentage of the population with at least a quarter mil assuming that figure is accurate. Considering nearly 1/10 are Millionaires now there are a ton of average people out there with 250k.

Top 30% is nearly 100 million people- thats a huge percentage of the population with at least a quarter mil assuming that figure is accurate. Considering nearly 1/10 are Millionaires now there are a ton of average people out there with 250k.

Again, that's 30% with a quarter mil *in retirement accounts*. Those aren't (or shouldn't be) just sitting in a bank account but are in 401ks and IRAs which aren't really relevant to this discussion. In fact, I doubt even millionaires (which is more like 8%, not 1/10) have $250k just sitting in bank accounts. Most of the wealthy don't rely on liquidity just sitting around.

The $250k limit is only an issue for the elites in the US. For the vast majority of us, it's more than enough.

Top 30% is nearly 100 million people- thats a huge percentage of the population with at least a quarter mil assuming that figure is accurate. Considering nearly 1/10 are Millionaires now there are a ton of average people out there with 250k.

almost like it is 30%

but again that is an entirely different conversation l this was about money in bank accounts ... covered by the FDIC not retirement accounts ..

Even if I liquidated every asset I own (house, two cars, retirement accounts) and put it all in same the bank, I still wouldn't have $250,000.

I can't imagine I'm the only person that's true for. A lot of people are worse off than I am.

I would be shocked if more than 15% had penalty-free liquid assets of at least $250,000. Net worth, sure, but liquid assets? Seems very unlikely.

Even if I liquidated every asset I own (house, two cars, retirement accounts) and put it all in same the bank, I still wouldn't have $250,000.

I can't imagine I'm the only person that's true for. A lot of people are worse off than I am.

Same.

My wife spends all my money though.

Signature Bank goes down with it, government had to step in at this point as there's clearly a systemic risk. Crazy times.

I would be shocked if more than 15% had penalty-free liquid assets of at least $250,000. Net worth, sure, but liquid assets? Seems very unlikely.
Money held in trusts is protected by FDIC, if held in a bank. Not talking about stocks, bonds, or mutual funds. Many people set up their trusts with rules about how much has to stay in cash assets.

Signature Bank goes down with it, government had to step in at this point as there's clearly a systemic risk. Crazy times.

Barney Frank of Dodd-Frank law fame sits on their board.

Signature Bank goes down with it, government had to step in at this point as there's clearly a systemic risk. Crazy times.

Another banker for crypto clients.

Signature Bank goes down with it, government had to step in at this point as there's clearly a systemic risk. Crazy times.

Nah. Signature Bank is mainly a crypto-focused bank. Let it die. Also good for the climate if crypto truly crashes, as it deserves to.

Looks like some kind of bailout might be in place. Futures are awfully green atm.

Yellen says no bailout :Smiley171:

This should be a lesson to anyone with these types of funds sitting in a bank to make sure it's FDIC insured & to diversify them between multiple accounts/banks backed by the FDIC.

Do you believe her?

Also, the whole insured deposit thing is now a moot point because the Fed is going to cover 100% of every account. And how are they going to do that? By creating more money from thin air. The Fed has become schizophrenic. Meanwhile back at the ranch, what are we going to do about inflation?

Three dimensional shell game. It's will be a stealth bailout by the Fed.

Money held in trusts is protected by FDIC, if held in a bank. Not talking about stocks, bonds, or mutual funds. Many people set up their trusts with rules about how much has to stay in cash assets.

Sure, but I was mainly replying to the idea that some huge percentage of people have over $250k sitting in a bank account.

Even in your example, if you are an individual and have more than $250k in any one bank account, you're a fool unless you can lose every dollar over that $250k without batting an eye. Even in a trust of substantial size (let's say $10 million), it's not likely that you should need to expose much of that to uninsured deposits. You're obviously not going to have accounts at 40 different banks for those funds, especially given that you wouldn't keep even a majority in direct cash assets.

Corporate/Business holdings are a little different given the small sum of money $250k represents in the business world. So if the argument is increase to $500k so businesses are better protected, I think that increase barely moves the needle.

Generally speaking any individual who needs protection by FDIC probably doesn't need anywhere near $250k protected.

Do you believe her?

