U.S. regulator set to take over First Republic
reuters.com
reuters.com
Isn't this why they got in trouble on the first place?
And bizarrely, capital requirements don't require banks to account for duration risk, which is what screwed SVB (and is screwing a lot of other banks now).
Today's 30-year Treasury rate is about 3.8% which put the bottom limit and the average 30-year mortgage is 7.5%. This gives about 3.5 percent spread. How much of that you can negotiate back will depend on Bank policy
Even in modern democracies laws are still mostly written, presented, and decided by lobbyists.
Doesn't seem to matter the structure of the government, the people with the money make the rules when leaders integrity can be purchased.
Even if we lived in a world where big banks didn’t exist, the benefit to systemic risk might be smaller than you’d think, as bank failures tend to be correlated.
> "I don't think that had any effect," said Frank, who retired from Congress in 2012. "I don't think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion."
https://markets.businessinsider.com/news/stocks/signature-ba...
Frank, a board member of another failed bank, certainly has an interest in a position that everything is fine.
This seems like a silly thing to say when it’s the left focusing on getting people into houses or otherwise spending money they can’t afford.
The feds are stuck trying to tame inflation, and the skyrocketing interest rates are crumbling regional banks. Big banks are a lot more hesitant to lend to small businesses, and many otherwise viable businesses will fail if credit freezes.
Big banks are getting even bigger as depositors flee, and concentrating risk (even more) imo.
I guess the higher interest rates are doing their job in slowing the economy down, but it's wild that we're stuck with whatever the feds do with their blunt toolset because congress is seemingly dysfunctional.
That’s what “taming inflation” means. It means cooling off the economy, which means that businesses which would otherwise be viable fail, reducing demand, reducing upward pressure on prices.
To the extent that unexpected banking issues accelerate this, within a fairly wide band, from a monetary policy perspective that just means the Fed can back off the brake pedal a little sooner.
The solution is exactly what is about to happen, a decade plus recession. But don’t worry, there is always war, which is coming.
if they increase spending, you get more inflation, and then they have to eventually pay higher rates on their own debt
if they cut spending, they can deflate the economy, and they can't attract the tax revenues to pay their own debt
no good options in a society that has OD'd on debt since the mid 90s
if we were honest, the President would go on TV and tell us we are just going to be poorer for a while, which is something most people already know anyway
This is not a serious constraint on deficit reduction.
services inflation printed at 7.3% and ur worried about deflation?
that's not a valid opinion atp. we're so far from overcorrecting its scary. spending is still up over pre corona levels. ppl still drawing down excess savings. bank crisis is a real concern and prob reads through to equivalent of a few rate hikes (slok @ apollo says 150bps, most say lower)
Disincentivize property investments in family homes.
Return R&D tax credits.
Return so a semblance of the glass & steagall act.
Up the amount of coverage the FDIC is authorized to cover even before regulators need to take over.
Allow an upfront loan privately for banks to lend against temporarily with stock put as collateral.
Up the corporate tax rate.
Remove the cap on SALT taxes for those under 400k.
Change marginal tax rates for individuals.
There insane amount of things congress can do if they just… do it.
Why would you want a fiscal policy to crack inflation? Better to crack it with monetary policy and use fiscal policy to mitigate adverse distributional effects of the monetary policy, since its easier not to overshoot badly that way than with contractionary fiscal policy.
Also, while monetary policy can be adjusted more frequently, those adjustments take a while to move through the economy, so maybe you want to be careful with it or you will crush a few too many banks.
Yes, you can stop inflation while also mitigating the adverse distributional effects (adverse short-term aggregate effects, no, but that’s not what I said to mitigate.)
> You stop inflation by making people poorer.
You stop inflation by making people poorer in aggregate. Ideally you want to do that by compressing available resources, rather than doing so in equal proportions across the spectrum of means, and either of those is better than disproportionately making those already poor poorer.
Monetary policy is good for addressing the aggregate target, but its not a very good tool for tuning distributional impacts; fiscal policy is much capable of steering distribution of impacts.
If you want to combat inflation, you need to reduce demand, which really means removing "hot" dollars from the economy, not "cold" dollars.
So no, you likely can't mitigate the adverse "distributional" effects the way you want, while also effectively fighting inflation. Everyone needs to get poorer.
No, I’m not.
> A dollar held by a startup or a poor person is much more inflationary than a dollar held by a big company or rich person
Rich people have to lose more money in aggregate for the same inflation effect as poorer people losing the same amount of money, sure.
But that's fine, because its a lot less bad for rich people to lose a lot of money than people whose ability to meet basic needs is marginal to lose a little money, so, yes, my statement that the distributional goal should be compression when the broad goals is anti-inflationary was exactly what I intended, even including consideration of velocity of money in the domestic economy.
The top 1% own about 25% of assets in the US, and of that the vast majority are likely illiquid and non-cash. If you assume that the top 1% hypothetically hold 10% of the cash, then draining their cash accounts to 0 and burning it would be equivalent (not counting money velocity) to everyone else taking a 10% haircut. If you attempt to account for the velocity of money, that would likely only be a small single-digit percentage. The CPI is higher than that, and many lower- and middle-class families are seeing a much bigger loss in purchasing power thanks to increases in the prices of food, fuel, and housing.
Moreover, the last 2 years have been an experiment in exactly what you are proposing - using monetary policy to control inflation while using fiscal policy to attempt to prevent it from hitting most people. It has not worked, and it will not work in the future. In fact, the policy has had the opposite effect that you probably want: real wealth is increasingly concentrated in the hands of the wealthy, and inflation is largely concentrated in products purchased by the poor.
> Change marginal tax rates for individuals.
Politician? Why are you trying to hide your intent here. Raise taxes across the board, just say it.
You can spend in a dis-inflationary manner: increasing production capacity, facilitating resource extraction, and generally anything that helps on the supply side of things.
But absolutely, given the current Administration and the Democrat agenda, this is anathema. If anything they would rather spend to destroy supply as much as possible, since this is generally what the SDG, DIE, and Green agendas consider "success".
A great example is the Inflation Reduction Act. The "green" portions were estimated to cost $390 BB initially, but are now estimated to cost $1045 BB (yes, over a trillion dollars), and this number will almost certain go up[1].
Not a penny of it goes to anything that would increase supply of what you'll need for the "green" infrastructure, it's all pure demand, the bulk of it EV incentives. You would have trouble coming up with a more inflationary plan if you tried.
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[1] https://budgetmodel.wharton.upenn.edu/estimates/2023/4/27/up...
If necessary put in a temporary price and wage freeze. This was done under Nixon.
If that was the case, then Zimbabwe made a massive mistake when switched to the US dollar after having had to print 1, 10 and 100 trillion dollar notes because inflation was pushing 230,000,000 percent.
When the government suspended student loan payments (and started paying extra time for staying home, and other pandemic benefits), it indirectly put cash in the hands of people who were used to living month-to-month. No doubt some were fiscally responsible and put the money in stocks, which made the stock market have a crazy big rally, but that's a different story. Most just went out and bought things they might not have bought otherwise, or which they had been waiting/saving for. But the supply of things didn't increase--in fact if anything the supply went down because of part shortages. What happens when demand goes up and supply goes down? Prices skyrocket. And this is measured as increased consumer prices (aka inflation).
