21 March 2023

A The Bank Clusterf$# So Far


Yellen trying to obfuscate.


$2,000,000,000,000.00? Pretty soon are talking about real money!

Memes be here

Talk about failing up.


And here we have the ghouls speculating


I want this shirt too, so much!


Thiel again?


The prophecies of Nostra Dumb-Ass

Note that I will not be discussing Credit Suisse here, I will break that out separately, because, wowzers, this is a long post.

First, I would note that the right hand column will be graphs and videos that provide information, and then there will be a divider, and it will be memes and other weird sh$#.

Next, and you can see the video up top, Senator James Lankford (R-OK) opens up a well deserved can of whup ass, when he notes that the response of Treasury, the FDIC, and the Federal Reserve, was to raise insurance premiums on ALL banks in order to subsidize bigger banks, which will have the effect of pressuring large depositers in those banks to leave the smaller banks.

It's a bailout, and what's more, it's a bailout of the big banks at the expense of the smaller local and regional institutions.

Also, in case you are wondering, SVB's and Signature Bank's auditor, KMPG, gave both banks a clean financial bill of health just weeks before their respective collapses, and just before the collapse SVB issued large bonuses just before the bank's collapse.

Also, SVB's did not have a chief risk officer from April of last year until January of this year, which might explain 

Corruption much?

Next, and this one is perhaps the most worrisome, as the New York Times buries on 'graph 7, unrealized losses for the banking system is about $1.75 Trillion, which is about 80% of all existing bank equity. (2nd item to the right)

On to Signature Bank, and it's failure, it appears that much like Silicon Valley Bank (SVB), Signature Bank esperienced a bank run, only from real estate investors that were the bank's bread and butter, not tech bros.

What is interesting here is that this does have a tech angle, because it appears that their clientel were fleeing from the banks dive into cryptocurrency: (Money quote follows)

………

Real-estate investor Marx Realty was among the many New York firms to cash out, withdrawing several million dollars early last week from Signature accounts tied to an office building, said chief executive Craig Deitelzweig. The bank’s crypto exposure and plummeting stock price worried him.

“We just thought ‘Why have that risk?’” Mr. Deitelzweig said.

Yeah, crypto, what could possibly to wrong. (I'm beginning to think that Satoshi Nakamoto was a secret communist whose goal was to bring down the modern banking system)

An interesting data point on this is the fact that Signature Bank was the Trump Organization's domestic bank of choice.

Now, on to the Federal Reserve.  Did you know that the President can fire the Chairman of the Federal Reserve for cause, like, oh, I don't know green-lighting the merger between SVB and Boston Private Bank and Trust, saying that there would be no risk to banking from the merger, and that SVB was too well managed to be a risk anyway.  In fact, SVB was known to be dicey by the Federal Reserve for at least  years.

Rank incompetence is a reason for firing for cause:

………

Less than two years before Federal Reserve Chairman Jerome Powell cited systemic risk as a justification to rescue Silicon Valley Bank’s depositors, Powell approved the same bank’s merger application, insisting that the new, larger institution would present no significant danger to the wider financial system, according to documents reviewed by The Lever.

“SVB Group’s management has the experience and resources to ensure that the combined organization would operate in a safe and sound manner,” wrote Federal Reserve officials in June 2021, as they approved the company’s $900 million acquisition of Boston Private Bank and Trust. “The organization would not be a critical services provider or so interconnected with other firms or markets that it would pose significant risk to the financial system in the event of financial distress.”

BTW, it appears that the whole "Not a Bailout" bailout ignored the normal way of winding down a bank, which cost the federal government a not insignificant chunk of change:

………

The odd thing about this rescue is that the Dodd-Frank Act prescribed an entirely different method for resolving a failing systemically important bank without using taxpayer funds. The Dodd-Frank solution is to protect the failing bank’s depositors by taking over the failing bank’s parent holding company using a special resolution power called OLA.

