If you are lover of true free markets then you hate this.
We are watching what happens when the world's most successful economy slowly transforms (over decades, but a lot more recently) into a centrally planned one. More and more, the government has its hands in every business sector, every business, and every business decision. No longer does a business just think about following the rules and responding to market demands in a place with its suppliers, competition and customers.
Now it thinks about how to maximize rent seeking and government largesse. It thinks about how it can send signals to "regulators" that make them happy. It thinks about budgeting more and more money to its "government relations" department and its lobbyists. It thinks less about customers, and more about how to get the government to narrow the competition and create barriers for competition. It doesn't serve its customers any longer, it works around them with government assistance.
It's everywhere. Big Tech is in collaboration with multiple alphabet agencies *daily* to "work together" on censorship of their own customers. Entertainment companies decide to curry favor with particular positions and make policy statements on legislation, like Disney did in Florida, or MLB did in moving the All Star Game. Car companies' lobbyists write legislation to give them billions to make a car the government wants with the unions it favors. Virtually every business now requires government permission.
No longer can we just enjoy watching a market work, and enjoy the fruits of that incredible Invisible Hand. Now we have to think about Joe Biden's Hand and Liz Warren's Hand and all the rest of them.
It's a tragedy unfolding in slow motion, and it's not going to end well. They're destroying everything that got us here, including our spirit.
"Let them fail" sounds like a free market approach--which is generally how it works for commercial enterprises (with a few exceptions over decades). Yet, commercial (fractional reserve) banks are akin to a franchise from the govt, extending credit and banking services to the public, with a form of backstop via the Federal Reserve system and deposit insurance.
The SVB situation demonstrates the risks of solvency and liquidity are not equally balanced/proportioned as between management and the shareholders. Management takes risk and is rewarded in compensation schemes (pay commensurate with responsibility, bonuses, equity). Meanwhile, losses are socialized to passive shareholders and taxpayers.
In other words, the cost of capital should be higher to reflect the true risk of all losses, in order that taxpayers don't foot the bill for bank's collapse--and that management is on a pari passu basis with passive shareholders.
One suggestion is that shareholders be liable for a multiple (2X) of their investment, in the form of a capital call. Another is that managers hold 2X annual salary in the form of purchased equity. (These are NOT mutually exclusive suggestions.)
A result of such new requirements would be some combination of raising the cost of capital and lowering the risk profile by means of trade-offs made in the bank's mix of business, thereby allowing banks to differentiate themselves.
The effective repeal of Glass-Steagall increased the complexity of all banks, resulting in the hiding of risk in plain sight under reams of regulatory compliance, making the discernment and scrutiny of each bank a herculean task. Meaning: costly due diligence is forgone under the principle that regulatory compliance is pristine and serves as forbearance against untoward risks.
I would be less unhappy with the Fed plan if- 1) No person at or above a Director level at the bank could get a job in banking again 2) they claw back any bonuses given 3) the poor schmuck sitting on a worthless house in East Palestine, OH who still has to pay his or her mortgage gets his mortgage paid off by the US government.
Let's not kid ourselves, if you are in the wrong demographic or political category the government has no intention of helping you. All these free market tech capitalists are the first to cry for help when something goes wrong in their life. Speaking of tech, can someone name one thing that the tech industry has delivered in the last 10 years that has been positive for society? That social media thing sure hasn't worked out well, speaking for suicidal teens across the country. It's an industry living on past glory and does more harm than good. It's not entrepreneurial. They start companies to sell them as quickly as possible rather than to grow them into viable, profitable businesses. They are marginal traders (no offense to our host) that trade in words and nebulous concepts rather than in quantifiable results. These are not entrepreneurs.
You know what's funny? I just thought of this. When we were on the floor, we had to face each other every day. People made millions (or lost) in plain sight. Doesn't happen anywhere else.
Well the whole goal of tech is that we never have to face each other physically again. That removes shame from our personal equation. Remotely we can happily screw each other without feeling bad about ourselves.
lol, wanna bet the thought was that the Fed has no cost of funds. Therefore holding everything to maturity is "costless" to the fed and therefore they could buy the portfolio and not "take the loss", unlike SVB?