Now the supply shortage has been mostly worked out, but prices remain high. They are sticky--that's the actual, technical term. A demand shock is required to unstick prices, a core part of getting inflation under control. Suddenly reducing the available monthly budget of those same people who were driving inflation in the first place would do that. So resume student loan payments.
There's no way it'll happen before the next presidential election, however.
But I find this line of thinking dubious. It costs more than $1700/month for 10 years just to pay for med school? ($160k total cost at 5% interest — and both of those values are at the low end.) That’s an incredibly stupid situation for our economy to be in. That is a massive barrier to entry for a some very important careers.
And on top of that, we’re saying that these massive payments are crucial to getting inflation in check?
Maybe you’re right that this “helps” superficially reduce inflation. But the root problem is much deeper, which is that our economic system cannot handle people making a decent money.
The root cause is likely a lot closer to big companies jacking prices of basic goods and services, blaming inflation, and making record profits in the meantime.
Companies are still catching up with supply. Lots of chemicals and other base materials are still in short supply. A lot of this stems from China still having shutdowns and taking a long time to recover.
Companies also don't want to spend tons of money expanding production when they don't believe the increased demand will continue forever and especially while interest rates are increasing. After supplies catch up, and student loans resume, they likely expect demand to return to pre-pandemic levels.
I think there are factors there that is going to cause permanent reductions of production capacity in many economies, though:
1) Demography: Boomers have started retiring in large numbers, and a lot more retire in the next 5-10 years. There are not enough young people to fill all of the openings they leave behind. Also, work participation rate among young people is falling for various reasons. Unlike their parents, the boomers have a lot of saved up wealth and less of the frugality of those who remembered the 30s, meaning many will continue to have high levels of consumption into their retirement.
2) Reversion of globalism: Covid made many realize that global supply chains are fragile during emergencies, and many countries are re-shoring essential and strategic production, such as medical supplies, chips/electronics and agricultural products. The cost of this improved resilience is lower efficiency.
3) Increased world tension: With the invasion of Ukraine and the possibility of war between the US and China over Taiwan, world spending on armaments is going up, taking production capacity away from consumer goods. The same tension is already causing reduced trade.
4) Populism/socialism/environmentalism: There appears to be a surge in populist, socialist radical environmentalist sentiments in many places, with demands to "tax the rich" and other actions that will make investments less attractive.
In sum, I think these factors will have noticable effects on the supply side in many years to come, causing inflation and/or interest rates to stay elevated for 10 years or more.
Unless there is a sudden surge in automation, of course.
The value of money is defined by what you can buy for it. If there isn't enough stuff to buy, either prices go up or there will be shortages of those products. If I have to chose between paying 20% more for the bread or to find the shelves empty half the time, I prefer to pay 20% more.
In "other economic systems", meaning socialism, empty shelves are pretty common.
But... inflation already has gone down. Oh, yeah, everyone cites the headline 12-month trailing inflation, but if you look at the monthly data, the high inflation period was sometime in 2021 (where depends on if you look at CPI, as is most often cited, or PCE, which the Fed uses) through the first half of 2022.
The June print for healine annual inflation (from the prior 12 months) is going to be ~3%. Negotiate your wage increases before it is too late.
Only due to shifts in food and energy prices, which are both highly volatile. Exclude those, and there is still 0.3% month-on-month inflation, or 3.6 annualized, which is still almost 2x the target.
It would be absent in the first release in which the high inflation period was 12+ months in the past. That would be the release covering June 2023; the most recent release. covers March 2023.
Kind of weird that you’d answer “in which month would the high inflation ending in Jun 2022 be just part of the baseline prices and not a factor in the 12-month trailing increase?” with some answee that is March 2023 or earlier, and not June 2023.
Second, looking at the monthly seasonally adjusted numbers also accounts for seasonal variance.
https://taxfoundation.org/publications/latest-federal-income...
Mostly because it expensive to get around taxes, something the 1% of the 1% can easily afford.
Privately, I know how to make investment income go to zero if you have enough of it. It’s all rather fascinating. Really, the top 5% of the top 1% could do it. But if you have less than $1m income (or cap gains), then it’s likely not worth it.
https://www.youtube.com/watch?v=QPKKQnijnsM
The top 1% had almost 40% of the wealth in the US, in 2012.
And that video is from 2012, from before Covid, now it's much, much worse, because since 2020 the top 1% have captured about 66% of the extra wealth created.
Sounds ideal to me.
HN is higher income bracket so they don't need the services the government provides- and have the arrogance to call it waste.
Rich people pay more property taxes.
Rich people pay own companies, which pay corporate taxes.
LA just enacted a wealth tax on 5m+ real estate.
My point is how many times have we been sold the concept of "if we just bond or tax X, we can solve problem Y". These always turn out to be Big dreams where billions get spent and nothing really gets better.
Look at the CA high speed rail diaster.
Look at this one... The government sold a bond for homeless housing and raided the money for another project. https://calmatters.org/california-divide/2021/03/california-...
We don't have revenue problems, we have spending problems.
Death tax
Top level income tax rates
Property taxes
Sales taxes
And for the self employed - estimated quarterly taxes
In order to use taxes to counter inflation (when it is defined as increas in consumer prices), you need to tax those who would otherwise spend most of the money. The most efficient way is to tax the upper middle class.
Edit: Forgot to mention the obvious, if this is how you feel, why isn't a higher sales tax on certain items ideal? People scoff at sales tax proposals because they'd target the poor, but sales taxes could be implemented progressively too. Tax new cars, smartphones, etc. More expensive items get a higher tax, reducing the impact on poorer people.
Inflation happes when there's an imbalance between supply and demand. MMT argues for increasing deficit spending to fund all sorts of social programs. It also argues that the purpose of taxes is not to "balance the budget", but rather to tamper the inflation that tends to follow overspending.
The alternative (increasing interest rates) doesn't work properly under MMT, since treasury bonds cannot have a real interest rate, or the deficit spending would eventually break down. That means that under MMT, purchasing power of consumers must be pulled back using taxation of various sorts, which only works if you tax the consumers.
The problem with MMT (the way I see it) is that adjusting taxes to regulate inflation is probably an even more painful approach for most people than using the interest rate.
Anyway, the fact you need to tax the actual consumers to fund social programs remains the same, even in more traditional social democratic/keynsian approaches, even if they use the interest rate to regulate inflation.
If you look at northern Europe (where I live), taxes on the middle class are much higher than in the US. They're also higher for the poor, but with the increased social benefits, free healthcare, etc, it matters less for them.
Oh, btw, a lot of the taxes collected ARE, as you propose, collected as sales or luxery taxes, as well as employers taxes (hidden income taxes) Where I live, the direct income tax is "only" around 45%. However, the base sales tax is 25%. The employers tax (tax on employers for paying salaries, in other words a hidden income tax) is 25% (if you make more than $100k). For some items, such as cars, fuel, alcohol, tobacco, cosmetics, sugar/candy, etc, there are additional taxes, often well over 100% of the base cost.
All-in-all, I suppose, out of the salaray budget that my employer allocates to me, 75-80% ends up as taxes, somehow.
And I'm middle class, not rich and not poor. If the left in the US really wants to have a European style welfare state, this is about the level that allows for that.
