Banking Crisis 2023

[Lexicus]

Cut-throat margins at massive scale without needing to adequately price in risk are one of the principle tools of concentration of business. Prices efficiency of practice out of business in favor of exuberance and creativity in playing the rules.

Edit: It also re-brands "stability" as "inefficiency" by removing alternatives. When there is nowhere else to go, the business can slice out redundancy and surge capacity, think forumula shortages for everyone when one plant goes down. All the plants that aren't running 24/7 are already out of the game. Then if every store down the supply chain has been leaned to the point where there is relatively low/no held inventory, there's no "give" anywhere in the system the first time there is a hiccup. This shows up in banking, formula, all manner of things. Combating this is why I've long argued ethonol production has a purpose, and it's only secondarily fuel. It builds in a forced redundancy of supply to both food and fuel, especially food. Shortfalls cannot simply be grown in a week, or two, or twelve. There has to be a reason to have extra perishables on hand for when stuff blows up. It's exactly what government exists to force into the system. Seems banking needs to revisit the principle. Insurance too, for that matter. But those are my bugaboos.

I'm quite confident that you're saved, and you will be born again

Spoiler :

as a communist

 

[Hygro]

Though a big problem with Sovietism was that they had no supply surplus and would have shortages and bottlenecks. Not sure how we can best incentivize at-the-ready slack in the system like we once seemed to have.

 

[Lexicus]

Though a big problem with Sovietism was that they had no supply surplus

I disagree with that. They just had hella surpluses of weapons, rather than of the things that make life nice.

Not sure how we can best incentivize at-the-ready slack in the system like we once seemed to have.

Constitutional change. Not sovietism, but a fundamental change in how corporate charters and corporate governance are allowed to work. I don't mean that in a reductive sense; obviously many other things would need to happen to make this possible and it would go along with other changes. But I'm convinced that the fact that corporations ultimately are all standing on the approval granted by the state in the form of recognizing the corporate charter as a document with legal force, means that we can fix things.

You know why they are getting rid of the slack. It's as Farm Boy said, it's unproductive. It's market forces - the investor funding goes to the companies that generate the quarterly returns. People want their money out of the market. Where does that money come from? Marx told us: capital, vampire-like, sucking life from living humans, and living more the more it sucks. Lean-ing the real economy fattens the rent streams that these corporations literally exist to extract and distribute.

We need to drastically reimagine what corporations are for, and whom they serve.

 

[Lexicus]

Anyway, back to the banking crisis. This doesn't seem to me to be a repeat of 2008, but I can't rule out criminality. William K Black has remained silent afaik. I think he'll have the right take, if he comes out with a take.

edit: ope, spoke too soon, looked the other day but my man:

Bill Black on SVB: A Bipartisan Clown Car Crash

The legendary regulator and white-collar criminologist William K. Black explains why, contrary to corporate media coverage, the bank failures set off by the Silicon Valley Bank crash were absolutely…

theanalysis.news

Sadly I gotta listen to this instead of reading it so it's gotta take longer but listening now...

 

[Kaitzilla]

Here is some more about the banking crisis.

U.S. Banks are sitting on $1.7 trillion in unrealized losses, research says. That's not a problem—until it is

"As long as people aren't all coming in at the same time and demanding that their deposits back, you're okay, but that's exactly what's been happening," Prof. Stephan Weiler told Fortune. "So the chances of facing those unrealized losses are going up."

fortune.com

The government needs to guarantee all bank deposits.
Especially if interest rates are going to keep going up.


Once a trillion dollars stops moving out of small and medium banks every few weeks, banks can calmly let their bonds mature and everything will be fine.

**Edit**
Even a 2 year limited-time guarantee would be fine.

 

[Lexicus]

All the people complaining about inflation, didn't u want a deflationary crisis? Didn't I WARN YEH?

