03-16-2023, 07:03 PM
The 2023 Financial Crisis Has Begun • The Non-Bailout Bailout = Inflationary Destruction To Come
Peter Schiff
As we start to sort through the fallout of the failure of Silicon Valley Bank and Signature Bank and the government’s reaction to it, the next question is: what’s next?
Government officials and mainstream pundits insist everything is fine now. They say quick government action averted a crisis. But in his podcast, Peter Schiff said this is really just the beginning of the next financial crisis.
This is no longer the 2008 financial crisis. This is the 2023 crisis. It’s been a long time — fifteen years since we had a financial crisis. I’m surprised it’s taken this long for this crisis to begin. But I’m not surprised we are having a crisis.”
Over the weekend, the Federal Reserve and the US Treasury took quick steps to address the failure of the two big banks. Peter called it “the plunge protection team.”
In order to prevent bank runs and shore up the system, they created a mechanism to ensure nobody loses their deposits – even those that weren’t insured by the FDIC. They also set up a loan program that effectively bails out any other banks that might be on shaky ground.
While these actions only kick the can down the road, Peter said the situation would have been much worse had the government not announced this bailout. We would have almost certainly had more bank failures.
Of course, government officials, including President Biden insist this isn’t a bailout.
Nobody wants to admit it’s a bailout because, obviously, the bailouts were not popular, and so they want to distance themselves from that language. But this absolutely is a bailout.”
Government officials can plausibly claim they are not bailing out the failed banks because they are letting the institutions go under. But the bank’s customers are getting bailed out.
They would have lost money. But now they’re not going to lose money. Why? Because the government is going to make up their losses.”
Biden and others also swear taxpayers aren’t on the hook for any of this.
OK, well, then where’s the money going to come from? The man in the moon? Of course, the taxpayers are going to pay. But they may not pay in the form of taxes because nobody has the integrity to actually raise middle-class taxes. But that doesn’t mean the taxpayers are going to get away with this. They’re going to pay for it. It’s just that they’re not going to pay for it with higher taxes. They’re going to pay for it with higher prices.”
Peter is referring to the inflation tax.
On Sunday the Fed announced the Bank Term Funding Program (BTFP). This program will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks will be able to borrow against their assets “at par” (face value).
In effect, the plan creates a mechanism for banks to acquire capital they couldn’t otherwise access under normal market conditions. And of course, the Fed will create the money for these loans out of thin air.
In fact, as far as I’m concerned, today marks the return to quantitative easing. So, we are now officially in QE 5. And I expect the Fed’s balance sheet to go up from here.”
Peter said it’s amazing that just a week ago, people were still talking about the Fed slaying inflation while bringing the economy to a “soft landing.” Meanwhile, he was saying the only way the Fed could succeed in getting inflation anywhere near 2% is by creating not just a recession, but a financial crisis.
So, it wasn’t just that we were going to have a recession. We were going to have another financial crisis. And I also said that the financial crisis that the Fed was going to create this time would be worse than the one that it created in 2008. And that’s exactly where we are.”
Peter said this financial crisis is already so much worse that the government effectively raised FDIC protection from $250,000 to infinity.
They just set the precedent. I know they haven’t codified it into law. But they just set the precedent of bailing out the depositors of these two banks.”
And with the wave of a wand, the federal government effectively took on an extra $7 trillion in unfunded liabilities. (The total of uninsured bank deposits.)
Meanwhile, many more banks were going to fail had the government not backstopped them.
Those executives were bailed out because they would have lost their jobs when their banks went under, but now their banks are not going to go under because of the bailout. A lot of stockholders would have lost their money. But now they’re not going to lose their money because of these bailouts. Yes, there are a couple of people who got punished. But all of these other banking executives who made the same mistakes, who have the same overleveraged balance sheets — they’re all going to get bailed out.”
Biden said he was going to find the people responsible for this situation and punish them and hold them accountable. Peter pointed out that one of them is right in his administration.
She’s the secretary of the Treasury, Janet Yellen. The people responsible for this mess are all the chairmen and chair ladies of the Federal Reserve starting with Alan Greenspan right up to Powell.”
Nevertheless, the powers-that-be claim their quick action prevented bank runs and the financial system remains sound. “Your money is safe,” they say.
Peter disagrees.
As a result of these bailouts, the money that people have on deposit at banks is at greater risk than ever. In fact, it’s not just the deposits at these failed banks. But every deposit at every bank is now at risk. And the reason is because of inflation. Massive inflation is going to be created to pay for these bailouts. A return to quantitative easing. Prices are going to go through the roof. That means the purchasing power of bank deposits is going to fall through the floor.”
In this podcast, Peter goes on to explain the dynamics behind the bailouts.
https://www.lewrockwell.com/2023/03/no_a...has-begun/
Prepare For Governments To Push Central Bank Digital Currencies In The Wake Of The Silicon Valley Bank collapse • Say No To CBDCs
Tom Parker
Over 100 of the world's governments are planning to push central bank digital currencies (CBDCs) and the collapse of Silicon Valley Bank may have given them the perfect opportunity to introduce this nightmarish surveillance tech.
The heightened fear of bank runs and the growing calls for more government controls to prevent another Silicon Valley Bank-style event has created space for governments to swoop in and present CBDCs as the solution.
Prepare for these talking points to become prominent as governments ramp up their efforts to push CBDCs:
Talking Point 1: CBDCs will protect you from social media bank runs
Within days of Silicon Valley Bank's failure, it was described as the “first social-media fueled bank run in history” and fears about “social media disinfo” started to be stoked.
Similar talking points were quickly echoed by politicians. United States (US) House Financial Services Chair Patrick McHenry described it as “the first Twitter fueled bank run.” During an emergency conference call with high-ranking federal government officials, Senator Mark Kelly asked if the officials were reaching out to tech platforms to monitor “misinformation” and “bad actors” and inquired about the possibility of censoring social media posts to avoid a bank run.
Governments are likely to seize upon and amplify these fears of social media bank runs as they push new regulations and proposals in the wake of the Silicon Valley Bank collapse. And they're likely to position CBDCs as the solution.
Be on the lookout for suggestions from officials that CBDCs are “safe” and immune to social media bank runs. While such promises may soothe citizens' fear of bank runs, this fear will be replaced with something far worse for those that embrace CBDCs — programmable money that allows the government to dictate when, where, or if citizens can spend their money.
Talking Point 2: CBDCs will provide financial stability
As Silicon Valley Bank collapsed, the prospect of widespread financial contagion event loomed. Companies said they were left unable to pay staff, large online platforms delayed payments to sellers, and other companies revealed that they held significant portions of their cash at Silicon Valley Bank.
While the US government stepping in to guarantee Silicon Valley Bank customer deposits appears to have averted much of the wider financial collateral damage (although this won't be fully apparent until more time has passed), President Joe Biden has already vowed to “reduce the risks of this happening again.” Get ready for governments to capitalize on the fear of financial instability and use this narrative to push new rules and regulations that will supposedly provide financial stability. They'll likely blame banks for creating financial blowups, insist that governments need more control over the financial system, and present CBDCs as the tool that will bring financial stability.
Those that fall for this fantasy will be locked into a system that's anything but stable. Instead of bringing financial stability, CBDCs will force citizens into a constant state of financial uncertainty where they never know when the rules about how they can spend their money will change or how significant the changes will be.