If given the facts about this, I doubt many American's would want to switch. On the other hand, few people over here would want to switch in the other direction, too, since they're used to the taxes and the benefits they buy.
Fairly similar to how at present they have done exactly the same thing and generally try to call it Keynesianism from what I can tell. They skipped the parts of Keynesianism that would involve spending less which I suspect is a contributor to the progression of 2000-2007-2023 where every 10 years the crisis gets bigger.
The situation is not that complex. We need people to, by and large, create at least as much value as they consume. There are enormous efforts to find an alternative to that basic balance by creating lots of money and they by and large aren't actually working.
Also the rich don't consume that much stuff in absolute terms, so taking stuff away from them can't help other people to an great extent. The taxing has to be on the middle class who do most of the consuming. There are no alternatives. Can't tax the poor because they have no money, and ironically can't tax "the rich" because although they nominally have money they don't own that much real stuff as a group.
Here is Elon Musks 1 billion dollars in taxes. With his 1 billion dollars we can fund a wide ranging web of wasteful bureaucrats, or we can let Elon use his 1 billion to fund a capital project that generates jobs, technological advances, and builds a product that can be exported worldwide so that there is a positive impact on GDP. I prefer 1 billion of Elon capital projects over 1 billion of government programmes Every. Day. Of. The. Year.
Raising taxes on high-income people could help if it goes far enough that we actually reduce our consumption. High income people have low marginal propensity to consume - that’s why it’s better to give regular people money when you want stimulus. Tax hikes targeted at the very high income would have to be very steep, or they’d just be absorbed by lower savings rates.
As long as we’re entertaining weird taxes, progressive consumption tax is probably what you want here. Special sales taxes on big ticket luxury items (cars, boats, watches, etc) could also do the same thing a little less elegantly but in a more familiar way.
Most wealthy individuals would take a haircut if corporate holdings were worth less. It mostly has the same effect.
It's not like Bill Gates has all of his wealth in cash.
Yes and no. The Fed has a not-so-subtle goal of taming inflation in part by capping asset prices with its interest rate hikes.
Correction, inflation is either from excess demand or constrained supply - the reasons for inflation matter when trying to address the problem.
Inflation is always about the balance between supply and demand
> the reasons for inflation matter when trying to address the problem
Less than one might think based on the either or thinking. Even when a change in supply causes inflation, reducing the demand side will bring it back down.
The exception being for specific items where demand is not very elastic in the short term, such as fuel or basic food items.
But even increasing interest rates (a demand side intervention) may not affect those prices by much, it will affect other prices enough that aggregate demand can stay low.
And like most economic theories it’s very hard to (in)validate in the real world.
- The nominal quantity of money ("print trillions of dollars")
- Aggregate demand ("buy everything in the world")
- The velocity of money ("give each resident a million dollars a month")
Increases in the quantity * velocity of money drive inflation in the long run: prices do not equilibrate immediately but have to be dragged up (or not, as the case may be) by supply and demand.
If many people believe printing trillions of dollars doesn’t matter, then I’d like to hear why. I’d like to not have taxes…
It also needs money to do weird, dark magic with bank balance sheets so that businesses can continue to acquire the capital to maintain and grow the supply of goods and services. It’s less clear what extra money sloshing around the financial system does. In the post-2008 era, people were freaking out about it not doing enough.
I think people think printing money causes inflation, and in general “know” that you shouldn’t “spend more than you make”… but I think things are different when you can print money.
It would actually be a very efficient means of fund raising (vs the current tax code), as well as fighting income inequality (the basic income), and even if it did cause inflation, that’s basically just a very efficient progressive wealth tax (when coupled with a universal basic income).
Imagine if the Fed just printed up 10 million dollars for everyone tomorrow. Do you think everyone would then be wealthy?
A side effect of that position is decreased sensitivity (aka inflation) of that currency to money printing.
Because you're effectively amortizing each new dollar's dilution of value against {everything the US uses dollars for} + {everything the world uses dollars for}. Which is a much larger denominator than national-only currencies.
(And side note that being a trade currency is somewhat of a Faustian bargain, because it carries an expectation/obligation that you will create sufficient amounts of your currency to facilitate international trade)
If the US keeps using the dollar as a fast pass to imposing unilateral sanctions internationally, and de-dollarization expands, there will be a very different level of correlation between monetary policy and dollar inflation.
And personally I think the last 15 years have done a pretty good job as a counterpoint to that school. The whole QE regime was chugging along without generating a large amount of inflation and then we had both the supply and demand numbers go bonkers. Then inflation.
I think this period will be studied for years (though because it’s economics I doubt there will be much decided).
In terms of policy making, the independent central banks of many countries (e.g. BoE) have been mandated to follow this model pretty closely - when inflation (a primary metric against which they are judged) rises (like now), interest rate increases and 'QT' are the response.
I'd prefer to see fiscal policy being used more - then the expansion/contraction of the money supply can be better directed for social good, and interest rates can remain nearer their 'natural' level in terms of correct pricing of time/risk.
Of course with a growing economy this makes no sense, as you need more money to facilitate this growing exchange of goods and services, and so the gold standard is inherently deflationary (see also Bitcoin).
(Fiat) Money of course is just a signalling mechanism, it is not 'real' - money supply / velocity / inflation are concepts for understanding the mechanism, not much politics or philosophy involved.
True that the rich will tend to save money thrown at them, but they also tend to sink it into assets (like property) hence the 'everything bubble'. As you point out, wealth taxes won't move the needle on the price of bread, but may help reduce the costs of housing.
At the whole economy level, I'd suggest that supply and demand don't really cause inflation - at least, not the kind of disfunctional inflation that we should guard agains. For example, if the supply of bread is reduced, then necessarily people will eat less bread (and price signalling will ensure that it is the poor that eat less bread). So long as this does not trigger e.g. a wage price spiral or other pathological effect, then this is 'fine'.
How do you define rich?
Trying to define buckets with arbitrary thresholds is futile.
It greatly benefits the top outliers, since the top bucket will have a huge disparity between its strictly defined lower bounds, and an infinite upper bound.
There's no need to "define rich". A formula without defined bounds (this is the most important part) should determine how much tax you pay, and it shouldn't discriminate between different forms of income. More importantly, all net worth gains should be taxed equally.
What policy would you use for measuring someone's net worth? How would you ensure they're being honest?
Wealth taxes are a not the best idea. Being taxed on something illiquid that can’t generate cash flow is the pinnacle of dumb taxation. For example, you have a piece of art. You’d have to sell something just to hold onto the art, and if you don’t have anything to sell, you’d have to sell the art itself just to pay for ownership of the art. It would make some sense to increase capital gains taxes instead of slapping people with a wealth tax. I say this as someone that would not be hit by a wealth tax.
Also, the rich can simply move assets out of the country, and then you erode the very thing you want to tax.
It’s pretty easy, hit dividends, income for social security and Medicare purposes without caps, etc. Eliminate deductions for margin interest, tax filing, legal, other fees. Put an excise tax on LLC formation and annual reporting, and require an annual filing of beneficial owners of corporate entities. Charge a higher fee for foreign and corporate owners.
Basically take all the loopholes that the .01% use and close or disadvantage them so they don't use them (or as much).
Rich still get richer but the system stabilizes.
My house isn't very liquid, can't generate revenue very effectively, and I'm taxed every year on its current value. Guess us regular folks are already subject to a wealth tax.
