Bank Run

[MacGyver]

I though I’d post this here just to put a stake in the sand, because this may turn out to be one of the most important charts we’ll see this year:

 

What you’re basically looking at on this chart is unrealized losses in the hundreds of billions.  Mortgage backed securities (remember the other time in recent memory where you heard/learned this term) are trading way lower. The underlying cause is essentially that mortgages closed in 2020 and 2021 are now basically trading at 65 cents on the dollar. 

It turns out that interest rates go up, too.  And, a lot of our venture backed business models simply don’t work when money isn’t free.

There are a few “bloggers” who have been talking about this.  A lot of people read their newsletters.  You probably saw Thursday that a a few venture capitalists told their portfolio companies to move their money from one of these banks and caused a bank run that wound up collapsing the 18th largest bank in the country - Silicon Valley Bank.

Panics are a funny thing - and I think there’s a non-zero chance of seeing some much larger collapses this week.

Ought to be an awfully interesting week.  I hope I’m wrong. 

[TGO David]

The year ahead is going to be a rough ride, financially speaking.

[deerslayer]

I think I’ve seen this movie before. 

[billmeek]

Deerslayer,

You may have seen this movie before...

But it's a new cast and are any of the Hollywood remakes worth a crap these days?

[NoBanStan]

These clowns are damaging my calm.

[deerslayer]

8 minutes ago, billmeek said:

Deerslayer,

You may have seen this movie before...

But it's a new cast and are any of the Hollywood remakes worth a crap these days?

Exactly what I was thinking.  The remake is usually worse.  

[KahrMan]

I can't imagine how many conversations were had this weekend like the one I had with the others on our management team.    

We keep our company's working capital in several different banks.  Within each bank we have several bank accounts.  I spent some time this weekend moving money around to try to make sure no accounts have over the 250k FDIC limit.  It is a hassle keeping money spread over so many accounts.  Some companies are not going to be able to make payroll this week because their money disappeared.  We are a small company.  I have no idea how all the medium size companies are going to manage their working capital.

[billmeek]

I'm not suggesting anyone drain their bank accounts, but I would (if financially feasible) keep some additional cash on hand just in case a run happens to your bank.

[TripleGGG]

It is going to be a rough ride. This has been coming for a long time. I just hope most people learned from the past and protected themselves as much as possible. As @KahrManshowed above. NEVER have all your eggs in one basket.

 

[gregintenn]

Fun stuff! My younger son is currently taking a college economics course. I told him he’s about to get a real time live course in it.

 

This is the type thing preppers are born for.

[Capbyrd]

1 hour ago, TripleGGG said:

It is going to be a rough ride. This has been coming for a long time. I just hope most people learned from the past and protected themselves as much as possible. As @KahrManshowed above. NEVER have all your eggs in one basket.

 

If you don’t have eggs, it doesn’t matter what happens to the basket!!!!

[Chucktshoes]

As a general rule, with the excessive financialization of our economy, only a select few benefit when things are on the way up. The real problem is that everyone, and I mean everyone gets hurt on the way down. 
 

[gregintenn]

10 minutes ago, Chucktshoes said:

As a general rule, with the excessive financialization of our economy, only a select few benefit when things are on the way up. The real problem is that everyone, and I mean everyone gets hurt on the way down. 
 

Everyone except .gov. It always seems to emerge bigger and stronger after such an event.

[TGO David]

I missed this fact, as some of you may have as well.  Silicon Valley Bank wasn't the only one to tumble last week.  Signature Bank was also cut off from additional funding and was taken over by the FDIC last Friday.

After Silicon Valley Bank, Signature Bank, fears of more banks collapsing grow: Live updates (msn.com)

 

[btq96r]

Oh, I've got some four letter word laced opinions on this whole mess.

How the risk of rising interest rates wasn't considered is the first problem.  For all the issues people have with Jerome Powell (JPow), he speaks a concise English on macroeconomic topics.  These rate hikes were neither a surprise nor at a pace people didn't know was coming.  I guess risk management is a nag when it lowers EBITDA and EPS come bonus time.

Next, while I realize the need to stop a contagion of bank runs at the speed of wire transfers...we've pretty much set the standard that FDIC insurance limits are now...well, all deposits in the country.  They can say taxpayers aren't on the hook...what they really mean is not yet.  After the FDIC piggy bank from funding of the program by banks runs dry, they tap the "full faith and credit of the government of the United States of America."

Congrats, America.  We all in on making sure all the depositors of SVB are safe.  While we did save the paycheck flow for everyday people (I have a friend who's company banks with SVB), we also prolonged the stupid companies keeping up operations.  I get we only had the weekend, but I'm not jazzed about saving the 7th app based scooter rental company just because their account was in a bank connected to a lot of very rich people with their VC money tied to those companies as angel investors.  The cash outlay here will be minimal at the end; SVB had a liquidity problem, not a toxic asset problem.  But the bar has been set.

