The Economy

Silicon Valley Bank .... stock just suspended awaiting news.

 

Yup. We're getting runs on banks. I thought it might have a place on the "economics" thread, in between everything else.

 

They created a world that can't handle positive real interest rates. Yields are still deeply negative in real terms and we are seeing asset values deflate, the usual bevy of frauds that operated for years on mispriced debt starting to unwind. ... and now the first bank insolvencies. If you forced every bank (including the big commercial money lenders, which can finance themselves way more cheaply than a regional like SVB) to mark their assets to market. ... you'd see insolvency. Liabilities (deposits) that are much greater than the value of their assets (the things they own, even with those values still being artificially kept too high by rates not having come up enough).

They don't make the banks do that, because it would create panic and create more runs on banks.

 

He's wrong about just everything else in the thread I pulled this from. ... and he's generally a pretty big dick. ... but man is he right about this.

 

And like clockwork. ... Just hearing SVB went to Goldman Sachs to raise capital. ... and it ain't happening.

They are busily trying to sell themselves. Separate advisor from Goldman Sachs is shopping them. We'll see. If anyone is going to buy, they want to get in there sooner rather than later, I'd think.

 

And to beat @Azrael to it.

Spotted inquiring just now:

 

I can't say for sure, of course. It's entirely dependent on the Fed and if things break. My bet based on their behavior 99 percent of the time is that if banks start failing, they are going to reverse course in a panic, rates will come down, etc. (This is what markets have been betting on all along. ... based on past behavior). The difference now from 2008 and since is that 1) they may not be able to prop up the debt levels they need to anymore, so we could see the limits of their price-fixing ability, and 2) consumer price inflation is going to put pressure on them.

I personally don't think they can prop up home values at the levels they blew them to. ... but take what I think with a grain of salt, because I never thought they could (or would be reckless enough to) think that the artificiality they were creating was actual wealth or that it creates a wealth effect that doesn't come crashing down if they stop fixing the price of money. I could see a housing market crash, but like I said. ... to be able to predict it and time it, you'd need to be able to predict what a price-fixing authority with the ability to misprice the debt markets and create money out of thin air is going to do, and then what happens as a result (when do things break, how do they break, how do markets react). A big part of the run up in house prices was that they were buying trillions of dollars of mortgage-backed securities to keep lending way too loose. They have stopped and have even started to let some of those maturing bonds roll off their portfolio without buying more. IF they just do that. ... housing prices will slowly deflate. It's like letting air out of a balloon.

Regardless of what they do. ... I just know that it's an eventuality that there is not going to be a painless way out. It's runaway inflation, a financial crisis, or half-assed measures that keep the slightly less than the worst of either of those things from happening, but create a miserable extended environment. If you bought a house 2 years ago? My bet is that you won't be getting anything near what you paid anytime soon. On mortage rates? Good question. Do you think the Fed is going to go back to the same playbook that created a mess (and if they even can it entails creating a future financial crisis that is even worse than if we took the medicine today)? If so, rates will come down soon. If not, rates need to soar way higher than even the 7 percent (or wherever it is now) on the 30 year in order to get out from under the debt bomb we're all sitting underneath now.