Down goes the Dow

There are no libertarians in a bank balance sheet hole ( when it's THEIR BANK ). I see Sean Tuffy @SMTuffy has a nice take with the meme template I used. Also, I spelled Bailey wrong.

Image:pbs.twimg.com/media/Fq8pDbKX0AYSgBK?fo...

The call is now the economy will be crushed and tech innovation will be set back a decade if we don’t save SVB depositors. Such cutting edge advances like the internet of things, media apps, retail apps, crypto apps, and of course the latest buzz word AI.

As for me, I hope these delusional punks, and venture capitalists that have sucked off zero interest rates go down in flames. Nothing they do is essential to the economy, and most detrimental to society.

The call is now the economy will be crushed and tech innovation will be set back a decade if we don’t save SVB depositors. Such cutting edge advances like the internet of things, media apps, retail apps, crypto apps, and of course the latest buzz word AI.

As for me, I hope these delusional punks, and venture capitalists that have sucked off zero interest rates go down in flames. Nothing they do is essential to the economy, and most detrimental to society.

Evidently quite a few. How much was lost last week?

In my view, many of these SVB business depositors were exhibiting poor cash management practices. Why wouldn’t most of these funds be in security accounts where the assets are in laddered CDs or Treasury Bills? That way the depositors would be insured for position of the security. Likely those running the show have less experience, especially when deluded by their own arrogance.

I would proceed carefully. There will be a lot of crying for the Government to step in, or the Fed to back off. Also, CPI Tuesday. Although this event does expose the foolish policies the Fed and Government promote the last decade. Not surprisingly they’re in a pickle of their own creation.

I'd say a few things on SVB

1/ If we now require businesses and individuals to examine the balance sheets constantly at regional banks for this kind of very rare problem, almost everyone will simply go to the big banks like Chase, figuring their odds are better there. So the regional banking system would disappear or shrink. That would centralize the banking system and make it less responsive to regional needs. Not good.

2/ Businesses keep cash on hand for payroll. Many businesses need far more than $250,000 on hand to make payroll every couple of weeks. Expecting companies to maintain multiple bank accounts just for mundane things like payroll...really?

3/ If we let SVB depositors lose their money, there will certainly be runs on many similar banks and that will be far far more expensive. Slamming the door shut here and saying everyone will be made whole is the cheapest route for the FDIC/government/industry. Although sure, moral hazard and sets a precedent for badly managed banks down the road. I'll live with that possible crisis rather than have this crisis today.

4/ SVP's investment portfolio is not a bad one. It's MBS, from what I understand. Which will be fine, eventually. It's not like FTX that invested in vapor. These are real assets that will come back to face value down the road. There's just a gap between now and then that has to be filled. Whoever gets those MBS will get the money back. SVB"s mistake was buying long-term assets just before interest rates spiked. But they are fine quality wise.

5/ Some bank would love to get SVB's client list... I suspect some bank will step in and buy the bank and make depositors whole. Mad fast due diligence is being done Saturday, for sure.

I'm going to delete that post - apparently sacks was talking about Ukraine, not business.

well I would delete it but I guess I can't. Anyway ha ha.

I just knew you would excuse poor behavior. I have run multimillion dollar business accounts just as I have explained. No doubt there will be much crying over spilled milk. Furthermore, there has been multiple critics of the same. Bail them out. Go ahead. Just another inflationary coffin.

This company had no need to make payroll with this money. Stupid business practices by people that were always living on the edge. “Stable Coin,” what a joke. Stupid business, stupid investors. They should go to zero.

coindesk.com

Scrutiny Falls on $43B USDC Stablecoin’s Cash Reserves at Failed Silicon Valley Bank

Krisztian Sandor

Circle’s USDC, the second-largest stablecoin, with $43 billion market capitalization, held an undisclosed part of its $9.8 billion cash reserves at failed Silicon Valley Bank.

Link:www.coindesk.com/markets/2023/03/10/sc...

Some have also compared it to the collapse of New Century Financial at the beginning of the GFC.

Let 65,000 startups miss payroll just to make a point?
sounds like a very very bad idea.

Bank Held To Maturity bonds are the systemic risk. Bonds marked to face value, while underwater when marked to market. That is what happens when the Fed and Government embarked on an ever increasing Rube Goldberg scheme to engineer below market cost of money. Who could expect it would all blow up one day?

🤦🏽

Solid view of the sitch from Ackman here:

The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial
to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan
@citi
or @BankofAmerica
acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs). These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits. These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions. The increased demand for short-term UST will drive short rates lower complicating the @federalreserve
’s efforts to raise rates to slow the economy. Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection. We would have been open to participating. This approach would have minimized the risk of any gov’t losses, and created the potential for substantial profits from the rescue. Instead, I think it is now unlikely any buyer will emerge to acquire the failed bank. The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk. For those who make the case that depositors be damned as it would create moral hazard to save them, consider the feasibility of a world where each depositor must do their own credit assessment of the bank they choose to bank with. I am a pretty sophisticated financial analyst and I find most banks to be a black box despite the 1,000s of pages of @SECGov
filings available on each bank. SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs. The @FDICgov
and OCC also screwed up. It is their job to monitor our banking system for risk and SVB should have been high on their watch list with more than $200B of assets and $170B of deposits from business borrowers in effectively the same industry. The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. This administration is particularly opposed to concentrations of power. Ironically, its approach to SVB’s failure guarantees duopolistic banking risk concentration in a handful of SIBs. My back-of-the envelope review of SVB’s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98% of their deposits, but eventually is too long when you have payroll to meet next week. So even without assigning any franchise value to SVB, the cost of a gov’t guarantee of SVB deposits would be minimal. On the other hand, the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.

The market has to tank sooner or later.

I am guessing sooner