If you want to say it's difficult to tax illiquid assets, that's fine. But it's not impossible and while it would just change people's relationships to these types of assets (maybe in a good way for society), it's not going to be the end of the world.
And yes, all the reasons why "taxing X would actually be harmful for the economy" somehow magically do not apply to the small fish.
Tax art and the value of art decreases thus decreasing the tax. Which is likely good for the economy.
It was far more than $1400 checks. Student loans are STILL paused for goodness sakes. $3000/yr per child given to families. The enhanced unemployment checks were larger than regular checks for some people - even my wife who makes Ok money broke even without having to work for several months. For a couple years there was 2.5% 30yr mortgage financing and refinancing for everyone. That's just off the top if my head. It wasn't all for corporations, an insane amount of cash was thrown at regular people.
The rich are not driving inflation from consumption, the middle class is. The top 1% has 40% of the wealth, but they aren't buying 40% of groceries, gas, and consumer goods.
Money sitting in a bank accounts doesn't drive inflation, consumers spending money does.
I can assure you, the wealthy are not keeping their net worth under a mattress. They are purchasing and paying for assets like property and businesses.
Not that they can't have cash they are waiting to deploy (AAPL, MSFT, & GOOG sure do) but they are wealthy because they own assets and use that to purchase other assets.
The 1% are not walking into the supermarket and buying up all the butter and driving up prices
More demand, but the same supply of resources means prices go up. Take a look at the feds balance sheet in 2008 and compare with now (https://fred.stlouisfed.org/series/WALCL)
It's no surprise we've had a bull run for over ten years.
If you print the money and put it in the incinerator, you have no inflation. If you put it in a mattress, no inflation. If you print money and put it in APPL stock, no inflation. However, When you pay nurses, construction workers, software devs, and other workers, then you get consumer goods inflation. The problem with printing money is the trickle down effect.
Like you said, it is supply and demand. AAPL corp or Jeff Bezos are not walking into a grocery store and buying all the butter. Prices go up when your worker is willing to pay more for butter.
For some reason, many people think that if only we taxed the rich and gave it to workers to spend, then the price of butter would go down in the market. This is insane.
When you buy XYZ stock the company is able to borrow more and at better rates. They are able to attract buyouts, pay higher salaries, hire more employees and generally spend more in a number of ways.
When individuals like Jeff Bezos add another zero to their net worth they are able to borrow against their own stock holdings as well as are more likely to splurge on other things (like his new yacht) such as funding Blue Origin and Project Kuiper so Musk doesn't pass him as the richest man in the world.
All this results in more money spent and entering the economy ultimately trickling down to purchases of milk, bread and starter homes while making many other stops along the way.
If I understand you correctly, I think where we disagree is the effect of Taxation. If the government tax the wealthy and incinerated it, then yes, I agree that would reduce job growth, wage competition, and inflation. However, if taxes are increased and the money is distributed directly to the workers, I would expect this to increase inflation.
Do you think job creation from capital reinvestment is a stronger driver of inflation then putting that money in consumer pockets?
The only ways to reduce inflation is to increase product Supply or reduce demand. I don't think that taxing the wealthy will increase Supply and I do think that giving workers more monetary transfers or a lower tax burden increases demand.
You simply can't reduce inflation and while increasing consumer purchasing power while holding supply constant.
> if taxes are increased and the money is distributed directly to the workers
This is unlikely, taxes and laws are always overseen by lobbyists who are funded by the wealthy. I can't imagine a situation where they would vote themselves into a worse situation.
If they ever appear to, know the harm they face would be to their advantage (such as crushing startup competition or preventing litigation).
Perhaps this seems like an overly jaded take, but please reference this Princeton study that found the wishes of the US population have had no real effect on laws for decades.
https://scholar.princeton.edu/sites/default/files/mgilens/fi...
TL;DR: https://imgur.com/a/tvqQXFc
Furthermore, I don't think that is the underlying assumption held by people who say we should tax the rich to fight inflation.
It worked great, every tax payer got a few thousand and an indirect +$40,000 tax bill (the government has to get money from tax payers for it) they will be paying out PLUS inflation and other side-effects for years to come.
Props to the rich for figuring out how to bait the people.
for starters adopt a Canadian style banking model. The country largely runs on 5 very tightly regulated banks that haven't gone bankrupt in a hundred years. These regional banks fall over in every little crisis and they always end up being bailed out anyway (see SV bank), so you might as well consolidate the sector for good.
I think a bigger diff is that Canada doesn't do 15/20/25 year fixed rates. Usually at most 5 years fixed and then you renegotiate and see what you can do. And a lot of variable rates.
Perform better is objective since you provided no metric for anybody to compare, same with resiliency.
Auditing can be done electronically, even via AI now.
It sounds like you’re saying since they have more monetary resources they are more stable, which is true for large companies. Banks don’t own their assets though, a customer can come at any time and remove money. In fact this was rumored to happen in Canada last year, where your 5 major banks went offline after Trudeau opened his mouth about the Freedom Convoy.
The aversion to recession comes from people disliking the idea of losing their job, house, way of life, hell maybe even their family. This is like saying some people need to suffer and lose everything for the greater good.
Maybe start holding at least some of your assets in gold or other currencies.
Outside BofA, their balance sheets are healthy. There isn’t serious speculation of contagion out of the regional banks. We put in place regulations to prevent this after 2008. Numpties rolled it back for “community banks” in 2017 [1], and that’s why we have this problem.
[1] https://apnews.com/article/banking-crisis-congress-lobbying-...
Mostly. The other component is how we pretend HTM Treasuries both hold their value and are liquid. Europe marks to market daily. I think you should get to choose: mark at $1, but they don’t count as liquid, or mark to market and they contribute to your liquidity ratio. (The rollback meant nobody was measuring liquidity. SVB would have failed its LCR in March 2022.)
They literally don’t have the data to make this claim. The Fed does. SVB would have failed its LCR in March 2022.
Data please, as this says different: https://www.factcheck.org/2023/03/what-to-know-about-trump-e...
While SVB and Credit Suisse's collapses' causes are directly unrelated, depositor outflows were involved in both, as opposed to fundamental issues with their balance sheets. Credit Suisse's Tier 1 ratio was as good as that of UBS or any other big European bank. <https://www.wsj.com/articles/credit-suisses-death-gives-birt...> At the end of the day, a loss of clients' faith in a bank is something that no stress test can directly measure ahead of time.
https://www.reuters.com/business/finance/us-fed-points-finge...
I’m inclined to agree with the fed, since the 2018 change to the law is what made it legal for SVB to make the bad bet that put them out of business.
Also, they were aware of the regulation in question, since they paid lobbyists to get that specific rule rolled back specifically so that they could structure their holdings to overinvest in treasuries.
As Quarles says, the report does not actually provide any evidence of this.
Let me repeat: At 12%, SVB's Tier 1 capital ratio was well above the industry standard (5-7%). SVB collapsed because of a liquidity crisis driven by its unusual depositor industry concentration. Nothing SVB did would have been illegal pre-2018; to put another way, poor risk management is not inherently illegal, any more than any other bad investment that ends up losing money is illegal.
T1C is a solvency test. The liquidity test they were exempted from were LCRs. They would have failed that test in March 2022.
