Federal Reserve Raises Interest Rates By 25 Basis Points

[g5000]

I'd love to know how many of those banks hedged interest rates when they bought their bonds.

Exactly. SVB certainly didn't. Or First Republic.

It makes me wonder and worry.

 

[g5000]

And then magically, wonderfully, incredibly the Fed says they will value your piece of shit at $50.

As collateral for a short-term loan.
When the loan ends, you get back your original token.

So long as you still exist.

 

[g5000]

Quick question: How many banks have failed since 2007?
Answer: 536 and we have no depression.

465 of those failed during the Great Recession, which would have been worse than the Great Depression if not for the actions of the Fed and the government.

Contrast that with only 10 bank failures in the five years prior to the Great Recession.

 

[g5000]

Now, watch as the fed makes large banks whole and lets small banks fail in order to consolidate to a small number of large banks in a desperation attempt. It doesn't matter though. The world financial system is about to ultimately fail and a one world type of currency will arise.

The Too Big To Fail banks became much bigger after the 2008 crash. They are bigger than ever. I've often said they are now Too Big To Save. If they fail, there is nothing anyone can do, not even the Fed.

The big banks are already absorbing the smaller failing banks.

I well remember the day when the federal government formed a protective cordon around five of the big banks after Lehman failed. No one was allowed to short their stock.

This sent a horrible signal to the markets as it meant a bank like Washington Mutual was fair game, and they were eaten alive.

The government literally picked the winners and losers.

I made a killing off that situation. It's the most money I have ever made in such a short period of time.

 

[g5000]

This sums it, IMO. We may escape from this banking wobble, but central banks have set the stage for what could turn out to be the mother of all financial crises in the future. When it happens is anyone's guess, but there are different scenarios for this to go sideways.

The market indices are still overpriced, IMO. You wouldn't know that there's inflation or that we just had a small banking crisis by the way that investors are behaving, and that's because they are expecting central banks to continue backstopping their risk.

This won't end well.

Each succeeding crisis is larger than the last for this exact reason.

It all started with the Fed saving a bank in Cleveland, IIRC. Then it was LTCM. Then it was 2008, picking the winners and losers.

Now they are doing it again.

Sooner or later, Too Big To Save, and then we are all fucked.

 

[kyzr]

I think Powell and the Fed are doing a good job. No pearl clutching, they got this.
They started a little late, but other than that, the economy seems to be slowing gradually.
One more .25 in May and then a pause to see how inflation is doing.
In 2024 I'm betting that the Fed will be lowering rates if inflation isn't rising.
That should help Joe Biden get re-elected.

 

[g5000]

the ZIRP policy is only intended to be a short term policy, not one that runs for many years as it did currently. Bankers were aware of that, but just didn't give a shit, they can count on bailouts and let taxpayers eat the losses.

ZIRP was the Fed's way of bailing out the zombie banks at the expense of everyone else. It became pointless for savers to save, and it caused investors to have to invest on massive economies of scale and to invest in incredibly risky products.

As it turns out, the $16 trillion of federal debt run up by Obama and Trump has become the riskiest product of all.

 

[multivita-man]

Each succeeding crisis is larger than the last for this exact reason.

It all started with the Fed saving a bank in Cleveland, IIRC. Then it was LTCM. Then it was 2008, picking the winners and losers.

Now they are doing it again.

Sooner or later, Too Big To Save, and then we are all fucked.

Regulators, the government has a choice. They can either stay ahead and on top of the Barony, or not. And when they're not, they are collaborating with them. People in the 1930s figured out the right way to deal with these fuckers because they were living with the destitution that they caused. Succeeding generations believed that they had managed to breed the carnivore out of the wolf. They are wrong, and we are being devoured.

 

[g5000]

They weren't asleep at the switch IMO.

Their decision was intentional and politically motivated.

I think the Fed was in denial. They actually believed ZIRP could go on forever.
'

 

[g5000]

My question is, how underwater is underwater?

Surely not close to half....right?

It all depends on how diversified a bank's bond holdings are. I used half just as an illustration.

But for a real world example, the yield on a July 2020 ten year Treasury is 0.59 percent. The yield on a November 2022 ten year note is 3.82 percent.

If you are holding that July 2020 note, no one is buying unless you sell at a huge loss.

Half? At least.

 

[g5000]

The dow was spooked today more by Yellen saying that depositors would not be bailed out more than the FDIC allows than the .25 basis point increase.

