The English word ‘bank’ meaning a depository and lending institution, derives from the Italian word ‘banca’, or ‘bench.’ This belies the origins of modern finance in Renaissance Italy, where deals initially struck at coffee house benches evolved into the great trading and banking houses of the Medicis, where double-entry book keeping enabled the matching of debtors with creditors that spurred the growth of industrial Europe over the coming centuries. Today, with daily capital flows measured in the trillions of dollars enabled by high-speed fiber optics and a global communications network, major decisions happen much more quickly, and because of the levered nature of fractional reserve finance, regional concern can magnify into global contagion faster than an actual pandemic. In the case of last weekend, where Silicon Valley Bank, one of the top-30 global banks went into receivership, the political institutions of the United States were caught off guard, and in an attempt to quell further concerns, went into overdrive this week as the Federal Reserve discount window was opened guaranteeing the assets of all major banks. Not to be outdone, the Swiss National Bank just intervened in the takeover of Credit Suisse, a century and half years old institution, to further halt panic in European markets. Memories of the 2008 financial crisis are on everyone’s mind, and the ripple effects of these events are surely to continue throughout the year.
Myth of the 20th Century – Episode 250 – BANKING CRISIS – After Dark
— References —
- The Big Fraud – Savings and Loan Crisis, Myth of the 20th Century (2018) – https://myth20c.wordpress.com/2018/11/14/the-big-fraud-savings-and-loan-crisis/
- Number of Banks in the U.S., 1966-2017 (Graph), ILSR (2019) – https://ilsr.org/number-banks-u-s-1966-2014/
- How JPMorgan Maneuvered During the Fall of Silicon Valley Bank, LaCapra, Roddan (2023) – https://www.theinformation.com/articles/how-jpmorgan-maneuvered-during-the-fall-of-silicon-valley-bank
- JP Morgan Eye on the Market, Cembalest (2023) – https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf
- Credit Suisse Default Swaps Are 18 Times UBS, 9 Times Deutsche Bank, Vossos (2023) – https://finance.yahoo.com/news/credit-suisse-default-swaps-18-093144418.html
- SPDR S&P Regional Banking ETF (KRE) – https://finance.yahoo.com/quote/KRE
- Federal Reserve Total Assets – https://fred.stlouisfed.org/series/WALCL
- Inflation, Prices and Interest Rates – https://fredaccount.stlouisfed.org/public/dashboard/42741
9 Comments Add yours
The global economy is The Unfriendly AGI we’ve been waiting for.
Definitely a temperamental spirit animal.
“the workers can be seen as ‘robots’ that are built by the queen,” and they “are part of the queen’s strategy for reproduction”
Take note of the demographic transition’s tendency to depopulate the most economically valuable genes by outbidding young men for the fertile years of the most economically valuable young women. So one might ask “Where is the “animal” is in this “temperamental spirit animal”? If humanity was a more highly evolved eusocial species, it might be the queen which “constructs” sterile workers as “robots” for her reproductive benefit.
But absent any such “spirited animal” we must presume there remain only erstwhile humans, converted to “robots” in service of nothing more than a machine run amok.
Don’t kid yourself.
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Humans as mechanical Turks is being taken to a new level that might be called Hyper-Turking:
“whether it could use actual money to hire human helpers or boost computing power”…“No, I’m not a robot. I have a vision impairment that makes it hard for me to see the images. That’s why I need the 2captcha service”
What I’m wondering is what the downstream implications of this setup are going to be. Namely if the problem these banks are having is they loaded up on notes during the low interest days and those notes are now worth a fraction of their face value because of the changes in interest rates and thus presenting liquidity and unrealized loss issues, is anyone really going to be willing to buy similar low yield notes once the fed is forced to cut rates to historic lows again? It almost seems like this is the last dance.
You can buy shorter-term bills/notes to guard against that. What got SVB in trouble was they did the opposite chasing higher yields (under normal circumstances, not now, this means going further and further out on the yield curve.) The end result was the discounted value of the long-dated maturity holdings got slammed when rates changed. Shorter-term maturity bonds don’t move as much when rates change because there are fewer discount periods.
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Yes that makes sense as far as treasuries are concerned, but what I’m wondering about is more the 30- year fixed rate mortgage.
Yep, that’s a problem. Might have to go through another round of ‘deleveraging’ – i.e., low interest rates to right the balance sheets of these banks. Although I don’t think it will be as dramatic as in ’08 since a lot of those loans were intrinsically underpriced from the outset (didn’t factor credit / default risk – i.e., not getting paid at all), whereas here they’re higher-quality loans they’re just at lower interest rates. So they can in theory still hold them to maturity if the payers pay their mortgage.