" I think the congress will bail it out."

Thats not how it works.

Since 1929 (Bank of United States), the FED has learned how to handle these problems.

First, The FED is constantly getting reports about bank liquidity, and warning and flagging banks that are in trouble. Finally, when a bank gets into too much trouble, the FED will close the bank and take it over. Then, they will look for a suitable strong bank and convince them (the strong bank) to take it over.

The bank is insured and the ones that will suffer for any loss that SVB may have will be the insurance company. All other accounts (up to specified limits) will not be damaged. Customers of SVB will continue to be served by the bank that absorbs them.

In 1929, the FED refused to loan Bank of United States enough liquidity to continue operating which is thought by most economists to be the cause of the Great Depression. Bank of United States had a well-publicized run on the bank to withdraw funds, and all of America started to worry about their deposits, causing further runs on banks all over the country.

Where does the FDIC get it's money?

So, who really bails out the bank?

The FDIC gets its money from insurance premiums paid by banks.

Of all bank failures since FDIC creation, no taxpayer dollars have paid for losses. The insured losses were paid from the accumulation of collected insurance premiums from banks.

SVB was closed by the California Department of Financial Protection and Innovation. They named the FDIC as receiver.

The FDIC will use its own assets to pay the insured depositors on Monday. Those with uninsured deposits will receive their claims over time as the FDIC sells SVB's assets. Those assets consist mainly of loans made by SVB.

SVB's loans were mostly made to start-up or young tech companies. Loans that were considered too risky by most banks to make. Thus, I don't expect most banks to be willing to purchase SVB's loans. Some banks may purchase the loans at a discount, say a lower percentage than 100%. For instance, paying 80 cents on the dollar. If so, the FDIC probably can't receive enough money from the sales of SVB loans to pay the full claims by the uninsured depositors.

That limits FDIC's options to sell the loans and use the sales proceeds to pay uninsured claimants. Maybe some private mutual funds will purchase the loans. If so, it will be at a discount.

SVB did not fail due to loan losses. SVB failed because they didn't have enough liquid assets (bonds) to pay the large withdrawals made mostly by corporate treasurers who realized they could lose their deposits if SVB failed.

Some corporations did not have deposits at SVB and still are incurring losses. One of SVB's depositors was a company that processed payrolls for multiple corporations.

Those corporations transferred funds from their bank to SVB into the payroll processor's account. The payroll processor probably had more then $250,000 on deposit at SVB to process all the paychecks for their customer corporations.

Those corporate employees were not paid because the payroll processor couldn't send money from SVB to the employees' banks. The payroll processor will have to wait to collect their uninsured claims after FDIC successfully sells loans and assets of SVB. In the mean time, those corporations will have to come up with new funds to pay their employees' paychecks.

This whole timeline started in the last few years. Inflation came from excessive federal borrowing to fund the trillions of dollars of new federal spending.

Inflation caused government and private bond purchasers to demand higher interest rates. When new bonds are sold at higher interest rates, existing low interest rate bonds decline in value. If the holder of old bonds is forced to sell the low yield older bonds, the holder/seller takes a loss. SVB was forced to sell bonds to honor the deposit withdrawals made this week.

Suppose you own a bond that pays 2%. Let's say a GM $10,000 bond pays 2% or $200. GM writes a $200 check each year to the holder of the $10,000 bond.

Interest rates rise to 4%. If you want to sell that GM $10,000 bond to Person A. Then Person A wants to get a 4% return, just as they would by purchasing a new bond at 4%.

Person A will only receive $200 from the bond issuer, GM. Since Person A wants 4% yield from the $10,000 bond that only pays $200 a year, Person A will only offer $5,000 for the bond. $200 a year is 4% of a $5,000 investment.

"I read this morning that a lot of the money stored there was crypto related. After all the news about that money just vaporizing, I fail to see why anyone would trust it. "

USA NEEDS!! (REQUIRES!!) a strong banking system. Fortunately, we have one.

Banks accept deposits of the vast affluence of America (and other sources in our now-affluent world, and re-cycle that money into projects that constitute American growth. These projects are VITAL to making America remain what it is and to ensure its further growth. The strength of the system REQUIRES public trust of the system. Without that trust, even America could become a failure. Look at the great depression of the 1930s.

