America’s banks are missing hundreds of billions of dollars

Yeah, it's kind of infuriating, and even more infuriating is the fact that at the first sign of trouble they are gonna turn the printer back on. The alternative is a major recession, which obviously sucks, but sometimes forest fires are necessary to make way for new growth. Without the necessary pain of a recession, our economy is doomed to continue in this bizarre state of zombie companies, asset bubbles, and scams.

Does the government require banks to buy long-term treasuries? [1]

Or did banks choose to buy long-term treasury bills, chasing the highest paper returns (i.e. discounting the risk of potential rising interest rates in the future)?

It's not a rhetorical question, but a sincere one.

[1]: https://en.wikipedia.org/wiki/United_States_Treasury_securit... states that Treasuries are sold in all varieties of duration, from 4 week bills to 30 year bonds.

1. Why is cash parked at the Fed not an option?

> 1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment.

It's not just the banks either. In most Western countries, the pension funds are highly incentivised (usually through law) to purchase government debt in some form.

This is also part of the fuss on the ESG investment bill that Biden recently vetoed. The intent was to ensure that pension and fund managers were focused on their fiduciary obligation first and foremost, and any ESG, DIE, and SDG agendas secondly (or thirdly, or lastly).

Why do this? It's financial repression[1]. By channeling private funds into government debt or agenda-driven endeavours, it allows the government and those endeavours to borrow at much cheaper rates than they should be able to.

---

[1] https://www.investopedia.com/terms/f/financial-repression.as...

You are forgetting all the risky investments short selling and swaps.

@nostromo -- you are exactly correct. The US Fed govnt policies caused inflation, now trying to cool it down through raising interest rates on govn bonds. So investors that were buying commericial bonds, now go and buy govnt bonds.

Then, the commercial bonds (for good sound companies), loose values. Then commercial bonds investors loose their investment...

So the loose-loose sitation were are looking at:

a) continue printing money out of thin air -- raising inflation and indebting the generation of kids who do not even vote yet

b) get the current economy go into depression.

It seems like the current generation, with their choices of leadership and the habits is responsible -- so ( b ) has to be chosen (to be fair).

But since we do not live in the world where accountability is a thing -- ( a ) will be selected.

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time.

Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in terms of interest rate and time. They have been trading these things for decades.

Here is an article I wrote in 2020 that explores that volatility, though from another angle: https://omarabid.com/zero-rates-world

Another thing that I find funny is that everyone has "hindsight" now. Everyone is surprised how these banks are surprised that interest rates went up!

Here is a quote from that article in 2020:

> Maybe, but it's also possible that these high prices are here to stay.

I honestly was thinking we will stay in this zero-rate regime for the next decade or more. I suspect the people at SVB thought in a similar fashion and plan accordingly. The responsibility of the blow up is fully on them, however.

> now finding itself both tightening and loosening fiscal policy simultaneously

Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday.

The Covid liquidity injections will be known as the worst decision of a generation. PPP loans were greater than student loan forgiveness for all. Greater than the new deal cost.

Such a missed opportunity.

2. is wrong, we had years of central banks money printing without inflation, recovery from Covid19 and the war are the reasons of this high inflation.

Actually Fed real error has been raising rates to counter an inflation not caused by monetary policies.

SVB put all their investments in one bucket and it has been a very poor decision, really a rookie one

> it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly.

It printed too much money in 2008 and the following years. It raises rates very quickly now, because each time Fed tried to raise the interest rates or reduce their balance sheet after 2008, the political pressure made them backtrack. This Frontline documentary has a pretty good take on it: https://youtu.be/EpMLAQbSYAw.

HTM assets aren't supposed to be sold before maturity. So the problem must be they held too few liquid assets to support deposit outflows. In turn that must either be due to asset mix not being consistent with predicted deposit flows, or actual deposit flows not being as predicted.

This is all gonna get brushed under the rug by most journalists because of the political party that supported most of this mess.

> 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly.

Printing money doesn’t cause inflation necessarily. Your thinking is based on Monetarism, which has been debunked a while ago.

In essence, it’s not about the amount of money that is created. It's about the amount of goods we try to consume in relation to the amount of goods produced.

Two words … bond ladder. Stagger maturities to meet reasonably expected distributions and interest rate trends. Basic financial management 101.

Your view of the story is completely flawed. Your first point is false. There is no regulation that forces banks to buy long term government bonds. There is some regulation that forces them to have a certain percentage of capital tier 1 to safeguard themselves from bank runs, but it was repealed in 2018 by trump for “regional” banks and SVB CEO lobbied strongly for it for years and was ecstatic when it finally happened: https://www.theguardian.com/business/2023/mar/11/silicon-val... .

