The SVB (Silicon Valley Bank) Failure, Nothingburger? Or More?

[Kevin88660]

We may have to change the title of this thread with Credit Suisse instead of SVB. Regulators, SNB and UBS are apparently negotiating to bail it somehow and prevent a disaster.

Credit Suisse is almost 3 times as big as Lehman Brothers was when it declared bankruptcy, almost 10 times bigger than SVB. It is also a systemic bank.

If there is no positive outcome before markets open, tomorrow may be an interesting day !

I am not too worried as they can just buy whatever that fails with unlimited cash that could be minted our of thin air.

Central banks have a lot of tools these days. They can even do targeted asset purchase, leaving interest rate high as it is now.

A lot people are speculating if companies are failing this will force Fed to ease. Not true, they can keep rates high while buying whatever that is too big to fail.

Bank of England to buy 65 billion pounds of UK bonds to stem rout

The Bank of England stepped into Britain's bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government's tax cut plans triggered the biggest sell-off in decades.

www.reuters.com

Bank of England started bond buying last year to save their own debt issue.

Easing and rescue for the “ICU patients”, tightening for everyone else to fight inflation.

 

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[Kevin88660]

Deflation is not a big problem. Because money can be printed to save whoever that is too big to fail.

Bankruptcy and companies going under due to insolvency and liquidity issue are all “deflationary problem” that can be solved easily with a Fed announcement.

The real power is inflation because it puts a cap on the limitation of Fed’s printing power. As Alan Greenspan summed it up “We can guarantee all liabilities but not their purchasing power”.

Centrals banks can do broad spectrum tightening to fight inflation while doing target spots “QE” to bail out entities in trouble. So companies going down is not a big issue.

Real issue is still inflation figures not coming down.

 

[Xeon]

Yes, probably we could update the thread title to '2008 Crisis 2.0' or something like that...

I'm a bit surprised though how fast they are arranging buyouts and stuff:

Exclusive-UBS seeks about $6 billion in government guarantees for Credit Suisse deal -source By Reuters

Exclusive-UBS seeks about $6 billion in government guarantees for Credit Suisse deal -source

www.investing.com

Not to forget the US higher-ups are consulting Warren Buffett AGAIN on supporting the banks:

Warren Buffett in Contact With Biden Team on Banking Crisis

Berkshire Hathaway Inc.’s Warren Buffett has been in touch with senior officials in President Joe Biden’s administration in recent days as the regional banking crisis unfolds.

www.bloomberg.com

This SOOO feels like the repeat of the aftermath of the 2008 crisis, and Buffett did profit handsomely for his
help back then. He came up with the idea of lobbing them cash, as opposed to buying their assets. Rather controversial, but when off-balance sheet items are exploding everywhere...are ya really gonna buy turds?

How Warren Buffett rescued US biggest banks from financial crisis

Warren Buffett, the Oracle of Omaha's frugal decision has helped two big banks overcome the crisis during their worst period.

www.livemint.com

Assuming this is a repeat of the 2008 crisis but several times worse, do you suggest to withdraw cash from banks and keep the amount at home in case the collapses spread to other banks in the world?

 

[Antifragile]

Deflation is not a big problem. Becauae money can be printed to save whoever is too big to fail.

Bankruptcy and companies going under due to insolvency and liquidity issue are all “deflationary problem” that can be solved easily with a Fed announcement.

The real power is inflation because it puts a cap on the limitation of Fed’s printing power. As Alan Greenspan summed it up “We can guarantee all liabilities but not their purchasing power”.

Centrals banks can do broad spectrum tightening to fight inflation while doing target spots “QE” to bail out entities in trouble. So companies going down is not a big issue.

Real issue is still inflation figures not coming down.

The real potential problem is Stagflation

In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.

We aren’t there yet. And it looks like hyperinflation is more likely. If they keep printing USD to cover for bank systemic failures.

And the world reserve currency status is now at risk.

 

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[Kevin88660]

The real potential problem is Stagflation

In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.

We aren’t there yet. And it looks like hyperinflation is more likely. If they keep printing USD to cover for bank systemic failures.

And the world reserve currency status is now at risk.

Similar to oil shocks in the 70s now we have the war in Europe and global supply chain still recovering from pandemic crisis.

If supply side issue persists, even if we reduced demand through rate hike, inflation will stay, hence the phenomenon of stagflation could come. A lot of economic pain to trade off for a little drop in CPI.

Over the long term I think supply side induced inflation problem will go away. The countries that involved in the war will run out of ammunition/men real soon. War is a fact-finding process of how long both sides can sustain the pain.

China is looking to boost its economy now after the end of locked down. The global capacity for production is like a monster compared to the 70s. A few Chinese coastal cities can produce all the toys, clothes and furnitures in excess of global demand literally.

Dollar as the reserve currency will lose some market share to Rmb and gold. Euro and Yen are probably just as problematic.

 

[ZF Lee]

Assuming this is a repeat of the 2008 crisis but several times worse, do you suggest to withdraw cash from banks and keep the amount at home in case the collapses spread to other banks in the world?

Depositors should be covered by the FDIC standard of $250,000.

Malaysia also has similar protections of RM250,000 coverage per depositor per member bank.
I see Singapore is around $75,000 per depositor per bank too?

Key here I think is to not keep all your eggs in one bank alone, as the startup folks who were deep in SVB found out.

 

[Xeon]

Depositors should be covered by the FDIC standard of $250,000.

Malaysia also has similar protections of RM250,000 coverage per depositor per member bank.
I see Singapore is around $75,000 per depositor per bank too?

Key here I think is to not keep all your eggs in one bank alone, as the startup folks who were deep in SVB found out.

In Singapore, it's $75,000 but I doubt the gov will have enough $ to cover everyone if there's a bank run lol.

 

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[Kevin88660]

In Singapore, it's $75,000 but I doubt the gov will have enough $ to cover everyone if there's a bank run lol.

Government can always print to solve SGD-denominated debt problems if there are any.

But anyway Singapore banks are quite prudently run in general.

MAS (Sg central bank) has been raising the standard on TDSR for going back as early as 2016.

Never underestimate the SG Kiasi mindset that is permeated across large organizations. We build drainage size capable of defending once in a 50 years flood.