Banking Crisis 2023

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Silly Con Valley Bank

 

[Lexicus]

True, but it's not like dozens of banks are collapsing.

....yet. i'm not making any predictions, but it remains to be seen how many other banks have covered up massive interest rate losses the same way SVB did. Black also said the Swiss bank was probably doing some exotic derivative stuff in addition to having interest rate exposure, but because of how corrupt Swiss banking is we may never get the whole story of what happened there.

 

[Joij21]

That is Bear heroin straight into the veins!

Permabears are dumb in my opinion. They're like those Jesus people wearing the signs that say the end is nigh.

Also this bank was specialized to serve the Valley. I know a lot of people have like this hype for the Valley, but what most of those tech companies make is rent seeking apps and not much else of any real value to the economy. I know blasphemous, because others will say that those companies have contributed to the most growth over the last decade but I would just say that simply proves our real economy was rather stagnant with only a little growth (mostly in construction) over the years since the last recession. The speculation of the tech sector merely obfuscating this reality fueled by historically low interest rates. Now all of that has come to an end showing us the real state of the economy.

 

[Joij21]

Also simply put, banking crises never happen if people only take out money sparingly from their deposits while at the same time putting money from income in. Its a fractional reserve system, so it only happens when the people begin to act like wild chimps and need all their money now and all at the same time.

Which makes it very interesting because these Silicon Valley people who this bank catered to should know about such basic finance knowledge, many people in the Valley went to ivy league schools. Yet here we are with supposedly well schooled individuals acting like chimps and trying to pull out their money all at once. They're acting like how blue collar workers would react if they where made to be consciously aware of fractional reserve banking, without knowledge of the implications of a mass pullout.

IMHO all this does is to prove that many of the so called people who we idolized as being smart and the best of the best from the tech sector are merely drunken party fools and hucksters. Each app after the other and each new social media site a more blatant scam then the previous one.

 

[Moriarte]

....yet. i'm not making any predictions, but it remains to be seen how many other banks have covered up massive interest rate losses the same way SVB did. Black also said the Swiss bank was probably doing some exotic derivative stuff in addition to having interest rate exposure, but because of how corrupt Swiss banking is we may never get the whole story of what happened there.

Credit Suisse was worth ~80 bn in 2007. By 2022 the market value gradually went down to 9 bn. Bank have likely been on life support for years.

 

[Lexicus]

Also simply put, banking crises never happen if people only take out money sparingly from their deposits while at the same time putting money from income in. Its a fractional reserve system, so it only happens when the people begin to act like wild chimps and need all their money now and all at the same time.

Which makes it very interesting because these Silicon Valley people who this bank catered to should know about such basic finance knowledge, many people in the Valley went to ivy league schools. Yet here we are with supposedly well schooled individuals acting like chimps and trying to pull out their money all at once. They're acting like how blue collar workers would react if they where made to be consciously aware of fractional reserve banking, without knowledge of the implications of a mass pullout.

IMHO all this does is to prove that many of the so called people who we idolized as being smart and the best of the best from the tech sector are merely drunken party fools and hucksters. Each app after the other and each new social media site a more blatant scam then the previous one.

They're not fools, they're responding to incentives. No one is going to put them in prison for committing criminal fraud to hide their losses so they can pay themselves performance-based compensation.

 

[Hygro]

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.

Nevertheless the difference is in the ultimately competitive situation between our militaries and countries, resulting in a surplus of goods.

 

[Lexicus]

Nevertheless the difference is in the ultimately competitive situation between our militaries and countries, resulting in a surplus of goods.

Perhaps, but is military competition analogous to market competition? State security is generally one of the things that is not simply left to the market to handle, and so I'm not sure that inter-state competition really resembles market competition in what we think of as a free market environment.
Indeed, market competition seems to drive the opposite dynamic - the shareholders want the stock of the companies that lean, and insofar as companies are really competing to serve the shareholders (and may compete to serve customers as a means to that end) leaning is completely in accord with market logic.

The thing is, and the US military actually does understand this which is why we spend so much on the military and why people who think the military isn't capable of fighting a real are actually wrong. The military logistics system has massive redundancies built into it so that, as Farm Boy put it, a hiccup doesn't throw the whole system into free fall. It doesn't operate on the logic of market competition, which is to say, the logic of maximizing financial returns: it operates on the logic of achieving real outcomes, even if that means operating at a financial loss.

