The Markets

Discussion in 'Political Discussions' started by gipper, May 9, 2022.

  1. gipper

    gipper Well-Known Member

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    Barney Frank blames crypto panic for his bank's collapse. Elizabeth Warren blames Trump.
    'Frank said Sunday that he didn’t think changing the threshold to $250 billion from $50 billion “had any impact.”
    And while we're at it let's not forget the claims that Trump was responsible for the train derailment in East Palestine.
    WaPo fact-checker says Trump-era policies 'can't be blamed' for Ohio train derailment
    Why do they keep making those claims?
    As Abe Lincoln said, "you can fool some of the people all of the time."
     
  2. George Krebs

    George Krebs Well-Known Member

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    This administration is comedically laughable. It's like a Coen Brothers movie.
     
  3. BuckeyeT

    BuckeyeT Well-Known Member

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    It's clear to me that SVB management exhibited gross incompetence, ignoring age old principles of bank financial management - excess portfolio concentration, balance sheet management, interest rate and liquidity risk.

    As the value of their assets declined precipitously in the face of aggressive Fed tightening the bank's poor liquidity management forced them to realize large losses on portfolio sales to fund withdrawals. An effort to raise capital to backstop the losses was failing, became widely communicated on social media, prompting ever more panic withdrawals with a mouse click - a vicious cycle to bank failure ensued. A 21st century example of an age-old bank run scenario. You can't insure or regulate against stupidity.

    Were federal regulators asleep at the wheel in not identifying and warning against excessive risk? Without having access to the SVB examination reports I can't know for certain, but it seems likely as there had to have been early warning signs, structural and other wise. That said, kudos to Yellen/Powell for ring-fencing the problem in the face of massive dislocation. Will there be ripple effects? stay tuned.....
     
  4. Sid

    Sid Well-Known Member

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    Thanks, BT. As a former mid-level banker (first 13 years out of college), I can say only that in my opinion, the ultimate failure of a bank - in simple terms - is due to mismanagement on several levels. as described knowledgeably by BT. I don't know enough about today's banking environment to comment further, but the basic premise re: management is as true today as it was 50 years ago.
     
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  5. gipper

    gipper Well-Known Member

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    One of the problems that this caused was a possible run on other banks. While most individual investors are insured up to 250,000, SVB had a number of commercial accounts with balances much higher. So here was the dilemma, does the Fed make whole those that had amounts greatly exceeding or only those that were insured? One's a covered insurance loss, the other smells a lot like a bailout.
    I think that the fear was that businesses not individuals would be withdrawing their balances from smaller banks which would obviously put a strain on them. So the blanket coverage.
    Are things getting dicey for banks? My daughter told me that the Fed. lost money last quarter for the first time. Their getting hoisted on their own rate hikes.
     
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  6. BuckeyeT

    BuckeyeT Well-Known Member

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    As understand it, that's pretty much the scenario that played out Gip....once the capital raise faltered, the VC community - a dominant sector for the bank - sounded the sirens on social media and they all headed for the exits and the vicious cycle rolled forward. SVB had an inordinately high proportion on "non-insured" accounts and they began to circle the drain. Wasn't a bailout of the bank as management was sacked, the stockholders and debt holders got wiped out. The bailout was for the large depositors - VC firms, tech companies and mom and pops who would not have made payroll tomorrow and hence their staff. Most likely case is that SVB will be absorbed into another bank, depositors made whole out of the FDIC insurance fund and/or by way of the Fed lending facility and banks will be assessed incremental premium as required to cover any shortfall. Don't see Uncle Sam footing the bill for this one but the banking industry has some dues to pay in the form of higher premiums and the inevitable legislative/regulatory frenzy...a negative for the broader economy in any event.
     
  7. BuckeyeT

    BuckeyeT Well-Known Member

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    Euro banking sector cratering this morning. Long standing fears over the health of Credit Suisse resurfacing with a vengeance after it's largest shareholder, Saudi National Bank, ruled out further investment. US banks and broader market equity futures following suit due to fears of contagion. How the mighty have fallen.....Credit Suisse was one of the original great Swiss banking franchises, now circling the porcelain receptacle. Hang on tight.....
     