Talking Point 3: CBDCs should be used for customer deposit protection
Many governments have already cited making direct payments to citizens as one of the main use cases for a CBDC. If more banks fail, expect governments to start increasingly focusing on CBDCs as a solution for affected customers.
Be on the lookout for governments urging citizens to download CBDC wallet apps during times of financial uncertainty. They'll likely assert that this is a more streamlined or efficient way for customers to have instant access to their deposits in the event of bank failures.
While CBDCs may provide some short-term convenience during financially turbulent times, citizens that choose CBDCs will be sacrificing their freedom and privacy long-term. Once they've been ushered into this system, they'll lose their ability to transact anonymously and only be allowed to spend their CBDCs on government-approved purchases.
Remain vigilant against CBDCs
During the last major crisis, the Covid pandemic, governments leveraged uncertainty and fear of the virus to push dystopian surveillance tech such as contact tracing, vaccine passports, and digital ID. Expect them to use the same playbook when pushing CBDCs.
Governments are likely to use talking points that tap into people's fear of losing money during times of economic turbulence and use false promises of safety and stability to lure citizens into a CBDC system.
Don't be fooled. Governments have already made it clear that they plan to strip users of their financial freedom and privacy by imposing CBDC spending limits and controls and removing anonymity.
Reject these talking points when you hear them and say no to CBDCs!
https://reclaimthenet.org/silicon-valley...lapse-cbdc
https://rielpolitik.files.wordpress.com/...png?w=1024
What Comes After the Great Liquidation
MN Gordon
Expectations were great. When 2023 started, there was a general sense that the stock and bond markets had turned over a new leaf. A repeat of 2022 was out of the question.
The primary assumption was that inflation would relent. After that, everything else would neatly fall in line. Specifically, interest rates would decline, and the next great stock market boom would bubble up just in time to bailout the meager retirement savings of aging baby boomers.
That was the general outlook when 2023 commenced. But instead, the opposite is now happening. Inflation is persisting. Interest rates are rising. And stock and real estate prices are headed down, down, down.
This week, for example, Fed Chair Jerome Powell, in his semi-annual Congressional testimony, clarified that interest rates would go “higher than previously anticipated.” He also noted that, if needed, he’s “prepared to increase the pace of rate hikes.”
In other words, the much-anticipated Powell pivot has gone on indefinite hiatus. You can fight the Fed and buy stocks if you must. But you won’t likely be very happy with the results.
Moreover, Fed rate hikes are only part of the story. To be clear, the Fed’s rate hikes are to the federal funds rate. However, they do, in fact, influence Treasury rates.
Since March 2022, the Fed has hiked the federal funds rate from a target range of 0 to 0.25 percent to a range of 4.50 to 4.75 percent. As a result, and over this duration, the 2-year Treasury yield has jumped from 1.75 to over 5 percent.
What to make of it…
Radical Action
Rising interest rates mean higher borrowing costs. And higher borrowing costs mean a greater percentage of income is needed to service the debt.
This has various ramifications. For example, if more income is being used to service the debt there is less income available to use for savings, investments, or to buy other goods and services.
With less money available to spend or to invest in capital markets, economic growth stagnates. This, in short, intensifies the problem.
With less capital and savings available, and less spending taking place, there’s ultimately less economic activity. And when there’s less economic activity taking place there’s less cash flow available to service the debt.
To then make up the difference, consumers must use greater amounts of consumer debt to attain the consumer spending needed to preserve their lifestyle. This, again, is a dead-end street. Applying additional amounts of debt is a short-term solution for a long-term problem.
The debt, unfortunately, doesn’t magically disappear. It piles up until a point where radical action must be taken. Creditors get stiffed. Or debtors massively reduce spending to pay down the debts previously incurred.
It is all very basic. A simple acceptance of reality, and the determination to take the necessary footwork, can result in great things. In this case, it can turn the pain involved with digging one’s way out of debt into the foundations for building wealth.
A debtor that is successful at digging themselves out of a hole by massively reducing spending will then have the opportunity to build real wealth. Because once there is no debt left to pay off, the excess money can be saved and invested.
Americans on the Hook
Structuring your lifestyle and spending habits to be less than your income is fundamental to building real wealth. The best investment opportunity in the world could be right in front of your face. Yet if you don’t have the capital, you won’t have the ability to capitalize on it.
We’re not sure why, but few people have the discipline to spend less than they make, and then save and invest the difference. This is why most people should be prepared to eat canned lima beans in retirement – the puke green ones the cafeteria served you in grammar school.
Over the years, U.S. debtors – including consumers and the government – have spent their way into a massive debt hole. For several decades, these massive debts have been masked by low interest rates. The days of refinancing at ever lower rates are over.
Interest rates are rising. But what if interest rates must increase much, much higher than Powell anticipates?
The truth is, there are groundbreaking events that are well beyond Powell’s control. For example, Japan may be the world’s largest holder of U.S. Treasuries. But the appetite Japanese investors have for Treasuries may be souring. In this respect, the Wall Street Journal recently posited the following:
“Last year, the Federal Reserve’s interest-rate increases weakened the yen and lifted the cost of hedging against currency fluctuations for Japanese investors buying U.S. assets. That drove many to unload U.S. bonds, in a shift from years of purchases that made Japan the world’s largest foreign holder of Treasurys. Now, investors are growing worried the selling will resume, especially with Treasury yields hurtling toward decade-plus highs.
“Without that support, Americans could be on the hook for higher borrowing costs on everything from single-family mortgages to business loans.”
Are you an American? Do you delight in the prospect of being on the hook for higher borrowing costs?
What Comes After the Great Liquidation
Fed rate hikes, to contain the inflation of its own making, are contributing to higher Treasury rates and higher borrowing costs. This will continue to push borrowing costs higher and higher until something breaks.
What will that something be? And what will be the first something to break?
Will inflation break first? That’s the soft-landing scenario that Powell is after.
Or will the economy and big banks break first?
In this scenario, there would be mass layoffs, business closures, and a giant wave of bankruptcies. There would also be the blow-up of several big investment banks or significant investment funds.
Alas, we believe the soft-landing scenario is highly unlikely. The recklessness that was committed in the run-up to the coronavirus panic, which then went into complete overdrive when the whole world lost its mind, must be reconciled.
There’s no easy way out of this one. Mass liquidation is coming. Still, when the dust settles consumer prices will remain higher than they were at the start of 2020.
There’s no going back to the prices of January 2020 for the same reason there will never, ever be penny candy again. The dollar debauchery that took place has permanently disfigured prices.
The central planners, eager to deliver something for nothing, caused an epic disaster. And they won’t stop. They’ll continue to act – and they’ll say they’re acting with courage. What then?
More than likely, through money supply expansion and currency debasement, the central planners will continue down the inflationary path. Maybe it will continue at a subtle or moderate rate over many years or decades. Or they could trigger runaway inflation, where velocity spikes up and prices double and triple in just a few weeks.
No doubt, we’ll all find out soon enough. In the meantime, pay down debts, save cash, buy gold, and stack silver. With a little luck, you’ll make it though with a slimmer waistline and a greater mistrust of the planners in charge.