U.S. Treasury Secretary Janet Yellen is not considering covering all uninsured deposits at U.S. banks while ruling out the need for a broad boost in deposit insurance, she told members of the Senate's Appropriations Subcommittee on Financial Services and General Government on Wednesday.

See that chart in post 2.

74 percent of Citibank's deposits are not insured.

 

[Missouri_Mike]

I've been warning about this for months.

Years

 

[g5000]

No it didn’t. Show me on a chart where demand spiked.

Consumer expenditures rose to an all time high after the pandemic.

As a result in the spike of spending and consumerism, the number of shipping containers and the number of container ships at our California ports surged tremendously to record highs. This overwhelmed the system.

 

[Missouri_Mike]

Yep. Demand exploded, global supply chains immediately buckled, and here we are.

Crazy how paying people not to produce ends up with more money to buy non-existent things.

 

[g5000]

It's weird but since they already went into ZIRP Land it made sense to jack up spending a lot while the interest rates were effectively negative. Many Foreigners were desperate to park money in the U.S. dollar before the COVID thing, so the bonds sold well. Japan did the same thing.

I would change "jack up spending" to "jack up borrowing".

The Fed made money too cheap. Obama and Trump took advantage.

Government spending is a large part of US GDP. A way to artificially juice GDP is to increase government spending, and since money was cheap Obama and Trump took full advantage.

 

[g5000]

Wrong. Depositors are lenders; they're lending their money to the bank. Banks are borrowing money short term to buy long term debts and make long term loans. They always fail sooner or later, unless they get bailed out or their debtors don't default. When there is a run on the bank they lose deposit margins, their lending stops while their obligations continue. If they made solid loans they can weather it; if they made bad loans their revenue ceases at precisely the time they need revenue the most. Some get lucky, most need to be rescued sooner or later.

Exactly right.

 

[toobfreak]

Remember how Silicon Valley Bank had a lot of depositors whose accounts were a gajillion dollars over the FDIC insured amount?
Well, the US government made those depositors whole anyway.

How nice. And we know who those depositors are! Last year, many took out hundreds of millions (billions?) of dollars (a huge amount) from SVB all approved by the bank despite the fact that the bank already knew they were going insolvent! And guess who is going to pay for that now? The other banks will--- that is to say YOU will, in higher fees and such as other banks now tighten their loaning habits to small business and average people.

One more step in the nationalization of our banking system.

 

[g5000]

Several times you mentioned that “something really bad is going on”

What are you referring to?

I am referring to the giant spike at the Fed discount window. A whole lot of banks are borrowing a fuck ton of money from the Fed.

More than even during the Great Recession.

Even more frightening is that the Fed is not imposing their usual haircut for their loans to the banks. Usually, the Fed lends less than the collateral is worth. In the present situation, they are actually lending MORE than the collateral is worth!

This is a shadow bailout.

If the banks borrowing money default, the Fed will take a huge loss.

Even worse, the Fed's portfolio is already chock full of trillions of dollars of interest rate risk. To bring down inflation, they will have to sell big chunks of their portfolio at a loss.

The banks are obviously borrowing money because they have astronomical sums of deposits which are not insured. See the chart in post 2.

If America gets spooked and begins a run on the banks, the banks need to be capitalized well above their normal capital reserves.

Thus the wild borrowing.

 

[g5000]

I think Powell and the Fed are doing a good job. No pearl clutching, they got this.
They started a little late, but other than that, the economy seems to be slowing gradually.
One more .25 in May and then a pause to see how inflation is doing.
In 2024 I'm betting that the Fed will be lowering rates if inflation isn't rising.
That should help Joe Biden get re-elected.

On one side of the ledger, the Fed is doing a good job, as you say.

However, they are simultaneously creating unfathomable interest rate risk across the entire economic spectrum.

It's a high wire act.
'
I heard someone say that whenever the Fed hits the brakes, somebody goes through the windshield.

 

[g5000]

How nice. And we know who those depositors are! Last year, many took out hundreds of millions (billions?) of dollars (a huge amount) from SVB all approved by the bank despite the fact that the bank already knew they were going insolvent! And guess who is going to pay for that now? The other banks will--- that is to say YOU will, in higher fees and such as other banks now tighten their loaning habits to small business and average people.

One more step in the nationalization of our banking system.

Our banking system is not going to be nationalized.

One of the newsletters I subscribe to said this signals the end of Silicon Valley, though. Cheap, easy VC money has completely dried up.