Liquidity isnt a problem with liquidity printers and Yellen. Svb got instant liquidity at the push of a button. Dont drink the bong water.
I agree, if it was just liquidity then there wouldn't be an issue with SVB. As you said they got all the liquidity they needed, but still had issues. SVB lent money to magic companies, magic in that they would make money disappear and never reappear again.
It is all funny money, the rich people do no want to work, the starving and homeless masses, the mortgage and lifestyle slaves, the aspirants to join the rich are toiling endlessly to earn increasingly worthless papers. What could go wrong?
If it was mostly an liquidity issue, then the FED already has tools in place to quickly address liquidity issue. (SVB didn't use them) Theoretical liquidity issues shouldn't happen today and now with even more new tools in place they should be almost impossible going forth. Anywho I think it was a credit issues being hid under a "simple and clean" liquidity issue. Best not to cause a panic.
It's not a simple case of depositors pulling funds, because the FED has tools to deal with that simple case scenario. The FED's inceptions back in 1913 was specifically to deal with that simple scenario. What the FED can't deal with as well is credit issues and poorly run banks. Depositors pulling funds was just the tipping point. But SVB's issue was very deep.
The reason there was a run on the bank was due to people realising the bank had some major issues going forth. The credit issue of the bank caused a liquidity issues, the liquidity part was just the visible tip of the ice berg.
Yes they had a liquidity issue. Just like if someone had a fatal car crash and they performed a covid test that came up positive, then yes they had covid, but covid wasn't the cause of death. So it would be silly to say, if only they didn't have covid then they would still be alive.
I thought there were discussions about SVB having too much long maturity treasury bonds and these bond prices dropped rapidly due to the rapidly increasing interest rate by the Fed to fight inflation. SVB failed to hedge against rising interest rates. Large depositors (tech founders) were alerted to this emerging danger and caused a panic run of withdrawals. I guess the plunging bond prices had a damaging impact on the asset side of their balance sheet? Correct me if I am completely wrong and off my tree!
All that is correct, but only one aspect of a larger issue with the bank. The bank was run by idiots that made bad loans and bad leveraged bets. So one way or another the bank was always going down, be it the bank run now or the bad loans tomorrow.
There is endless liquidity anytime anyplace at the push of a button. Deposits were all paid back and thats that. Problem solved. Whatever failure the banks might experience would be between them and their leaders. There is no crisis if they let it happen. Thats not a crisis. To say theres no liquidity is wrong or lying. We have endless printing abilities. The only thing they can do at this point is keep it up!
So... The geniuses in Silicon Valley are letting idiots manage their money? Maybe it is time to consider starting a bank run by chatGPT. I heard it is pretty clued on.
This somehow gives me a picture of how our bodies function, with blood and oxygen providing the liquidity like money and credit. The banks are the major organs, too vital to lose, to big to fail. Unless if it is a toe, finger or even an entire limb that can he amputated. Or a kidney which we can survive on one. A simple and healthy life will survive better than a body pushed to the limit, with supplements and stimulants, the upper and the downer. Maybe the heart is the central banks. Code blue yet? The patient has been temporarily saved again by massive blood transfusion, and the removal of a couple of toes, and..... maybe one of the kidneys!
I know I like to oversimplify things, but in the comments section of this video someone says "As it had been said before the financial crisis up to now is mainly a liquidity crisis, more precisely a crisis caused by liquidity shortage, and as long as it stays so it also will stay contained, but if it will spill over to become a credit crisis, for example via the Commercial real estate and/or the housing market, it very rapidly can initiate a domino effect, which then would be an imminent Minsky moment in the making. The very potential for that to happen is real and the cause of it is the extreme imbalance of local and global debt to local and global assets including capital, liquidity and collateral" So I double down on my "ploteito, potatoe" view that credit and liquidity crises go hand in hand, and one can cause the other. Think about all of the "urban decay", ie; all of the commercial real estate that sits vacant. There are bubbles in virtually all asset classes, and once the music stops, boom! Suddenly it's a credit crisis. There are so many parts of the economy that cannot (and should not) exist in a higher (i will not say high, as 3.5% is actually stupidly LOW) interest rate environment. And what about all of the "liar loans" in residential RE here in AU. Everyone I know that has bought property recently were shocked at how much the bank was willing to lend them. It's common practice for brokers to up income, downplay other debts and life expenses to get a loan over the line.
That's a good example, everyone is saying there isn't a shortage of chairs issue because the music is still playing. Even though everyone knows there is a shortage of chairs and at some point the music will stop. Atm everyone is still valuing their assets at record high prices, but at some point they will have to accept the real lower value which will cause a lot of people/companies to be instantly underwater. The big question is when does the music stop and in the mean time do CB's do another massive QE programs to delay it again?
If banks are failing at 4.75%, 5% will not help. But inflation is out of control, so they are pushed into a corner, there. And the effects are delayed, so perhaps these failures are the tip of a large iceberg. It's predictable what they will do, because they do not want to cause a collapse, but the system is way too f%$ked. The sudden collapse of the Soviet Union is a good example; no one believed that the system would fail, but new the system was absolutely unsustainable. And "no one saw it coming" or "there will be no financial crisis in our lifetime" And, ironically, Putin is meeting with Emperor Xi, they are emboldened by this US chaos.
Dont know if this is true or not but it's being reported on a number of sites so could be. BREAKING NEWS -- UBS is reportedly engaged in meetings right now, SEEKING TO TERMINATE ITS DEAL TO ACQUIRE CREDIT SUISSE! If UBS Backs out, then Credit Swiss will fail, enter Bankruptcy, and that will mean a Bulge-Bracket-Bank (a.k.a. "too big to fail") has gone under. The effects on the Global Financial System are, right now, incalculable. A Credit Suisse Default would trigger Credit Default Swaps, and would put the bank in DEFAULT on all its Derivative Contracts. This could be a "Black Swan Event" that sets in motion a Domino effect, taking out BIG banks all over the world.
I think little has been made of the Covid aftermath which has skewed most models. Consumer liquidity, real estate prices, commercial leases down, residential rents up, tight wages, less overtime etc. now throw in the high interest rates and bank crises and we have the makings of another financial crisis.
