The Economy

Driftwood · Mar 10, 2023

The whole business model for this is part of the problem. Financial institutions play roulette with loans.
When my wife and I took out our loan to build our house, we did it at our local bank. It's located two miles from my house on Main Street. The loan officer is a family friend. The senior VP is a close family friend. Local folks doing local business.
The ink wasn't even dry before they sold the loan to some company somewhere.
From our standpoint, it doesn't matter who we pay, but I just think it's silly to do business that way.
Of course, the bankers being family friends, it was a win for them because from past performance, they know they'll get very little interest from us. We always make double and about nine months out of the year triple payments. Our 30-year loan will be paid off in under 10.

Azrael · Mar 10, 2023

explain it to me like I'm 5

The Big Ragu · Mar 10, 2023

https://www.fdic.gov/news/press-releases/2023/pr23016.html

WASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.

As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.

Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.

The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.

Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.

FDIC: PR-16-2023
Click to expand...

The Big Ragu · Mar 10, 2023

Driftwood said: ↑

The whole business model for this is part of the problem. Financial institutions play roulette with loans.
When my wife and I took out our loan to build our house, we did it at our local bank. It's located two miles from my house on Main Street. The loan officer is a family friend. The senior VP is a close family friend. Local folks doing local business.
The ink wasn't even dry before they sold the loan to some company somewhere.
From our standpoint, it doesn't matter who we pay, but I just think it's silly to do business that way.
Of course, the bankers being family friends, it was a win for them because from past performance, they know they'll get very little interest from us. We always make double and about nine months out of the year triple payments. Our 30-year loan will be paid off in under 10.
Click to expand...

What is going on wiht SVB has nothing to do with loan defaults. Those may be coming in the future (an insane amount of early-stage, dog poop, tech start up money was being funded by this bank), but that wasn't the issue.

The Big Ragu · Mar 10, 2023

The 15th largest bank in the country failed and is in receivership.

TheSportsPredictor · Mar 10, 2023

Not too big to fail. Get in the Top 10 before we mourn you.

The Big Ragu · Mar 10, 2023

Driftwood said: ↑

The whole business model for this is part of the problem. Financial institutions play roulette with loans.
When my wife and I took out our loan to build our house, we did it at our local bank. It's located two miles from my house on Main Street. The loan officer is a family friend. The senior VP is a close family friend. Local folks doing local business.
The ink wasn't even dry before they sold the loan to some company somewhere.
From our standpoint, it doesn't matter who we pay, but I just think it's silly to do business that way.
Of course, the bankers being family friends, it was a win for them because from past performance, they know they'll get very little interest from us. We always make double and about nine months out of the year triple payments. Our 30-year loan will be paid off in under 10.
Click to expand...

You got me thinking. ... SVB was making loans with weak collateral to tech start ups. As one of the covenants of some of those loans, you needed to keep a certain balance in deposits WITH SVB. Now those ventures have no access to the money to make their loan payments AND they are technically in violation of one of the covenants of their loans. What a mess that is going to be to sort out.

Also, from the SVB website: 88 percent of Forbes' next billion dollar companies bank with SVB. Half of all tech and life science startups bank with them. 44 percent of US venture-backed tech and healhcare IPOs year to date bank with them.

Even if you don't see a cascade of loan defaults now, quite a bit of the free money the Fed was distributing through the banking system was going through this bank. The lights may have just gone out permanently on the party.

The next question will be. ... a large percentage of those ventures -- and I am not sure how much in loans we are talking about -- are going to prove to be zombie companies that were being carried along by the survival of the unfittest policies that have been in place. They need to be able to either keep rolling over debt endlessly or borrowing more. There has been a shadow banking system that was providing a lot of that funding, but the cost of funding has gone up dramatically, and presumably the loosey goosey atmosphere that free money incubates where nobody cares about lending standards doesn't exist anymore.

What happens if there is a lot of bad debt trailing behind this bank's failure, and what kind of contagion may be in play?

Azrael · Mar 10, 2023

The Big Ragu said: ↑

what kind of contagion may be in play?
Click to expand...

FDIC arrives to inspect the books.

Driftwood · Mar 10, 2023

The Big Ragu said: ↑

You got me thinking. ... SVB was making loans with weak collateral to tech start ups. As one of the covenants of some of those loans, you needed to keep a certain balance in deposits WITH SVB. Now those ventures have no access to the money to make their loan payments AND they are technically in violation of one of the covenants of their loans. What a mess that is going to be to sort out.

Also, from the SVB website: 88 percent of Forbes' next billion dollar companies bank with SVB. Half of all tech and life science startups bank with them. 44 percent of US venture-backed tech and healhcare IPOs year to date bank with them.

Even if you don't see a cascade of loan defaults now, quite a bit of the free money the Fed was distributing through the banking system was going through this bank. The lights may have just gone out permanently on the party.

The next question will be. ... a large percentage of those ventures -- and I am not sure how much in loans we are talking about -- are going to prove to be zombie companies that were being carried along by the survival of the unfittest policies that have been in place. They need to be able to either keep rolling over debt endlessly or borrowing more. There has been a shadow banking system that was providing a lot of that funding, but the cost of funding has gone up dramatically, and presumably the loosey goosey atmosphere that free money incubates where nobody cares about lending standards doesn't exist anymore.

What happens if there is a lot of bad debt trailing behind this bank's failure, and what kind of contagion may be in play?
Click to expand...

You're talking way over my head on that, and I don't know anything about SVB.
My main point was I think it's silly for me to go to my local bank where I know the people and all my day-to-day banking is done, be issued a home loan, and them turn around and sell it to some major corporation. If that was always going to be the case, when we went in and said, "Hey, Gary, we need a loan to build a house" then he should have just handed me a card with the number of the people to call.
In the end, we got the loan, got the house built, and I don't care who we pay back.

garrow · Mar 10, 2023

And here's why that's bad for Biden and the woke mob

TheSportsPredictor · Mar 10, 2023

Oops!

The Big Ragu · Mar 10, 2023

TheSportsPredictor said: ↑

Oops!

Click to expand...

Someone just launched two ETFs dedicated to this moron. ... One buys his recommendations. ... But the one that attracted more assets is the one that FADES him. It just launched a week ago. The ticker for the Inverse Cramer Tracker ETF is SJIM, for anyone who happens to be interested. But please don't construe that as investment advice.

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The Economy

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