OLA permits the FDIC to seize the resources of the failing bank’s parent holding company and use them to support the failing bank’s operations. OLA empowers the FDIC to keep the failing bank open and operating without any depositor losses and ideally without the use of any deposit insurance funds.

The FDIC has developed and publicly published its plan for exercising OLA. The plan is called the Single Point of Entry resolution strategy or SPOE.

………

OLA removes the parent holding company’s limited liability protection and forces holding company investors to absorb losses that exceed their equity investment in the failing bank. When the secretary of the Treasury invokes OLA, it triggers a change in parent company investor property rights in a way that will protect the failing bank and other subsidiaries from loss or require them to engage in asset “fire sales” to meet depositor liquidity demands.

SVB has a holding company, SVB Capital, that is still open and operating. It has a market capitalization recently reported to be over $2.3 billion and long-term debt of about $5.4 billion — balances that potentially could be utilized to support depositors in the failing SVB bank. SVB Capital’s annual report suggests that it owns several businesses besides SVB, and these businesses apparently still have significant value given reports that JPMorgan is interested in purchasing SBV Capital.

BTW, as an aside, it turns out that the bail out of all depositorss has the effect of paying billions of dollars to parent company SBV Capital:

When President Biden announced the rescue of Silicon Valley Bank depositors, he emphasized that "investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works." Unfortunately, that's not how US law works.

There seems to be a gap in the Federal Deposit Insurance Act that is going to protect some investors in Silicon Valley Bank’s holding company, SVB Financial Group. The holdco’s equity in the bank will be wiped out in the FDIC receivership, but the FDIC doesn’t have any automatic claim on the holdco. This is basic structural priority/limited liability: creditors of a subsidiary have no claim on the assets of a parent.

What's worse is that the holdco, which filed for bankruptcy today, has substantial assets including around $2 billion on deposit with SVB. Almost all of that $2 billion deposit at SVB would have been uninsured, but by guarantying all the deposits, FDIC accidentally ensured that the holdco’s bondholders would be able to recover that from that full $2 billion deposit.

I do not think that this is an accident. 

Also, the  feds coordinated a $30,000,000,000.00 bailout of Republic Bank from the big banks:

First Republic Bank is beefing up its adviser ranks as the troubled lender seeks to stay afloat and plan for a postcrisis future amid a trans-Atlantic crisis of confidence in the banking system. 

The California bank this week tapped Lazard Ltd.  to help with a review of strategic options that could include a sale, a capital infusion or asset trimming, according to people familiar with the matter. It also hired consulting firm McKinsey & Co. to help map out a postcrisis structure for the bank, the people said. 

Lazard and McKinsey have been brought in alongside JPMorgan Chase & Co., which had already been hired by First Republic to advise on moves the bank could make to regain its footing after the failure of two other lenders caused its depositors to flee. 

They have hired McKinsey.  They are doomed.

………

JPMorgan and other big banks agreed last week to deposit $30 billion in First Republic to try to shore up the bank. Some of those banks’ CEOs, led by JPMorgan’s Jamie Dimon, have continued discussing ways to help First Republic after the move failed to sufficiently bolster confidence in the lender, The Wall Street Journal reported Monday. Options include putting those deposits to work in a different form.

The talks started after 11 big banks banded together last week to essentially return deposits that had fled First Republic, which was swept up in the contagion that followed the March 10 failure of Silicon Valley Bank and the subsequent seizure of Signature Bank. The crisis boiled over this weekend, when UBS Group AG was forced to purchase its beleaguered Swiss rival Credit Suisse Group AG.

I'll talk about Credit Suisse in another post this is getting long. .

BTW, is anyone surprised that the, "Great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," ended up found a way to profit from the bank collapse:

As an adviser to Silicon Valley Bank, Goldman Sachs last week tried to pull off a last-minute capital raise to save the firm from collapse. But the Wall Street giant also had another role in the bank’s final days, for which it’s expected to collect a massive fee: It bought a cache of the bank’s debt in a deal that ultimately led to concerns about the bank’s viability.