Buckle up...this is the intro, not the story.  One of Warren Buffet's often used aphorisms is about to play out and we're about to see some people hanging brain.

It's only when the tide goes out that you learn who has been swimming naked.

 

 

3 hours ago, MacGyver said:

It turns out that interest rates go up, too.  And, a lot of our venture backed business models simply don’t work when money isn’t free.

So many businesses, plus their CFOs are not ready for this lesson.  It's going to be painful.  Like learning the lessons all over in Iraq, just with red dollar signs and numbers instead of flag draped caskets.

 

2 hours ago, KahrMan said:

I can't imagine how many conversations were had this weekend like the one I had with the others on our management team.    

We keep our company's working capital in several different banks.  Within each bank we have several bank accounts.  I spent some time this weekend moving money around to try to make sure no accounts have over the 250k FDIC limit.  It is a hassle keeping money spread over so many accounts.  Some companies are not going to be able to make payroll this week because their money disappeared.  We are a small company.  I have no idea how all the medium size companies are going to manage their working capital.

$250k isn't enough for companies.  It works for everyday people, but not business accounts.  It used to be $100k, then we raised it to $250k, during the '08 GFC, so, it's just a number we make up after getting some data points.  We need to raise it for businesses so there are reasonable operating parameters and we don't have to backstop all of the cashflow accounts and lockboxes across the financial sector. Then we can let bad companies fail through their own financial mismanagement.

 

32 minutes ago, Chucktshoes said:

As a general rule, with the excessive financialization of our economy, only a select few benefit when things are on the way up. The real problem is that everyone, and I mean everyone gets hurt on the way down. 

That's a feature, not a bug.

Conservative/Libertarians got a gut check this weekend, and a lot were found wanting over on Financial Twitter....looking at you, David Sacks (yup, real name).

Edited March 13, 2023 by btq96r

[10-Ring]

44 minutes ago, Capbyrd said:

If you don’t have eggs, it doesn’t matter what happens to the basket!!!!

A former co-worker lived by this strategy.  He told me that I shouldn't accept a job making more money because people who earned more were more likely to loose their job during tough economic times.  

[peejman]

Being but a humble engineer, I don't pretend to understand all this financial stuff.  Largely I think it's just a bunch crap some bean counters made up to justify their existence and hide from doing any tangible work.  

Business leaders who suck at their jobs should be allowed to fail and it should be painful. Innocent people also get hurt along the way, which is unfortunate.  But people don't learn anything when they get bailed out. 

That snarky and cynical opinion aside, I'm always reminded of this scene from Sneakers when things like this happen....

 

 

[Chucktshoes]

 

[KahrMan]

36 minutes ago, btq96r said:

 

 

$250k isn't enough for companies.  It works for everyday people, but not business accounts.  It used to be $100k, then we raised it to $250k, during the '08 GFC, so, it's just a number we make up after getting some data points.  We need to raise it for businesses so there are reasonable operating parameters and we don't have to backstop all of the cashflow accounts and lockboxes across the financial sector. Then we can let bad companies fail through their own financial mismanagement.

 

 

I agree.  That's why we have several accounts at several different banks.

[gregintenn]

It seems every generation has to relearn basic economic theory for themselves. You’d think somebody would write this stuff down in a book or something.

[Capbyrd]

1 hour ago, 10-Ring said:

A former co-worker lived by this strategy.  He told me that I shouldn't accept a job making more money because people who earned more were more likely to loose their job during tough economic times.  

That’s both terrible and genius.  
 

I was just joking. 

Edited March 13, 2023 by Capbyrd

[pms]

That's going to be a problem. Most people do not read books and they are no longer teaching how to write. 

[Erik88]

6 hours ago, MacGyver said:

The underlying cause is essentially that mortgages closed in 2020 and 2021 are now basically trading at 65 cents on the dollar

Can you expand on this for those of us(me) that don't understand. If a bank owns a mortgage and those customers are still paying their mortgage payment, why does this matter? 

My wife works for a title company and we've been seeing her pay checks shrink every month as they close fewer homes. I'm curious how much worse things will get. 

[Grayfox54]

I'm not even gonna pretend that I understand the world of high finance, the stock market or any of the big money games. I have absolutely no idea of what any of this means. 

What I do know is that what money I have in the bank should be covered by FDIC and that I keep enough cash on hand to get by on for a while  if things go bad. I know that gas, groceries and the general cost of living is going up, but so far I'm OK. 

The only things I'm certain of is that the rich keep getting richer, the government will cover their butts and everybody else gets screwed. That's just normal life in America these days. 

Now if somebody could dumb this down enough and explain in simple terms how this effects me, I'd appreciate it. 

Edited March 13, 2023 by Grayfox54

[icruz]

Yup