There’s also the unthinkable to consider. Is China secretly planning to attack Taiwan? Are your finances prepared for such madness?
https://economicprism.com/what-comes-aft...quidation/
https://rielpolitik.files.wordpress.com/....png?w=396
Why the Banking System is Breaking Up
Michael Hudson
The collapses of Silvergate and Silicon Valley Bank are like icebergs calving off from the Antarctic glacier. The financial analogy to the global warming causing this collapse is the rising temperature of interest rates, which spiked last Thursday and Friday to close at 4.60 percent for the U.S. Treasury’s two-year bonds. Bank depositors meanwhile were still being paid only 0.2 percent on their deposits. That has led to a steady withdrawal of funds from banks – and a corresponding decline in commercial bank balances with the Federal Reserve.
Most media reports reflect a prayer that the bank runs will be localized, as if there is no context or environmental cause. There is general embarrassment to explain how the breakup of banks that is now gaining momentum is the result of the way that the Obama Administration bailed out the banks in 2008. Fifteen years of Quantitative Easing has re-inflated prices for packaged bank mortgages – and with them, housing prices, stock and bond prices.
The Fed’s $9 trillion of QE (not counted as part of the budget deficit) fueled an asset-price inflation that made trillions of dollars for holders of financial assets, with a generous spillover effect for the remaining members of the top Ten Percent. The cost of home ownership soared by capitalizing mortgages at falling interest rates into more highly debt-leveraged property. The U.S. economy experienced the largest bond-market boom in history as interest rates fell below 1 percent. The economy polarized between the creditor positive-net-worth class and the rest of the economy – whose analogy to environmental pollution and global warming was debt pollution.
But in serving the banks and the financial ownership class, the Fed painted itself into a corner: What would happen if and when interest rates finally rose?
In Killing the Host I wrote about what seemed obvious enough. Rising interest rates cause the prices of bonds already issued to fall – along with real estate and stock prices. That is what has been happening under the Fed’s fight against “inflation,” its euphemism for opposing rising employment and wage levels. Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets on their balance sheet to back their deposits.
The result threatens to push down bank assets below their deposit liabilities, wiping out their net worth – their stockholder equity. This is what was threatened in 2008. It is what occurred in a more extreme way with S&Ls and savings banks in the 1980s, leading to their demise. These “financial intermediaries” did not create credit as commercial banks can do, but lent deposits out in the form of long-term mortgages at fixed interest rates, often for 30 years. But in the wake of the Volcker spike in interest rates that inaugurated the 1980s, the overall level of interest rates remained higher than the interest rates that S&Ls and savings banks were receiving.
Depositors began to withdraw their money to get higher returns elsewhere, because S&Ls and savings banks could not pay their depositors higher rates out of the revenue coming in from their mortgages fixed at lower rates. So even without fraud Keating-style, the mismatch between short-term liabilities and long-term interest rates ended their business plan.
The S&Ls owed money to depositors short-term, but were locked into long-term assets at falling prices. Of course, S&L mortgages were much longer-term than was the case for commercial banks. But the effect of rising interest rates has the same effect on bank assets that it has on all financial assets. Just as the QE interest-rate decline aimed to bolster the banks, its reversal today must have the opposite effect. And if banks have made bad derivatives trades, they’re in trouble.
Any bank has a problem of keeping its asset valuations higher than its deposit liabilities. When the Fed raises interest rates sharply enough to crash bond prices, the banking system’s asset structure weakens. That is the corner into which the Fed has painted the economy by QE.
The Fed recognizes this inherent problem, of course. That is why it avoided raising interest rates for so long – until the wage-earning bottom 99 Percent began to benefit by the recovery in employment. When wages began to recover, the Fed could not resist fighting the usual class war against labor. But in doing so, its policy has turned into a war against the banking system as well.
Silvergate was the first to go, but it was a special case. It had sought to ride the cryptocurrency wave by serving as a bank for various currencies. After SBF’s vast fraud was exposed, there was a run on cryptocurrencies. Investor/gamblers jumped ship. The crypto-managers had to pay by drawing down the deposits they had at Silverlake. It went under.
Silvergate’s failure destroyed the great illusion of cryptocurrency deposits. The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds? What is crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers?
Silicon Valley Bank also is in many ways a special case, given its specialized lending to IT startups. New Republic bank also has suffered a run, and it too is specialized, lending to wealthy depositors in the San Francisco and northern California area. But a bank run was being talked up last week, and financial markets were shaken up as bond prices declined when Fed Chairman Jerome Powell announced that he actually planned to raise interest rates even more than he earlier had targeted. Rising employment rates make wage earners more uppity in their demands to at least keep up with the inflation caused by the U.S. sanctions against Russian energy and food and the actions by monopolies to raise prices “to anticipate the coming inflation.” Wages have not kept pace with the resulting high inflation rates.
It looks like Silicon Valley Bank will have to liquidate its securities at a loss. Probably it will be taken over by a larger bank, but the entire financial system is being squeezed. Reuters reported on Friday that bank reserves at the Fed were plunging. That hardly is surprising, as banks are enjoying record interest rate spreads. No wonder well-to-do investors are running from the banks.
The obvious question is why the Fed doesn’t simply bail out banks in SVB’s position. The answer is that the lower prices for financial assets looks like the New Normal. For banks with negative equity, how can solvency be resolved without sharply reducing interest rates to restore the 15-year Zero Interest-Rate Policy (ZIRP)?
There is an even larger elephant in the room: derivatives. Volatility increased last Thursday and Friday. The turmoil has reached vast magnitudes beyond what characterized the 2008 crash of AIG and other speculators. Today, JP Morgan Chase and other New York banks have tens of trillions of dollar valuations of derivatives – casino bets on which way interest rates, bond prices, stock prices and other measures will change.
For every winning guess, there is a loser. When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.
There is now a flight to “cash,” to a safe haven – something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders. It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.
So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015. So the chickens are coming hope to roost – with the “chicken” being, perhaps, the elephantine overhang of derivatives fueled by the post-2008 loosening of financial regulation and risk analysis.
https://michael-hudson.com/2023/03/why-t...eaking-up/
https://www.commondreams.org/media-libra...2C0%2C1644
Traders work on the floor of the New York Stock Exchange during morning trading on March 15, 2023 in New York City.
'This Is Scary': Financial Industry Panic Spreads as Credit Suisse Teeters
Jake Johnson
"Is this the next financial crisis unfolding? It feels like it may be—and all because of reckless increases in interest rates by central banks," argued one political economist.
A vanishingly short period of relief in U.S. and global markets was shattered Wednesday after the scandal-plagued Swiss banking giant Credit Suisse announced that its auditor identified "material weakness" in its financial reporting and the firm's largest investor—the Saudi National Bank—said it wouldn't inject more cash to bolster the company.
As its share price plunged, Credit Suisse intensified concerns about its financial health—and broader alarm about the stability of global markets—by pleading with the Swiss National Bank and the regulator Finma to issue public statements of support for the lender, which controlled roughly $580 billion in assets at the end of last year.
"The bank said it is working to address the problems [with its financial reporting], which 'could require us to expend significant resources,'" The Washington Postreported Wednesday. "It cautioned that the troubles could ultimately impact the bank's access to capital markets and subject it to 'potential regulatory investigations and sanctions.'"