Bank regulators will try to keep SVB operating as a receivership while it looks for a stronger bank to take it over. Ideally, they will try to maintain the assets of SVB as a functioning bank which will make a profit and recover money lost. In the meanwhile, the American people can continue to have trust knowing that their money is safe, and doesn't need be immediately withdrawn and put under the mattress.

Anyone remember what politician put that together?

The world trusts the US banking system, so do the American people, and for good reason. Any money spent by the US government will be well-spent to keep our way of life intact and growing.

From what I recall, PNC Bank was strong armed by the Feds into buying distressed assets after the 2008 banking panic and run.

I benefited from that as they had properties they needed to liquate. I have to wonder what types of assets a tech rich invested bank will have. If loans are called in, what type of money will these assets be worth?

Sure FDIC will keep the bank liquid, but I would be surprised if the Feds don't have to sweeten the pot to either shore up assets or provide a buy out funds for a replacement bank.

The Fed rate hikes make such a take over much more expensive for even banks. This will be interesting to see how this plays out. It is unfortunate that it hit the tech sector - as that impacts so many other areas in the American culture.

There is no intention for FDIC to keep the bank liquid.

SVB bank has closed and their assets seized, and they are no more.

FDIC has created a new bank, under their direction, which is operating it as a bank until they can try to get it absorbed by a bank with more liquidity and better management. If FDIC succeeds, the absorbing bank will take over accounts and all other assets for whatever they are worth, and hopefully go on to continuing to make money with both their new and old assets. Its a good system, it minimizes loss from the SVB failure and more importantly, maintaining the trust that Americans (and the world) MUST HAVE.

Does this cost the government money? Yes, of course. But what is the alternative? Let banks fail, destroy the public trust that those Democrats so intelligently built and sustained, let people keep their money under the mattress and let credit, mortgages and capital acquisition be found under some apple tree, wherever you can find it?

Yes, there are those that would say, let banks fail, its their own fault, let them suffer for their mistakes, the important thing is to have less government and less rules, so that the rest of us won't be bothered. Recessions, depressions, no-growth, just leave me alone and I'll be fine, I don't need to care about anyone else, even soup kitchens cost money, but I don't want them spending my money, so let people starve, lose their homes, not have a future, just let me alone. But the trust in the banking system is what facilitated construction of your rental properties, built cities and towns and schools, financed the internet, brought us to The Moon, made and all of what we have in life, possible. Without government support, all these things would have left, even America, something other than as we know it, today.

Oy! & wow.

No, Silly, its not the taxpayers. Its the banks, who will get a tax deduction for their contributions.

Where do you think the government gets its money? A more astute question would be, Where do you think the government spends its money? Well, on bank regulation, for one thing. Would you be willing to do without it? The banks could save money by not insuring accounts. Would you trust a bank without insured accounts with your money? Is that a big thing? If there's no FDIC then would you put money into a bank? Would anybody? Is THAT a big thing? What if nobody did, because of fear? Would that be a big thing?

The government gets its money mainly by taxation of Americans. It spends the money sometimes foolishly, but often for important projects that Americans need, often that bring growth and progress even beyond the taxes expended.

For example, 6x6, how are you reading this? On a computer? Do you ever need to plug it in? Into what? Fortunately, The Great Socialist GAVE YOU electricity or you might still be living in the dark. Was that a worthwhile program for the government to spend money on? Did it pay off in modernity, convenience, growth, education, medical service? They say that Lincoln read law books by candlelight. Does it mean that, without TVA, that that would still be a necessity over in those parts? Did it pay off it increased GDP for the Tennessee Valley? Would TV be whatever it is today, if not for the Great S? So, was that program a good idea to spend money on, or is it more important NOT TO SPEND MONEY AT ALL?

Same with trust in banks. It is absolutely VITAL hat the nation and the world have trust in the US Bank System. Without that trust, banks will fail, people will lose their life savings and thus won't use banks, capital wll not be able to be raised as in the present efficient system, there will be recessions and depressions like we saw in the 1930s, and the world won't be better than it is today, or even as good.

AllyM: Some crypto companies were storing their cash there, yes. But this failure shouldn't make people concerned about crypto -- it should do just the opposite: make people more concerned about the fiat system!

The Crypto companies didn't do anything wrong here. They put cash in a bank. That's SUPPOSED to be safe.

Crypto actually solves this problem by not letting banks basically invent money when they need it. You can't fake crypto. You can't loan crypto that someone doesn't actually HOLD. THAT is what banks can do and is a big part of the problem that causes issues like this.

