Bank Collapses

Silicon Valley Bank collapsed because it invested in long-term US bonds, and its customers need short-term liquidity.  The Federal Reserve basically screwed the bank by raising interest rates, meaning their bonds had to be sold at a loss.  Poor financial management.

Signature Bank collapsed because of their heavy reliance on crypto-currency.   “All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the regulators said.  That's wrong.  Crypto is attractive to money launderers and criminals specifically BECAUSE it's outside the normal banking system and therefore untraceable.  It should also therefore be not insured by the FDIC.

Silvergate collapsed last week, due to crypto. Investors in that Ponzi scheme need to learn a lesson. "Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off this year, according to FactSet."

The CEO fortuitously anticipated the problem.

SVB Financial CEO Sold $3.6 Million In Stock Before Bank’s Collapse

Merely a coincidence, I'm sure.

First Republic collapsed May 1st, the second-largest bank collapse in U.S. history, behind Washington Mutual, the local mortgage lender wracked with corruption. I havent heard exactly why First Republic imploded.

But JP Morgan/Chase buying them cannot be a good thing. TBTF on steroids.

When--not if, but WHEN--the House MAGAts crash the US economy in a couple weeks, we'll see what happens when the federal government is called upon to bail out the whole banking sector.

Again.

Should be a shitshow of epic proportions.

NoCoPilot wrote:

 I havent heard exactly why First Republic imploded.

Okay, First Republic had $100 billion in uninsured "unrealized losses" on their first quarter 2023 statement.  That's fact A.

Fact B is that First Republic "catered to high net-worth individuals."

Fact C is that these "unrealized losses" were mortgages that are now underwater because of the hike in interest rates.  The bank hadn't yet written off the losses ("unrealized") but the "high net-worth individuals" apparently have no intention of paying them back.

So from these three facts I can draw the following picture. Mortgage investors in the US -- firms that go around the country buying up distressed houses and then renting them out -- find themselves owning mortgages for more than the properties are now worth.  They default on the loans, the bank collapses...

And the federal government steps in and makes everyone whole again.  The mortgage investors get a lowered balance (or none at all) while the housing crisis escalates, homelessness escalates, and bankers (as always) come out smelling like a rose. The term "uninsured" is a huge misnomer in the first sentence. These are MORTGAGES not deposits, so the FDIC does not insure them, but when you're TBTF there's no such thing as taking on too much risk.