> 6. Banks going under is bad look, so the government decides to inject massive liquidity into banks, now finding itself both tightening and loosening fiscal policy simultaneously.

https://en.wikipedia.org/wiki/PID_controller

Its time to get this plant swinging.

I buy this outline but honest question, was the massive covid stimulus avoidable? I rode a bicycle around NYC during the early days of covid and it was a ghost town, like not a person on the streets in a city of 8 million. On the weekend I took a ride up state for a hike and virtually every business was closed on the way. It seemed inevitable at that point the economic consequences of this were going to be massive and I am kind of amazed it took this long. It feels easy to say these steps got us in this mess but I am wondering what the alternative was?

Central, top down control of the economy by political entities is a recepy for graft and disaster. Its a complex emergent system, you pull one string and changes propagate far and deep in unpredictable ways.

> 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly.

The cause of the inflation is not a classic spiral, it's profiteering especially on the side of fossil fuel producers and in retail.

> 5. A bunch of VCs decide they'd like their money back today, not in 20 years. A bank doesn't have it on hand, so it goes under.

It's not "a bunch of VCs", it's "GQP-allied Peter Thiel wants to see the world burn just to create additional mess for the Biden gov't and causes a bank run". The SVB crisis only picked up speed when Thiel advised all his startups to pull out their money, thus causing the bank run.

> SVB is certainly not blameless here, but the Fed's money printer and the government's wildly excessive stimulus has to be one of the worst policy errors since the 2007/08 financial crisis.

Without the "excessive" stimulus packages, economies across the Western nations would have been devastated by Covid. It was bad enough with the stimulus packages, I don't even want to imagine how it would have turned out without them.

> 4. The old treasuries decline 30-40% in present value. Oops, they're not so safe after all if you need your money back before maturity, which is often decades away.

This is because they fucked up their duration risk handling, no one held a gun to SVBs head and forced them to invest so heavily in long duration bonds. If they bought more short duration bonds none of this would be a problem. Other banks didn’t make this mistake. So why did they do it? Greed, or who knows, maybe it was plain old ignorance/hubris. Still, it was 100% avoidable. SVB fucked up bad and pointing blame at the fed is just not making them accountable.

Like fuck, who are these dumb chimps running this place. When I help my parents plan their retirement I looked at 100 years of history of what normal fluctuations are in the bond or stock market. Looking up data like that takes an hour and should make anyone with basic math skills realize rate and the bond fluctuations that follow at 100% bound to happen given enough time. It was just absolute amateur hour at SVB.

> SVB is certainly not blameless here, but the Fed's money printer and the government's wildly excessive stimulus has to be one of the worst policy errors since the 2007/08 financial crisis.

It is other way round. Majority of issue is on SVB side. Feds are not charged with running SVB nor hedging their risks.

> 1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment.

What do you mean by this?

No one forced them to invest in bonds and not hedge against raising interest rates.

Well, it points to abysmal risk-management by SVB. The rate rise was announced in late 2021, so banks should have taken some losses and sold the low-yield treasuries and increasingly bought higher yielding ones.

It also seems to me SVB used an exemption from Basel III(). Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable, which is why SVG opted out.

So they are now in the "find out" phase of fuck around and find out. I really have no sympathy for the way the US banking lobby bribes politics to get exemptions and the cowboy attitude of their "regional banks". Now, everybody is very sorry and promises to improve and once the storm has died down, they will continue to work like that.

https://on.ft.com/3ywMURD (google for "Silicon Valley Bank is a very American mess" to sidestep their paywall)

I'm getting tired of the "those Treasury bonds they bought are completely safe, if they just wait 10+ years until maturity, they will get 100% of their principal back" narrative. There are MANY different types of risk. Credit risk is but one type, and that narrative tries to convince people that it is the ONLY type of risk. In this example, you have both interest rate risk (price of an existing bond moves inversely to interest rates) and maturity risk (long term assets funded by short term liabilities). Risk can be hedged, and it is prudent to do so, but hedging costs money which eats into profit, so in the case of SVB they made a conscious decision to abandon most of their hedges a year or so ago. I suspect that over the course of the next year we'll see more cracks emerge in the financial system, additional financial institutions fail, and a new narrative that will have to be created.