This isn't a crypto problem at all -- it is a fiat problem. Again.

Regarding Crytpo saftey:

Mt. Gox. FTX, Voyager Digital,Genesis, Three Arrows, Block Fi, Core Scientific,Celcius all bankrupt in the last 2 years.

Unregulated, poorly managed and ironically, non transparent.

To Mapleleaf:

So Ackman says that Biden must bail out SVB by Monday morning or face catastrophic market meltdown and loss of tens of thousands of jobs.

Still trying to get a grasp on this.

Moshe, thank you for your reply.

6 x 6,

How about the question of, if Ackman is right or wrong (or VERY right or VERY wrong)?

Your obsession with spending tax dollars prevents you from seeing whats going on this weekend.

6, its FDIC for the first 250,000.

Note that the BANK itself is and should be done -- that is what is falling apart.

But the funds are not LOST or stolen or anything. They exist -- they are just mostly invested in long-term, low-interest (i.e. "safe") investments. The bank is illiquid because of this.

Very likely, some OTHER bank with more assets will buy them out and be able to handle much of this. There is no huge "bailout" needed unless someone wants to try to save the BANK itself (not the funds held within) -- which, in my opinion, the government should not do.

From what I am gathering, Yellen is saying that the feds aren't going to save SVB. Meaning the bank entity itself. That does NOT mean that people with funds there are lost or out most of those funds.

Thats what YELLEN said. For one thing, SVB no longer exists. All of their assets have been seized and turned over to Deposit Insurance Bank of Santa Clara. So there is no more SVB to help.

What about Ackman's claim? that the economic situation will go to H3ll unless she DOES help by Monday morning?

There is a lot of stuff going on this weekend. Do we have a potential crisis? Could this really happen (as Ackman claims)? Is Ackman right?

What will happen to depositor with more than $250,000 deposit? Are they just out-of-luck?

John, do you know anything about the depression of the 1930's?

EVERYONE lost their jobs and couldn't find new ones. Men committed suicide because they could no longer support their families. Any similarities here?

Remember, the question was about what Ackman says. He says it is IMPORTANT to bail out SVB, and with a time limit. Is he right or wrong? How right or how wrong?

I appreciate having your opinion that the government should not bail out SVB, unless someone wants to try to save the BANK itself. But why or why not? Is that important?

Hubba:

As you noticed after your post, Mt. Gox is ancient, so I'm going to ignore that one. That was back in the "wild west" days of crypto. As for the rest of what you said:

First, most crypto holders who know what they are doing will repeat this mantra: "Not your keys, not your crypto." What this means is: you should be in charge of your own stuff. There is no need to leave it on an exchange. People have been saying this for years. Yet, people still do it -- which leads to some of what you mentioned:

FTX:

This is an Exchange, yes, but was also operating as a hedge fund and had their own "token" (the liquidity problems of that token are what actually caused the collapse). So, the problem is really hedge funds making poor bets than a crypto problem.

Again, people shouldn't leave their crypto on an Exchange -- they should hold their own keys. The money was basically embezzled. That's not a problem with crypto itself.

I'll note that LOTS of money managers have embezzled/stolen people's money that they gave to them to invest. You can watch it on American Greed all day long. If you want to put your money in someone else's hands, then you should confirm those hands are safe.

We'll have to see what comes out in court, of course. We clearly don't have all of the details here.

Voyager Digital:

Same as FTX. People gave Voyager like $700,000,000 with no collateral at all. This is people being stupid. It'd be like giving your paycheck to your Cousin Dave because he said he could triple your money by next week!

Genesis / Three Arrows:

Again, this isn't a "crypto" thing like you'd think. People LOANED digital assets to Genesis to try to earn interest on them. They weren't really an exchange at all. They could have just as easily been a place that accepted gold on loan and paid interest. In any case, this failure was a ripple effect from the collapse of Three Arrows. Three Arrows was a hedge fund -- not an exchange or other crypto entity that us "normal folks" would deal with. Again, this is not a case of crypto doing something wrong. This is a case of a bad hedge fund losing their bets.

Note that the SEC has filed against Genesis for illegally selling crypto assets. To suggest that crypto is "unregulated" is simply ignoring reality in the USA.

Block Fi:

Another all tied to the fraud by basically one guy at FTX. Too many people were trusting Sam Bankman-Fried.