The fresh crisis at Credit Suisse, which comes just days after two U.S. banks collapsed, compounded fears that seemingly isolated problems at individual financial institutions could signal a deeper systemic threat with far-reaching implications for the interconnected global economy.
"This is scary—financial markets are now betting on Credit Suisse failing—and no one can pretend there will not be a fallout from that," Richard Murphy, a professor of accounting practice at Sheffield University Management School in the U.K., wrote Wednesday, pointing to the soaring price of the bank's five-year credit default swaps, which prompted flashbacks to the 2008 global financial crisis.
"Is this the next financial crisis unfolding? It feels like it may be—and all because of reckless increases in interest rates by central banks," Murphy added.
Experts and analysts have argued that—along with years of deregulation—the U.S. Federal Reserve's rapid interest rate hikes contributed to the fall of California-based Silicon Valley Bank (SVB), which sold its bond portfolio at a major loss last week after it declined in value due to the Fed's actions.
While U.S. lawmakers have lambasted SVB for poor risk management, the firm was hardly alone in taking on large bond holdings when interest rates were low only to watch them lose value precipitously as central banks jacked up rates to combat high inflation.
"Investors said Credit Suisse's problems were a reminder that Europe's banks also had large holdings of bonds that had been hammered by rising interest rates," the Financial Timesreported.
As The American Prospect's David Dayen put it Wednesday, "As long as interest rates keep rising, more banks will be exposed."
"Credit Suisse is in principle a much bigger concern for the global economy than the regional U.S. banks which were in the firing line last week."
Just a week ago, it appeared that Fed Chair Jerome Powell was bent on continuing to raise interest rates even amid mounting warnings about the potentially devastating impacts on millions of workers whose wages and jobs are on the line.
But faced with growing panic in the financial sector, Powell is now widely expected to step on the brakes—at least temporarily—at the Fed's policy meeting next week. Powell is himself a former investment banker, and Wall Street lobbies the Fed on a range of issues.
Reutersreported Wednesday that "expectations for the U.S. central bank's next move have swung wildly in recent days, after the sudden failure of two regional banks late last week triggered alarm about the health of the banking system and raised doubts about how much further the Fed may take what has been an aggressive fight against stubbornly high inflation."
Turmoil at Credit Suisse, which insists its balance sheet is "strong," will likely cement the case against further Fed rate hikes in the near future, analysts suggested.
The Treasury Department is reportedly monitoring news at Credit Suisse, whose U.S. arm is overseen by the Fed.
"Credit Suisse is in principle a much bigger concern for the global economy than the regional U.S. banks which were in the firing line last week," Andrew Kenningham, chief Europe economist with Capital Economics, wrote in a research note on Wednesday. "Credit Suisse is not just a Swiss problem but a global one."
https://www.commondreams.org/news/financ...dit-suisse
https://rielpolitik.files.wordpress.com/...ge-103.png
Moody’s Downgrades Entire U.S. Banking System; Credit Suisse Plummets. Welcome to Banking Crisis 3.0
Pam Martens and Russ Martens
The “Related Articles” linked below (a tiny sampling of relevant articles) will remind our readers just how long and in how many different ways we have been attempting to warn that the U.S. banking system was incompetently structured and at risk of systemic contagion. We have also repeatedly warned that the crony, captured Fed was the worst possible banking supervisor and should be stripped of its bank regulatory powers and restricted to setting monetary policy. We have repeatedly cautioned, citing experts in the field, that the Fed’s stress tests were little more than a placebo and would not prevent the next banking crisis.
https://rielpolitik.files.wordpress.com/...ge-101.png
On July 29 of last year we wrote that Wall Street Megabanks’ Multi-Billion Dollar Blunders Suggest Money Controls as Good as George Bailey’s Uncle Billy and summed up our analysis with: “This is the stuff of banana republics – not a financial system befitting a superpower.”
On a regular basis, we emailed these articles to key staff of the Senators and House Reps who sit on the Senate Banking and House Financial Services Committees.
Late Monday, the credit rating agency, Moody’s, downgraded the entire U.S. banking system outlook to negative from stable. (Let that sink in for a moment – a downgrade of the entire U.S. banking system.) The news of the Moody’s downgrade did not hit the wires until yesterday, which should have cratered the most vulnerable bank stocks. Instead, there was a highly suspicious short squeeze that fueled a big rally in the prices of publicly-traded banks.
That unwarranted optimism has now been reversed this morning with Dow futures down more than 600 points just after 8:00 a.m. in New York; major banks in Europe temporarily halted from trading after steep selloffs; and troubled Swiss behemoth bank, Credit Suisse, down 24 percent to a new all time low of $1.74 in morning trade in Europe following multiple trading halts. For the systemic contagion posed by Credit Suisse, see our February 10 article: Credit Suisse Tanks Yesterday to $3.02; It’s Lost Over 90 Percent of Its Market Value Since 2007; It’s Not Alone.
We say in our headline above that this is Banking Crisis 3.0 because this is the third time (excluding the emergency measures taken in 2020 as a result of the COVID pandemic) that the Federal Reserve has deployed emergency measures to bail out the U.S. banking system in the past 15 years. (Prior to the repeal of the Glass-Steagall Act in 1999, which prevented the combination of Wall Street trading houses with federally-insured banks, there had been no major Fed bailouts for 66 years.)
The banking crisis of 2008 was widely covered by the media, which even went to court to get the Fed to come clean on the dollar amounts and names of the banks that received trillions of dollars in secret, cumulative loans from the Fed. (See our report last year: Mainstream Media Has Morphed from Battling the Fed in Court in 2008 to Groveling at its Feet Today.)
But because Congress failed to restore the Glass-Steagall Act after the 2008 financial crash – the worst since the Great Depression – the Fed was back to secretly bailing out the trading units of the behemoth depository banks in September 2019. Mainstream media – across the board – censored this critical story. See our report: There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.
That censorship allowed Congress to kick the can down the road, leading to this even greater Banking Crisis 3.0 today.
Related Articles:
Secretary Yellen, We’ve Got a “Staggering” Problem: New Report Shows Foreign Banks Have Secret Derivative Debt that Is “10 Times their Capital”
Evidence Grows that Crypto and Federally-Insured Banks Are a Combustible Mixture
Casino Banking: Wall Street Mega Banks Traded More in their Federally-Insured Bank than the Total for their Bank Holding Company
Shhh! Don’t Tell the Fed or Mainstream Media that Systemic Contagion at Wall Street Banks Is Already Here
Another Dangerous Virus Hits the U.S. – Wall Street Bank Contagion
Wall Street Banks Tank Yesterday as Contagion Threat Grows
Contagion – What the Next Wall Street Crisis Will Look Like
Add 4,281 Hedge Fund Clients to What Makes JPMorgan Chase the Riskiest Mega Bank in the U.S.
New Study: Wall Street Banks Are Doubling Down on Risk by Selling Credit Default Swaps on their Risky Derivatives Counterparties
Internal Charts Show Treasury Agency Assigned to Measure Risk in U.S. Markets Slept through the Repo Crisis of 2019 and the Fed’s $19.87 Trillion Bailout
The Fed Has Misled the Public about the “Strength” of the Wall Street Mega Banks: This Chart Shows the True Picture
An Insider Blows the Whistle on How the Fed Has Allowed Crypto to Invade Federally-Insured Banks
https://wallstreetonparade.com/2023/03/m...risis-3-0/
Peter Schiff
As we start to sort through the fallout of the failure of Silicon Valley Bank and Signature Bank and the government’s reaction to it, the next question is: what’s next?
