Banks on the Brink: 2023 Mini-Crisis

[Larry of the Lawn]

Coming soon to an indictment near you: 19 charges under the new Don't Say Bank Run Domestic Terrorist Bill

[Iskaral Pust]

9 hours ago, ThinkerX said:

[[quote] (BTW since Lehman it is illegal to fuel rumors irresponsibly about banks so people are circumspect about what they say and where) [/quote]

And this remains a mindblower - that a handful of ordinary laymen discussing publicly available information could be charged with a crime for doing so on an open website. It speaks of deep paranoia and corruption - an effort to silence cautionary voices.

You should check out the regs involved.  IIRC (and it’s been a long time) they were aimed at industry insiders fueling negative rumors, which all of the fragile banks claimed during 2008.  So if you have concerns about a bank trading counterparty, you cannot say anything that would be construed as rumor-mongering but you can confirm whether that bank is still an accepted counterparty for your trading desk.

[Rippounet]

If only this rotten system of fake value would just collapse already... But I'm sure its agony will be prolonged as much as possible.

[Fez]

9 hours ago, ThinkerX said:

Problem is there appear to be other major industries essential to the economy to which this statement applies in full - like the railway companies who put profit above maintenance and basic safety, resulting in a spate of totally predictable and highly destructive derailments. Likewise, utility companies in Texas and California decided to put profit above weatherization and maintenance, which was a major contributor to power outages and devastating fires. Factor in deliberate stupidity like banning ESG investing and shaky financial institutions, and a major mess is fast approaching. 

My thinking is that longterm, yes, an enormous mess/collapse is coming, barring some massive systematic changes (ha!). But that particular piper isn't coming calling for another 15-20 years.

I think the problems SVB faced were relatively isolated, and it was only due to the likelihood of mass irrational panic (which becomes very rational if enough other people are doing it) that there was a chance of a major bank run-related crisis this week. I also think that recession fears are overblown. Certain industry sectors are faring poorly, mostly ones that were reliant on low interest rates. But most metrics are showing a relatively healthy economy, albeit one struggling with inflationary pressures.

There is a wildcard of what happens if the US breaches the debt ceiling. But, barring that, I'm not too concerned about where things are a year from now. Feel free to gloat come December if I'm wrong.

[A Horse Named Stranger]

4 minutes ago, Chataya de Fleury said:

* the average “man on the street” / non-finance folks.

PE folks and investment bankers on lamp posts?

You didn't say anything about wishes and desires need to be realistic/reasonable.

[Luzifer's right hand]

I wonder how well this thread title will age.

What ever happens the parasitic finance industry will recover and the rich will get richer and the poor poorer.

[James Arryn]

“The ideal subject of totalitarian rule is not the convinced Nazi or the convinced Communist, but people for whom the distinction between fact and fiction (i.e., the reality of experience) and the distinction between true and false (i.e., the standards of thought) no longer exist.” 
― Hannah Arendt, The Origins of Totalitarianism, 1951

“Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”*
― Adam Smith, 1776

 

*Yes, I know, but carry his counters forward and it’s even more profoundly apt today than when he wrote it. 

 

[Jace, Extat]

1 hour ago, James Arryn said:

“The ideal subject of totalitarian rule is not the convinced Nazi or the convinced Communist, but people for whom the distinction between fact and fiction (i.e., the reality of experience) and the distinction between true and false (i.e., the standards of thought) no longer exist.” 
― Hannah Arendt, The Origins of Totalitarianism, 1951

“Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”*
― Adam Smith, 1776

 

*Yes, I know, but carry his counters forward and it’s even more profoundly apt today than when he wrote it. 

 

Reduce enough and the only thing that could possibly be real is whatever happens next. - 21st century solipsism 

Your youth are all regressed to input dependents. Even your outputs are just cries for reciprocation 

I may not like capitalism, but goddamn if I can't help but admire what it's done to us. Y'know, in an "it ain't MY children who're gonna burn" kinda way. Hidden advantages of being sterilized - too bad for my niece and nephew, but what kinda future were they lookin' at anyway?

[DireWolfSpirit]

23 hours ago, Kalnestk Oblast said:

Maybe that's true in other countries but it's not broadly true. It's not true by most basic measures of how to measure recession, it's not true by job numbers, it's not true by spending. I'm sorry that your industry is suffering - and it might be that shipbuilding is a good canary in the coal mine for this - but it is alarmist and reactionary to call what we're experiencing a recession. 

I have heard these anectdotal type denials before every recession and downturn, before each and every cyclical downturn like clockwork.

We always realize it first in construction and manafacturing, we especially see it first in the midwest. The reporting is backdated, lagging information.

Im telling you business is not normal. Small everyday items that are needed from our suppliers are taking months longer to get to the production floor. 