Core Scientific:

This is a crypto mining company. Again, not really an issue with "crypto" itself. Note that they are in Chapter 11 and reorganizing. They basically had a large loan that another company wasn't paying back. They've received a loan to try to recover. We'll have to see how it goes.

Celcius:

This was a crypto lender, not an exchange.

Lots of companies on this list, while dealing with crypto assets, have very little to do with crypto as far as us normal folks are concerned.

"Unregulated, poorly managed and ironically, non transparent"

So, crypto really isn't "unregulated" in the USA. If you look at the cases above, you'll see places like the SEC filing repeatedly against the actors involved in the thefts mentioned above. In the USA, crypto exchanges fall under the BSA (Bank Secrecy Act). They absolutely are "regulated" here in the USA.

Crypto doesn't need to be "managed." Again, the companies you mentinoned above are primarily companies that happen to deal in crypto, but in other ways (i.e. several of them are hedge funds). Yes, those hedge funds were clearly "poorly managed", but not because they were crypto -- but because they were hedge funds. Those sorts of funds are OFTEN "poorly managed" and even "poorly regulated." Since you gave me a list, here's yours:

Madoff, SAC Capital, Galleon, Amaranth, Marin Capital, Bailey Coates. ALL of these had BILLIONS of dollars worth if investments that they very poorly managed and, in most cases, were running very much unregulated until someone finally noticed after YEARS of fraud.

I'm not saying that crypto is the future of money. But I also don't think investing in it like people invest in something like gold is a horrible idea. But if you're going to buy some, then keep it yourself -- don't leave large sums of it on an exchange.

There are many safe and stable crypto exchanges. Heck, you can buy crypto from Fidelity now. Pure exchanges like CoinBase, Binance, and Kraken have been around for years. They can be used to actively buy/sell crypto -- and then, if you are smart, move it to your own key-controlled wallet.

Again, "not your keys, not your crypto". If you want to own crypto, then don't have someone else hold it for you. People treating crypto like dollars in a bank are missing the point.

Moshe: You may have missed my point. What you are referring to in the 1930s happened because no one could get their money -- it was "gone."

I am not suggesting that happen here. In fact, I said the opposite. I do think those funds should be secured. I don't think that means, necessarily, "bailed out." Again, the funds EXIST, but are in long-term, low-interested (but also very low risk) investments in many cases. It is not unreasonable to think that another entity with liquidity now might come along and buy up those assets -- and, therefore, also be able to provide funds to those who have it in SVB.

I am not suggesting that the people with money IN SVG should lose it. You seem to be thinking that is what I was saying? That is not correct.

John, not my point, at all.

Money gone, not gone, illiquid, liquid, crypto shmipto, there is something much more important going on this weekend. I apologize for just giving you hints, but thats the way I was educated (especially my years in Chicago, which are being passed on to my granddaughter).

I have already given a excellent hint in an earlier post to this thread. Can you find it and understand? Ackman knows at least something about it, but he doesn't have it down perfect. Could it be that he is right about the possible consequences? Consequences of what?

Regards,

Moshe

Moshe, I tend to agree with you on things here more than most people, but I wish every time you posted you didn't feel the need to throw in lines about when/where you were educated.

I also think you do a weird job of "hinting" any things and telling people to figure it out instead of just stating your opinion on what you think is happening.

It just comes off as pompous and condescending.

And, again, I say that as one of the few people here who actually tends to be on your side of things! So, if even I'M saying it, then everyone else here who usually disagrees with you is certainly thinking it...

Maybe try a different approach in the future.

I guess we'll all see Monday. But don't pretend like you saw something "hidden" in advance or something -- when you can't even properly talk about it here.

Moshe, it appears that you may be thinking that we would be in another great depression, as that also appears to be what Ackman is implying, no?

It seems to me that Ackman has mismanaged the money, or over extended it. This seems to be common among banks. But, why would any bank worry about that if they can just ask for a bailout?

That said, I think Ackman should be held accountable, as well as other banks who mismanaged the money.

As far as Ackman being right or wrong, my lack of financial education is unsure. However, I do believe that he is playing the banking game.

If we keep bailing people ( banks ) out, do they ever learn?

I stand by my statement.

Sorry for being so pompous.

But We're dealing with a subject that almost no one seems to catch on to, here, and the only way to teach it is through making the student think about the problem, potential solutions and the details, is to teach Socratically. It works very well for the better educated students.