Government officials and mainstream pundits insist everything is fine now. They say quick government action averted a crisis. But in his podcast, Peter Schiff said this is really just the beginning of the next financial crisis.
This is no longer the 2008 financial crisis. This is the 2023 crisis. It’s been a long time — fifteen years since we had a financial crisis. I’m surprised it’s taken this long for this crisis to begin. But I’m not surprised we are having a crisis.”
Over the weekend, the Federal Reserve and the US Treasury took quick steps to address the failure of the two big banks. Peter called it “the plunge protection team.”
In order to prevent bank runs and shore up the system, they created a mechanism to ensure nobody loses their deposits – even those that weren’t insured by the FDIC. They also set up a loan program that effectively bails out any other banks that might be on shaky ground.
While these actions only kick the can down the road, Peter said the situation would have been much worse had the government not announced this bailout. We would have almost certainly had more bank failures.
Of course, government officials, including President Biden insist this isn’t a bailout.
Nobody wants to admit it’s a bailout because, obviously, the bailouts were not popular, and so they want to distance themselves from that language. But this absolutely is a bailout.”
Government officials can plausibly claim they are not bailing out the failed banks because they are letting the institutions go under. But the bank’s customers are getting bailed out.
They would have lost money. But now they’re not going to lose money. Why? Because the government is going to make up their losses.”
Biden and others also swear taxpayers aren’t on the hook for any of this.
OK, well, then where’s the money going to come from? The man in the moon? Of course, the taxpayers are going to pay. But they may not pay in the form of taxes because nobody has the integrity to actually raise middle-class taxes. But that doesn’t mean the taxpayers are going to get away with this. They’re going to pay for it. It’s just that they’re not going to pay for it with higher taxes. They’re going to pay for it with higher prices.”
Peter is referring to the inflation tax.
On Sunday the Fed announced the Bank Term Funding Program (BTFP). This program will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks will be able to borrow against their assets “at par” (face value).
In effect, the plan creates a mechanism for banks to acquire capital they couldn’t otherwise access under normal market conditions. And of course, the Fed will create the money for these loans out of thin air.
In fact, as far as I’m concerned, today marks the return to quantitative easing. So, we are now officially in QE 5. And I expect the Fed’s balance sheet to go up from here.”
Peter said it’s amazing that just a week ago, people were still talking about the Fed slaying inflation while bringing the economy to a “soft landing.” Meanwhile, he was saying the only way the Fed could succeed in getting inflation anywhere near 2% is by creating not just a recession, but a financial crisis.
So, it wasn’t just that we were going to have a recession. We were going to have another financial crisis. And I also said that the financial crisis that the Fed was going to create this time would be worse than the one that it created in 2008. And that’s exactly where we are.”
Peter said this financial crisis is already so much worse that the government effectively raised FDIC protection from $250,000 to infinity.
They just set the precedent. I know they haven’t codified it into law. But they just set the precedent of bailing out the depositors of these two banks.”
And with the wave of a wand, the federal government effectively took on an extra $7 trillion in unfunded liabilities. (The total of uninsured bank deposits.)
Meanwhile, many more banks were going to fail had the government not backstopped them.
Those executives were bailed out because they would have lost their jobs when their banks went under, but now their banks are not going to go under because of the bailout. A lot of stockholders would have lost their money. But now they’re not going to lose their money because of these bailouts. Yes, there are a couple of people who got punished. But all of these other banking executives who made the same mistakes, who have the same overleveraged balance sheets — they’re all going to get bailed out.”
Biden said he was going to find the people responsible for this situation and punish them and hold them accountable. Peter pointed out that one of them is right in his administration.
She’s the secretary of the Treasury, Janet Yellen. The people responsible for this mess are all the chairmen and chair ladies of the Federal Reserve starting with Alan Greenspan right up to Powell.”
Nevertheless, the powers-that-be claim their quick action prevented bank runs and the financial system remains sound. “Your money is safe,” they say.
Peter disagrees.
As a result of these bailouts, the money that people have on deposit at banks is at greater risk than ever. In fact, it’s not just the deposits at these failed banks. But every deposit at every bank is now at risk. And the reason is because of inflation. Massive inflation is going to be created to pay for these bailouts. A return to quantitative easing. Prices are going to go through the roof. That means the purchasing power of bank deposits is going to fall through the floor.”
In this podcast, Peter goes on to explain the dynamics behind the bailouts.
https://www.lewrockwell.com/2023/03/no_a...has-begun/
Prepare For Governments To Push Central Bank Digital Currencies In The Wake Of The Silicon Valley Bank collapse • Say No To CBDCs
Tom Parker
Over 100 of the world's governments are planning to push central bank digital currencies (CBDCs) and the collapse of Silicon Valley Bank may have given them the perfect opportunity to introduce this nightmarish surveillance tech.
The heightened fear of bank runs and the growing calls for more government controls to prevent another Silicon Valley Bank-style event has created space for governments to swoop in and present CBDCs as the solution.
Prepare for these talking points to become prominent as governments ramp up their efforts to push CBDCs:
Talking Point 1: CBDCs will protect you from social media bank runs
Within days of Silicon Valley Bank's failure, it was described as the “first social-media fueled bank run in history” and fears about “social media disinfo” started to be stoked.
Similar talking points were quickly echoed by politicians. United States (US) House Financial Services Chair Patrick McHenry described it as “the first Twitter fueled bank run.” During an emergency conference call with high-ranking federal government officials, Senator Mark Kelly asked if the officials were reaching out to tech platforms to monitor “misinformation” and “bad actors” and inquired about the possibility of censoring social media posts to avoid a bank run.
Governments are likely to seize upon and amplify these fears of social media bank runs as they push new regulations and proposals in the wake of the Silicon Valley Bank collapse. And they're likely to position CBDCs as the solution.
Be on the lookout for suggestions from officials that CBDCs are “safe” and immune to social media bank runs. While such promises may soothe citizens' fear of bank runs, this fear will be replaced with something far worse for those that embrace CBDCs — programmable money that allows the government to dictate when, where, or if citizens can spend their money.
Talking Point 2: CBDCs will provide financial stability
As Silicon Valley Bank collapsed, the prospect of widespread financial contagion event loomed. Companies said they were left unable to pay staff, large online platforms delayed payments to sellers, and other companies revealed that they held significant portions of their cash at Silicon Valley Bank.
While the US government stepping in to guarantee Silicon Valley Bank customer deposits appears to have averted much of the wider financial collateral damage (although this won't be fully apparent until more time has passed), President Joe Biden has already vowed to “reduce the risks of this happening again.” Get ready for governments to capitalize on the fear of financial instability and use this narrative to push new rules and regulations that will supposedly provide financial stability. They'll likely blame banks for creating financial blowups, insist that governments need more control over the financial system, and present CBDCs as the tool that will bring financial stability.
Those that fall for this fantasy will be locked into a system that's anything but stable. Instead of bringing financial stability, CBDCs will force citizens into a constant state of financial uncertainty where they never know when the rules about how they can spend their money will change or how significant the changes will be.