I think the blame squarly lies on 2). Sweden and Florida didn't follow the Science™ and instead followed reason, rationale and logic. The rest of the country was obessesed over lockdowns, especially those on the political left. It was a religion of HN.

These are policy failures on all fronts - from monetary to public health.

Instead of explicitly bailing out banks why can't the government in this situation change the rules of the government bonds for the specific bank to let them mature today instead of at the nominal time? Or this is maybe how they do the bailout..

3. this is also why they are required to hold swaps as a hedge.

>The government requires banks buy their debt and hold it as reserves because it's considered the safest investment.

They don't require it, it is the safest investment. What do you consider a safer investment?

>Oops, they're not so safe after all if you need your money back before maturity,

Golly, it's almost like banks are supposed to know how this stuff works.

It's funny that you relate "safe" to "never changes price". The bonds were safe and are safe, which is why the "bailout" is an okay deal (ethics aside); the government will pay your money back.

>SVB is certainly not blameless here

Who on this planet would consider them blameless? They are 95% of the blame of their own situation.

> 4. The old treasuries decline 30-40% in present value. Oops, they're not so safe after all if you need your money back before maturity, which is often decades away.

This is not what safety of investment is, by any stretch of imagination. The yield of investment is nominal returns times weighted probability of that nominal return being lower. Government bonds are near zero risk of not being honored.

The risk you talk about is inherent in long assets + short liabilities and has very little to do with issuing body of the bond.

Let’s talk about the out of control military spending wayyy before the stimulus.

I don't think there is any basis to say too much money printing caused inflation. There were many countries with even lower rates for many years and no inflation to speak of to the point of it becaming problematic.

What caused this wave of inflation was supply taking a hit. Fallout from COVID and then war in Ukraine. It was difficult to get many good which normally were easily available. It's not rocket science either: inflation is about always caused by falling demand. It doesn't matter how much the government prints. When bread is hard to get people will exchange a lot to get a loaf.

If anything it seems like overreaction by the feds to raise the rates so much. It's not like them reducing access to capital magically makes goods appear on the shelves.

I disagree with everything but the conclusion.

I'm dubious that the "Fed's money printer" had much of an effect on inflation. It certainly didn't cause the SVB or other banks to go under. The rate increases did that... in this case.

I don't think the particular path matters much. People tend to moralize banking, and post failure we tend to hunt for moral culprits. But... the historical fact is that banks fail sometimes, under all possible regulatory and commercial regimes. We have hundreds of years worth of evidence.

Banks have failure scenarios. The concept of a bank which takes deposits and invests them while maintaining 0% risk to depositors does not, and has never existed. We need to decide if money in the bank proverbial gold, or is it more like shares in a company? We just can't have both.

From the panicked, rushed lockdowns to the massive money printing, it’s been one bad policy error after another.

All the pandemic showed us is how ill-equipped we really are to deal with an actual challenge, from individual people to policymakers.

The last 3 years have been so devoid of any basic rationality across the board.

All comes down to the "too big to fail" problem.

7. In order to inject "massive liquidity into banks" more money is printed.

8. GOTO 2 but for different years.

> The old treasuries decline 30-40% in present value. Oops, they're not so safe after all if you need your money back before maturity, which is often decades away.

Just to be clear, this is finance 101. Its not a surprise.

Having to sell treasuries at this time was the surprise.

Your analysis is missing this critical piece: duration risk.

The government requires banks to buy bonds/treasuries, but gives the banks full leeway as to whether they buy short-term, mid-term, or long-term bonds/treasuries.

In a low rate environment, long-term bonds have a higher yield but also suffer from interest rate risk (a risk caused by their long duration).

Even an untrained amateur wealth manager knows to stagger the durations of the bonds you hold, ESPECIALLY if you have any reasons you might need to sell those bonds on the secondary market before maturity. Risk managers and investors working in the finance/risk department of a top-20 bank, managing billions in deposits, should especially know this.

Some banks were simply greedy, lazy, or both (SVB).

It's econ/finance 101 that when interest rates rise, bond values go down. They could have held a much larger percentage of short-term bonds/treasuries, and they would have been fine.

I think the big lesson is that the banking industry isn't nearly as smart and self-regulating as many people think it is. Bank finance departments either chase yield, when they can (2021), or they manufacture it, when they can't (2007-2008).

SVB leveraged cozy relationships to attract business than they could handle. They ignored compliance and normal banking risks. They left their C level risk management position open and we’re not transparent about their fiscal health.