Ok, here is another Take. First Horizon. Anyone know what the laws are in Canada for takeovers and performance? I have to say i doubt anything like Akorn rules out of Delaware, but here is another with arbitrage thrown in too boot. If there is a way to force like what twitter did to Elon, i would have to say, a big upside with zero risk.
What is interesting, as usual is what is down hard in my personal portfolio. I have decent sized positions in both small value and small growth etf's. Both down hard. My big stuff, not so much. I have one silicon valley focused BDC (delivers great income with some upside - it has all variable rate senior secured notes) that just got hammered. Somewhat understandable, but was still down today, even with the bailout. So some differentiation, but not a terrible amount on the smaller end. Trying to evaluate when and if i will double down on some of these.
Privatize the gains and nationalize the losses. Crony capitalism at its finest. It's good to be a well-connected VC. This is the best 5 minutes on the bailout of uninsured depositors (and the first person is an Obama treasury guy). https://www.youtube.com/watch?v=4_0jNrlDZ0w
One issue that I believe hasn't been discussed is the adequacy of deposit insurance. Depositors at both Signature and SVB will be made whole. However, is $250,000 adequate? Should it be greater, like $1,000,000?
Pretty sure we (the taxpayer) do not fund the fed, although by expanding the balance sheet to take on more bad debt we indirectly/ tangentially pick up the tab.
Equity and bond holders still likely getting wiped out. Depositors will be made whole. FDIC is saying it can be done without tax payer dollars. We shall see if that can actually be done.
If you are lover of true free markets then you hate this.
We are watching what happens when the world's most successful economy slowly transforms (over decades, but a lot more recently) into a centrally planned one. More and more, the government has its hands in every business sector, every business, and every business decision. No longer does a business just think about following the rules and responding to market demands in a place with its suppliers, competition and customers.
Now it thinks about how to maximize rent seeking and government largesse. It thinks about how it can send signals to "regulators" that make them happy. It thinks about budgeting more and more money to its "government relations" department and its lobbyists. It thinks less about customers, and more about how to get the government to narrow the competition and create barriers for competition. It doesn't serve its customers any longer, it works around them with government assistance.
It's everywhere. Big Tech is in collaboration with multiple alphabet agencies *daily* to "work together" on censorship of their own customers. Entertainment companies decide to curry favor with particular positions and make policy statements on legislation, like Disney did in Florida, or MLB did in moving the All Star Game. Car companies' lobbyists write legislation to give them billions to make a car the government wants with the unions it favors. Virtually every business now requires government permission.
No longer can we just enjoy watching a market work, and enjoy the fruits of that incredible Invisible Hand. Now we have to think about Joe Biden's Hand and Liz Warren's Hand and all the rest of them.
It's a tragedy unfolding in slow motion, and it's not going to end well. They're destroying everything that got us here, including our spirit.
Privatize the gains. Socialize the losses. Fascists gonna Commie🤷🏼♂️🤮. It’s for the children. Or something.
"Let them fail" sounds like a free market approach--which is generally how it works for commercial enterprises (with a few exceptions over decades). Yet, commercial (fractional reserve) banks are akin to a franchise from the govt, extending credit and banking services to the public, with a form of backstop via the Federal Reserve system and deposit insurance.
The SVB situation demonstrates the risks of solvency and liquidity are not equally balanced/proportioned as between management and the shareholders. Management takes risk and is rewarded in compensation schemes (pay commensurate with responsibility, bonuses, equity). Meanwhile, losses are socialized to passive shareholders and taxpayers.
In other words, the cost of capital should be higher to reflect the true risk of all losses, in order that taxpayers don't foot the bill for bank's collapse--and that management is on a pari passu basis with passive shareholders.
One suggestion is that shareholders be liable for a multiple (2X) of their investment, in the form of a capital call. Another is that managers hold 2X annual salary in the form of purchased equity. (These are NOT mutually exclusive suggestions.)