Talking Point 3: CBDCs should be used for customer deposit protection
Many governments have already cited making direct payments to citizens as one of the main use cases for a CBDC. If more banks fail, expect governments to start increasingly focusing on CBDCs as a solution for affected customers.
Be on the lookout for governments urging citizens to download CBDC wallet apps during times of financial uncertainty. They'll likely assert that this is a more streamlined or efficient way for customers to have instant access to their deposits in the event of bank failures.
While CBDCs may provide some short-term convenience during financially turbulent times, citizens that choose CBDCs will be sacrificing their freedom and privacy long-term. Once they've been ushered into this system, they'll lose their ability to transact anonymously and only be allowed to spend their CBDCs on government-approved purchases.
Remain vigilant against CBDCs
During the last major crisis, the Covid pandemic, governments leveraged uncertainty and fear of the virus to push dystopian surveillance tech such as contact tracing, vaccine passports, and digital ID. Expect them to use the same playbook when pushing CBDCs.
Governments are likely to use talking points that tap into people's fear of losing money during times of economic turbulence and use false promises of safety and stability to lure citizens into a CBDC system.
Don't be fooled. Governments have already made it clear that they plan to strip users of their financial freedom and privacy by imposing CBDC spending limits and controls and removing anonymity.
Reject these talking points when you hear them and say no to CBDCs!
https://reclaimthenet.org/silicon-valley...lapse-cbdc
https://rielpolitik.files.wordpress.com/...png?w=1024
What Comes After the Great Liquidation
MN Gordon
Expectations were great. When 2023 started, there was a general sense that the stock and bond markets had turned over a new leaf. A repeat of 2022 was out of the question.
The primary assumption was that inflation would relent. After that, everything else would neatly fall in line. Specifically, interest rates would decline, and the next great stock market boom would bubble up just in time to bailout the meager retirement savings of aging baby boomers.
That was the general outlook when 2023 commenced. But instead, the opposite is now happening. Inflation is persisting. Interest rates are rising. And stock and real estate prices are headed down, down, down.
This week, for example, Fed Chair Jerome Powell, in his semi-annual Congressional testimony, clarified that interest rates would go “higher than previously anticipated.” He also noted that, if needed, he’s “prepared to increase the pace of rate hikes.”
In other words, the much-anticipated Powell pivot has gone on indefinite hiatus. You can fight the Fed and buy stocks if you must. But you won’t likely be very happy with the results.
Moreover, Fed rate hikes are only part of the story. To be clear, the Fed’s rate hikes are to the federal funds rate. However, they do, in fact, influence Treasury rates.
Since March 2022, the Fed has hiked the federal funds rate from a target range of 0 to 0.25 percent to a range of 4.50 to 4.75 percent. As a result, and over this duration, the 2-year Treasury yield has jumped from 1.75 to over 5 percent.
What to make of it…
Radical Action
Rising interest rates mean higher borrowing costs. And higher borrowing costs mean a greater percentage of income is needed to service the debt.
This has various ramifications. For example, if more income is being used to service the debt there is less income available to use for savings, investments, or to buy other goods and services.
With less money available to spend or to invest in capital markets, economic growth stagnates. This, in short, intensifies the problem.
With less capital and savings available, and less spending taking place, there’s ultimately less economic activity. And when there’s less economic activity taking place there’s less cash flow available to service the debt.
To then make up the difference, consumers must use greater amounts of consumer debt to attain the consumer spending needed to preserve their lifestyle. This, again, is a dead-end street. Applying additional amounts of debt is a short-term solution for a long-term problem.
The debt, unfortunately, doesn’t magically disappear. It piles up until a point where radical action must be taken. Creditors get stiffed. Or debtors massively reduce spending to pay down the debts previously incurred.
It is all very basic. A simple acceptance of reality, and the determination to take the necessary footwork, can result in great things. In this case, it can turn the pain involved with digging one’s way out of debt into the foundations for building wealth.
A debtor that is successful at digging themselves out of a hole by massively reducing spending will then have the opportunity to build real wealth. Because once there is no debt left to pay off, the excess money can be saved and invested.
Americans on the Hook
Structuring your lifestyle and spending habits to be less than your income is fundamental to building real wealth. The best investment opportunity in the world could be right in front of your face. Yet if you don’t have the capital, you won’t have the ability to capitalize on it.
We’re not sure why, but few people have the discipline to spend less than they make, and then save and invest the difference. This is why most people should be prepared to eat canned lima beans in retirement – the puke green ones the cafeteria served you in grammar school.
Over the years, U.S. debtors – including consumers and the government – have spent their way into a massive debt hole. For several decades, these massive debts have been masked by low interest rates. The days of refinancing at ever lower rates are over.
Interest rates are rising. But what if interest rates must increase much, much higher than Powell anticipates?
The truth is, there are groundbreaking events that are well beyond Powell’s control. For example, Japan may be the world’s largest holder of U.S. Treasuries. But the appetite Japanese investors have for Treasuries may be souring. In this respect, the Wall Street Journal recently posited the following:
“Last year, the Federal Reserve’s interest-rate increases weakened the yen and lifted the cost of hedging against currency fluctuations for Japanese investors buying U.S. assets. That drove many to unload U.S. bonds, in a shift from years of purchases that made Japan the world’s largest foreign holder of Treasurys. Now, investors are growing worried the selling will resume, especially with Treasury yields hurtling toward decade-plus highs.
“Without that support, Americans could be on the hook for higher borrowing costs on everything from single-family mortgages to business loans.”
Are you an American? Do you delight in the prospect of being on the hook for higher borrowing costs?
What Comes After the Great Liquidation
Fed rate hikes, to contain the inflation of its own making, are contributing to higher Treasury rates and higher borrowing costs. This will continue to push borrowing costs higher and higher until something breaks.
What will that something be? And what will be the first something to break?
Will inflation break first? That’s the soft-landing scenario that Powell is after.
Or will the economy and big banks break first?
In this scenario, there would be mass layoffs, business closures, and a giant wave of bankruptcies. There would also be the blow-up of several big investment banks or significant investment funds.
Alas, we believe the soft-landing scenario is highly unlikely. The recklessness that was committed in the run-up to the coronavirus panic, which then went into complete overdrive when the whole world lost its mind, must be reconciled.
There’s no easy way out of this one. Mass liquidation is coming. Still, when the dust settles consumer prices will remain higher than they were at the start of 2020.
There’s no going back to the prices of January 2020 for the same reason there will never, ever be penny candy again. The dollar debauchery that took place has permanently disfigured prices.
The central planners, eager to deliver something for nothing, caused an epic disaster. And they won’t stop. They’ll continue to act – and they’ll say they’re acting with courage. What then?
More than likely, through money supply expansion and currency debasement, the central planners will continue down the inflationary path. Maybe it will continue at a subtle or moderate rate over many years or decades. Or they could trigger runaway inflation, where velocity spikes up and prices double and triple in just a few weeks.
No doubt, we’ll all find out soon enough. In the meantime, pay down debts, save cash, buy gold, and stack silver. With a little luck, you’ll make it though with a slimmer waistline and a greater mistrust of the planners in charge.
