The Economy

When? It's an internet-only bank. They don't have branches. Did they ever? I know they grew out of GMAC.

 

https://www.cnbc.com/2023/03/15/cre...audi-backer-rules-out-further-assistance.html

Credit Suisse Sinks 21% After Top Shareholder Rules Out Support

https://www.cnbc.com/2023/03/15/european-markets-live-updates-stocks-data-news-and-earnings.html

Question: When the European Central Bank artificially pushed interest rates NEGATIVE for a decade, by intervening in the sovereign debt markets (to prop up failed governments and give the illusion of stimulus by spurring on trillions of dollars of public and private debt), who could have possibly predicted that WHEN that fantasy ended (because what they were doing was inflationary) and they were forced to let interest rates rise, anyone holding that sovereign debt would be sitting on steep losses?

European banks are loaded up with that debt. ... it was considered "safe" (i.e. there is no credit risk, because government bonds will never default). ... what the idiots who orchestrated this world ignored was the DURATION / INTEREST RATE risk inherent in suppressing interest rates that recklessly. ... it's all unicorns and rainbows WHILE they are doing it, it puts the global financial system at risk when they can NO LONGER do it, because somebody BOUGHT all of that mispriced debt at the way-too-high prices the central bank drove the debt up to.

Now, the ECB ostensibly has to be fighting inflation (that is their ONLY mandate and they were expected to raise 50 basis points next meeting), but if they do it, banks all over Europe will be even more undercapitalized, susceptible to runs. ... and at the least are going to have to somehow, some way raise equity (which will dilute the existing equity; why investors suddenly woke up and those stocks are getting clobbered right now).

That is EXACTLY what SVB was trying to do here. It actually was trying to do the responsible thing, it had a hole in its balance sheet and went out to try to raise money. ... and got punished for it.

We should have never been in the position the global financial system is now facing.

 

BTW, when they started hiking and I kept posting that something was going to break, but there was no way to know what would be the first things? This is just a drop in the bucket, because lurking beneath what we are seeing is the real serious problem: a shadow banking system that has funded trillions of dollars of leveraged bets all over the economy as the bubbles were blowing. Higher rates are creating cracks right now.

That is going to be the other shoe to drop, when everything eventually unwinds. ... Right now, we are discussing something relatively simple ... owners of what were supposed to be very safe, liquid bonds who got bit by duration risk. Parenthetically, it is NOT their fault. ... right up until the central banks began to slaughter those bonds by making funding more expensive, those central banks were telling everyone inflation was "transitory" and not a problem (hope was their only strategy), so this narrative that they have telegraphed everything and this was somehow bank mismanagement that could have been avoided is complete bullshit. Those banks were having the safe yield they need to operate profitably being stolen from them as a matter of "policy," and when long-dated TREASURIES and MBS can put the banking system at risk, what people should be asking is how a central bank fucked up what have always been the most liquid, slow-moving markets in the world.

Regardless, what we are discussing is not the ultimate problem we are going to be dealing with. Lurking beneath this is something far more serious, and when it all eventually unwinds, just like in 2008, people are going to be finding out what kinds of leveraged loans or highly leveraged derivatives were drawing trillions of dollars in the bubble those central banks blew. It's going to be things that were on no one's radar screens, and it's going to be MUCH bigger than what happened in 2008. In 2008, we needed a very painful deleveraging. What they did instead was paper over an insane amount of bad debt by spurring on higher levels of debt-- making the problem exponentially bigger -- and in the process they encouraged the same exact behavior that created the financial crisis in the first place in 2008. Each intervention -- all of the asset purchases to drive down yields and frantically try to stave off the day of reckoning -- kicks the can down the road (until they lose control and something breaks), but it makes the fallout ultimately much worse.

 

Credit Suisse Dollar Bonds Due 2026 Plunge to Distressed Levels

Credit Suisse is designated systemically important. The Swiss government is going to end up doing a bail out.

 

That 9.9 percent stake the Saudis took in Credit Suisse 5 months ago when the bank was frantically trying to raise capital. ... is massively under water. From peak, the stock is down 97 percent this morning.