In summary, it is very clear that the government is going to do everything within its money creation and regulatory powers to keep this banking system failure in check. The PTB even trotted out Joe Biden to tell Americans “the US banking system is safe” even as shares plummeted up to 74% in pre-market trading despite president’s guarantee scheme for SVB and Signature Bank.
The financial powers first had to halt all trading in bank stocks while they organized a stock intervention response so the “crash” of bank stocks was blunted. The fact that the “plunge protection team” had to intervene so forcefully to stop the run on bank stocks indicates the big boys aren’t ready for a market crash yet.
• • •
World Affairs Brief, March 17, 2023 Commentary and Insights on a Troubled World.
Copyright Joel Skousen. Partial quotations with attribution permitted. Cite source as Joel Skousen’s World Affairs Brief (http://www.worldaffairsbrief.com).
WHY THE CURRENT BANKING SYSTEM IS ALWAYS SUBJECT TO COLLAPSE
The collapse of three high-risk banking institutions this week may seem like an anomaly, but it’s not, considering the fragile nature of our banking system. All banks are inherently susceptible to bank runs because they, like insurance companies, are only required to keep a small portion of their assets in cash or liquid assets available for withdrawal within a short time. When cash funds are exhausted, banks must sell their most liquid assets, which are usually in the form of US Treasury bonds. When demands for withdrawal exceed a bank’s cash and liquid assets, the bank becomes insolvent—unless it can get other larger banks to give them some “bridge loans” at higher interest rates, which they just did for First Republic Bank. But they won’t be willing to do if the problem bank’s balance sheet contains too many weak performing loans. Silicon Valley Bank and Signature Bank both ran out of the foregoing options this week and collapsed, but what was different this week was that the Federal Reserve and FDIC stepped in and decided to bailout all depositors, most of which far exceeded the $250K cap on federal deposit insurance, in order to stave off a larger bank panic. While this may work in the short term, it sets a very dangerous precedent in that it is 1) illegal, 2) rewards risky bank speculation, and 3) it sets up a double standard for bailouts that the government can’t possible fulfill if more banks default. This week I will discuss the many reasons why SVB failed and why other banks are similarly vulnerable.
First, a Primer on Banking
Most of you think that the money in your bank account is yours. It is not. When you deposit any funds in a banking or credit union, you lose title to it legally. In bank accounting, the deposit is now listed as an asset of the bank, and a corresponding liability is registered on the other side of the ledger signifying that the bank owes you the money. But unlike a normal loan, you have no legal right to demand your money back immediately. The courts have ruled that in a bank deposit you transfer the money to the bank for it to loan out or invest.
If we had a banking system that acted as a true safe depository of YOUR money, that you still retained title to, you would end up paying the bank significant fees to keep your money safe, and it could not be invested without your permission. That’s the way banking started out when silver and gold coinage was money.
Modern banks offer every service “for free” to attract deposits, but to make a profit, they have to invest the money you deposit at a higher rate so they have sufficient profits to pay for the costs of bank buildings and their employees. That’s why none of the banks with brick and mortar buildings offer you much interest for your money, if any at all—around half a percent at this writing. Even a certificate of deposit with time limits for withdrawal won’t get you above 1% interest at most brick-and-mortar banks.
Whereas, in contrast, a bank with no buildings like Discover Bank can offer over 3% interest. So, you pay a penalty in lower interest for the privilege of dealing with a full service bank with a physical location with ATM machines, tellers, and safe deposit boxes.
There are various complex factors and formulas bank rating systems like Moody’s uses to determine relative security of banks in an economic downturn, but the major ones are the quality of the loans they make (resistance to economic failure), the diversity of loans (to make sure all their eggs are not in one basket), their profitability relative to overhead, and the strength of their reserves.
While regulations dictate the percentage quantity of reserves a bank has relative to liabilities, not all reserves are equal. The so-called “gold standard” of Treasury Bills has now turned out to be a big negative due to high inflation and high interest rates, as Moody’s Bank Rating service noted:
Moody’s Investors Service cut its view on the entire banking system to negative from stable. The big three rating firm cited a ”‘rapidly deteriorating operating environment” despite regulators’ efforts to shore up the industry.