Rate risk is a key feature to buying any bond, and it’s a risk that is manageable if management isn’t asleep at the switch. Nobody forced SVB to buy long duration bonds. Any investor with a moderate level of expertise understands that, and you’d have to be pretty green to not expect rate increases from the all time lows.

Blaming the government is a cop out. The job of finance professionals is to manage the assets in their custody responsibly.

It's possible that they have already reaped the profits and are now saddling the banks with debt, leaving the burden on the people.

I think SVB case was atypical in the sense that while being the 16th biggest bank in the country their largest accounts were owned by a few VCs that (figuratively) grew up on the same street. So it took just one guy to make a call for the panic to spread in town like a wildfire. It was only 36 hours from that first call to when SVB was gone.

The people in step 5 have a huge incentive to make it look like the fed is wrong to raise rate because their monopoly money fueled dumpster fire of an industry only "works" when rates are low.

I'm not alleging conspiracy, I don't think these people are competent enough to actually conspire. But the incentive to pull your money out knowing that it makes others more likely to follow and that if the bank keels over the failure mode makes policy you don't like look bad is definitely there.

The worst thing about takes like this is it assumes none of the bankers and government officials communicate.

It sets up this nice and tidy semantic bubble that ignores the messy reality of these folks socializing together.

Just because the paperwork is in order does not mean these people do not collude and influence each others emotions to empower themselves and just legislate their mess away or get bailed out.

Collectivist and socialist in their nature and choices.

You and I though? Subject to the whims of the “free market”.

Your entire finance system is a joke because your society and culture are a joke. We keep taking marching orders from post-war shellshocked, Cold War paranoids, leaded gas huffers in the Boomers and GenX. 2000, 2008, and again here we go eating their shit.

We coddle people who cannot grow a potato for themselves. What are octogenarians and their progeny whose only skill set in life is “inherit dads imaginary money?” going to do if we quit logging in and showing up?

I find it amusing how far away from capitalism the Fed is, it's literally the opposite of a free market. Instead it's a communist style central planning committee made of "the smartest guys in the room" making decisions that impact the entire economy. Why is anybody shocked they made a mess of things?

I'm sorry but I think you missed something a bit relevant aka 'Global Pandemic' which literally shut down massive swaths of the global economy, and was materially the biggest extant shock to the US economy probaby ever. And I mean ever, except for literally the Civil War, and maybe but not really the Opec crisis. Ok maybe the war of 1812.

Historically, we would have just 'let people die' and work through it, but this time we want to react and try to save lives so we shut stuff down, but it's existentially damaging.

Hence money printing.

I think you're being a bit misleading. It's not some issue related to government bonds specifically, it's about long-term bonds generally. IIRC, SVB went under because it took up a large position in long term mortgage-backed securities not treasuries. If it had instead invested in short-term treasuries, it would have been fine.

Government debt is the safest, and if you buy any other kind of debt, you'll want to be paid a premium for the extra risk you're taking. If interest rates are going up, you don't want all your money in long-term bonds.

>>because it's considered the safest investment

you are wrong right at the first step.

there is credit risk (risk of default) and for this risk, treasuries are still considered safest.

then, there is duration risk (risk of interest rates increasing) - and this risk has always been there.

Bankers know about these risks, it is just they were greedy and decided to go for the highest yielding MBS, instead of short-term securities. => and obviously banks suffered consequences.

for bankers this is Banking 101

One can argue that what is going on right now is market forces punishing the most greedy bankers (SVB, Debit suisse, etc)

It's almost like the government shouldn't be trusted with a monopoly on money.

I mean. Some of them are!

so what you’re saying is that there’s a major bank out there that could pay out all - or even half of - its deposits right now?

It's not quite "yelling fire in a crowded theater" but it's pretty close. More like "you'll be dead soon" (for certain values of soon).

Well strictly speaking virtually no bank has all of their depositors' money, otherwise they'd struggle to turn a profit.

What you're saying is that the valuation of their assets at maturation (or at market for non-maturing assets) exceed their current liabilities which should be true across the board.

No large bank could pay out 50% of their deposits in a single day without becoming insolvent. And even if they could fully liquidate they couldn't all cover their liabilities at current market value.

Where exactly to you think they hold deposits?

This is one case where I don't mind the clickbait. People need to know how the heck banks got into this mess and this is the first time I've seen an article tie together the reverse-repo market, covid-era money printing, and banks currently sitting underwater on government-backed securities.

It's also worth noting that if you read "banks" in the title to generally mean the banking system, that money is effectively missing as it now sits on the Fed's books and is no longer in the banking system at all. That's a start difference to standard repo markets where the total liquidity of the banking system doesn't change when securities are purchased.