Goldman’s payday: In exchange for buying $21.4 billion of debt from Silicon Valley Bank — which the failed lender booked at a loss of $1.8 billion — Goldman is likely to make more than $100 million, DealBook has learned.

………

Will the fees be thrown into the clawback debate? After the government introduced extraordinary measures to protect the bank’s depositors, there is expected to be heightened regulatory scrutiny. Senator Elizabeth Warren, Democrat of Massachusetts, and others are demanding a clawback of the bonuses the bank paid to its executives and the profits they made from selling stock. The Justice Department, which is investigating the bank’s collapse, recently rolled out a pilot program for clawing back incentives (more on that below).

If the Ukraine war escalates to a nuclear exchange, all that will be left is cockroaches and Goldman Sachs profits.

In news that will surprise no one who has followed his career, but it turns out that Larry Summers aggressive advocacy for the SVB bailout was influenced by his own financial interests.

Larry Summers "expert" opinions have always been directed by his, and his friends, financial interests, see the whole tawdry matter of his covering up for his protege Andrei Shleifer.

BTW, there are 186 other banks at risk of impairment, which is banker speak for, "We're looking at the possibility a f$#@ tonne of more failed banks." 

There is an investigation by the Department of Justice into the SVB failure, but I won't hold my breath for any criminal filings.

Onto weirdness and random memes:

Did you know that one senior executive at SVB, CFO Joseph Gentile, worked at Arthur Anderson, which was destroyed by the Enron scandal, and then at Lehman, whose collapse started the 2008 meltdown, and another, recently hired Chief Risk Officer Kim Oleson, worked at Deutsche Bank when it was hawking dubious mortgage backed securities.  (Deutsche Bank paid a fine)

In related news, former head of the Congressional Banking Committee Barney Frank, was very well paid as a board member for the now closed Signature bank. (This article is from 2018, and his  remuneration was not chump change)

It's not the crimes that shock the conscience, it's what is technically legal:

As Senate Democrats successfully pushed into law a plan that rolls back post-financial-crisis banking rules, Barney Frank was a go-to figure.

Frank, a former House Democrat from Massachusetts and author the 2010 “Dodd-Frank” banking rules that the new law scales back, said the plan left his rules largely in place. And though he said he would vote against the measure, Frank said it would not help the biggest Wall Street banks and denied it would increase the risks of another financial crisis.

………

But the proponents of the law rarely, if ever, mentioned that Frank is not just the author of the 2010 law, but also sits on the board of New York-based Signature Bank, a financial firm in position to benefit from the new legislation.

………

In an interview, Frank acknowledged that Signature stood to benefit, but he said his role on the bank's board did not influence his thinking.
Yeah, sure.  We believe this.
………

Critics say raising the threshold will encourage dangerous bets that could leave taxpayers on the hook. The 25 banks with between $50 billion and $250 billion in assets account for one-sixth of the banking sector, and they received $47 billion in government bailouts after the 2008 financial crisis, according to Gregg Gelzinis, a banking expert at the Center for American Progress, a left-leaning think tank.

That seems positively prophetic.

On to more generic hypocrisy from the masters of the universe, you can see here, here, and in a way that invokes the (non) quote from Tallyrand* when the headline reads, "'They will learn nothing from this': Tech leaders remain staggeringly oblivious to the true lessons of Silicon Valley Bank."

The quote, in case you are wondering, was made about the Bourbon Restoration monarchs, "They have forgotten nothing, and they have learned nothing."

In a rather sublime bit of irony, it appears that the failure of SVB is likely to trigger the collapse of at least one stablecoin, a form or cryptocurrency.

*Again, this is probably not an actually a quote from Charles Maurice de Talleyrand-Périgord. It was likely said by Joseph Fouché, but, "C'est pire qu'un crime, c'est une faute," is all too frequently credited to Talleyrand.

Posted by Matthew Saroff at 9:26 PM
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