The firm noted that an extended period of low rates combined with Covid pandemic-related fiscal and monetary stimulus have complicated bank operations.
SVB, for instance, found itself with some $16 billion in unrealized losses from long-dated Treasuries it held. As yields rose, it eroded the value of those bonds and created liquidity issues for the bank, long a favorite of high-flying tech investors that couldn’t get financing at traditional institutions. SVB had to sell those bonds at a loss to meet obligations.
[Interest] Rates rose as the Federal Reserve battled an inflation surge that took prices to their highest levels in more than 40 years. Moody’s said it expects the Fed to continue hiking.
Check your bank rating at Weiss ratings here.
But the real problem is the continued expansion of the money supply which drives price inflation. Raising interest rates only distorts one side of the economy (related to business expansion and new housing) which depends on borrowing, but doesn’t stop consumer spending driving prices higher as the new money trickles down from the Wall Street banks which get first use, and then spend it into the economy.
And, by the way, if you do withdraw your money in a bank run, what do you do with it? In the first place, you won’t be able to get it all in cash if it’s a significant quantity, so you’ll have to transfer it to another bank you think is safer. When SVB fell, over $42B were withdrawn the day before it was closed. And, guess who got the lion’s share of those billions?
– The “too big to fail” big banks that are the secret owners of the Federal Reserve: Bank of America, JP Morgan/Chase, Citibank, and Wells Fargo, etc. The only reason they never fail is they can tap into nearly free loans from the FED if needed.
In short, the Western banking system is a confidence game. The government depends on the public’s confidence in bank safety, even though all banks are vulnerable. Every bank is subject to a run if triggered by either real economic threats or conspiratorial ones.
And, the government doesn’t allow any true free market alternatives, because they have accustomed the public to getting “free” banking services which aren’t really free. You’d have to pay for true custodial banking services, which can’t really operate in a system where the FED can inflate the currency and devalue our custodial deposits.
In the US model of the Federal Reserve monopoly on money creation (which is neither federal nor a reserve), if you keep your US paper dollars out of the banks (and you should keep at least a 3 month’s supply as a reserve) you pay the inflation tax of about 10-15% a year as a loss in purchasing value.
Even the traditional hedges against inflation—gold and silver—are not allowed to act as a real store of value anymore because the price of both is continually manipulated downward so that neither precious metal rises with inflation as it normally should.
Sadly, we’re stuck with the rigged system they have created, based on fiat money that is the only thing allowed as “legal tender.” And, even that (actual greenbacks) are destined to be eliminated eventually as the globalists push for a digital only currency. It isn’t imminent though, despite the hype, since it’s going to be difficult to wean billions of people around the world off their secret hoards of dollars.
And what will the globalists themselves use for money when the digital money grid and internet goes down for a long time in the next war, if they eliminate all paper currency? Only those that have stockpiled most things they use in safe rooms under their own homes will survive that ultimate threat—so keep working toward those secure stockpiles.
How did SVB Fall?
Here’s the establishment version of how the second-biggest bank collapse in U.S. history happened in just 48 hours, according to CNBC, which doesn’t tell the whole story.
The company’s downward spiral began late Wednesday, when it surprised investors [the venture capitalist firms (VC), to which the bank catered] with news that it needed to raise $2.25 billion to shore up its balance sheet.
“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC. All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing. Now, those who remained with SVB face an uncertain timeline for retrieving their money. [And this caused a bank run by many smaller depositors.]
It’s important to note here that the big investors got word of the bank’s balance sheet problem before anyone else, which gave them the advantage of getting out before the bank was declared insolvent. The word leaked out that SVB was desperately seeking additional funds to shore up their balance sheet—not because of withdrawals, which hadn’t started yet, but because many of their VC client loans where in arrears due to the twin evils of high inflation and higher interest rates, limiting new start-up funding.
On Wednesday, Silicon Valley Bank was a well-capitalized institution [on paper] seeking to raise some funds…The episode is the latest fallout from the Federal Reserve’s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.
The roots of SVB’s collapse stem from dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.
