Miracles do happen. One happened yesterday. Silicon Valley Bank failed as well as Signature Bank and Silvergate Bank were closed by Federal regulators. I gave a grim briefing to certain readers warning of an economic catastrophe when major companies could not access their funds to pay basics like payroll for employees.
Janet Yellen devised a de facto bailout program that got the blessing of
President Biden. When depositors show up at the three banks cited above, it
will be, seemingly, "business as usual." Everybody will get paid.
What went wrong with these banks? These banks went out and bought long-term
bonds at low interest rates. When interest rates rose, these bonds dropped in
value. The banks became technically insolvent. Let us focus on Silicon Valley
Bank. It has been in business 40 years. Its capitalization was
roughly $209 billion. Joseph Gentile was the chief administrative officer
of the bank. In a prior life, he was chief financial officer of Lehman
Brothers. He left one year before this giant bank collapsed. He knew quite well
what happens when a bank gets reckless with its investments in pursuit of
higher profits. He repeated the same mistake with his current employer. Here
is a great report on Silicon Valley Bank:
https://www.youtube.com/watch?
Everyone get ready for real estate prices to drop. There will be some big
bargains out there.
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