Of course you are, you’re clearly biased against the right so without even trying to disprove yourself you just automatically believe anything against them.
https://www.factcheck.org/2023/03/what-to-know-about-trump-e...
Woah, let's not over-exaggerate in times like these. Bank of America has about $110bn of unrealized losses on HTM securities, but that is against $200bn of Tier-1 capital. Comp that to SVB who had $16bn of unrealized losses against about that much Tier-1 capital.
BoA has a worse balance sheet that peers, but not an unhealthy one.
ppl withdraw deposits
80% of them go to JPMC
JPMC buys BofA
They do! But it won’t tank the bank. Because they’ve been working on them for years. Because they’re still under Dodd-Frank’s liquidity coverage rules.
> Why are you blaming 2017 numpties?
They rolled back the regulations that would have, if not prevented this mess, caught it much sooner. BofA has similar issues, but it’s subjected to stress tests. As a result, the risk has been managed in a way it wasn’t at these banks.
Not at all, in fact SVB grew so quick that even with the rule in place they wouldn’t have been caught.
https://www.factcheck.org/2023/03/what-to-know-about-trump-e...
The day political parties/sides die, we can finally start living and being a fruitful country again. I literally cannot wait for that day.
Different regulatory regimes. But it helped make their takeover possible.
In Credit Suisse’s case, specifically, it is difficult to see an alternate endgame. The regulations worked to ease the unwinding. And Switzerland’s lack of receivership showed.
That's already the state of the world. That's why they're considered systemically important banks.
https://en.wikipedia.org/wiki/Systemically_important_financi...
We’d be in better shape if we’d kept the rules we wrote after 2008 to keep 2008 from happening again.
The problems in 2023 were made significantly worse by the rollback on liquidity rules in 2017, which, if we may recall, was not a year that Obama was exerting any influence on banking rules.
The Fed has stress tested for duration since Dodd-Frank. The unsophistication of SVB’s duration simulations was specifically flagged by supervisors ex ante.
Subjecting SVB, Signature and First Republic to LCR requirements would have thrown up early red flags. (You’re partly correct in that the definition of liquid assets is too broad: Treasuries of all kinds get equal weight.)
> media is misleading people about this because they really, really want it to be a story about right wing anti-regulation politicians
The 2017 rollback was bipartisan.
There was also substantial, systematic mortgage fraud by lenders.
I’m sure if banks had donated and lobbied less, some would be in jail.
Again, what was the fraud by lenders? You seem to have to taken the view that securitization turns fraud by borrowers into fraud by lenders.
They were rated as prime but were actually junk.
There was no criminal investigation because the US DoJ decided not to. Civil suits didn’t get far because it was hard to gather information without criminal jurisdiction.
Obama got almost $50M from Wall Street for his 2008 election and it paid off well for his donors. [1]
With that much fraud, there should have been more criminal convictions rather than bonuses as usual.
[0] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the... [1] https://www.opensecrets.org/industries/recips.php?ind=F&cycl...
Now you may argue that banks accepted fraudulent applications that a prudent man would not have and then sold securities based on those, and all the big banks paid out multibillion dollar settlements over that.
Why no criminal prosecution? Two reasons. IANAL, but I believe the standard for criminal fraud is higher than imprudent decisions. Second, and more importantly if you start charging bank employees criminally, you really need to start charging the fraudulent borrowers who by many accounts number in tens of thousands. No one made them commit fraud. They were not victims of fraud, they were literally beneficiaries, though ultimately foolish as well.
https://theintercept.com/2016/07/12/eric-holders-longtime-ex...
https://freebeacon.com/issues/eric-holder-misled-congress-de...
all of the banks have DOA car loans (bigger than student loans now?)
all of the banks have mortgages they underwrote for thirty years at 3%...these may be a relative loss to Treasuries for a generation
all of the banks financed now-empty commercial real estate
when I last checked, First Republic was #10 in % of holdings not covered by FDIC, and plenty of big banks were ahead of them
First Republic may have sucked, but your bank does too
That's actually a good thing: it means a small (relative) haircut the uninsured have to pay for everyone to get their first $250k guaranteed.
When a bank fails and there's a small handful with over $250k in their account, they're going to lose everything over $250k to cover everyone else.
It has now been established as precedent that if depositors of "regional" (or "systemic") banks have enough clout/create enough panic, they can get infinite protection. We will see if FR depositors' money over the FDIC limit is made whole.
If that happens with FR, then Congress should legislate to raise or index-link FDIC limits, for everyone. (If not, we have moral hazard for both depositors and well-managed banks; and also smaller banks have to compete at an ever-increasing disadvantage.)
Even then I thought it was a bad idea because it discouraged depositors from spreading around their assets.
Whether we'll see them treat future failures like SVB or not, TBD!
FDIC(+NCUA) are allowed revise the limit every 5 years, next is 2025. Unless Congress acts sooner.
Should the FDIC limit be indexed on inflation?
Who did lose everything were the investors in the bank. And that still happened.
My remark is that alloeing banks to fail is no longer happening, and that's setting a really bad moral hazard. Some even suggested during SVB there should be infinite FDIC coverage for 2 years, which would have destructive side-effects towards the end of that period. It's strange to hear people (esp. libertarians) complain about the politicization of the IRS (Taibbi/Twitter Files), but not the FDIC.
On the other hand the big banks might receive more deposits but they can't lend it either because they are constrained by capital requirements, not funding.
So logically you should have a contraction of credit, which combined with higher rates, is going to be ugly. Clearly the markets aren't pricing that right now.
To that end, I'm not sure I see good argument for 100% protection. Money sitting in a bank deposit only creates wealth if we have the banks actively lending. And, annoyingly to me, the largest form of this for the "too big to fail" banks seems to be credit card schemes. Which I actively despise, at the moment. It also incentivizes banks to hunt out places to loan money. Which is why we have ridiculously complicated securities to back mortgages. The amount of those that have been made is only "safe" for the banks with a ton of the extra machinery they have put on top. Which has costs.
Edit: I should add that I'm not 100% on my stance here. Would love to be challenged on any of the above. Can only help my understanding.
Between inflation and income taxes, you don't need to worry about this. I literally can't remember the last time banks paid enough interest to beat inflation and cover 37% income tax (almost 50% if you're in CA).
If anything, this is reason to keep the insurance rate low. After all, they only "lose" the uninsured part that is not recovered in bank seizure.
The scare quotes about people losing 100% of their money in SVB was just that, scare quotes. The assets did not disappear 100% and depositors are first in line.
If anything, that should incentivise wealthy people to pay attention to how a bank is being run. Full insurance means I don't give a shit.
Notably, this has a finite lifespan on how often you can do it. It is not some magical process that has no downside. But, to pretend the people that will buy yachts care about inflation loss on things is silly. Every single asset they buy will result in worse loss than inflation. Having safe assets that they know won't be taken is a very nice source of collateral. And note that I never envision them putting their billions away, in this manner. Just many millions. Because they have many many millions.
That said, your point about better performing assets is why I don't think they care about inflation, as my response to the other thread said. I also agree that the banks should be putting them to good use. Sadly, we have active evidence that the banks are not too good at that. They seem to think it means either credit cards for the masses (which, yes, pays well for the bank), or convincing everyone to refinance their homes. Neither of which feels that good to me.