  8. Stu Ryckman

    Stu Ryckman Well-Known Member

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  9. BuckeyeT

    BuckeyeT Well-Known Member

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  10. Stu Ryckman

    Stu Ryckman Well-Known Member

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    Yeah, I didn't comment on the article because I don't understand all this stuff nearly as well as you do (and Sid and others). Very confusing stuff. But I thought that article explained well a few things to me.
     
  11. Sid

    Sid Well-Known Member

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    Thanks for the compliment, Stu, but undeserved. I once was a banker, which in my mind qualifies me for offering an opinion. As far as understanding today's banking system, I'm unqualified. o_O :D
     
  12. Bobdawolverweasel

    Bobdawolverweasel Well-Known Member

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    BT & Sid > Investment TV pundit.

     
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  13. BuckeyeT

    BuckeyeT Well-Known Member

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    That call does appear to be an oopsy for sure but I was inclined to agree with him at that point. Cramer is very much a theatrical production, more so these days, wound tight and a little too emotional for me but I have great respect for his views and experience. I always pay attention when he speaks. He's not always right and he and I are not always in the same camp but he is legit and I do always value his perspective
     
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  14. gipper

    gipper Well-Known Member

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    The more I read about SVB the more I'm amazed at how lacking in banking supervisory experience the leadership had. On top of that, it seems that social issues were more important than sound banking principals. They reportedly gave 73 million to those hucksters BLM. If I found out my bank did that, I'd be banking somewhere else in a heart beat. Incompetent, inexperienced, more interested in social issues and the climate than their job responsibilities.....sounds familiar.
     
  15. Sid

    Sid Well-Known Member

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  16. BuckeyeT

    BuckeyeT Well-Known Member

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    Agree 100% on the leadership fail. The notion that the Trump rollback of some regulations played a role is a non-starter as well. Any competent bank management team performs "stress tests" or performance and risk simulations based upon a variety of scenarios as a fundamental element of the management process and have been doing so for as long as I can remember. The notion that management teams, in any industry, need the federal government to explain and mandate to them proper analytics and control processes is absurd. They failed because they were incompetent and stupid. That said, banks undergo annual regulatory exams from multiple levels of regulators, state and federal. They also are compelled to file detailed financial statements quarterly to the regulators for their analysis and assessment. The issues with SVB didn't just pop up in the last 3 months, the regulators were clearly asleep at the switch.

    That said, the BLM stuff is nonsense as well. Banks have forever been held hostage at gunpoint by law (Community Reinvestment Act) and compelled to make such community investments. In truth, the SVB number seems rather small to me for a $200 Billion company. If you take a look at that database it shows JPMorgan at $30 Billion, BofA at $18 Billion, etc. Keep in mind these are mostly not "contributions" in the sense of a handout/check but could also be committed credit extensions, promotional and management support, job fairs, internships, etc. I recall having to give seminars at a local minority-owned bank and HBCU back in the day that "counted/qualified" towards our CRA bogey. Don't get me started on the merits and application of the law, but it's a real thing and local/national community organizers wield it with great effect to "shake down" financial institutions.....and yes, I did say shake down
     
  17. Sid

    Sid Well-Known Member

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    Agree re: SVB management incompetence
    Agree re: regulators asleep at the switch
     
  18. gipper

    gipper Well-Known Member

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    It turns out that the SVB CEO was a member of the SF Fed. board, the ones that were supposed to be regulating his bank!
     
  19. gipper

    gipper Well-Known Member

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    BLM wasn't a "community investment, it was a scam. The money didn't go to the community, it bought multiple houses for the BLM "leadership." What ever happened to due diligence?
     
  20. BuckeyeT

    BuckeyeT Well-Known Member

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    Reminds me of one of my favorite sayings, "Dumb is forever!"
     
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