A result of such new requirements would be some combination of raising the cost of capital and lowering the risk profile by means of trade-offs made in the bank's mix of business, thereby allowing banks to differentiate themselves.
The effective repeal of Glass-Steagall increased the complexity of all banks, resulting in the hiding of risk in plain sight under reams of regulatory compliance, making the discernment and scrutiny of each bank a herculean task. Meaning: costly due diligence is forgone under the principle that regulatory compliance is pristine and serves as forbearance against untoward risks.
I would be less unhappy with the Fed plan if- 1) No person at or above a Director level at the bank could get a job in banking again 2) they claw back any bonuses given 3) the poor schmuck sitting on a worthless house in East Palestine, OH who still has to pay his or her mortgage gets his mortgage paid off by the US government.
Let's not kid ourselves, if you are in the wrong demographic or political category the government has no intention of helping you. All these free market tech capitalists are the first to cry for help when something goes wrong in their life. Speaking of tech, can someone name one thing that the tech industry has delivered in the last 10 years that has been positive for society? That social media thing sure hasn't worked out well, speaking for suicidal teens across the country. It's an industry living on past glory and does more harm than good. It's not entrepreneurial. They start companies to sell them as quickly as possible rather than to grow them into viable, profitable businesses. They are marginal traders (no offense to our host) that trade in words and nebulous concepts rather than in quantifiable results. These are not entrepreneurs.
You know what's funny? I just thought of this. When we were on the floor, we had to face each other every day. People made millions (or lost) in plain sight. Doesn't happen anywhere else.
Well the whole goal of tech is that we never have to face each other physically again. That removes shame from our personal equation. Remotely we can happily screw each other without feeling bad about ourselves.
This plays out on Twitter everyday
This is demoralizing news to anyone who thought we learned the lessons of bank bailouts in 2008.
Appreciate the perspective as I listen and learn.
lol, wanna bet the thought was that the Fed has no cost of funds. Therefore holding everything to maturity is "costless" to the fed and therefore they could buy the portfolio and not "take the loss", unlike SVB?
Ok, here is another Take. First Horizon. Anyone know what the laws are in Canada for takeovers and performance? I have to say i doubt anything like Akorn rules out of Delaware, but here is another with arbitrage thrown in too boot. If there is a way to force like what twitter did to Elon, i would have to say, a big upside with zero risk.
What is interesting, as usual is what is down hard in my personal portfolio. I have decent sized positions in both small value and small growth etf's. Both down hard. My big stuff, not so much. I have one silicon valley focused BDC (delivers great income with some upside - it has all variable rate senior secured notes) that just got hammered. Somewhat understandable, but was still down today, even with the bailout. So some differentiation, but not a terrible amount on the smaller end. Trying to evaluate when and if i will double down on some of these.
Privatize the gains and nationalize the losses. Crony capitalism at its finest. It's good to be a well-connected VC. This is the best 5 minutes on the bailout of uninsured depositors (and the first person is an Obama treasury guy). https://www.youtube.com/watch?v=4_0jNrlDZ0w
the anchor is a ditz. why is steve liesman on the panel? He's dumb too.
The 3 guests who spoke were spot on. Safe to ignore the 2 other boneheads.
I would be interested in reading more from you as this story develops.
just submitted an article for The Epoch Times. If they don't print it I will put it here.
Infuriating! Are we any closer to the tipping point that sets us on a better path? Are we stuck with these non-elite elites?
One issue that I believe hasn't been discussed is the adequacy of deposit insurance. Depositors at both Signature and SVB will be made whole. However, is $250,000 adequate? Should it be greater, like $1,000,000?
does it matter?
have to say, getting flashbacks to maiden lane and maiden lane 2 llc
Pretty sure we (the taxpayer) do not fund the fed, although by expanding the balance sheet to take on more bad debt we indirectly/ tangentially pick up the tab.
https://www.federalreserve.gov/faqs/about_14986.htm
Equity and bond holders still likely getting wiped out. Depositors will be made whole. FDIC is saying it can be done without tax payer dollars. We shall see if that can actually be done.