Part 10/14:
Initial decline invokes fears of contagion
Rapid recovery follows as traders anticipate government intervention
Accumulating unrealized losses remain hidden, with banks counting on the "too big to fail" doctrine
This cyclical pattern masks the underlying payout risk for taxpayers and the financial system's long-term health.
Lessons from the Past: The Shadow of 2023 and 2008
The 2023 bank collapses, notably Silicon Valley Bank, carved the blueprint for this resurgence. During that crisis, overleveraged institutions suffered when rising interest rates diminished the value of treasury and mortgage securities on their books. The banks’ reliance on unrealized gains left them vulnerable to even modest sell-offs, leading to runs and bailouts.