But in any case, the massive surplus of Soviet arms had more to do with ideological dogma than with direct competition with the US military. There were too many warheads probably from, like, the mid-50s on, after that point everything conventional became basically for show. Each country focused on the threat posed by the other for internal, ideological reasons (as for example when JFK lied about the missile gap).

Actually, the Soviet version of this might have been closer to correct. It's certainly true that the Soviets were hostile to the US and represented a threat to us, but we were much more of a threat to them than they ever were to us.

 

[Birdjaguar]

Private banks keep inventing ways to make more money and more ways to hedge and hide the risks involved. More and more they are investment houses in bank skins. A solution is to implement tougher, more limited range of investment options.

 

[Kaitzilla]

Some grumblings about Deutche Bank being next, but it is much stronger than Credit Suisse was.
It fell 8% in stock price today.
Not too alarming at $9.35 per share when the low was $7.40 on September 30th 2022.

Net assets on the balance sheet as of December 2022 : $11.10 B
According to Deutsche Bank 's latest financial reports the company has $11.10 B in net assets. A company’s net assets is the sum of its assets minus the sum of its liabilities.
Market cap is currently $19 Billion.

Hmm, Elon Musk could buy Deutche Bank for $19 Billion and sell all the parts of it for $11 Billion, so that's good.
Stock price does not indicate things are terrible.


**Edit**
Bah, this method is terrible.

Credit Suisse (CS) - Net Assets

Current and historical net assets for Credit Suisse

companiesmarketcap.com

Credit Suisse (CS) - Net assets​

Net assets on the balance sheet as of December 2022 : $49.07 B​

According to Credit Suisse's latest financial reports the company has $49.07 B in net assets.
A company’s net assets is the sum of its assets minus the sum of its liabilities.


WTF?
It just got bought for a bit over $3 billion. What on earth happened...
I must not correctly understand.

 

[Moriarte]

It just got bought for a bit over $3 billion. What on earth happened...

Someone got a really nice deal!

I haven’t read in depth in their dynamics, but they lost 7 bn (net loss) in 2022. Last reported revenue was 22 bn (2022) Considering revenue was consistently falling during past 10 years, it was a question of time before business model becomes grotesquely unsustainable. Before that happens, management made a deal. Never mind the assets, the business was losing serious money for a long stretch.

Now UBS took over 500bn (or whatever is left after the bank run) in assets CS was watching over.

 

[Joij21]

They're not fools, they're responding to incentives.

What incentives? Did they all have invitations to a cocaine fueled orgy for St. Patricks Day? Is that why they decided to pull their money all out at the same time? Then once the bank couldn't pay them back they panicked by taking everything out and then running on other banks which they put their money because they were really down and bad and had to go to that orgy?

 

[Kaitzilla]

So apparently insuring all bank deposits no matter how large might cause a lot of foreign bank accounts to move to the US which would cause lots of other problems.

I hope they do it anyway and end the bank runs.

Good luck small banks!

**Edit**
Which fools are being discussed?
The bankers or their customers?

 

[Joij21]

Which fools are being discussed?
The bankers or their customers?

Their customers.

If they aren't fools then it's obviously a bunch of Silicon Valley guys who conspired and coordinated with their bros to pull out cash all at once to engineer a mini banking crisis to put pressure on Jerome Powell to pause his interest rate hikes. Since after all it would be the increased rates (and thus higher credit costs) that would be the real damaging thing happening to Silicon Valley right now and not depository concerns.

Therefore if @Lexicus idea that such individuals are hyper rational and acting solely out of self interest, then one can only conclude that it was in fact a conspiracy to stop the Fed.

 

[Lexicus]

What incentives?

I explained it in the post you're replying to.

Corporate officers tend to be paid a salary which can be pretty high from the bottom looking up, but the great majority of their compensation is in performance-based pay and/or stock options and/or direct grants of company stock. I say and/or for all of these because it's common to award cash, stock, or options based on performance.

Now, for the executive team their compensation is based on the quarterly performance of the company, usually measured by earnings per share (which means the total increase in the company's market cap divided by the outstanding number of shares).

So what happens to the stock price of a bank when the bank reports enough losses to render it insolvent? Why would the people running the bank be honest about what is actually happening with the bank?

It used to be that if they lied, they might go to jail. That's certainly not the case anymore. So what incentive do they have to run the bank in an honest and ethical manner, especially when the government will bail the bank out when their mismanagement has its inevitable consequence? All the incentive is for them to hide the truth as long as possible so they can keep making a lot of money.

