Sign of things to come? SVB fails

[chssooner]

https://www.cnn.com/2023/03/10/inves...ank/index.html

Ouch. Not a great sign of things to come.

[Just the facts]

https://www.cnn.com/2023/03/10/inves...ank/index.html

Ouch. Not a great sign of things to come. Don't take pre-IPO shares as collateral, folks.

Gaining 311,000 new jobs last month isn't going to help either. This how screwed up the current economic climate is. 311,000 new jobs should be a welcomed sign, but because of inflation it just means interest rates will have to go that much higher that much faster.

It is kind of like trying to kill a cockroach. You just can't scare it to death or kill it with a so-called soft landing. You got to smack the crap out of it as hard and as fast as you can or it will run behind the baseboard and reproduce.

[vaflyer]

Gaining 311,000 new jobs last month isn't going to help either. This how screwed up the current economic climate is. 311,000 new jobs should be a welcomed sign, but because of inflation it just means interest rates will have to go that much higher that much faster.

It is kind of like trying to kill a cockroach. You just can't scare it to death or kill it with a so-called soft landing. You got to smack the crap out of it as hard and as fast as you can or it will run behind the baseboard and reproduce.

Many of the new jobs were in the leisure/hospitality and retail industries. These are usually low paying jobs and are likely due to people taking second jobs because higher inflation is eroding their real income.

The failure of Silicon Valley Bank is a result of the Fed aggressively raising interest rates to fight inflation. Banks fund long-term assets with short-term liabilities, so when interest rates rise rapidly, banks must pay more for deposits while still receiving a fixed smaller interest rates on their loans. The large banks are well capitalized so they should not have problems. The mid-sized and small banks are where the concern lies. In fact, the big banks might be called upon to buy some of these smaller banks as a way to help the FDIC clean up this mess.

[GoGators]

Gaining 311,000 new jobs last month isn't going to help either. This how screwed up the current economic climate is. 311,000 new jobs should be a welcomed sign, but because of inflation it just means interest rates will have to go that much higher that much faster.

It is kind of like trying to kill a cockroach. You just can't scare it to death or kill it with a so-called soft landing. You got to smack the crap out of it as hard and as fast as you can or it will run behind the baseboard and reproduce.

Regarding inflation, the jobs report was a bit of a mixed bag. 311,000 new jobs created but wage growth was down. It will be interesting to see how the fed interprets that data.

[okatty]

Bank sector getting crushed. Examples:

SIVB – Stock halted. Looking for a rescue buyer. ~$200b in assets.
PACW- Trading halted due to volatility. Down -24%. ~$40b in assets.
First Republic- Stock Halted. Down -54%. ~$200b in assets.
SBNY- Down -18%. ~$110b in assets.
WAL- Trading halted. -23%. ~$67b in assets

[April in the Plaza]

Yea, we’re definitely looking at a hard landing. Pretty unfortunate that the “leaders” of this country—on both sides—have shown little to no interest in any semblance of fiscal discipline. At some point, bills must be paid.

[chssooner]

Yea, we’re definitely looking at a hard landing. Pretty unfortunate that the “leaders” of this country—on both sides—have shown little to no interest in any semblance of fiscal discipline. At some point, bills must be paid.

I mean, they printed trillions to give to corporations and gave us like, $1600 a couple times. That is a ton of money to have to pay back.

[Just the facts]

I mean, they printed trillions to give to corporations and gave us like, $1600 a couple times. That is a ton of money to have to pay back.

$8 trillion to be exact. And Biden budget just released shows a $50 trillion national debt within 11 years. It is like Washington DC is addicted to spending.

We are accelerating all the way to impact.

[Just the facts]

Maybe some of these large real estate investment companies will need to start selling off their properties.

[jn1780]

Many of the new jobs were in the leisure/hospitality and retail industries. These are usually low paying jobs and are likely due to people taking second jobs because higher inflation is eroding their real income.