The low interest rate Treasury Bonds that SVB was forced to sell were part of its so-called “well capitalized” assets on paper. As long as a bank doesn’t have to sell these bonds, it can list them at face value, which is much higher than they are really worth. Who wants to buy a 2% T Bill when interest rates are above 7% and the real rate of inflation is 10-15%?
Biden’s $6T stimulus caused a huge inflationary bubble in the economy that was punctured by dramatically rising interest rates, leaving banks with multibillion dollar shortfalls. And, when the FED raised interest rates dramatically to around 7%, Treasury bond values fell because those bonds were denominated in the former and artificially low interest rates.
The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.
The story of Silvergate Bank, is another sad tale related to the inherent instability of a bank dealing strictly with crypto currencies which are highly speculative and subject to severe gyrations. Sadly, even banks and Venture Capitalists got caught up in the crypto mania and lost millions in the collapse of a couple of big crypto exchanges and finally, Silvergate Bank itself.
SVB customers said CEO Greg Becker didn’t instill confidence when he urged them to “stay calm” during a call that began Thursday afternoon. The stock’s collapse continued unabated, reaching 60% by the end of regular trading. Importantly, Becker couldn’t assure listeners that the capital raise would be the bank’s last, said a person on the call.
Becker and other top officers at SVB had already started to sell their shares in SVB stock the month prior, in typical insider trading, according to the Reese Report:
Greg Becker CEO sold 11% of his stock on Feb. 27 [worth $3.6M]; Michael Zucker, SVB General Counsel sold 19% of his stock on Feb. 5 and Daniel Beck, CFO sold 32% on Feb. 27; Michelle Draper, CMO sold 25% of his stock on Feb. 1.
Other big banks also had insider knowledge and got out early, according to Reese:
On Mar 9, the day before the collapse, the two largest banks of Israel including Bank Leumi transferred nearly a billion dollars out of SVB. Peter Thiel’s Founders Fund pulled out millions, and advised their clients to do the same.
The CNBC report continues:
Prominent funds including Union Square Ventures and Coatue Management blasted emails to their entire rosters of startups in recent days, instructing them to pull funds out of SVB on concerns of a bank run. Social media only heightened the panic, he noted. “When you say, `Hey, get your deposits out, this thing is gonna fail, that’s like yelling fire in a crowded theater,” Falvey said. “It’s a self-fulfilling prophecy.”
That can happen to almost any bank not directly connected to the FED’s insider safety measures. Because of the fact that all the smaller banks have a fairly low margin of liquid cash and assets to withstand a bank run, it’s fairly easy for big financial insiders to bring down a problem bank by fueling the rumor mill.
All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources, the regulator said.
SVB losses by the time it was shuttered were estimated at $175B. The FED announced that the bailout of all depositors at both SVB and Signature Bank in NY would not cost the taxpayers anything, but that the funds would come from fees banks paid to the Federal Reserve. Really? Are we to believe the annual fees exceed $175B? Someone’s creating more funny money for this bailout, which will add to inflation. Either way this is a taxpayer-funded bailout.
There will be some un-deserved winners and some well-deserved losers, as Breitbart explained,
But it turned out to be a good wager on the part of Silicon Valley. The venture capital community was able to avoid paying the costs of managing treasury risk by concentrating deposits in a single institution. When the bank went belly up because those same depositors rushed to withdraw their funds en masse last week, the costs were absorbed by the broader banking system [and the public eventually].
The official statement was clear in saying that “shareholders and certain unsecured debt holders” would not be protected and that senior management would be removed [but not penalized financially]. The shareholders are likely to lose all of their investment, and holders of bonds issued by the banks may be zeroed out as well. It’s possible they could be in for some recovery if the banks’ assets prove to be more than enough to pay off depositors, but that is likely a long way off and will certainly involve some losses.
There was also bad management at the helm as the Daily Mail discovered, although SVB officer’s presence at bad firms in the past doesn’t prove causality.