 

Edited March 17, 2023 by DireWolfSpirit

[Kalbear]

26 minutes ago, DireWolfSpirit said:

I have heard these anectdotal type denials before every recession and downturn, before each and every cyclical downturn like clockwork.

We always realize it first in construction and manafacturing, we especially see it first in the midwest. The reporting is backdated, lagging information.

Im telling you business is not normal. Small everyday items that are needed from our suppliers are taking months longer to get to the production floor. 

 

Business is not normal does not mean a recession. Heck, not being able to get supply can actually be a sign of excess demand, right? We saw plenty of supply issues during the peak of the pandemic too - and later - and the actual cause was very different each time. 

My business is not remotely 'normal' either, at least by the standards of the last couple of years and not by the standards of the last 8 years, but that doesn't mean that the US is in a recession right now, any more than record profits for my industry during 2020-2021 meant that the economy was NOT in a recession then. 

Things suck right now. Not gonna sugar coat it. Inflation sucks, gas prices suck, energy prices suck, food prices suck. The Ukrainian war sucks for a whole lot of people. I'd certainly advice people to be careful and start preparing for recessions/layoffs - just like I said above, where I think it's basically certain to happen. But that doesn't mean we are in one right now. 

[Paxter]

14 hours ago, Secretary of Eumenes said:

Why? 

I used the word "perhaps" deliberately, as there are decent arguments for and against the decision to backstop uninsured deposits:

Pros:

• Increased likelihood of avoiding a depositor run on (solvent) regional banks, spurred by a flight to safety
• Increased likelihood of avoiding bailouts or depositor losses at other solvent regional banks
• Ability to preserve the regional banking system, which some argue is a feature of the US economy (some might argue this is a bug)

Cons:

• Moral hazard as depositors (including more sophisticated, large corporates) do not impose market discipline on their banks, resulting in more risk-taking and failures in the future
• FDIC financial losses, which are ultimately borne by customers (don't let them convince you otherwise!)
• Uninsured depositor protection is now implicit in the system, though without an explicit promise, bank runs may still not be avoided

I'm sure there are many more we can add to both lists!

3 hours ago, Luzifer's right hand said:

I wonder how well this thread title will age.

What ever happens the parasitic finance industry will recover and the rich will get richer and the poor poorer.

I promise to rename to "Bank Clusterfuck: 2023 Edition" or similar, if/when merited.

Edited March 17, 2023 by Paxter

[horangi]

3 hours ago, DireWolfSpirit said:

I have heard these anectdotal type denials before every recession and downturn, before each and every cyclical downturn like clockwork.

We always realize it first in construction and manafacturing, we especially see it first in the midwest. The reporting is backdated, lagging information.

Im telling you business is not normal. Small everyday items that are needed from our suppliers are taking months longer to get to the production floor. 

 

To build on Kal's comments, if it was this straight forward, some economist would have danced away with a Nobel prize long ago for their sure fire way of predicting recessions.  If a person happened to be a mill worker in the southern US in the last century, they'd probably be seeing signs of impending/existing recession/depression all the time, even when the rest of the economy is chugging along OK.  Thats not to say that some day someone might get the formula right, but that hasnt been the case so far in history.  Its important that we remove our own lived experiences from the equation when assessing larger realities such as the health of a global economy.  Right now a lot of the indicators are suggesting the economy is booming while others look more worrisome (but even those are not showing the kinds of massive impending doom when compared to even the 2008 recession.)  All that said, you could be right in the end, but I'd suggest the most scientific prediction is, there isnt sufficient evidence to make a prediction. 

[Jeor]

14 hours ago, Paxter said:

Pros:

• Increased likelihood of avoiding a depositor run on (solvent) regional banks, spurred by a flight to safety

Cons:

• Moral hazard as depositors (including more sophisticated, large corporates) do not impose market discipline on their banks, resulting in more risk-taking and failures in the future

And in these two points you have the major conundrum of rescuing SVB. They had to protect depositors to stop a bank run on the regionals, but this also then produces a race to the bottom by banks to take risks to attract customers and offer high savings rates. It's easy to understand why everyone opts for a bailout. The immediate problem (bank run) is solved while the larger problem is kicked down the road.

I'm not optimistic that these band-aids will hold, though, and it seems the market isn't either, with First Republic's share price having a shocker on Friday. Also interesting the other banks chose to prop First Republic up with deposits (which are now supposedly protected by the government) and only for 120 days.

I'm reminded that the time lag between Bear Stearns and Lehmann was about 6 months. If history repeats, there's a lot of time for a lot more to develop yet.