Therefore if @Lexicus idea that such individuals are hyper rational and acting solely out of self interest, then one can only conclude that it was in fact a conspiracy to stop the Fed.

The people at the Fed are responding to incentives as well. Where do you think the likes of Jerome Powell are employed before and after they sit on the Fed's board? Why would they do anything to piss off their friends, employers, and clients?

 

[Joij21]

So what happens to the stock price of a bank when the bank reports enough losses to render it insolvent? Why would the people running the bank be honest about what is actually happening with the bank?

Because it's accounting voodoo, it's all made up always has been. But can't let the plebs know.

It used to be that if they lied, they might go to jail.

Hence might. And they still can if they don't watch out and step on the wrong politician, they do that and they will go to jail. Things haven't changed, they've only changed at least in theory on paper.

So what incentive do they have to run the bank in an honest and ethical manner

That would be like telling a defense lawyer not to recommend to their client to fib a little bit despite the whole swearing one's oath on the Bible and whatnot to not give false testimony. Great in theory but no one actually follows through with that simply because of practicality of the job at hand.

A Bank's primary job is accounting voodoo, which by necessity is never truly honest as wealth is often times created out of thin air but in a way to limit inflation (through debts owed) thereby making it difficult for plebs to truly aquire it thereby forcing labour (and thus production) to be extracted therein. In other words they just produce debt to make people actually work in the real economy to force them to not be lazy all day and force them to actually make goods and services (you know the stuff which makes up the real economy). Debt and the threat of homelessness is the stick while promises of working hard and suddenly getting rich is the carrot. And of course the carrot is provided in the form of credit, but it ain't free money, so you have to turn it into something useful, profit, then pay off the debt, and receive carrot. Any donkey who refuses to work under this system goes to the glue factory (prisons, insane asylums, possibly the military).

Doesn't matter if there's a regulatory authority as banks have control over the monetary supply and regulatory authorities do not, they must instead beg cash from the legislature which in turn begs for cash via quantitative easing from the cabal of banks that make up the Federal Reserve. The Federal Reserve is semi private (which surprisingly not a lot of people know about and are instead fooled the the word "federal" in it's name and assume it is a solely government organization. The "federal" in actuality referring to a "federation" of quasi private banks which operate within a public-private relationship. In other words the banks regulate themselves.) Unless of course one brings up their charters which you mentioned before, but when said charters own your wallet what incentive does one have to revoke?

The people at the Fed are responding to incentives as well. Where do you think the likes of Jerome Powell are employed before and after they sit on the Fed's board? Why would they do anything to piss off their friends, employers, and clients?

They are one and the same. It's more than a promise, they are the front for the banks.

But truth be told the real idiots are the customers pulling their money all out at once. After all they will be condemned as such and called r***rds, but not the banks as they are the ones with more power (as in influence) over the mainstream media. Expect to see lots of articles going forth blaming the depositors but not the bankers.

 

[FriendlyFire]

WTF?
It just got bought for a bit over $3 billion. What on earth happened...
I must not correctly understand.

Looks like it was cooking it books
And now its assets which including shares price has crashed.

Credit Suisse could face disciplinary action, Swiss regulator says​

Credit Suisse said it had found "material weaknesses" in its financial reporting;
In recent years the bank has been plagued with a bunch of scandals — including tax evasion, money laundering

UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.26 billion) in stock a week ago and to assume up to 5 billion francs in losses in a merger engineered by Swiss authorities during a period of market turmoil in global banking
Amstad also defended Switzerland's decision to write down 16 billion Swiss francs of Credit Suisse Additional Tier 1 (AT1) debt, to zero as part of the forced rescue merger.

Credit Suisse could face disciplinary action, Swiss regulator says By Reuters

Credit Suisse could face disciplinary action, Swiss regulator says

www.investing.com

 

[Nick723]

So another bank (First Republic) has failed, with JP Morgan swooping in to pick up the spoils.

All commentary still seems to be saying ‘a series of isolated incidents’ rather than anything more systemic.

Though perhaps more trouble ahead?

Is the banking crisis coming to an end? As JP Morgan CEO notes, risks linger

Jamie Dimon says this phase of bank collapses is over, but ‘other cracks in the system’ could still be revealed

www.theguardian.com

 

[Aiken_Drumn]

Currently 13% down on my SCHW bet.

 

[TheMeInTeam]

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?

banks that are bailed out are not private banks