What you are missing is the same cause of the lack of jobs in the depression of the 1930's: Loss of confidence in the banking system. No one cares about saving SVB. What we DO care about (and should) is the fact that loss of confidence in the banking SYSTEM can cause runs on banks all over the country (and internationally) even exceeding capitalization, plus depositor unwillingness to put money into banks. FDIC has already seized SVB assets and turned them over to a receiver, and is holding auction TODAY for those assets to be bought out by a stronger bank, with final bids due THIS AFTERNOON. If the auction is successful, then SVB depositors will have access to ALL of their account funds soon and the confidence crisis will have been averted. Even deposits over $250,000 will be at least partly protected, and the America people will not have a cash crisis of gigantic proportions. If the auction is not successful and no strong bank can be found to take over for SVB, then the portfolio could be sold off and the proceeds used towards paying off larger depositors. Its a good system for averting a serious problem, and its your tax dollars at work. Janet Yellen is working very hard to try to contain this crisis, and thats the reason that Ackman gives for wanting action before Monday. He is right about the consequences and he is right that action needs to be quick, but he offers only the solution of bailout rather than other possible solution which may be more minimal in cost and more maximal in political success. I hope that the auction sill be successful and the problem can thus be solved.

As to my use of the method of Socrates as teaching, I just gave you a hint of what goes on at the best universities: They don't teach "what to think", but instead, "how to think". Thinking is the stuff that universities are made of, not reading-and-memorizing. The challenge to think would have brought you to not only understand the immediate problem, but how it arises, what are possible solutions, advantages and disadvantages, and how to reason your way through this, and future problems.

Moshe-

Thank you for the last post, Moshe. And, your argument is good. (That confidence in our banking system is worth protecting with taxpayer dollars).

But would confidence really be lost if one bank that makes risky loans on non-tangible items fails...

And everybody with $250k or less still gets ALL of their money back?

Moshi, I believe you to be too emotional and unstable.

Thank you very much, Moshe.

I am going to look up Socrates.

If the banks were to fail though, people would come up with a solution that works, at least for a while.

Thank you again for the way you described that.

Ned, regarding you most recent post:

1. "would confidence really be lost if one bank that makes risky loans on non-tangible items fails"(?)

Well, its the 2nd largest bank failure in US history, they say. And its huge. And the bank enabled tech startups that have brought huge changes in our lives, not to mention all the prosperity of the digital age. And, this lifestyle of tech innovation has brought enormous prosperity to US and the world. Also, digital video, e-mail, satellite transmission of information brings instant news of current events to everywhere on earth (and beyond). What happened in the 1930's? Think of Bank of United States; they had run on the bank, so all branches of the bank became involved and so everyone became worried about their deposits around the whole country and wanted out. You could study the spread of non-confidence, but things are better today. Medium-sized deposits are insured, FDIC and the FED have better knowledge of how this works and better tools and techniques for dealing with the problem, including the ability to move fast and close the bank and seize assets, plus knowledge that this needs to be done and fast, not to mention the management tool of what can be done and on what time frame.

2. My understanding is that deposits of less than or equal to $250,000 are insured and the insurance is raised to $500,000 in the case of joint accountholders.

3. Confidence in our banking system is not just "worthwhile", its !!! VITAL !!!.

"If the banks were to fail though, people would come up with a solution that works, at least for a while. "

They have.

Banks fail every once in a while, and "people" (like Janet Yellen and predecessors) have solutions that work, although the work is not simple and final. Like closing the bank, seizing assets and turning them over to a successor bank who can make money off of the blended portfolio and repay depositors. Final bids are due this afternoon, but I don't know when any winner might be announced.

Guess the government watchdogs missed this bank huh?

SVB claims being squeezed by a bank run and increasing bond rates left them in a jam.

Looks like a New York Based Bank has also closed.

Two in one week....hmmmmmmm

FYI - I’m being told by friends that Shopify and Etsy are currently frozen, seems related to the SVB issue.

I have a guess:

I think that there was NO suitable bid for SVB assets that satisfied the FDIC requirements, but then the problem remains: that there is danger of bank runs. I read that $42 billion dollars was withdrawn from SVB on Friday, a bank run of gigantic proportion.

So what will happen? Will the bank runs spread? Will all banks have to close, even temporarily? It seems not, because Janet Yellen announced that "Depositors" (including uninsured accounts) will not bear the losses.

But for those who are thinkers, what are the options?

