Bank Failures


Carborendum
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Many of you have heard of the recent bank failures.  Biden has now blamed it on Trump.  Let's take a closer look at that.

The bill that was passed under Obama was the Dodd-Frank Act.  It placed more restrictions on how banks can invest.  And it provided many more channels of oversight by creating more government departments.

The Trump-era legislation was the Economic Growth, Regulatory Relief and Consumer Protection Act.  It changed some limits on how big a bank had to be subject to some provisions of the Dodd-Frank Act.

Points to consider:

  • Dodd-Frank's biggest effect was to enshrine "Too Big to Fail" into law.
  • EGRRCPA was sponsored with bipartisan support.  An equal number of senators on both sides of the aisle.
  • It passed with 17 Senate Democrats voting with the Republicans.
  • The CEO of SVB was the one most interested in lobbying to pass the rollback bill.  This was because SVB was "just" on the borderline" of the threshold for where Dodd-Frank would hamper SVB investments.While some Democrats were adamantly against the "roll-back", most of the Democrats only disagreed with the degree (how low/high were the limits).  So, if the bill were re-written to the levels that most Democrats agreed with, SVB would still have been under the threshold.
  • At the time of failure, they were below the threshold anyway.  So, they were not considered "Too Big to Fail."
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It bothers me how our banking system is run.  From my understanding banks only hold 10% or less in liquid funds in their total reserves so if many people come demanding their money it will collapse the bank.  They should be required to have at least 40% in funds available just in case a lot of people take their money out of the bank in my opinion.  But they are banks, lords of the financial system, and not subject to the common law like we the common people.

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16 minutes ago, Still_Small_Voice said:

It bothers me how our banking system is run.  From my understanding banks only hold 10% or less in liquid funds in their total reserves so if many people come demanding their money it will collapse the bank.  They should be required to have at least 40% in funds available just in case a lot of people take their money out of the bank in my opinion.  But they are banks, lords of the financial system, and not subject to the common law like we the common people.

The fact is that most people aren't affected by fractional reserve requirements.  Those who live paycheck to paycheck will always have that one month or bi-weekly money available to them.  It is the more wealthy and/or more thrifty individuals who actually have 3 to 6 months of savings in the bank that are affected.

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Bank News in brief:

  • Biden has said there is nothing to worry about.  Everything is fine.  The "Bank Failure" contagion has been contained.
  • Biden blamed the lack of oversight due to the roll-back under Trump.  And that condition has not been changed  But the problem is fixed.
  • The official word is that they were too risky in their investments into crypto & commodities.  Crypto collapsed.  No idea which commodities we're talking about.
  • Conservatives are saying that they are failing because they're investing based on ESG principles rather than sound economic principles.  (SVB had an "A" rating for ESG).
Edited by Carborendum
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1 hour ago, Carborendum said:

Bank News in brief:

  • Biden has said there is nothing to worry about.  Everything is fine.  The "Bank Failure" contagion has been contained.
  • Biden blamed the lack of oversight due to the roll-back under Trump.  And that condition has not been changed  But the problem is fixed.
  • The official word is that they were too risky in their investments into crypto & commodities.  Crypto collapsed.  No idea which commodities we're talking about.
  • Conservatives are saying that they are failing because they're investing based on ESG principles rather than sound economic principles.  (SVB had an "A" rating for ESG).

They definitely were a very liberal "woke" bank, and didn't pick good commodities, but they also invested way too much money in long-term bonds. Only an idiot buys bonds when interest rates are at or near zero...because interest rates have nowhere to go but up, which means the bonds will be worth less.

 

2 hours ago, Still_Small_Voice said:

It bothers me how our banking system is run.  From my understanding banks only hold 10% or less in liquid funds in their total reserves so if many people come demanding their money it will collapse the bank.  They should be required to have at least 40% in funds available just in case a lot of people take their money out of the bank in my opinion.  But they are banks, lords of the financial system, and not subject to the common law like we the common people.

Your average local bank that doesn't deal with large hedge funds and the ultra wealthy does have between 30-40% of funds available in fairly liquid forms. Still not enough to cover everyone if a rush was to occur, but better than 10%. Silicon Valley Bank didn't have many average Joe customers, but hopefully the few they did have will be covered by insurance.