 

[Lexicus]

Bill Black on SVB: A Bipartisan Clown Car Crash​

Not long into this (14 minutes) and learned a lot already!
at about 16:30 he says Dodd-Frank turned to "conventional economists" to solve the problem in the banking system, which he says is "significantly insane, because conventional economists create the problems in finance, they don't solve them!"

edit:
To summarize.

SVB's leadership lobbied for SVB to be exempted from the Dodd-Frank stress test, but the Dodd-Frank stress test is a joke because it doesn't even look at what would happen if there were a run on the bank. Dodd-Frank is a bad bill, very complex and cumbersome in addition to being more akin to a kayfabe of financial regulation than the real thing.

SVB failed because of stuff that should be criminal, probably, but again the Fed failed as a regulator. In this case it's particularly egregious because the Fed knows that it's raising interest rates and therefore ought to know that it should be looking at banks for interest rate exposure.

SVB hid the losses from interest rate increase by characterizing the bonds as held for investment rather than sale, and says the Fed isn't looking at whether other banks are doing this, let alone issuing rules or even guidance to stop it.

Blames the complete destruction of banking regulation on the Clinton administration reinventing government, directly instructing banking regulators to treat the bankers as their "customers."

He says Swiss banking is generally more opaque and corrupt than US banking.

 

[Farm Boy]

I'm quite confident that you're saved, and you will be born again

Spoiler :

as a communist

I'm an Eisenhower Era conservative, not a Republican, persay, and we have opinions on communists and the Russia it became. They had "hella surpluses" on weapons because they held economic colonies in violent thrall in order to make things work even as well as they did. And when there was sincere disagreement, there was always survivorship bias to correct mistakes again. Communism sucks. That is not an endorsement of post Glass-Steagal finance. I only "don't fit" because this country has almost finished eliminating humanities educated farmers as a population entirely. Where we do pop up, we're weird and don't fit the teams, so can be "safely ignored." However, in a fit of tangential irony, Europe is starting to remember why the US doesn't have free Healthcare as of 2022.

 

[Lexicus]

The Soviet Union was in fact a conservative state par excellence, run by a meritocratic elite and spending all its money on the army instead of on "welfare entitlements."

All of your posts that actually contain material analysis and not just culture-war axe-grinding are basically communist and revolutionary in orientation. You know the economy is rightfully organized to the benefit of all people and not as a machine to suck up rents to a tiny handful.

 

[Hygro]

It’s interesting you mention weapons as the counter example. That industry was in competition with the USA. The other industries where there was stagnation and shortages were not in competition.

 

[Farm Boy]

The Soviet Union was in fact a conservative state par excellence, run by a meritocratic elite and spending all its money on the army instead of on "welfare entitlements."

All of your posts that actually contain material analysis and not just culture-war axe-grinding are basically communist and revolutionary in orientation. You know the economy is rightfully organized to the benefit of all people and not as a machine to suck up rents to a tiny handful.

Yeah, but I need to agree to your definitions for your post to make sense to me, and I don't share the definitions. "Me and mine" put on the blue for the people, and we wear the stars and stripes for the same. Just because the country doesn't follow the God I do, and is allowed to, doesn't change my definitions.

After 14 years in a pissing post position in higher education(charter union member! when it was relevant), "the socialists" I have run into(especially the young) are mostly looking to "collect rent," not "work." Everytime I read somebody that says "only laws change anything, not my personal effort" I know there's another lost cause.

 

[Narz]

Why do we need private banks?

Couldn't theoretically every person be given a small line of credit that they could use for loans from the government and if they proven competent their credit limit could increase.

The freeloaders simply wouldn't get more loans and the cost of all individual freeloaders combined would be orders of magnitude less expensive than bailing out the banks.

Corporations could still raise capital and lend to each other.

I just fail to understand the value of private banks. Why should the public prop something up that harms them?

 

[Lexicus]

It’s interesting you mention weapons as the counter example. That industry was in competition with the USA. The other industries where there was stagnation and shortages were not in competition.