1. Federal government declines to bail out depositors and shareholders, forget the matter, pay off insured accounts, pay remaining assets into receiver accounts and let other creditors go to bankruptcy court. But then, what large depositor would venture his money into US banks? Even European banks are pretty large and stable these days. The stock market can crash, recession can have much greater probability, the Treasury might have to lower interest rates to stimulate the economy, causing even worse inflation that we have now and hoped we were getting rid of. Life could change for all of America.

2. The FDIC could continue to search for a champion, assuming that one exists. If one exists and didn't submit a suitable bid, she could try to convince them. In the meantime, FDIC would have to operate Federal Deposit Bank of Santa Clara, perhaps adding FDIC liquidity.

3. The FED could proceed to bail out SVC assets to enhance their marketability. The FED is required to resolve the problem with minimal cost to FDIC. But this is a case of systemic risk which allows for exception.

The bottom line is there are only a few options. But the one option that CANNOT be considered is to let the US Banking System fail. It is more than just rewarding a few cheaters, it is a matter of the faith and credit of the USA.

Any time I hear "it's got to be done right away" I step back. It's like an applicant saying "I need to move NOW".

Does anyone remember Christmas eve during the Savings and Loan debacle. The big 4 banks got billions from small banks who got it from the fed (us) in the dark of night xmas eve. Those house of Representatives sold us down the river that night and with FTX and now Silicone bank there going ot do the same.

myob: This is different than a tenant needing to move right away. This is about how the public views the banking system in general. People panic. So, in many cases like this, it DOES have to be "done right away" to calm the masses.

Something tells me we can expect more banking oversite. Will this result in additional tightening of credit? Time will only tell.

I sure hope this nasty bank run bug does spread.

Do I like that the FDIC has a standard insurance amount for depositors like you and me but is willing not to apply that standard evenly - Nope. Is that a good idea? Guess like a tightening of credit - time will tell.

"Something tells me we can expect more banking oversite. Will this result in additional tightening of credit? "

Whether Treasury needs newer and/or better models for evaluating bank financial strength and earlier warning or not may be necessary. But that has nothing to do with loosening or tightening of credit.

But one consequence of Janet Yellen's decision to bail out uninsured depositors is that we have probably dodged the bullet of the necessity to deeply LOOSEN credit NOW in order to stimulate the economy to avoid a potential depression, and that, of course, would have blown up the whole plan of reducing inflation in order to get the country moving again.

I hate to give Janet Yellen credit, but she did what she had to do. Good for her.

John...[MI]

Good comment. There is much more to the time limit than individual panic, like the necessity to disburse payrolls, other business to conduct by businesses with more than $250,000 deposited, but using the phrase "people panic" is very good for explaining the necessity for haste.

John MI its the nut under 3 shells game. Settle it quick s it goes away quick and no one will see how inept it was or corrupt. We need it out in the open-- in the light my friend. Samo with FTX-- how is this dude walking the street? He stole from some pretty bad people--- he's alive for one reason and that reason is there's a chance they the investors can get there money back-- in walks Yellin with the bank bag full (OF our MONEY).

I am working my next commercial loan and it is interesting to see how the market place is suddenly changing the likely hood for a rate hike after this past four or so days.

Where 4 days ago, the message was additional and higher rate hokes are required, the market is pricing out only a 25 basis point hike by the fed instead of a the half point that was factored on last week.

MYOB,

You clearly are agitated at this weekends events, but I think that you don't understand that there are two different events that occurred. In fact, I am sure that you don't understand it.

One event is the failure of SVB. There MAY have been some mismanagement of the bank. But keep in mind how SVB has funded so many tech innovations that were risky, but SVB funded when no one else would, and they became successful companies, making profit for their investors, employing people, raising rentals in SV (in spades), but then got hit by the depression in tech financing after COVID-19's boom then bust cycle. Maybe there was also mismanagement. But the bank failure is a separate event from the other event that happened on Sunday.

The other event is the frantic attempt by treasury officials to contain the serious aftermath of the bank failure. Had a buyer been found, they would have been able to get by without having to cover the uninsured depositors (not investors). But there wasn't anyone qualified who was interested. So the treasury officials had to do the next best thing to ward off collapse of all the businesses that were depending on SVB to carry on their businesses of paying business debts, payrolls, rental payments, vehicle expenses, inventory, advertising, sales agencies, and all the other expenses and payments that a business has to make in order to keep their business open and their people employed. That can take a lot of money, isn't that right, for other than a 1-person business? I am not a fan of Janet Yellen. I believe that she was appointed mmainly because she is a woman and for political purpose, and I believe that she has done not-the-best-job as Secretary of the Treasury. But this weekend, she did what she had to do, and she should get credit for that.