Tech stocks have screwed this up by fucking up the idea of profit versus non-profit companies. Not paying out dividends to shareholders has made that a near meaningless distinction and made it so that living off changes in the market is all folks can do. That is, you cannot own stock in a company to get residuals while they make the world better for you.
So, to that end, how do you think the banks should be putting that money to work?
My question is specifically what use do you want banks making of deposits? That is better than having active participation in investments?
Realistically, no individual is managing billions without literally having staff accountants. Such that they can and will be more sophisticated. My assertion is in that sophistication will be pockets of "safe" assets. And I am further pushing that there are benefits to smaller caps on those safe assets
This brings up the interesting question of what the role of banks should be. When savers have access to money market funds investing in short-term government debt (this is basically what SVB bought), why bother with the intermediary? We're also in a world of securitized mortgages where banks are just the originators. There are also mortgage originators that just do mortgages. These days, the only unique services banks provide are retail services and small business loans.
To me, it would seem the dynamic is not one of "large depositors can do their own diligence and giving them FDIC coverage would be a burden", but rather "banks and their depositors aren't responsible enough to accept the consequences of uninsured accounts".
Per reporting I can easily find (in that I'm not searching too hard on this), they had 167 billion in assets, and about 119 in deposits. Per the reporting, the sale that was managed by the FDIC sold off part of those assets for 72 billion, at a reported discount of 16.5 billion. About 20%. Now, granted, it is possible that the other 90 billion of assets are somehow way worse, but I have not heard further panic on those?
But, just going by those numbers there was clearly never any risk that depositors lost everything over 250k. Which is how this is largely getting reported.
For sure! The news coverage bothered me too because it seemed to be implicitly treating the SVB failure like a cryptocurrency exit scam, where most/all of the money is just gone. If depositors did have to take a haircut it might have even been lower than 20%, as my understanding is that the FDIC has some power to claw back withdrawals that were part of the bank run. I still think it's fair to call it a bail out because since those accounts weren't FDIC insured then the policy was supposed to be for them to not have been made whole, and they were.
But I don't really see how this affects my original argument. Whether subsequent banks have 5%, 20%, 50%, or 100% of their assets vanish, the political calculus is going to be the same.
I do think the calculus of keeping the bonds from visibly losing value was more important. (Edit: but I do not disagree with your assertion.)
Okay, but the $250k cap doesn't do that, it just encourages them to do the exact same thing, shuffled across multiple banks.
At any rate, yes. But you can only split billions across so many 250k banks (I haven't checked the numbers, but I'd assume this is limited by number of banks). And presumably, that means that many more locally focused places managing more funds. That is, the spread is part of the point.
But! This is just like lines of code. No "true" value answer. And pathological is pathological.
So, did I propose a solution? I specifically think 100% covered it bad. Not clear what number we want.
>There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better.
That is, you advocated the cap as a means to make billionaires use their assets to make the world better. I replied[1] that the cap doesn't make billionaires do that (that= "make the world better"), but simply makes them do the same thing they were doing before, but shuffled across many banks. (i.e. "feel safe with their assets sitting many places, rather than one").
Then, you forgot what argument you were making, including this core point, and are now asking me to re-explain it to you, having since drifted off to a completely different point about whether there are other benefits, unrelated to this point, to storing a billionaire's stash in many places vs one.
Normally, I accept that people might miss key points from earlier in the thread, but here, this is your own argument, and you seem to have forgotten you made it. Come on, show some respect to the people who try to engage with you.
You could be arguing that having the money spread out is not its own good? But, I have specifically posited that having the money spread out among many banks is a good, in itself. What is the number? No clue. Is it guaranteed that having it in several places is better than having it in one? Not really, but the odds of any one bank doing great things with the money seems lower than the odds of any of several banks doing good things with it.
So, yeah, what part are you not following?
So, my assertion a little longer spelled out it that I don't think we want giant caches of wealth in small numbers of places. I would prefer active use, I think. But diverse use by many actors is a good means to that. So, if it gets 250k in 100+ banks, that has better odds that someone finds a use that isn't just "credit cards."
That said, I confess I also see little value conversing with you. I hope others have a better experience with you. Good luck.
Great! This is the first time you've actually said anything that connected "rich people making the world a better place" with "stashing money in multiple banks rather than one". It's still a dubious argument, because in both cases the money would be getting invested, as opposed to gathering dust, and the bank would just invest any excess money it had with other banks, creating the same investment.
It's also really frustrating to have to keep reminding you of what your argument was, in order to get to that point. It would have been much more productive if you had said from the outset "okay, whether rich people's money gets invested at all is a dubious benefit to the insurance cap. But there might still be other benefits, like reduced systemic risk...".
But you didn't do that: instead you acted shocked that I was asserting there were no benefits at all to spreading money across multiple banks, and spoke as if you didn't remember the original benefit you were asserting.
>That said, I confess I also see little value conversing with you
Correct: people that force you to be rigorous in your comments, and don't let you change the topic to hide previous dubious arguments, are going make you look bad. I understand not wanting to get called out on these unproductive tactics, especially if you prefer looking smart rather than learning something.
If I candidates I voted for lost, I had a chance to partake in democracy but how did I actually have a say in a decision made by someone else?
And if the entire question of banks too big to fail want even a talking point in 2004, how was I voting on that?
For me to have a say, at a minimum my elected representatives would have had to engage with his constituents on the new issue. Even better we could handle those situations more like the Swiss, putting it to a ballot vote.
In no way is casting a vote when effectively given a choice between two major part candidates equivalent to ne having any day in how the government makes a fundamental decision to change the banking world.
> And if the entire question of banks too big to fail want even a talking point in 2004, how was I voting on that?
The question is who caused them to fail, and did you vote for anybody that had anything to do with it? This event started in 1994 and didn’t really end until near 2012. You probably voted a few times in that timeframe.
I'm not an accountant, but the fine print does say "Up to at least $250,000.00.", so FDIC insuring the entirety of savings like they did this time around isn't exactly unexpected. They kind of need to if the goal is to shore up the commons' trust in banking, anyway.
This all being said, it doesn't take a rocket scientist to understand it's a bad idea to keep all your eggs (savings) in one basket (savings account). If you're fortunate enough to have enough liquid funds that all of this is a significant concern, definitely consult an accountant about spreading those funds around to mitigate damage and not lose out if the FDIC decides covering the entirety of savings is not something they want to do on that particular day.
Interest rates would suck, but that’s the price you pay for insurance.
Anyone chasing higher rates or pricier customer service (or going with whichever bank blows their budget on marketing) is playing with fire.
Banks don't move fast enough to reinvent their whole business and churn their whole portfolio into T-bills on that time scale, and take too long-term a view for "let's just shutter the business when rates go back to zero" to be a business model they will consider. Having a single product - a single account type that is backed by T-bills - is not something regulators will allow a bank to do: all deposit accounts has to be backed by the bank as a whole.
However, there are non-banking businesses that don't have these constraints, and some of them are doing exactly what you suggest. They are called money market funds and business is great for them right now. You can get the returns and safety of short term Treasuries in return for foregoing other services your bank provides (physical branches, credit cards) and accepting a minor liquidity risk that the fund could pause withdrawals.
