The failure of Silicon Valley Bank, Signature Bank etc. doesn't bode well for the integrity of our financial system. To me, this new round of bank failures looks like the predictable result of bad decisions. From government, these decisions have included insane pandemic response policies and misguided Keynesian monetary policies. Industry, meanwhile, has been engaged in a conspiracy of opportunistic greed, manufacturing inflation by raising prices while enjoying their highest profit margins since 1950.
The covid crisis was used as an excuse by the corporate world to raise prices dramatically at the same time as the pandemic response was negatively impacting the incomes of average people. Through it all, more and more banks have been becoming landlords by pricing families out of home ownership. How many of these properties are being used to back securities? And how many of these securities are themselves being used as backing for other financial activities?
A recent post by Jon Rappoport explores the link between pandemic policies and this fresh round of bank failures. Here's a quote:
"MANY of the businesses that failed as a result of the lockdowns had outstanding loans with banks. They stopped paying back those loans. On top of that, many suddenly impoverished businesspeople took out government COVID loans and now they can’t pay them back. For banks, this creates what economists call a liquidity crunch. Banks lend money. That’s their major activity. They rely on money coming IN as borrowers pay off those loans. When the money coming in dries up, the banks have to curtail putting so many loans OUT. The free flow of in and out money, based on loans, in an economy that runs on credit...that free flow slows and slows again. ... Everybody knows the endgame. A bright shiny new government currency. Digital. Every dollar is trackable. Every spender and borrower is trackable. Behave, follow orders, keep mouth shut and eyes straight ahead and your money is safe. Veer off course and you’re beached."
Implications
Rappoport seems to be referring to the Central Bank Digital Currencies(CBDCs) now being tested in the US and elsewhere. CBDCs promise programmable money, which means the the powers that be may be able to disable anyone's money at any time for any reason. There's something innately dystopian about that. Fortunately, we're not quite there yet.
If it's taken this long for banks to begin buckling under the pressure of pandemic policies, there are likely other areas of the economy becoming stressed to the point of breaking. For example, real estate prices are laughably high in many markets right now and will have to come down at some point. The financial house of cards built on these high prices is already beginning to collapse. I suspect that this collapse will accelerate.
It's telling that the government is offering to buy risky securities from banks. Here's a quote from an AP story about it:
"The Fed late Sunday announced an expansive emergency lending program that’s intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole. Fed officials characterized the program as akin to what central banks have done for decades: Lend freely to the banking system so that customers would be confident that they could access their accounts whenever needed. The lending facility will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its Treasuries at at a loss to fund its customers’ withdrawals. Under the Fed’s new program, banks can post those securities as collateral and borrow from the emergency facility."
This development reminds me of the Troubled Assets Relief Program (TARP) following the 2008 financial crisis. The government wouldn't even consider such a measure unless it believed there was imminent risk of total banking system collapse. This bailout might be enough to temporarily prop up this system. Or it might be too little, too late.
Read my novels:
- Small Gods of Time Travel is available as a web book on IPFS and as a 41 piece Tezos NFT collection on Objkt.
- The Paradise Anomaly is available in print via Blurb and for Kindle on Amazon.
- Psychic Avalanche is available in print via Blurb and for Kindle on Amazon.
- One Man Embassy is available in print via Blurb and for Kindle on Amazon.
- Flying Saucer Shenanigans is available in print via Blurb and for Kindle on Amazon.
- Rainbow Lullaby is available in print via Blurb and for Kindle on Amazon.
- The Ostermann Method is available in print via Blurb and for Kindle on Amazon.
- Blue Dragon Mississippi is available in print via Blurb and for Kindle on Amazon.
See my NFTs:
- Small Gods of Time Travel is a 41 piece Tezos NFT collection on Objkt that goes with my book by the same name.
- History and the Machine is a 20 piece Tezos NFT collection on Objkt based on my series of oil paintings of interesting people from history.
- Artifacts of Mind Control is a 15 piece Tezos NFT collection on Objkt based on declassified CIA documents from the MKULTRA program.
Interesting. This issue feels super important to pay attention to. Rappaport's substack article seems good too, I'll read it over.
Since this system is so dysfunctional already, do you think that "too little too late" is a good thing? Or do you think we'll be heading straight to a centralized digital currency?
I mean too little from regulators in the sense that capital requirements etc are obviously insufficient to prevent bank runs, contagion, etc. The Fed moved to protect depositors at SVB and Signature, and to essentially insure troubled assets, but this was too little too late to eliminate systemic risk in the total banking system. A possibly large number of small and mid sized banks may fail this year. I don't know if this is a good thing or a bad thing, and it might be both.
CBDCs are being tested now, and if there are cascading failures in the banking system, they may indeed be introduced sooner rather than later.
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