SVB | Janet Yellen Pulls Out The Bazooka
The Search Begins For What Else
The Search For What’s Next
In A Nutshell
The Federal Reserve and Treasury Department created a new backstop for illiquid securities. This is to ensure deposits and to prevent the need for banks to sell a certain set of assets under extreme duress.
Banks Don’t Need To Auction Their Rare Books, Yet
Let’s say you had an asset, like a rare book, in your basement. You paid $XXX.
You used the value of that book, as collateral. You borrow money, with the value of the rare book at $XXX.
The reality is that you do not necessarily know what $XXX is TODAY. You have NO IDEA what someone else will pay for your book, when they know that you MUST sell.
Now, you need to raise money, FAST. You cannot sell your rare book, because the internet has crushed the demand for all books, so it is not worth $XXX, but it is worth 80% of $XXX. You cannot actually raise 80% x $XXX either.
The Fed and Treasury Department basically ensures that you don’t have to sell your rare book. Yet.
The world is now scrambling to assess their risk, and to locate what/where/when the next situation arises. Note that at the end of last year, I shared my thoughts on the subscriber site.
SVB | In Case You Missed It
Saturday, the videography department proved itself to be incompetent, again. So what was supposed to be live at 11A ET, wasn’t. The recording was preserved. No script so you will forgive the mumbling.
Monday Morning QB?
Followers know this. I am not a fan of Monday Morning Quarterbacking, my football-related phrase, which you may know as “hindsight is 20-20.”
Except this interview occurred in March, 2022.
Best quote: “We are addicted to low interest rates. Withdrawal is worse than the cure.”
Let’s Speculate For Fun (Not)
A regional bank run wasn’t my #1 candidate for the ripple effects of higher interest rates.
My #1 candidate is over-leveraged pension fund managers aboard, who hedged their foreign exchange exposure. Last year, long-dated GBP bonds dropped by 17% in a day. Working backwards, the only way this could’ve happened is that a forced seller appeared due to the market value of off-balance sheet agreements. Those agreements were ‘necessary’ to fulfill long-dated obligations. There is no central bank that can implement a fix to this, because foreign exchange volatility will force the owner of the ‘rare book’ at any price, at a time that there will be no buyers, and no mechanism (Fed / Treasury) to fix it, since every country will be acting in its self-interest.
I Have A Question (and an updated audiocast)
If the Fed / Treasury Department is THIS INGENIOUS AND CREATIVE, that they could create TARP and this new facility, how did they a) goose the housing market to hysteric levels and b) call inflation ‘transitory?’
I dunno nuttin. Here are my comments, anyways.