Those millionaires who were knowingly playing with risky investments get what they deserve...which is unfortunately a part of playing that kind of risky game. Also, putting your money into a woke corporation that hires executives based off of gender, sexual preference, and skin color rather than knowledge, experience and education is foolish. Even though hindsight is 20/20, they really didn't plan well at all, and some of the info that is leaking out about them is embarrassing.

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10 minutes ago, scottyg said:

Those millionaires who were knowingly playing with risky investments get what they deserve...which is unfortunately a part of playing that kind of risky game. Also, putting your money into a woke corporation that hires executives based off of gender, sexual preference, and skin color rather than knowledge, experience and education is foolish. Even though hindsight is 20/20, they really didn't plan well at all, and some of the info that is leaking out about them is embarrassing.

I also heard some Silicon Valley Bank employees sold off their bank shares before the bank crash and gave money bonuses to employees.  So frustrating to see this kind of fraud that people get away with in this life.  

There is no getting away with being a cheat and fraud in the next life.

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On 3/14/2023 at 1:46 PM, Carborendum said:

Bank News in brief:

  • Biden has said there is nothing to worry about.  Everything is fine.  The "Bank Failure" contagion has been contained.
  • Biden blamed the lack of oversight due to the roll-back under Trump.  And that condition has not been changed  But the problem is fixed.
  • The official word is that they were too risky in their investments into crypto & commodities.  Crypto collapsed.  No idea which commodities we're talking about.
  • Conservatives are saying that they are failing because they're investing based on ESG principles rather than sound economic principles.  (SVB had an "A" rating for ESG).

I've heard allegations that the bank's primary risk assessment manager was actually so distracted by personal side projects, including one meant to increase diversity in hiring, that they essentially weren't actually monitoring for risk like they were supposed to be doing.

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HOWEVER, all that means is that SVB was simply more vulnerable.  They've become the canary in the coal mine.  The underlying problem is that we've spent more in the Trump era than all the rest of the country's history combined.  And Biden is on track to exceed Trump.

The biggest one-time shift was the COVID package.  And we began seeing inflation effects right on schedule -- about two years after the bill was passed and checks started being cut.  And it just got bigger from there.  So, we're going to continue to see inflation for the next while because the Dems, and quite a few of the Repubs don't seem to care about deficit spending.

Well, it has come home to roost.  Now the Fed is raising interest rates.  That causes the smaller yield bonds that most banks are invested in to become unsellable.  This wouldn't be a problem if people didn't withdraw money.  But they did because of the instability.  The instability happened because of ESG and DEI.

Other banks are also vulnerable because of this same underlying weakness.  But as long as the customers do not make huge withdrawals, then there isn't a problem (for now).  As inflation goes higher and higher, then people will be forced to withdraw from their banks.  Many banks that have also made riskier investments will find that they don't have the funds because the market is crashing.

That's a long-winded way of saying "The economy is toast."  BTW, it is global now.

So, my prediction still stands.  We're going to see some ups and downs for a few months.  But then we're going to see a slide for the next year or two before we hit rock bottom.  If you can work the ups and downs at the beginning, then you might be able to save enough to get through the next couple of years.

Pray for all of us.  It will be a doozy.  It will be like the 70s all combined into a couple of years.  After that, we can only hope for a recovery. 

The alternative is not just a longer recession/depression.  It is the end of our economy as we know it.  And there's no indication what will take its place.  We would be in uncharted territory by that point.

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1 hour ago, NeuroTypical said:

What could possibly go wrong?

image.thumb.png.a4bceb241488b0fcca8cdf3d3abc469e.png

I called my congressman about the $600B aspirin to get rid of brain cancer.  The response was essentially, "I didn't vote for the substance of the bill.  I voted for the pork in the bill."

That seemed rather tone deaf since the entire purpose of the bill was to be the biggest pork & nothing but pork bill in history.  

So, what are we going to do now?  $6Trillion aspirin next?

Edited by Carborendum
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I have been studying economics and reading from Milton Freedom.  I thought I had a good handle on the problem.  When money is deposited in a USA bank the money is invested.  There are many options for a bank – like loaning for homes, business loans and various bonds.  The bank can then use the collateral of their loans to borrow money from other banks or as done more often, from the Federal Reserve Bank.  This has the effect of multiplying money which help the economy and the multiplied money is called fiduciary money.  The problem is that the bank can only hold so much fiduciary money for bank customers to perform withdraws.  All of this is done according to Banking laws and regulations that are overseen by the FDIC.  If enough bank customers withdraw their money the bank will fail.