The failure of Silicon Valley Bank is a result of the Fed aggressively raising interest rates to fight inflation. Banks fund long-term assets with short-term liabilities, so when interest rates rise rapidly, banks must pay more for deposits while still receiving a fixed smaller interest rates on their loans. The large banks are well capitalized so they should not have problems. The mid-sized and small banks are where the concern lies. In fact, the big banks might be called upon to buy some of these smaller banks as a way to help the FDIC clean up this mess.

No, it was the 15 years of Fed and Congressional policy that got us to this point. Fed was just finally forced to act on market conditions.

[OKCRealtor]

Glass half full is I'll get to buy at a nice discount again on SEP IRA distributions. Things could get very ugly before too long. Debt showdown looming, FED possibly going back to larger rate hikes, although SVB deal may keep a lid on that for time being, and a lot of market turmoil and uncertainty. Hooray for more man made financial crises & booms/busts in the market. One extreme or the other on monetary policy. If we see a bunch of contagion and fallout with the SVB deal or these ongoing rate hikes force some other type of financial crisis the FED might not have any choice but to go the other way. Sure is a crappy time to be in the markets with no end in sight.

[king183]

I see 90% of the people on Twitter and in the news stories blaming this solely on the Fed and their rate increases and almost no one talking about the fiscal policy/spending and massive debt incurred that got the country here. I guess tech is an industry that uniquely thrived on “free money,” so they tend to view this event through the monetary policy lens.

[OKCRealtor]

I see 90% of the people on Twitter and in the news stories blaming this solely on the Fed and their rate increases and almost no one talking about the fiscal policy/spending and massive debt incurred that got the country here. I guess tech is an industry that uniquely thrived on “free money,” so they tend to view this event through the monetary policy lens.

Good point, there's no doubt the trillions gifted & spent during covid is having massive implications now. I think it's also fair to say it was rather obvious to everyone but the FED that the economy was way overheated in '21 and rates should not have been at zero for such an extended period. Yet we kept printing money and they remained that way for a year too long. On the flip side surely these guys are smart enough to realize that reversing & unraveling the accommodative monetary policy we've had for the last 15 years in a matter of a few months was going to create problems. Also, nothing is ever done to address the supply side economics, only the demand side via interest rates as if that will just fix everything.

[Mott]

I think a lot of things contributed to the failure, but wouldn’t the management of the bank be the prime reason? Penn Square went down betting on the oil industry. So if that bet fails the bank fails. 200 Billion in assets, and a 48 hour collapse? That’s poor management.

[chssooner]

I think a lot of things contributed to the failure, but wouldn’t the management of the bank be the prime reason? Penn Square went down betting on the oil industry. So if that bet fails the bank fails. 200 Billion in assets, and a 48 hour collapse? That’s poor management.

Sure, but a lot of things were going on that management had no say in, like rate increases lowering the demand for loans, or inflation fears causing people to pull their money out in droves.

[Just the facts]

I see 90% of the people on Twitter and in the news stories blaming this solely on the Fed and their rate increases and almost no one talking about the fiscal policy/spending and massive debt incurred that got the country here. I guess tech is an industry that uniquely thrived on “free money,” so they tend to view this event through the monetary policy lens.

I think that reflects the fact that despite what the media would have you believe, Twitter is still dominated by leftists that believe in Keynesian economics and see nothing wrong with excessive federal spending. For example, the Inflation Reduction Act that increases inflation.

[Rover]

It’s amazing. People tend to boil down these highly complex issues into a talking point or two that they think they understand. Usually their understanding boils down to some political BS that they buy into. It is just ignorance and political propaganda. This kind of analysis is like first graders telling everyone how to build a rocket …. Just put gas in a tube and light the fuse. LOL. Left or right, republicans or democrats, old or young, blue color or professional… their take is pretty predictable based on your belief system and propaganda source, not on actual real study and comprehensive analysis of what is ACTUALLY taking place.