You might want to re-evaluate your comments about "bank bags full of (our) money". You're an intelligent fellow, and I know that you understand what is going on here. No one likes the fact that our treasury has to spend money, unexpectedly, and to cover expenses that you may see as not your expenses, but shouldn't it be seen as a necessary expense to protect our economy and thus our whole way of life?

Why don't you think about it and re-consider if your comments aren't really kind of inane and maybe even downright immature? I know that you are intelligent enough to understand what this weekend was all about.

There have already been rumours of TWO 25 point increases during the first quarter of 2023, not just ONE.

A majority of FED officials have expressed opinions that last year's pace of rate hikes are about to cause a recession, and there is need to slow the pace to avoid too swift a downturn in the economy. Blame it on the pace of inflation, blame it on this weekend, blame whoever you want, but the plan doesn't seem to be a good one. Large dampening rate hikes last year, no one expected that inflation wouldn't have already been dampened, economy is STILL too good, but remember that ALL presidents are determined to make a good economy carefully timed during an election year. Janet Yellen has already confessed to one mistake in not raising rates soon enough last year.

Is This important?

These are investors, not executives. So they lose their investments? Are they depositors? Will they get money from US Treasury meant for protection of depositors?

If there is any relevancy here, I'd like to know about it.

Moshe when you get a moment please let CNN know that they are wrong about rates.

New York

CNN

—

Sheila Bair, a top banking regulator during the 2008 financial crisis, says the stunning implosion of Silicon Valley Bank is exactly why the Federal Reserve needs to halt its war on inflation.

“The Fed needs to hit pause and assess the full impact of its actions so far before raising short rates further,” Bair, the former chair of the Federal Deposit Insurance Corporation, told CNN on Sunday in a phone interview.

“If they paused, it would have a settling effect on the markets,” said Bair, who led the FDIC through the 2008 failure of Washington Mutual. Silicon Valley Bank is second only to Washington Mutual in terms of the biggest bank failures in US history.

TV news showed the Prez telling us our money is safe. So I am sure if the govt says they are here to help me it must true :)

Moshe CA unfortunately I get the whole enchilada. Thank you for your kindness and not just coming out and saying myob you a freakin ignoramus. Fortunately for me I'm not from the land of milk and honey-- which be CA. Where everything gets twisted.

I and maybe millions of others in this country are agitated. What's wrong with that? Again we have gov't who is assigned the job of watching banks and "regulating them" not doing their job. We have learned nothing from 2008. More nut under more than 3 shells and 4 hands moving those shells around.

What is my #1 agitation: there is no where for us to go. There are move HAVE NOTS then haves and we are out numbered at the poles. Agitated is people who don't even belong here and are here illegally are now been given the vote. Abeita in local elections but we all know what's coming next-- don't we?

I only went to 3rd grade Moshe so give me a break.

Well Ray-N-Pa,

Just what exactly should I tell CNN that they are wrong about?

So your sources say that: Sheila Bair … said to CNN … that “the market is pricing out only a 25 basis point hike by the fed instead of a the half point that was factored on last week.” And she told it to CNN on “Sunday”.

Well, here is a dispatch from Reuters that says the same thing, so it must be true, right?

reuters.com/markets/rates-bonds/fed-deliver-two-25-basis-point-hikes-q1-followed-by-long-pause-2023-01-20/

But the byline of this dispatch says it was published February 19, 2023. So this is old news from long before this weekend’s crisis. The 50 point perception hasn’t been active for almost a month. And what does the dispatch say? Two 25 pointers in first quarter: that was end of March, and that’s what happened; and next is beginning of May, another 25 pointer expected. So what has Bair and your banker got for us?

Bair offers for reasoning, that (as described by your banker) “the Fed should be well aware of its impact on the banking sector after this weekend.” AFTER THIS WEEKEND? Where was he back in February?

Take a look as what Reuters says that Fed officials broadly agree the U.S. central bank should slow the pace of tightening “TO ASSESS THE IMPACT OF THE RATE HIKES”. And after the impact of this weekend, what have we learned about future rate hikes? Anything?