CapitalOne 360 yeilds 3.40%.

This is less than you would get buying short term treasuries, but not terrible.

SoFi offers 4.00%, and vanguards prime MMFA is 4.64%

64 basis points isn't nothing, but I think that qualifies at close - and I didn't go digging, those were just the first two that came to mind.

Ally is at 3.6%.

Oh crumbs, you're going to get wildly different understandings depending on what camp the books come from. Personally, I'm of the view that the most coherent understanding comes from the MMT crowd, but much of that is quite subtle and open to deep misinterpretation (and regularly is). Warren Moslers' writings are excellent, but make you think https://moslereconomics.com/mandatory-readings/. Neil Wilson writes in a very accessible way and has bite size articles that cover many things you're talking about: https://new-wayland.com/blog/ (IMO, that blog is full of gold).

Be careful out there reading blogs. Maybe I'm biased because I have a degree in Econ from MIT, but I'd highly recommend starting out with the "orthodox" treatment of the subject, as you'd learn at a university. To that end Core Econ[0] is a very solid, free, engaging, easy to read book that covers it. Chapter 10, "Banks, money, and the credit market", is particularly what you're asking about. You can take a look at the authors and editorial board[1] and you'll see they're a bunch of professors and professional economists at banks, that sort of thing.

I've had some thought provoking fun reading, e.g. unorthodox "Austrian School" economics by Mises, but you should be wary of reading blogs, as lots of incorrect things in Econ can sound convincing if you don't have the right background.

[0] https://www.core-econ.org/the-economy/book/text/0-3-contents... [1] https://www.core-econ.org/meet-core/

That's none of your concern, plus it's far too complex for someone like you to understand - a lot of complex math and statistical models that only we can understand. Just leave everything to us.

Lords of Finance - a nonfiction book by Liaquat Ahamed about events leading up to and culminating in the Great Depression as told through the personal histories of the heads of the Central Banks of the world's four major economies at the time.

As a layperson with no economic credentials, I’d recommend books with a bit of entertainment value, even if they may gloss over some details. It’s still important to understand the basic theory and mechanics of the financial markets, but it’s equally important to understand the human factors and politics involved, and some of these more narrative books are helpful in that regard.

I found The Big Short both entertaining and enlightening on the 2008 crash, a while back I also read “The Number” by Alex Berenson, which focuses more on corporate equities and the rise of earnings per share as a driving metric.. I did also read about half of an older book called “Secrets of the Temple”, which gives a history of how Paul Volcker handled the inflation crisis of the 80s. That was more dense but really helped solidify my understanding of the Fed. I’ve also recently started “Random Walk through Wall Street”, which again is mostly equities-focused but so far seems to give a balanced take on the financial and human factors.

As far as explaining the most recent crisis, I’ve found this blog [0] to be the most informative, approachable and somewhat entertaining. Very clear explanation of what exactly the BTFP program is doing, with a healthy amount of speculation about how it could be abused and potential effects of that. Disclaimer that it’s written by a crypto researcher, but there’s very little content about crypto.

[0] https://entrepreneurshandbook.co/kaiseki-b15230bdd09e

It does not cover everything you asked for, but Ray Dalio has a excellent 30 min. video that explains ELI5 how the economy works: https://www.youtube.com/watch?v=PHe0bXAIuk0

I like to watch Economics Explained https://youtube.com/@EconomicsExplained

A book I read and enjoyed is "Naked Economics: Undressing the Dismal Science". It helped me understand what economics even is.

Have a look at "Investing in Stocks, How to Win Big! Strategizing, Positioning, and Leveraging for Success" by Kishore Mishra. It's self-pub on Amazon. The title is truly horrendous, the text would benefit from an editor, the layout would benefit from professional typesetting, etc. But it's written by an EE. I started reading it a while ago and liked how he approached the explanation from the ground up. It spoke to my engineering mind. Unfortunately I had to set it aside and it's been on my shelf for a while. But I'm thinking of picking it up again.

I had discovered this author by reading another book he wrote entitled "Advanced Chip Design, Practical Examples in Verilog". Also self-pub and also suffering from lots of self-pub issues. But the essentials were more-or-less there.

I'd recommend the books by Galbraith -- Money: Whence It Came, Where It Went, The Great Crash 1929, and A Short History of Financial Euphoria.

That is some pretty timeless background.