Former Lehman Brothers CFO Joseph Gentile was hired by Silicon Valley Bank and recently-appointed risk manager worked at Deutsche Bank when it LIED to investors and had to pay $7.2 billion. Joseph Gentile left his position as the CFO at Lehman Brothers one year before it collapsed to join SVB as its chief administrative officer. Recently-appointed chief risk officer Kim Olson worked at Deutsche Bank when it lied to investors about its mortgage-backed securities. These two executives at Silicon Valley Bank worked at banks that contributed to the Great Recession in 2008.
And SVB had no head of Risk Management prior to the fall except for one woke, queer woman:
SVB had no head of ‘risk assessment’ for nine months before it collapsed… as woke boss for Europe, Middle East and Africa was busy organizing a month-long Pride campaign and a ‘Lesbian Visibility Day’ …
There are other issues that contribute to these two bank’s collapse, just like the big crypto-exchanges that donated millions of dollars to Democrat candidates—using other people’s money. SVB, Signature and other banks were involved in heavy donations to woke causes, as the Daily Mail noted:
Woke Silicon Valley Bank donated over $73 MILLION to Black Lives Matter-related social justice groups before it collapsed – while failed Signature Bank gave $850,000. Donations were used to fund further organizations, and a political action committee to elect woke leaders. The revelation comes after the banks were derided for being too woke and not focused enough on red flags at their companies.
Many of their depositors were also big Democrat donors, making them important enough to be bailed out, despite the lack of legal authority.
But that’s not the only red flag that indicates why these particular wealthy startups got a bailout. It turns out only one of the members of the SVB Board of Directors had any financial experience, as the Daily Mail also uncovered:
Only ONE member of failed SVB’s board had a career in investment banking – and the rest were Obama, Clinton mega-donors who ‘grieved’ when Trump won including one who went to Shinto shrine ‘to pray.’ Tom King, 63, was the only member of the Silicon Valley Bank board who had experience in investment banking. The board is now being investigated for its failure to act ahead of the bank’s collapse, as some argue it was too focused on being woke.
It appears being woke, contributing to racial “diversity” and being a yesman to environmental causes is now a requirement on a Board of Directors in a woke bank.
Virginia Allen of the Heritage Foundation talked with economist Peter St Onge to discuss why Silicon Valley Bank collapsed and what President Joe Biden’s resulting actions mean for the economy.
The “rich people” with money in Silicon Valley Bank are the real winners in President Joe Biden’s handling of the California-based bank’s collapse, economist Peter St Onge says. After the fall of Silicon Valley Bank over the weekend, the Biden administration announced that the Federal Deposit Insurance Corp. will cover all depositors’ money there.
Normally, the Federal Deposit Insurance Corp. is responsible for covering deposits up to $250,000, ensuring that most small businesses and individuals are financially protected from a collapse. But in this case, the FDIC is going far beyond that $250,000 cap to cover every deposit in Silicon Valley Bank, regardless of the amount.
“If the administration gets away with this, then we are going to start moving into a world where bankers, where Wall Street, feels like they can take any risk they like, because this is all going to get bailed out because you’ve got these human shields,” St Onge, a research fellow in economics at The Heritage Foundation, says.
Ultimately, the federal government’s actions to protect Silicon Valley depositors probably will result in higher inflation, St Onge says. “I think we’re very likely to see a lot more inflation,” he says.
Ultimately, the huge contributions to radical and woke causes made by those who got bailed out indicate that these particular wealthy people are part of the financial cabal for which the system is rigged to protect. But don’t expect this rigged system for insiders to cover your losses if more banks fail. In fact, I think their refusal to bail out First Republic bank directly and got their big banks to do it indicates a signal that they don’t intend to bail out other banks if the downward trend continues.
In summary, it is very clear that the government is going to do everything within its money creation and regulatory powers to keep this banking system failure in check. The PTB even trotted out Joe Biden to tell Americans “the US banking system is safe” even as shares plummeted up to 74% in pre-market trading despite president’s guarantee scheme for SVB and Signature Bank.
The financial powers first had to halt all trading in bank stocks while they organized a stock intervention response so the “crash” of bank stocks was blunted. The fact that the “plunge protection team” had to intervene so forcefully to stop the run on bank stocks indicates the big boys aren’t ready for a market crash yet.