[April in the Plaza]

It’s amazing. People tend to boil down these highly complex issues into a talking point or two that they think they understand. Usually their understanding boils down to some political BS that they buy into. It is just ignorance and political propaganda. This kind of analysis is like first graders telling everyone how to build a rocket …. Just put gas in a tube and light the fuse. LOL. Left or right, republicans or democrats, old or young, blue color or professional… their take is pretty predictable based on your belief system and propaganda source, not on actual real study and comprehensive analysis of what is ACTUALLY taking place.

Ouch. How much did you have tied up in SVB?

[Dob Hooligan]

It’s amazing. People tend to boil down these highly complex issues into a talking point or two that they think they understand. Usually their understanding boils down to some political BS that they buy into. It is just ignorance and political propaganda. This kind of analysis is like first graders telling everyone how to build a rocket …. Just put gas in a tube and light the fuse. LOL. Left or right, republicans or democrats, old or young, blue color or professional… their take is pretty predictable based on your belief system and propaganda source, not on actual real study and comprehensive analysis of what is ACTUALLY taking place.

100% correct. And we all know who is at fault and who needs to sacrifice.

Someone else.

[PoliSciGuy]

Yeah it is fascinating to watch libertarian-leaning or free market types suddenly demand strong government socialism to bail them out. No atheists in foxholes I guess.

[king183]

Yeah it is fascinating to watch libertarian-leaning or free market types suddenly demand strong government socialism to bail them out. No atheists in foxholes I guess.

This just shows you they are not actually free marketers or libertarian. They pay lip service to the ideas, but the moment their money is on the line, everybody else needs to pay up to save them; they like the government intervention/making others pay to save their butts for their risk-taking. David Sacks has been particularly egregious in this respect.

[Mott]

The bank would work hand in glove with technology companies and venture capital firms, frequently lending companies money after they had raised capital from venture capital firms. This meant working with companies that larger, more conservative banks may have been reluctant to do business with because they didn’t have the assets or cash flow necessary to underwrite a traditional corporate loan. Silicon Valley Bank would work with startups instead based on their ability to raise venture capital.
But it wasn’t this relatively high-risk behavior that got the bank in trouble — or at least not just that. Instead, what blew out a giant hole in its balance sheet was what the bank did with the deposits it got from venture-backed companies: buy long-term bonds. The Federal Reserve’s interest rate hikes meant that the value of these bonds was lower, and as depositors fled, the bank had to recognize large losses as it sold its bond portfolio.
The Managers made the choice to invest in long term bonds, assuming that interest rates would stay low. The assumption didn’t work out.

[poe]

The bank would work hand in glove with technology companies and venture capital firms, frequently lending companies money after they had raised capital from venture capital firms. This meant working with companies that larger, more conservative banks may have been reluctant to do business with because they didn’t have the assets or cash flow necessary to underwrite a traditional corporate loan. Silicon Valley Bank would work with startups instead based on their ability to raise venture capital.
But it wasn’t this relatively high-risk behavior that got the bank in trouble — or at least not just that. Instead, what blew out a giant hole in its balance sheet was what the bank did with the deposits it got from venture-backed companies: buy long-term bonds. The Federal Reserve’s interest rate hikes meant that the value of these bonds was lower, and as depositors fled, the bank had to recognize large losses as it sold its bond portfolio.
The Managers made the choice to invest in long term bonds, assuming that interest rates would stay low. The assumption didn’t work out.

Bingo.

[Rover]

Ouch. How much did you have tied up in SVB?

None there, but we can talk about Penn Square Bank.

[Edmond Hausfrau]

Should the FDIC increase the coverage from quarter of a million to half a million? I realize that's still a drop in the bucket in this case as 97% of SVB accounts were over the FDIC covered amount. Just wondering how long it's been since FDIC adjusted for inflation.