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Banking Crisis 2023

We used to have better banks, too, so I don't think that's the line.

The government is hella better at rent extraction than banks are. Cuts out the inefficient step of the bank needing to tell the government what to extract from you.

It's just finance. Truckers truck, engineers design, farmers grow, and finance extracts money from people who have less money than them because they already have money.
<shrug> I guess pick your master.
Some points I had not got about the Credit Suisse thing:
  • Credit Suisse has been the bankers for the worst of the worst for most of its history, including very recently.
  • The top executives including the CEO illegally spied on multiple former employees and then killed the spy two days after the legal action against he started
  • The UBS takeover broke so many rules, including not involving the parliament with is majority against the deal
  • Perhaps most surprisingly, the Swiss are up in arms about it and it could yet result in a political crisis
Spoiler Reference youtube video :
The scope of the corporate banking business is way too broad. The invention of new investment paths is way too frequent and diverse/obscure. Bankers don't go to jail for screwing up.
They do not go to jail for having someone killed. In fact the bank, and the shareholders who approved of the killing by maintaining their ownership of the company, were effectively bailed out by the state.
Is what banks do.
Look at your $20 bill.
That is the best you can come up with, three eagles and you can hardly see them? I second the more animals call.
Spoiler $20 :

Spoiler Proper money :

Ok so the banking crisis is on. The Fed decided to raise rates again, today, after this all started. It's looking worse and worse.

Banks are holding treasuries to manage risk. Banks are always leveraged such that a depositor run on the banks will collapse any bank. To mitigate that risk they hold various assets, which means the debts of others. A big one is federal treasuries. In many ways, treasuries are just money. But they aren't exactly, and their value can fluctuate somewhat wildly the further out they are from maturing into regular dollars. Since the interest on new treasuries is much higher than old ones, no one is buying old low interest treasuries years out from maturing except at a super discount.

So the total value of assets of these banks holding low rate bonds is suddenly very low, and their liabilities remain high. They are very vulnerable.

The Fed has allowed the banks to use these bonds as collateral, valued at their maturation-date face value, in securing new loans to secure their positions in the market in case anyone starts pulling their deposits or similar. This should do a lot to make those bonds worth today what they are going to be worth eventually, and therefore "safe" again.

In terms of the numbers it's looking really bad. In terms of leadership things are definitely better than 2007, but with Republicans in the house the government isn't going to be necesarily united in preventing nor solving the crisis.

Every time Powell raises rates, the banks are that much closer to failure from one of their asset groups to another. And already a month into the banking crisis, Powell has chosen to continue raising rates.
Oh no! The government has to do something to stop Powell!
Not exactly the thread topic but I'm wondering a bit what the effects of a Chinese meltdown might be in the US.
Here is one take from the WSJ this morning.

Investors Fear China’s ‘Lehman Moment’ Is Looming​

Troubles at a big trust company are making investors worry about financial contagion from property developers’ distress

Signs of financial stress at a large asset manager in China are making investors nervous about contagion from the country’s slumping property sector, rekindling a debate over whether a “Lehman moment” could occur in the world’s second-largest economy.

Zhongrong International Trust, a seller of esoteric financial products that had the equivalent of $108 billion in assets under management at the end of 2022, has become the market’s latest worry. Four trust products managed by the firm recently missed interest and principal payments totaling the equivalent of $14 million to three publicly listed Chinese companies, according to stock-exchange filings. Beijing-headquartered Zhongrong has provided financing to many real-estate developers and helped to fund their building projects.
Zhongrong is part of a larger, sprawling financial conglomerate called Zhongzhi Enterprise Group that owns several wealth-management businesses. If their repayment problems and defaults snowball, it could imperil many more investment products that were sold to numerous companies and wealthy individuals in China. On social media, some individual investors said they didn’t receive promised payments from Zhongrong products and some from Zhongzhi’s other units, and have complained to local authorities. Neither company has responded publicly to the allegations, and they didn’t reply to requests for comment.

China’s trust industry, which had a total of $2.9 trillion in assets under management as of March 31, has long been a source of funding for property developers. Trust funds typically raise money from wealthy individuals and companies to invest in stocks, bonds, real-estate projects and other assets. “Zhongzhi is a black box. They don’t have periodic disclosures, it’s a private company, and some investors don’t know what kinds of assets they’re investing in,” said Xiaoxi Zhang, an analyst at Gavekal Research.

The group’s difficulties, coming on the heels of the financial distress at Chinese property giant Country Garden Holdings, have fueled worries about China’s shadow-banking system and how intertwined it is with the property sector. “The worry is that a ‘Lehman moment’ beckons, threatening the solvency of China’s financial system,” Zhang wrote in a note earlier this week. She added that China’s “regulatory vigilance” meant that would be unlikely.

The worries have added to widespread investor concerns about China’s floundering economy and beleaguered housing market. Prices of many Chinese stocks and corporate bonds have tumbled this month, and Hong Kong’s Hang Seng Index, which is stacked with companies from China, fell into bear-market territory on Friday after declining more than 20% from its recent peak.

Economists and research analysts have long debated what could cause China’s equivalent of the 2008 collapse of Wall Street investment bank Lehman Brothers, which sent shock waves across the U.S. and global financial markets and reverberated for years afterward. Last year’s mortgage revolts in China, and China Evergrande Group’s bond defaults in 2021, also sparked worries about other dominoes toppling across the country’s financial system.

China’s property downturn has already caused dozens of developers to default on their debt, and many trusts have unwound their exposure to the sector, according to a report from Nomura.

Trust funds in China still had the equivalent of about $155 billion in exposure to the property sector at the end of the first quarter, according to data from the China Trustee Association. That “is now under great threat, in our view,” Nomura said, adding that trust funds have much larger exposures to financial markets, which increases the risk of contagion.

Zhongrong was founded in 1987 and used to be known by another name. In 2004, Zhongzhi Group took a large stake in the business, and the unit received a financial license in 2007 from China’s banking regulator. Its biggest shareholder is a state-owned textile company.

By 2014, Zhongrong had around $100 billion in trust assets under management. It lured investors with high yields, at one point promising annual returns of up to 15%, according to an individual investor.
More recently, its promised returns were around 7% to 8% annually, according to marketing documents for several trust funds seen by The Wall Street Journal. Investors who put in more money stood to earn higher returns, according to the documents, which also said the funds could invest in bank deposits, stocks, corporate bonds and other kinds of wealth-management products. Customers were also told that they could redeem their money in six months or a year, or opt to keep their money invested for longer periods.

Some trust funds were designed to provide loans to property companies. Zhongrong would lend to developers at higher interest rates than bank loans, and receive shares of the developers’ project companies—their subsidiaries that construct homes—as collateral. “Supporting the real economy is the responsibility and opportunity of trust in the new era,” stated a slogan on Zhongrong’s English website.

In 2020, Zhongrong’s trust funds had 18% of their assets in the property sector, according to the company’s annual reports. That came down to around 11% by 2022. In a report late last year, credit-ratings firm S&P Global said worsening macroeconomic conditions had caused credit quality to deteriorate at many property developers that work with Zhongrong, which it had rated BB+, a high speculative-grade rating.

While trust companies have no legal obligation to compensate investors in their asset management products, S&P said “the sector still faces pressure to make whole on customer investments” if their products aren’t performing. It withdrew Zhongrong’s rating in May this year on the company’s request.

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