[Paxter]

1 hour ago, Jeor said:

I'm reminded that the time lag between Bear Stearns and Lehmann was about 6 months. If history repeats, there's a lot of time for a lot more to develop yet.

The good thing is that FR is nowhere near as systemic as Lehman.

The big worry this weekend is Credit Suisse and whether a peaceful resolution can be effected. All eyes on Europe and any ripple effects to other systemic banks there. 

[Spockydog]

Nobody knows if there is going to be a big, fuck off recession. Because nobody understands the economy. Literally nobody. Sure, a whole bunch of well paid economists will tell everyone they know what's going to happen, but the truth is nobody has a fucking clue. 

 

 

 

Edited March 18, 2023 by Spockydog

[Iskaral Pust]

“Usually” this amount of monetary tightening by central banks would be enough to cause a recession, although there is a lag to those effects.  We’ve seen the slowdown already in the most interest rate-sensitive sectors, e.g. housing/construction and speculative start-ups, but it hasn’t percolated yet into the rest of the economy.  The recent overheating of the economy wasn’t driven by a rapid expansion of credit (as in 2008 and “usually”), so it’s not quickly reversed by higher interest rates.  Corporate and household balance sheets look mostly very healthy, albeit deteriorating recently for lower income quintiles, because of COVID-era effects (like lower spending for a while, fiscal transfers and govt PPP loans, plus refinancing mortgages at very low yields even as house prices rose) and very low unemployment, which is partly demographic due to Boomers retiring.  So it’s not at all obvious how much monetary tightening is needed to cause a recession to slow inflation — and it’s very difficult to get the latter without the former now that inflation is embedded in wage growth and the services portion of core inflation.  We may already be on a lagged path to an imminent recession or we may have more Fed tightening ahead. It’s very uncertain.  This is why the markets keep overreacting to every little economic data print. 

[Paxter]

Looks like UBS is going to pick up some or all of its former rival.

[maarsen]

3 hours ago, Spockydog said:

Nobody knows if there is going to be a big, fuck off recession. Because nobody understands the economy. Literally nobody. Sure, a whole bunch of well paid economists will tell everyone they know what's going to happen, but the truth is nobody has a fucking clue. 

 

 

 

If you took all the economists in the world and laid them end to end they would still all point in different directions. 

[Wilbur]

On 3/17/2023 at 8:17 AM, Chataya de Fleury said:

Then there are a good number of PE firms which should be getting fined.

I know regulators look at those e-mails. This will be found.

I completely agree that the PE firms should be held accountable for their communications, which were definitely a contributing factor to the fall of SVB.

I don't have much faith in regulators actually charging some of the most affluent people on the planet, however.

[Wilbur]

On 3/17/2023 at 11:25 AM, DireWolfSpirit said:

I have heard these anectdotal type denials before every recession and downturn, before each and every cyclical downturn like clockwork.

We always realize it first in construction and manafacturing, we especially see it first in the midwest. The reporting is backdated, lagging information.

Im telling you business is not normal. Small everyday items that are needed from our suppliers are taking months longer to get to the production floor.

I place a lot of credence in this description, and I would amplify it in a couple of ways.

First, a lot of the just-in-time supply chains that existed up until Covid provided the MBA middle managers with some bonus awards as they were perfected and any and all possible inefficiencies were ironed out.  However, Covid demonstrated that a perfectly efficient JIT supply chain is wonderful right up until the time when outside forces disrupt that state of perfect efficiency.  Then you no longer have a supply chain, and your fab / work site / lab / manufacturing facility sits idle until you can re-establish a supply of those critical widgets.

Second, a lot of those JIT S/Cs had their origins in China.  So Covid is still interrupting many of those sources and processes, and alternatives may or may not have gone out of business in the interim.

Third, many component and value-added suppliers are assessing the global market and seeking to re-price their products and services.  They aren't completely certain what the new price should be, but they ARE certain that they should be paid more for their work, particularly if they are not in China.  And while in the past they might have entered into a contract with a length of 24 months, perhaps now they only need to consider a 12-month supply contract, as this gives them the opportunity to revisit that pricing question against sooner.

Fourth, some suppliers have Plan X as a key component of their business model, with "Plan X" being the need to pay their employees less than a living wage.  Every time I run into one of these businesses, I am surprised once again, but it is far more common than I expect.  And I don't understand how employees agree to work for these wages, or how the owners expect to maintain the Plan X model, but it is everywhere.  When you have a supplier running on the Plan X model in your supply chain, and their employees suddenly wake up and walk out, those links in the chain fall out.

And just in time for American companies to resume making key components or combing them or reworking them or adding code, the banks go and enjoy a self-guided excursion into existential crisis such that no one will be able to lay their hands on the capital necessary to create a more resilient supply chain.  Not particularly useful.