I'm not sure I would agree with that. The US and Soviet military parasites fed off of each other. Certainly in the US where public opinion matters to the extent it does, the public justification for spending so much on weapons was most commonly "look how many weapons the Soviets have!" Meaning that there was something of a mutually beneficial relationship there: definitely not market competition.

 

[Lexicus]

After 14 years in a pissing post position in higher education(charter union member! when it was relevant), "the socialists" I have run into(especially the young) are mostly looking to "collect rent," not "work." Everytime I read somebody that says "only laws change anything, not my personal effort" I know there's another lost cause.

Of course people are following the incentives of the society they live in. Work mostly sucks, getting into a position to collect rent is much better.

Work doesn't have to suck though.

 

[Lexicus]

Not long into this (14 minutes) and learned a lot already!
at about 16:30 he says Dodd-Frank turned to "conventional economists" to solve the problem in the banking system, which he says is "significantly insane, because conventional economists create the problems in finance, they don't solve them!"

edit:
To summarize.

SVB's leadership lobbied for SVB to be exempted from the Dodd-Frank stress test, but the Dodd-Frank stress test is a joke because it doesn't even look at what would happen if there were a run on the bank. Dodd-Frank is a bad bill, very complex and cumbersome in addition to being more akin to a kayfabe of financial regulation than the real thing.

SVB failed because of stuff that should be criminal, probably, but again the Fed failed as a regulator. In this case it's particularly egregious because the Fed knows that it's raising interest rates and therefore ought to know that it should be looking at banks for interest rate exposure.

SVB hid the losses from interest rate increase by characterizing the bonds as held for investment rather than sale, and says the Fed isn't looking at whether other banks are doing this, let alone issuing rules or even guidance to stop it.

Blames the complete destruction of banking regulation on the Clinton administration reinventing government, directly instructing banking regulators to treat the bankers as their "customers."

He says Swiss banking is generally more opaque and corrupt than US banking.

Some other takeaways from this: he says Dems are lying when they say it's not a bailout, and that they're also lying when they say "no taxpayer dollars", though that one is more of a technical lie because they might in theory replenish the FDIC fund by levying fees from the banks.

Said the Dems have reappointed Republican-appointed Fed chairs pretty much every time they win the Presidency, whereas Republicans have not done the converse in over 50 years. The Dems are playing "softball where you want your kid to hit the ball", Republicans are playing hardball.

Says as a regulator, he didn't like overly complex regulations. When he re-regulated the S&L sector he got rid of many more regulations than he created. Complex and overly numerous regulations are the result of the regulated industries lobbying for exceptions and exemptions based on exceedingly unlikely scenarios. Simple regulations are better but the banks don't like them because they cut into profits (and thus bonuses and performance-based comp).

 

[Joij21]

There's no banking crisis guys, it's solved.

Move along! Move along!

P.S. Don't worry after the next rate hike Powell will pause.

 

[Remorseless1]

I'm not sure I would agree with that. The US and Soviet military parasites fed off of each other. Certainly in the US where public opinion matters to the extent it does, the public justification for spending so much on weapons was most commonly "look how many weapons the Soviets have!" Meaning that there was something of a mutually beneficial relationship there: definitely not market competition.

The difference was that the US could afford to build weapons AND build cars, washing machines, blue jeans, and aspirin etc. that were competitive on the world markets. The Sovs and modern Russia could build weapons but no one wants a Russian car or washing machines.

 

[Joij21]

Everyone here is far too bearish now despite being far too bullish over the last six months when inflation was accelerating more.

All because a bank that services Silicon Valley has issues. You guys must be programmers/work in IT.

 

[Kaitzilla]

It is the second and third largest bank failures in United States history.

That is Bear heroin straight into the veins!

 

[Remorseless1]

It is the second and third largest bank failures in United States history.

That is Bear heroin straight into the veins!

True, but it's not like dozens of banks are collapsing. It's a few banks making bad business decisions, particularly those in the tech sector. The FDIC covers all bank deposits up to $250K, and the taxes that support that coverage are paid by the banks themselves, not taxpayers.