There’s also the unthinkable to consider. Is China secretly planning to attack Taiwan? Are your finances prepared for such madness?
https://economicprism.com/what-comes-aft...quidation/
https://rielpolitik.files.wordpress.com/....png?w=396
Why the Banking System is Breaking Up
Michael Hudson
The collapses of Silvergate and Silicon Valley Bank are like icebergs calving off from the Antarctic glacier. The financial analogy to the global warming causing this collapse is the rising temperature of interest rates, which spiked last Thursday and Friday to close at 4.60 percent for the U.S. Treasury’s two-year bonds. Bank depositors meanwhile were still being paid only 0.2 percent on their deposits. That has led to a steady withdrawal of funds from banks – and a corresponding decline in commercial bank balances with the Federal Reserve.
Most media reports reflect a prayer that the bank runs will be localized, as if there is no context or environmental cause. There is general embarrassment to explain how the breakup of banks that is now gaining momentum is the result of the way that the Obama Administration bailed out the banks in 2008. Fifteen years of Quantitative Easing has re-inflated prices for packaged bank mortgages – and with them, housing prices, stock and bond prices.
The Fed’s $9 trillion of QE (not counted as part of the budget deficit) fueled an asset-price inflation that made trillions of dollars for holders of financial assets, with a generous spillover effect for the remaining members of the top Ten Percent. The cost of home ownership soared by capitalizing mortgages at falling interest rates into more highly debt-leveraged property. The U.S. economy experienced the largest bond-market boom in history as interest rates fell below 1 percent. The economy polarized between the creditor positive-net-worth class and the rest of the economy – whose analogy to environmental pollution and global warming was debt pollution.
But in serving the banks and the financial ownership class, the Fed painted itself into a corner: What would happen if and when interest rates finally rose?
In Killing the Host I wrote about what seemed obvious enough. Rising interest rates cause the prices of bonds already issued to fall – along with real estate and stock prices. That is what has been happening under the Fed’s fight against “inflation,” its euphemism for opposing rising employment and wage levels. Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets on their balance sheet to back their deposits.
The result threatens to push down bank assets below their deposit liabilities, wiping out their net worth – their stockholder equity. This is what was threatened in 2008. It is what occurred in a more extreme way with S&Ls and savings banks in the 1980s, leading to their demise. These “financial intermediaries” did not create credit as commercial banks can do, but lent deposits out in the form of long-term mortgages at fixed interest rates, often for 30 years. But in the wake of the Volcker spike in interest rates that inaugurated the 1980s, the overall level of interest rates remained higher than the interest rates that S&Ls and savings banks were receiving.
Depositors began to withdraw their money to get higher returns elsewhere, because S&Ls and savings banks could not pay their depositors higher rates out of the revenue coming in from their mortgages fixed at lower rates. So even without fraud Keating-style, the mismatch between short-term liabilities and long-term interest rates ended their business plan.
The S&Ls owed money to depositors short-term, but were locked into long-term assets at falling prices. Of course, S&L mortgages were much longer-term than was the case for commercial banks. But the effect of rising interest rates has the same effect on bank assets that it has on all financial assets. Just as the QE interest-rate decline aimed to bolster the banks, its reversal today must have the opposite effect. And if banks have made bad derivatives trades, they’re in trouble.
Any bank has a problem of keeping its asset valuations higher than its deposit liabilities. When the Fed raises interest rates sharply enough to crash bond prices, the banking system’s asset structure weakens. That is the corner into which the Fed has painted the economy by QE.
The Fed recognizes this inherent problem, of course. That is why it avoided raising interest rates for so long – until the wage-earning bottom 99 Percent began to benefit by the recovery in employment. When wages began to recover, the Fed could not resist fighting the usual class war against labor. But in doing so, its policy has turned into a war against the banking system as well.
Silvergate was the first to go, but it was a special case. It had sought to ride the cryptocurrency wave by serving as a bank for various currencies. After SBF’s vast fraud was exposed, there was a run on cryptocurrencies. Investor/gamblers jumped ship. The crypto-managers had to pay by drawing down the deposits they had at Silverlake. It went under.
Silvergate’s failure destroyed the great illusion of cryptocurrency deposits. The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds? What is crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers?
Silicon Valley Bank also is in many ways a special case, given its specialized lending to IT startups. New Republic bank also has suffered a run, and it too is specialized, lending to wealthy depositors in the San Francisco and northern California area. But a bank run was being talked up last week, and financial markets were shaken up as bond prices declined when Fed Chairman Jerome Powell announced that he actually planned to raise interest rates even more than he earlier had targeted. Rising employment rates make wage earners more uppity in their demands to at least keep up with the inflation caused by the U.S. sanctions against Russian energy and food and the actions by monopolies to raise prices “to anticipate the coming inflation.” Wages have not kept pace with the resulting high inflation rates.
It looks like Silicon Valley Bank will have to liquidate its securities at a loss. Probably it will be taken over by a larger bank, but the entire financial system is being squeezed. Reuters reported on Friday that bank reserves at the Fed were plunging. That hardly is surprising, as banks are enjoying record interest rate spreads. No wonder well-to-do investors are running from the banks.
The obvious question is why the Fed doesn’t simply bail out banks in SVB’s position. The answer is that the lower prices for financial assets looks like the New Normal. For banks with negative equity, how can solvency be resolved without sharply reducing interest rates to restore the 15-year Zero Interest-Rate Policy (ZIRP)?
There is an even larger elephant in the room: derivatives. Volatility increased last Thursday and Friday. The turmoil has reached vast magnitudes beyond what characterized the 2008 crash of AIG and other speculators. Today, JP Morgan Chase and other New York banks have tens of trillions of dollar valuations of derivatives – casino bets on which way interest rates, bond prices, stock prices and other measures will change.
For every winning guess, there is a loser. When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.
There is now a flight to “cash,” to a safe haven – something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders. It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.
So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015. So the chickens are coming hope to roost – with the “chicken” being, perhaps, the elephantine overhang of derivatives fueled by the post-2008 loosening of financial regulation and risk analysis.
https://michael-hudson.com/2023/03/why-t...eaking-up/
https://www.commondreams.org/media-libra...2C0%2C1644
Traders work on the floor of the New York Stock Exchange during morning trading on March 15, 2023 in New York City.
'This Is Scary': Financial Industry Panic Spreads as Credit Suisse Teeters
Jake Johnson
"Is this the next financial crisis unfolding? It feels like it may be—and all because of reckless increases in interest rates by central banks," argued one political economist.
A vanishingly short period of relief in U.S. and global markets was shattered Wednesday after the scandal-plagued Swiss banking giant Credit Suisse announced that its auditor identified "material weakness" in its financial reporting and the firm's largest investor—the Saudi National Bank—said it wouldn't inject more cash to bolster the company.
As its share price plunged, Credit Suisse intensified concerns about its financial health—and broader alarm about the stability of global markets—by pleading with the Swiss National Bank and the regulator Finma to issue public statements of support for the lender, which controlled roughly $580 billion in assets at the end of last year.
"The bank said it is working to address the problems [with its financial reporting], which 'could require us to expend significant resources,'" The Washington Postreported Wednesday. "It cautioned that the troubles could ultimately impact the bank's access to capital markets and subject it to 'potential regulatory investigations and sanctions.'"
The fresh crisis at Credit Suisse, which comes just days after two U.S. banks collapsed, compounded fears that seemingly isolated problems at individual financial institutions could signal a deeper systemic threat with far-reaching implications for the interconnected global economy.