Then you charge negative rates or monthly fees
The FDIC Fund has to know how much cash to keep on hand to cover total insured deposits. The minimum is something like 1.35% of all insured deposits if I'm not mistaken, which they have actually been under for a while now. If all deposits are covered 100% the find would have to be dramatically larger, do they just take AL of that from the banks immediately?
I'd be happy to see us abandon the fractional reserve system all together, but that means blowing up the system entirely and getting rid of the concept of debt. Short of that, I don't see how we could keep fractional reserve while making deposits completely risk free.
We don't necessarily need those regulations of the money isn't insured though. Banks should be deciding how much to keep on hand based on their own risk profile. If they make a bad bet and lose the bank folds, depositors get priority on asset liquidation, and other banks take note.
You would see the same issue. Everyone would go for the risk and when the ship sinks it will be "we are to to big to fail! Who could have predicted this? It's a special situation, etc. etc.".
The intended solution isn’t for you to vet your banks, it’s to not exceed the insurance cap. People appear to be willfully ignorant of this.
No, it’s not hard to stay under (cash sweeps and money markets exist). Yes, these products are actually beneficial and not just accounting tricks (cash sweep diversifies bank’s depositors as well, reducing systemic risk).
Consider SVB. Bank run aside deposits were poorly diversified and many depositors needed money at the same time because they were burning runway. Even without a bank panic this effect alone could cause losses on banks with large HTM portfolios. Unlimited insurance does not solve this problem, except in paying out, which the FDIC ideally would not have to do.
Deposit diversification does solve this problem, and the only reason it’s incentivized for depositors is because of the insurance cap. The overhead of sweeps is quite low and money markets even lower (MMFs with the fed outperform best bank deposit rates even after management fees).
Honestly retail banking is the real dead weight loss. Sweep accounts often offer better rates than the underlying banks give their customers because the sweep accounts have low overhead for the bank and pass on the savings. Same goes for other banking products like CDs: banks offer better rates on the market than to their own customers.
Seems like there should be a market for a bank that advertises “no long-duration HTMs unless we hold a duration and interest-matched CD” and “short-dated investments only on checking acct balances”.
If that doesn’t exist, it sounds like big depositors were ignorant or quite happy to get some extra interest (or fancier offices/marketing) in exchange for that risk.
Not sure if a bank would be 100% protected if they had a script that checked their balance every minute and sent it to a MMF.
Well, we transferred most of the customers over this last month, but one of the customers just yesterday made a deposit of $485k. $485k + $185k is well over the insurance limit. I believe it takes 3 days or so to clear so we wouldn’t have been able to transfer it out immediately. Maybe we can ask them to cancel it on Monday, i am not sure yet. As a small business our cash flow is very tight. We don’t have experts on the team to juggle multiple banks and make sure all deposits are less than $250k or watching out in case the bank fails the day after. Maybe there are tricks like you mention but most small businesses do not have experts on this stuff and I don’t think we should have to be.
Seems like there should be a big market for that kind of thing. No idea why anyone holding large $$$ would go with anyone else.
> We don’t have experts on the team to juggle multiple banks and make sure all deposits are less than $250k
My key point is that there are products that do this and also yield higher than retail bank accounts. Difficulty is a straw man. If retirees on bogleheads can do it so can you.
For those looking for the punish-the-rich morality play, the real winner here is likely to be JP Morgan or PNC which may bid to buy up the assets, which is just the rich-getting-richer and a large bank swallowing up a smaller community bank and more consolidation and monopolization of the financial sector.
And if you flagged me, fuck you. The blatant adversarial tone of this comment means it should be flagged just on its own. Flagging my comment without flagging this moronic nonsense is clear evidence of bias and gaming the flag system on HN. If you don't like the obvious counterpoint that the FDIC probably shouldn't exist at all given the moral hazard it creates for all bank depositors, you're a smoothbrain.
The vast majority of Americans have less than 250k in all their savings accounts
Every bank today is really a Highly-Levered Bond Fund. If we increase FDIC insurance to 100%, without commensurate changes in what banks are allowed to do with customer deposits, this seems like it would create a moral hazard where banks would be allowed to do all kinds of crazy shenanigans because they know they'll be bailed out.
To be clear, I'm for 100% FDIC insurance, but if we get this without getting much more stringent duration risk transformation standards (e.g. don't load up on long-dated treasuries in a low-rate environment), I think it could actually make the banking stability issue worse :(
I didn't think First Republic was big in the startup space, so I'm curious what got them. I know they hold a lot of mortgages on their own books, but other than that, was it just another bank run? Was it exasperated by their customer base becoming very aware of FDIC limits and the potential of failures because SVB was in the same region? The median Fifth Third customer doesn't have $250k, and sees all of this as "rich silicon valley problems."
With a regular bank, you would have much smaller accounts so a proportional number of accounts leaving Wells Fargo would have less of an effect.
As compared to SVB, this is the same basic situation: interest rate losses led to insolvency, which could be temporarily ignored because they were “small” banks. However, once deposits started fleeing, the losses could not be ignored when they needed to sell the impaired assets for actual cash.
They have been in limbo for a few weeks thanks only to the injection of $30bn from other banks.
Another similarity in the two banks’ situations is that the same catalyst of rising interest rates cause asset losses and drive deposit flight.
It’s a weird quirk of accounting that they are allowed to ignore these losses for the life of the assets. But the other extreme is weird too, because sometimes the market value of assets can undergo a “V” shaped dip before recovering, and it would be bad to make a bank insolvent because some flash crash. The accounting rules try to split the difference by letting the bank partition its assets into buckets that take losses immediately, or at the end of life of the asset. This is an easily abused system.
It seems, hopefully, that the three failures were exceptionally badly run banks, and that this doesn’t indicate a wider wave of bank failures. Not yet.
This should not be a surprise to the management of First Republic.
The bank didn’t bust due to HNW people going bust.
If you have $1,000,000 in principle, at 3% you pay $2500 per month. At 9% you pay $7500 per month. Even if the house is still worth a million you can't necessarily afford the payments.
This will be weird/interesting. JP Morgan know what it's doing. It looked at First Republic's books before doing this. So either JP Morgan was wrong or there was a deal that they'll be made whole if First Republic goes under. It almost has to be the latter because JP Morgan's only incentive to make the deposit is promoting the appearance of financial stability.
FDIC rescues are paid for by (essentially) a levy on the banks.
A less discussed way is to raise taxes and cut deficit government spending.
Unlike interest rates, the effect is immediate, and can be undone quickly too.
It’s hard to do during high unemployment or during a recession, neither of which is currently the case.
What we do need is to cut government spending, especially social welfare, of which first and foremost should be Social Security and Medicare.
Old rich people will
Meanwhile working poor people have to pay for old rich people
https://www.mercatus.org/sites/default/files/d7/Chart1-Spend...
https://i.pinimg.com/originals/cd/15/ad/cd15adf1636f18595439...
I do wish we'd do that though. Seems like the adult thing to do, and it's the sort of compromise that would get me emotionally on board with my taxes going up. We could start the cutting with the Defense budget, but I won't hold my breath.
Given events over the last ~15 months in Ukraine, I think this is a bad time for defense cuts.
One way of using the deficit deliberately as an economic control dial would be for Congress to grant the Federal Reserve the authority to adjust payroll tax rates within a given range. I doubt this could ever happen politically, though.
