Bank goes boom. Or is it "Banks go boom"?

[Raphael]

Feel free to discuss the current banking crisis saga here. Is there really going to be a new economic collapse because one bank was run by idiots, and apparently targeted by Peter Thiel?

[Ares Land]

Feel free to discuss the current banking crisis saga here. Is there really going to be a new economic collapse because one bank was run by idiots, and apparently targeted by Peter Thiel?

Oh, when financial crises happen, it always turns out it wasn't just one bank. In 2008 a lot of banks were run by idiots, not just Lehmann Brothers. It's probably not very reassuring, I know.

I can't say I'm terribly surprised, that said. The tech sector as a whole is currently run by people with way too much money in their hands, and there's a disproportionate level of interest (both in tech and finance) in pump-and-dump schemes, other kinds of scams, or just plain useless products. This on top of the general inflation crisis. So something like this was bound to happen eventually, I guess?

[chris_notts]

One interesting thing is that almost all the banks providing interconnection between the mainstream financial system and the crypto exchanges / ecosystem have now gone boom. Another nail in the coffin of crypto.

[Travis B.]

One interesting thing is that almost all the banks providing interconnection between the mainstream financial system and the crypto exchanges / ecosystem have now gone boom. Another nail in the coffin of crypto.

Good riddance. Crypto is one big scam.

[Linguoboy]

Feel free to discuss the current banking crisis saga here. Is there really going to be a new economic collapse because one bank was run by idiots, and apparently targeted by Peter Thiel?

Oh, when financial crises happen, it always turns out it wasn't just one bank. In 2008 a lot of banks were run by idiots, not just Lehmann Brothers. It's probably not very reassuring, I know.

In 2008, there was a general underlying idiocy that pretty much every major financial institution was involved with at some level, namely the subprime mortgage crisis. The banks that collapsed (not just Lehmann Brothers but Washington Mutual--still the largest bank failure in US history) were those most exposed to it, but all of them took some kind of hit.

If there's a similar underlying idiocy here, I haven't yet come across what it is. Basically this was an old-time bank run: SVB had enough capital but not enough cash to fund their creditors so when the run started, they were caught out. According to at least one source I've read, this was in part due to the repeal of a regulation in 2018 that applied to SVB but not to all banks; if that's the case, then this could indeed be fairly contained. Of course a major cause of their lack of liquidity is high interest rates and low bond yields and those aren't going away any time soon so they might not be the last in this situation.

[rotting bones]

The government won't bail them out?

Of course a major cause of their lack of liquidity is high interest rates and low bond yields and those aren't going away any time soon so they might not be the last in this situation.

My roommate thinks the entire economy fundamentally hinges on the interest rates. I'm not educated enough on this matter to comment.

[Linguoboy]

The government won't bail them out?

The government is only legally required to bail out individual depositors to the tune of $250,000 each. Obviously many of the accounts were much fatter than that. Ultimately, the boards of the FDIC and the Federal Reserve voted unanimously to pay all the creditors in full. (Investors in SVB, on the other hand, are SOL because--to quote Biden--"that's how capitalism works".) The reason they did this was ostensibly that many Silicon Valley firms were going to be unable to make payroll and the administration was worried about the knockoff effects on the economy. Essentially they're kicking out the current management of the bank and replacing it with their own team.

[Raphael]

OK, I don't really follow financial news much, but what little I've seen this week leaves me with the impression that the problem is far from solved.



A long time ago, inside my head, I had an idea for a hypothetical campaign ad for a hypothetical very left-wing, decidedly anti-capitalist political party. It would start at some big corporate event, where a CEO would take questions from journalists, and one of the journalists would ask him how he would describe the general state of his company.

CEO: The general state of our company is... (gasps for air for a moment, then sneezes)
CUT to the ongoing broadcast of a business news TV channel, featuring a very concerned looking news presenter.
News Presenter: (very concerned voice) Can one of the biggest corporation in the world keep the confidence of the markets when its own CEO explicitly describes its general state as, quote, "Ah-choo"?
CUT to scenes of intense turmoil on various trading floors, with many yelling and gesticulating businesspeople.
CUT to another business news TV channel broadcast, featuring another news presenter.
News Presenter #2: After the collapse of one of the world's richest corporation, markets are in free fall as more and more investors try to pull their money out of more and more corporations.
CUT to more scenes of turmoil on trading floors, then to a number of individual people being told that they're fired.