So a 25 pointer for May has been in the works since at least February. Has anything changed? Do we have any news about new plans for May based on this weekend?

P.S., What I find interesting is the claim about the need to slow the pace of tightening "TO ASSESS THE IMPACT OF THE RATE HIKES". Do you believe that?

I believe the Fed is backed into a corner.

If they raise rates to fight inflation they increase the pressure on banks because the bonds they hold as colleterial to prevent default, become less valuable. Cascading bank failures will shake the economy and cause even more runs.

Then again, if they don't raise rates, they allow inflation to create an unstable economic conditions - that are magnified even more in third world countries.

I don't see either path as one to victory. But my opinion doesn't matter. I am interested in finding out how this impacts the rates I am working on again.

Pass out the snacks... it's been a fun ride so far and we're nowhere near the end just yet.

I tend to think like Brad 20K: The Govt says "X", so I figure it's gonna be X +/- 50%.... or maybe "Y". They will say what they think the majority of people want to hear. It's rare for a politician to tell you an unpopular truth point blank. Ultimately, it serves no purpose, because people rarely believe the truth anyway if it's not something they want to hear. So you tell them their deposits will be safe and that Big Brother is here to stand up for the little guy.

Remember Yellen and Biden talking about the "transitory inflation?" I do. They don't know a whole lot more than you or I about the behavior of 10s of millions of people. What they have are best guesses based on what happened last time. Sure, there are some broad principles one can follow. One of those is that generally when people get spooked they behave irrationally, but beyond that, they don't REALLY know what's going to happen.

Like our military, they train to win the last war, not the current one.

Here's my two cents: What they will do is tinker. A rate adjustment here. A dab of undeserved bailout/deposit insurance money there. Shore up the system as best they can and try to mitigate damages. It's a noble goal for the short-term, and it will either work or it won't. If it works, they will claim credit. If it fails, they will do everything they can to distance themselves from blame and heap as much of it on their political opponents as possible.

If it works too well, it will incentivize further bank/depositor misbehavior in the future. Why concern oneself with properly evaluating risk if Uncle Sugar has your back?

Meanwhile, many of us will probably do just as good a job guessing what will happen as the professionals, via a cocktail of luck, a dab of common sense, and a few shots of actual knowledge.

*munch, *munch... enjoying the popcorn.

For a change, I agree with Sid. Well, I don't really agree at all with the details of his posting, but I would agree that he has looked in the right corner for an answer to the question of "do you believe (the excuse) that the need to slow the pace of tightening is TO ASSESS THE IMPACT OF THE RATE HIKES". I don't.

The corner is the political corner. What has been forgotten is that among the constants here is the fact that there is an election coming up, even though it is more than a year away. EVERY president uses his control of the economy (interest rates) to make sure that by election time, the economy will be running full speed ahead, because thats how elections get won (its the economy, stupid). I have no intention to try to influence the election here, because EVERY president does it, Red, Blue, Green or Purple. So, do you think that the REAL reason for slowing down interest rates increases ts to ASSESS THE IMPACT OF THE RATE HIKES? Or, do you think that it is the timing of the choreography of election strategy.

Janet Yellen has admitted that she failed to begin the process of dampening inflation soon enough, forcing her to need higher dampening rates more than than they might have had to be. So the higher than they might have needed rates caused higher stress on the economy than needed. She didn't count on inflation remaining as high as it is, causing the timetable of election strategy to be upset. She needed interest rates to abate, at least for a while, to prevent a "hard landing" (recession). But now, that timetable is upset, she will take her next 25 pointer hoping that that will be enough, but if its not enough to sufficiently dampen inflation, then she will need 50-pointers or more, which will upset the election strategy of avoiding recession now and plan for full speed ahead economy next summer.

How do you suppose estimates were generated for soft-landing recession in 3rd quarter of this year? The FED decides on interest rates, but they are appointed by the president who has lots of influence. So what did the Bank crises do to the timetable?

Can an investor actually PLAN on when interest will go up or down based on consideration like this? Its worked for me in the past, but I am not sure about next year because it depends heavily on how successfully the President is able to make and execute a plan with suitable timing under conditions like this. This year is turning to be unlike previous years, with structural changes ever changing with our more and more complex world.

I am personally watching developments closely, but I have no interest whatever in mortgages and buying property. I have made so much more money in the stock market and the DIRECTION of the economy is what I care about.