I like that system: it props up several banks instead of just one "winner-take-all" that does the most risk and externalizes the costs to uninsured depositors (and sometimes FDIC) when it blows up.
This article discusses this and highlights how disruptive it can be for the entire Economic system. https://jacobin.com/2023/04/svb-bank-runs-private-federal-re...
American banking receivership is actually an effective system. The point is to reorganise when things look, but aren’t, fucked.
at crappy rates now (like most mortgages written in the last few years), but these borrowers seem extremely unlikely to default (and they can't refinance advantageously now so they are kinda stuck paying FRC)
> Programming note: Money Stuff will be off tomorrow, back on Monday.
I'll never understand how that wasn't illegal collusion and/or market manipulation.
https://finance.yahoo.com/quote/HPP/ Hudson Pacific is who I've been following to track the health of San Francisco's commercial real estate market. I believe they have the largest public position in SF real estate. They're down 85% since 2020. This tracks with articles like https://www.wsj.com/articles/san-francisco-commercial-real-e... implying some commercial real estate in downtown SF is being devalued by 60-80%.
As a counter-point, https://fred.stlouisfed.org/series/DRCRELEXFACBS commercial real estate delinquency rates haven't begun ticking up yet and are nowhere near the levels of '08.
May we live in interesting times and all that. :)
If you're over, there are services which spread deposits across banks, eg https://www.wintrust.com/business-solutions/mid-market/banki....
Will they go bankrupt if enough small banks collapse?
Or are they sitting on an infinitely deep well of money somehow?
In other words: the float is finite [1]
No other source of financing? Someone mentioned "backstopped by the government". What does that mean? Unlimited credit line with the Fed?
[1] https://www.arnolditkin.com/blog/insurance/understanding-ins...
Obviously if the money ran out the Fed would (probably) step in, but that is not how it is structured and supposed to work.
Right now, according to the law, if the FDIC rainy day funds run out there is no further source of funds to bail out banks.
https://i.redd.it/ooln252yxjna1.png - Here's a visualization of the size of the banks which collapsed. It does not include FRB which was comparable to SVB at about ~200B AUM.
As you can see, we're nowhere near the number of banks that could collapse, but, with the collapse of FRB, we've passed the total AUM of banks which collapsed during the height of the '08 GFC. So, that's a little staggering...
Personally, I'm not expecting any others to collapse, but I also wouldn't be surprised to see up to five more. Moody's downgraded six banks when SVB collapsed - one was FRB. All of the others seem to be doing okay for now, but only one (Western Alliance) is trading higher than its price at time of downgrade.
the figure is way lower netted out
Considering all of the stops the fed pulled out to prevent future bank liquidity failures, this probably means some gross negligence was revealed by the market state that goes well beyond even blatant risk mismanagement.
Or not, I’m not an expert!
On its own, no. The Fed has proposed a solid package of rules that largely restore those rolled back in 2017 [1]. That is the systemic solution.
[1] https://www.bloomberg.com/news/articles/2023-04-28/fed-seeks...
only solution is to smooth over until assets start rolling off/inflation cools enough for rate cuts towards 2%
If you're under the insurance limit of $250k per type of account and not fine, the whole world will find ourselves with some much larger problems to solve.
JP Morgan isn't.
First Republic Bank was collapsing for more than a month. If anyone still kept uninsured money there, it's mostly on them.
Now that the Fed has bailed out the creme de la creme, I'd like to see the argument employed when the FDIC hasn't got the liquidity left to backstop every other depositor in subsequent bank failures.
Recent example of how fake it all is: https://nypost.com/2023/04/26/biden-cheat-sheet-shows-he-had...
> While it was notable that a potential question was written on Biden’s card, every White House press office takes scrupulous care to prepare their president for news conferences.
> No. The people that didn't participate in a bank run are the ones that get hurt.
These are the same, right?
Think about it. Assume we both have an account with $1 dollar in it, and the bank only has $1 on hand. Now I create a run where I take my dollar out, but you don’t participate. I have my dollar, and now you have nothing because the bank failed.
How are we the same?
Well, that's not the truth either. The bank is holding onto 30Y mortgages / 30Y Treasuries that will be worth $2 in the year 2050, but is only worth $1.4 (fair market value) right now.
This loan was good 2 years ago (ie: its fair-market value was $2) in the year 2021. But the Fed rate-hikes have caused the loan's value to collapse, and so here we are.
You withdraw $1, the bank doesn't want to sell the bonds because it'd lock in the loss. The Fed provides a loan at the full principle of the bond (so the Fed now backstops the missing money). The Fed is now acting as the bank of last resort, providing $2 of true dollars to backstop the $1.4 (fair market value) of the bond, which will truly become $2 by the year 2050. The Fed will exist that long so everything should be kosher, in theory.
Or so goes the story one month ago. Why didn't this work? Why is FRC still collapsing despite these loans from the Fed?
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Believe it or not, life is a bit more complicated than just "fractional reserve banking". You're missing a huge part of the story if that's all your mind is open to. I'm not claiming to have all the answers, but I think it would behoove you to at least try to understand the current situation with a bit more nuance.
Blaming fractional reserve banking for something totally unrelated will help nobody.
SV bank bailout was a scam. They said taxpayers won't pay for and it'll be paid by banks. Which means customers. I won't pay for it as a taxpayer, I'll just pay it as a bank customer - lovely.
The big banks deposited 30-billion dollars uninsured to try to rescue FRC. Are you saying that you don't want big-banks trying to rescue smaller banks anymore?
Moral hazards, all the way down. We like the deposit they made, but they did so because FDIC seemed to offer assurances to cover even uninsured deposits. We're back to SIVB questions and just delayed by a month.
It's been very difficult for small businesses to open accounts at other banks to move money to. The waiting list is very long, because business accounts require a lot of KYC.
And importantly, the moving out of uninsured deposits (by people who were fortuitous enough to have other accounts to move it to) actually caused the problems we see today.
Probably nothing.
some folks wish they were too big to fail but aren’t. they’re just small big failures
Anyone notice how gobengo actively lied and misled (he bought SOME of FRC, a publicly traded entity) in his comment implying conspiratorial dealings?
Barrack was also acquitted on the charges of acting as a foreign agent for the UAE [2].
There are endless legit things to criticize the Trump administration of. You don't need to add conspiracy drivel to it.
1- https://www.perenews.com/colony-general-atlantic-finalise-1-...
2- https://www.politico.com/news/2022/11/04/trump-chair-tom-bar...
> One of the three major bond credit rating businesses on Tuesday downgraded the U.S. banking system from a stable outlook to negative and put six banks, including Comerica Bank, under review for a potential downgrade following the second and third-largest bank failures in U.S. history.
> Moody's also put under review for potential downgrade California's First Republic Bank, Kansas' Intrust Financial Corp., Missouri's UMB Financial Corp., Arizona's Western Alliance Bancorp. and Utah's Zions Bancorp.
It sounds suspect to me, hence the question. I am also not a finance expert
depends if the party line the media plays goes from "xyz bank might be unstable" to "small banks might be unstable". if that jumps from fintwit to cnn, houston, we have a problem
TreasuryDirect is just a place where you purchase tbills and bonds right?
imagine if TD produced a payment card that worked like a debit card. . . . wouldnt that be a whole lot like a cbdc?
https://www.fdic.gov/resources/regulations/federal-register-...