I've thought a lot about that old idea of mine over the course of the last few days.

[Ares Land]

In France we used to have a satirical daily puppet show called Les Guignols -- they stole the concept from Spitting Image. It was immensely popular.
Anyway, the reason I mention it is that your skit would have fit Les Guignols perfectly.

(They didn't actually run anything like this, but a few skits were close.)

[chris_notts]

Something seems to be going on at Credit Suisse:

https://www.bbc.com/news/business-64964881

The share price is tanking, CDS market implies a significant risk of the bank defaulting etc.

[Moose-tache]

My roommate thinks the entire economy fundamentally hinges on the interest rates. I'm not educated enough on this matter to comment.

I don't know about "fundamentally" or "entire," but interest rates are very important. They tend to both be in response to imporant events, and signal important events. For example, high inflation caused interest rates ot be raised, which in turn has sent every tech company scrambling to turn a profit in the absense of free money.

[rotting bones]

The government is only legally required to bail out individual depositors to the tune of $250,000 each. Obviously many of the accounts were much fatter than that. Ultimately, the boards of the FDIC and the Federal Reserve voted unanimously to pay all the creditors in full. (Investors in SVB, on the other hand, are SOL because--to quote Biden--"that's how capitalism works".) The reason they did this was ostensibly that many Silicon Valley firms were going to be unable to make payroll and the administration was worried about the knockoff effects on the economy. Essentially they're kicking out the current management of the bank and replacing it with their own team.

Wasn't there a full bailout or am I misunderstanding this?

That was just hours before a de facto bailout was announced late Sunday, in which the Treasury and Fed agreed to rescue SVB depositors who lost access to the funds they held at SVB above the $250,000 limit covered by the Federal Deposit Insurance Corp., the U.S. agency tasked with protecting bank deposits.

Source: https://powercorridor.substack.com/p/po ... -new-world

I don't know about "fundamentally" or "entire," but interest rates are very important. They tend to both be in response to imporant events, and signal important events. For example, high inflation caused interest rates ot be raised, which in turn has sent every tech company scrambling to turn a profit in the absense of free money.

He used to think US bonds were the world's safest assets. Now the safest assets are dollars, sending the economy towards deflation.

My roommate also says that this fiasco was caused by a lot of banking regulations being relaxed in the Trump era.

[chris_notts]

He used to think US bonds were the world's safest assets. Now the safest assets are dollars, sending the economy towards deflation.

It's true that the value of outstanding government bonds are going to vary in price a bit, normally moving in the opposite direction to interest rates, but in terms of catastrophe risk there should be little difference in safety between USD and government bonds, because:

Currency value and the credit worthiness of the country/countries backing the currency are tightly coupled. Government bonds would only really collapse if the US government couldn't or wouldn't pay, and if that were the case then the government also couldn't keep the financial system together.

Which in turn would mean the currency collapses, because if you hold USD you probably have it in some kind of financial institution... Which probably holds a lot of bonds. If the bond market blows up, then the financial system blows up, then the dollar as we know it is going with it. Unless your roommate is literally hoarding USD in his mattress, and hopes the paper notes still have value in the rubble afterwards?

[Moose-tache]

As I said in another thread that the most durable building is the building which people have the will to maintain over time, so too the safest investment is the investment Congress is most determined to salvage. Case in point, buying up empty penthouses in Manhattan might seem risky, but it turns out the government will eat shit before it lets you lose money on a real estate investment. Government bonds, even more than other investments, can't be allowed to fail. The last drop in the tank would go toward propping up government bonds. We could be well into the zombie apocalypse before Washington writes those off.

[Raphael]

And it keeps going on, and on, and on. This is both very worrying, and, in my not so humble opinion, just plain fucking annoying.