When the economy is growing the government (indirectly through the Federal Reserve Bank) will lower interest rates.  The regular banks can then get the best rates through the long term lending but this ties us the money for the long term deration.  If inflation starts to heat up there are only two ways to slow the rate of inflation.  1. Increase the interest rate or 2. Reduce the amount of fiduciary money in circulation. 

There are problems:  If interest rates are increased too rapidly the Banks with large amounts of fiduciary money leveraged against low long-term interest rates, then the banks cannot give good rates of return and depositors want to move their money for better returns which can cause the bank to fail. 

If the Fiduciary money us reduced too much – the economy will enter a recession or even worse a depression. 

I talked to my brother that is recently retired from top management of a large corporation.  His expertise is auditing corporate procedures and actions.  He said the problem is not really the problem.  The problem is why and how the problem came about within a particular bank.  He gave me an example.  In his company a division had serious cost overruns.  An internal audit revealed that the problem was that the division had not done a bank reconciliation for 6 months.

The reason was that a new clerk had been heired 6 months ago and had never completed a bank reconciliation.   It was determined from the audit that the clerk should be fired for not doing his job.  My brother was in the review council and said that was the wrong action because it would not solve the problem and would likely allow the problem to reoccur.   He said the proper procedure for bank reconciliation within the company was that the clerk sign the reconciliation papers and turn them into his supervisor who was also required to review and sign the reconciliation.

The reconciliation papers are then presented to the manager that folds the information into his sighed report to upper management that continues all the way up to the CEO and bord of directors.  He then said that obviously the clerk had not been properly trained by his supervisor, manager and the company management in general.  If the company was to fire anyone it has to be the supervisor and manager at a minimum.   The company management did not like hearing what he was telling them. He then told me that for a corporation to be viable that there can never be one person to blame or responsible for a problem – there are no single points of failure when proper procedures are followed.  The job of corporate management is to see that the proper procedures are followed.  If a corporation fails is it because its management is not following proper procedures.

My brother says that banking and banking procedures have been studies for a very long time.  There is nothing new that has happened that was not already known and happened before.  It is his opinion that the upper management of the SVB should all be fired and never work in the banking industry again.  They should be required to pay back all bonuses and any monies gained from selling their stocks during the previous year and they should go to jail.  Longer jail time if they do not pay back all the money they have stolen.   In addition, the FDIC agents assigned to the SVB should all be fired.  If any deposits are to be guaranteed it should be on a one by one basis.  Lastly the shareholders should lose their shirts.  He also tole me that it is very likely that managers have been fudging their quarterly reports.  According to my brother if these managers are not fired and sent to jail – this problem will happen again and again.

My brother has convinced me – I hope I have included enough explanation to convince readers here.  Sorry for such a long post.  I would also like to add that there needs to be an audit to determine if the current administration had any influence – because of a recent bad Crypto exchange failure and now the failure of banks overseen by the FDIC.

 

The Traveler

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12 hours ago, Traveler said:

... the multiplied money is called fiduciary money...

Phrasing was ambiguous. I wanted to point out that

12 hours ago, Traveler said:

If the Fiduciary money us reduced too much – the economy will enter a recession or even worse a depression. 

It's important to note that "money supply" is a misnomer.  It is commonly used in the financial industry, and is taken as appropriate & correct.  But the reality is that it almost never actually means that more dollars are being destroyed than are being printed.  What it means is that the available tangible or substantial fungible medium of exchange is not meeting the demands of the economy. 

And this alone is not what causes a recession.  The recession (which began last year) hit PRIOR to the Fed reacting to inflation.

Here's what I find funny about how Biden is handling things:

  • Hunter's laptop was just Russian disinformation.
  • Hide while the laptop was proven true and keep denying everything because he has the power.

 

  • Jan 6th was an insurrection where the protesters were there to overthrow the government.
  • Ignore the exculpatory video showing that they were working peacefully in cooperation with police.

 

  • Recession hits: Tell everyone we're not in a recession.
  • Recession seems to have a slight recovery. But it gets worse the following year.

 

  • Banks fail: Tell everyone that it has been contained.
  • Gee, I wonder what's going to happen next.
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