Basically, yes; technically, not quite. The outflow that is posing serious risks is the flow from regional banks' check and savings accounts into brokerage accounts and then into repos/treasuries. It's unspecified if those brokerage accounts are at the same banks in question or at other institutions.

It's a good bet that the accounts are mostly at large brokerages and not at regional banks' brokerage services.

Doesn't matter much, really. The banks would have an issue either way.

The article explains it pretty well, but it’s hard to understand which are the important bits without having done a lot of background research.

The main idea is that bank regulation and fiscal/monetary policy are often at odds with one another. The article mentions the SLR, which is supposed to reduce systemic risk by enforcing minimum capital requirements. Importantly, deposits are part of the denominator—they are liabilities of the bank. So flooding the banking system with cash (e.g. pandemic relief) will force banks to raise capital to maintain compliance with SLR.

The Fed could see this coming and relaxed the SLR requirements at first, but this temporary measure expired in March 2021 and within a matter of months the Fed’s reverse repo had swelled to nearly $2T. Reverse repo can be complicated to explain but basically it is the Fed’s version of an overnight money market fund—we take your cash and give you highly liquid securities and then buy them back at a slight premium tomorrow, so you earn a return for the risk of holding those securities overnight.

To reiterate, the only reason this facility exists is because banking regulations punish banks for holding excess deposits. If that was not the case, then the Fed could just pay interest directly on reserves to set a floor on interbank lending rates.

the rate at which they rise (or fall) is a big factor

If something worked, they sure as hell wouldn't tell us, because then they couldn't take advantage of it

I am currently (and it’s a big volume) reading “the value of everything” , I read it in stints but it’s a great read of how economics evolved as a science and it definitely has social elements to it: so it is motivated in parts by peoples wishes of what they want to get out of it, but it also has a large scientific component as well, so it certainly isn’t black and white.

What do you mean exist? All money is just a promise basically. A promise to get some good at a future date and exchange it for that illusory number, be it paper or electronically. By that description yes all that money existed. They were promises made in contractual and legal forms. And behind those promises lie pensions, payrolls and a big part of the economy. Without those promises holding and some basic level of trust being maintained economic activity becomes very difficult

Yeah, I had like $4k left in a brokerage account. Then one month I noticed ~$100+ dropped in there and I was like WTF? That's 10x what I see in my savings account for the same amount of money just sitting there! So my money market is now my savings account. The risk is that you could lose your principal...but I guess not anymore!?! Thanks SVB, FRC, et al.

Nah this is fine, money printer go brrrr

what was the Roman Empire’s equivalent of legalised Ponzi schemes? sugar of lead? Livia?

I have read the decline and fall of Roman Empire by Edward Gibbons, and the situation is verisimilitude

higher interest rates encourage more saving and less spending.

If the going interest rate is 0% you're much more likely to spend money in the economy somehow - goods, services, stocks etc.

If the going interest rate goes up to 5% are you going to spend as much as you did? Will you keep buying stocks? Or will you cipher off some of that cash and buy the security yielding 5% guaranteed.

As longs as interest rates are high why would you take the money out as cash and risk it in the market or spend it on goods and services when you can continue to make 5% guaranteed.

As the interest rate goes up more people move more money out of goods, services, and riskier assets taking money 'out' of the economy.

if america stops spending in world policing, it won't be able to print all those dollars though. It's a double edged sword

Today's Money Stuff opens with a story in which JP Morgan owned $1.3 million worth of nickel metal in a warehouse somewhere (for reasons having to do with metal futures trading). Somehow it was recently discovered that the bags of nickel, which have been there since early 2022, were actually full of worthless rocks.

I assume you're talking about the article from yesterday, but this could well be just another wrinkle in the ~$600M Prateek Gupta and TMT metals fraud.

https://www.business-standard.com/article/companies/trafigur...

Private enterprises are plenty responsible for this situation and similar past situations. Ironically (is it ironic I don't know), SVB got in trouble _because_ of the regulations. Time will tell if that dang govment got ahead of the situation early enough.

"seemingly innocuous" is an impersonal construction referring to the reader, but not any reader in particular.

The Fed itself, at least some presidents thereof, was aware of this risk. Toward the end of the article:

"When the reverse-repo facility was set up, Bill Dudley, president of the New York Fed at the time, worried it could lead to the “disintermediation of the financial system”. During a financial crisis it could exacerbate instability with funds running out of riskier assets and onto the Fed’s balance-sheet."

but zerohedge has predicted 932 of the last 3 financial crises

Waiting for years means you were wrong in finance.