"This is scary—financial markets are now betting on Credit Suisse failing—and no one can pretend there will not be a fallout from that," Richard Murphy, a professor of accounting practice at Sheffield University Management School in the U.K., wrote Wednesday, pointing to the soaring price of the bank's five-year credit default swaps, which prompted flashbacks to the 2008 global financial crisis.
"Is this the next financial crisis unfolding? It feels like it may be—and all because of reckless increases in interest rates by central banks," Murphy added.
Experts and analysts have argued that—along with years of deregulation—the U.S. Federal Reserve's rapid interest rate hikes contributed to the fall of California-based Silicon Valley Bank (SVB), which sold its bond portfolio at a major loss last week after it declined in value due to the Fed's actions.
While U.S. lawmakers have lambasted SVB for poor risk management, the firm was hardly alone in taking on large bond holdings when interest rates were low only to watch them lose value precipitously as central banks jacked up rates to combat high inflation.
"Investors said Credit Suisse's problems were a reminder that Europe's banks also had large holdings of bonds that had been hammered by rising interest rates," the Financial Timesreported.
As The American Prospect's David Dayen put it Wednesday, "As long as interest rates keep rising, more banks will be exposed."
"Credit Suisse is in principle a much bigger concern for the global economy than the regional U.S. banks which were in the firing line last week."
Just a week ago, it appeared that Fed Chair Jerome Powell was bent on continuing to raise interest rates even amid mounting warnings about the potentially devastating impacts on millions of workers whose wages and jobs are on the line.
But faced with growing panic in the financial sector, Powell is now widely expected to step on the brakes—at least temporarily—at the Fed's policy meeting next week. Powell is himself a former investment banker, and Wall Street lobbies the Fed on a range of issues.
Reutersreported Wednesday that "expectations for the U.S. central bank's next move have swung wildly in recent days, after the sudden failure of two regional banks late last week triggered alarm about the health of the banking system and raised doubts about how much further the Fed may take what has been an aggressive fight against stubbornly high inflation."
Turmoil at Credit Suisse, which insists its balance sheet is "strong," will likely cement the case against further Fed rate hikes in the near future, analysts suggested.
The Treasury Department is reportedly monitoring news at Credit Suisse, whose U.S. arm is overseen by the Fed.
"Credit Suisse is in principle a much bigger concern for the global economy than the regional U.S. banks which were in the firing line last week," Andrew Kenningham, chief Europe economist with Capital Economics, wrote in a research note on Wednesday. "Credit Suisse is not just a Swiss problem but a global one."
https://www.commondreams.org/news/financ...dit-suisse
https://rielpolitik.files.wordpress.com/...ge-103.png
Moody’s Downgrades Entire U.S. Banking System; Credit Suisse Plummets. Welcome to Banking Crisis 3.0
Pam Martens and Russ Martens
The “Related Articles” linked below (a tiny sampling of relevant articles) will remind our readers just how long and in how many different ways we have been attempting to warn that the U.S. banking system was incompetently structured and at risk of systemic contagion. We have also repeatedly warned that the crony, captured Fed was the worst possible banking supervisor and should be stripped of its bank regulatory powers and restricted to setting monetary policy. We have repeatedly cautioned, citing experts in the field, that the Fed’s stress tests were little more than a placebo and would not prevent the next banking crisis.
https://rielpolitik.files.wordpress.com/...ge-101.png
On July 29 of last year we wrote that Wall Street Megabanks’ Multi-Billion Dollar Blunders Suggest Money Controls as Good as George Bailey’s Uncle Billy and summed up our analysis with: “This is the stuff of banana republics – not a financial system befitting a superpower.”
On a regular basis, we emailed these articles to key staff of the Senators and House Reps who sit on the Senate Banking and House Financial Services Committees.
Late Monday, the credit rating agency, Moody’s, downgraded the entire U.S. banking system outlook to negative from stable. (Let that sink in for a moment – a downgrade of the entire U.S. banking system.) The news of the Moody’s downgrade did not hit the wires until yesterday, which should have cratered the most vulnerable bank stocks. Instead, there was a highly suspicious short squeeze that fueled a big rally in the prices of publicly-traded banks.
That unwarranted optimism has now been reversed this morning with Dow futures down more than 600 points just after 8:00 a.m. in New York; major banks in Europe temporarily halted from trading after steep selloffs; and troubled Swiss behemoth bank, Credit Suisse, down 24 percent to a new all time low of $1.74 in morning trade in Europe following multiple trading halts. For the systemic contagion posed by Credit Suisse, see our February 10 article: Credit Suisse Tanks Yesterday to $3.02; It’s Lost Over 90 Percent of Its Market Value Since 2007; It’s Not Alone.
We say in our headline above that this is Banking Crisis 3.0 because this is the third time (excluding the emergency measures taken in 2020 as a result of the COVID pandemic) that the Federal Reserve has deployed emergency measures to bail out the U.S. banking system in the past 15 years. (Prior to the repeal of the Glass-Steagall Act in 1999, which prevented the combination of Wall Street trading houses with federally-insured banks, there had been no major Fed bailouts for 66 years.)
The banking crisis of 2008 was widely covered by the media, which even went to court to get the Fed to come clean on the dollar amounts and names of the banks that received trillions of dollars in secret, cumulative loans from the Fed. (See our report last year: Mainstream Media Has Morphed from Battling the Fed in Court in 2008 to Groveling at its Feet Today.)
But because Congress failed to restore the Glass-Steagall Act after the 2008 financial crash – the worst since the Great Depression – the Fed was back to secretly bailing out the trading units of the behemoth depository banks in September 2019. Mainstream media – across the board – censored this critical story. See our report: There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.
That censorship allowed Congress to kick the can down the road, leading to this even greater Banking Crisis 3.0 today.
Related Articles:
Secretary Yellen, We’ve Got a “Staggering” Problem: New Report Shows Foreign Banks Have Secret Derivative Debt that Is “10 Times their Capital”
Evidence Grows that Crypto and Federally-Insured Banks Are a Combustible Mixture
Casino Banking: Wall Street Mega Banks Traded More in their Federally-Insured Bank than the Total for their Bank Holding Company
Shhh! Don’t Tell the Fed or Mainstream Media that Systemic Contagion at Wall Street Banks Is Already Here
Another Dangerous Virus Hits the U.S. – Wall Street Bank Contagion
Wall Street Banks Tank Yesterday as Contagion Threat Grows
Contagion – What the Next Wall Street Crisis Will Look Like
Add 4,281 Hedge Fund Clients to What Makes JPMorgan Chase the Riskiest Mega Bank in the U.S.
New Study: Wall Street Banks Are Doubling Down on Risk by Selling Credit Default Swaps on their Risky Derivatives Counterparties
Internal Charts Show Treasury Agency Assigned to Measure Risk in U.S. Markets Slept through the Repo Crisis of 2019 and the Fed’s $19.87 Trillion Bailout
The Fed Has Misled the Public about the “Strength” of the Wall Street Mega Banks: This Chart Shows the True Picture
An Insider Blows the Whistle on How the Fed Has Allowed Crypto to Invade Federally-Insured Banks
https://wallstreetonparade.com/2023/03/m...risis-3-0/