Also, the whole insured deposit thing is now a moot point because the Fed is going to cover 100% of every account. And how are they going to do that? By creating more money from thin air. The Fed has become schizophrenic. Meanwhile back at the ranch, what are we going to do about inflation?

Great question- where does the Fed go from here? Surely there is another solution besides jacking the rates into oblivion and it seems likely they'll have to pause at least temporarily now. Keep raising and risk the whole house of cards falling and the government can't bail out everything. That soft landing is looking like a crash landing.

The Fed really has no choice but to keep raising rates. Bank failures might damage the economy, but runaway inflation could end the country. Besides, this bank failure is exactly what needs to be happening. We have $8 trillion dollars that needs to be taken out of the economy to get inflation back to 2%. Some people are going to have a lot less money in 2 years than they have today...a lot less.

And by some people, I mean lots of people. $8 trillion is 1/3 of our entire money supply. That is how much damage Quantitative Easing did.

Sure, but I was mainly replying to the idea that some huge percentage of people have over $250k sitting in a bank account.

Even in your example, if you are an individual and have more than $250k in any one bank account, you're a fool unless you can lose every dollar over that $250k without batting an eye. Even in a trust of substantial size (let's say $10 million), it's not likely that you should need to expose much of that to uninsured deposits. You're obviously not going to have accounts at 40 different banks for those funds, especially given that you wouldn't keep even a majority in direct cash assets.

Corporate/Business holdings are a little different given the small sum of money $250k represents in the business world. So if the argument is increase to $500k so businesses are better protected, I think that increase barely moves the needle.

Generally speaking any individual who needs protection by FDIC probably doesn't need anywhere near $250k protected.

The huge majority of accounts with over $250k in a bank are not individuals or trusts. They are commercial accounts. I am a commercial banker and my customers generally average well over $250k in their accounts.

If businesses failed because their liquidity was wiped out due to a bank failing, it could be the spark of another recession or depression. The Fed is doing the right thing here by covering these deposit accounts.

Even if I liquidated every asset I own (house, two cars, retirement accounts) and put it all in same the bank, I still wouldn't have $250,000.

I can't imagine I'm the only person that's true for. A lot of people are worse off than I am.

You aren't. The median savings in 2019 was $5,300 and the average was $41,600, across the whole US. For the top 10% of income earners, the median in savings is $69,000 and the mean is $229,400. With the median being so much less than the mean, there is a very high positive skew - so you are probably looking at the top couple percent that have over $250k in a bank account.

Curiosity question. I would assume most businesses also have line of credits and/or other loans with their primary bank. Thus...If I have a 50k loan or LOC and have 300 k in the bank when it fails.....does the loss of the >250 k deposit balance that is lost negate the outstanding loan or LO (This is assuming not bailed out and loan not sold to third party before.)

Curiosity question. I would assume most businesses also have line of credits and/or other loans with their primary bank. Thus...If I have a 50k loan or LOC and have 300 k in the bank when it fails.....does the loss of the >250 k deposit balance that is lost negate the outstanding loan or LO (This is assuming not bailed out and loan not sold to third party before.)

I have no actual idea, but I would assume assets and liabilities are handled separately unless there was some specific link between the accounts beyond just that it shares a common owner.

I would certainly defer to an expert but I would say the answer is No. Your loan debt is an asset to the bank which has value and can be sold. Even if it was sold for 1/2 price that is still far better than losing 100%.

This is from FDIC’s website:

In the case of a delinquent loan, the FDIC will “set off” the loan against the borrower’s deposits (if any) before paying deposit insurance. In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity.

Interesting - so the answer is actually Yes.

Interesting - so the answer is actually Yes.

Could be...looks like they could elect that option or not, which, depending on how insolvent the situation is, could make sense.

Inflation is up 6% in Feb. Keep in mind, that is 6% on top of the 8% from this time last year. We are now getting inflation on top of inflation.

https://www.cnbc.com/2023/03/14/cpi-inflation-february-2023-.html

In other news Moody's cut the outlook of US banking system to negative. Hard to disagree after the last weeks events. Fed really is in a catch 22 now on rates. It's as if we can't just jack up the rates and solve the 8 trillion dollars pumped into the economy. This may be the new economic reality for years to come.

It's not just rates. Boomers retirement is killing the economy.

I still maintain the Fed has no choice but to raise rates, even if it means crashing the economy into a mountain.