silicon valley bank

Silicon valley Bank collapsed because of inflation. Inflation happens because you print money.

Biden's printing 100 billion dollars a month. If the goal of Biden is to protect people from bank collapses that he's a failure.

 

Banking is an inherently political activity. To strip from banking the political, is to strip the political from everything of substance. This neoliberal turn, to make the financial and banking sector the purview of the imaginary forces of the market, and to make opaque its inherently political nature and legal structure is silly.

This is particularly silly, because the particular bet that got SVB in trouble was holding a significant amount of long dated treasury securities. The Fed raised interest rates, making those long term assets with lower agreed interest less valuable, causing a liquidity crisis for the bank when they were hit with a run on the bank. Now there is bad decision making on their part, particularly deciding not to hedge those investments, but the failure was also the direct result of Fed policy.

On top of that, capital requirements which require banks to maintain a certain percentage of highly liquid assets were relaxed. Had they not been, this crisis doesn't happen. So no, we cannot make this not political. Banking is always and everywhere political in nature.

 

The law is

S.2155

What it did was "exempted banks below $50 billion in assets from enhanced liquidity requirements and subjected banks between $100 billion and $250 billion to such liquidity rules only if mandated by the Fed. Under the pre-S.2155 regulatory regime, SVB would have had to maintain sufficient high-quality liquid assets on hand to meet redemption requests expected over a 21-calendar day stress scenario (known as the modified liquidity coverage ratio). Following S.2155’s enactment and the Fed’s implementation of weaker regulations, SVB was subject to weaker, bank-run liquidity stress testing and liquidity buffer requirements. Thanks to S.2155 and weaker Fed rules, SVB was also exempted from several other requirements, including risk-based capital requirements and leverage limits, credit exposure reports, and single-party credit limits, though these do not seem to have played a part in its collapse."

https://rooseveltinstitute.org/2023...alley-bank-collapse-and-how-to-change-course/

 

Let me start off by saying that inflation in the real estate market was absolutely directly a result of monetary policy on the part of the federal reserve. Low interest rates and a high demand for safe assets drove enormous amounts of the newly "created" money into the real estate sector. Housing is around a third of the CPI basket, and housing rose 18% or so last year. So yes, "printing money" caused some inflation. However, all the other price increases were much more deeply tied to disruptions to supply chains as a result of the pandemic and Russia's invasion of Ukraine and the resulting reactions to it.

However, in the long term you are largely wrong. Inflation happens for many reasons, one of many being monetary policy, but certainly not exclusively.

 

Sure but currently the dominate factor is printing money. And new forever wars.

 

were there many bank failures in 1978=1979 when inflation was much higher? svb collapsed because of bad, probably criminal, management.

 

That too.

 

No, but there were many bank failures that happened as a result of Fed inflation fighting tactics in the 80s as a result of the "Volcker Shock." The savings and loans crisis, where banks in the traditional retail and mortgage industry collapsed en masse as a result of no longer profitable long term loans at low interest rates and newly higher interests rates meant to target inflation, was certainly connected to inflation. The difference is that inflation at that time was entrenched in the system, it is unclear to me that that is true today.

 

the savings and loan crash was the predictable result of criminal mismanagement. the regulator who prosecuted many of the s&l executives was bill black, now teaching mmt at kansas city u. his book "the best way to rob a bank is to own one" explains in detail the criminal nature of american banking.

 

There isn't enough gold in the world to go back to using gold, so the issue is moot.

Well, not really. It is possible to operate in a low inflation environment. We don't want to go below about 2% average because having inflation drop below 0% means we force up real interest rates which slows the economy.

Greenspan who brought us the 2008-09 disaster?

There was plenty of graft when we used the gold standard.

The real issue is around a failure to encourage economic growth. Between business that wants to invest overseas and environmentalists who automatically oppose just about everything, even new transmission lines for electricity, it's no surprise we have slow economic growth.

Our best hope is for moderates and conservatives to encourage real pro-growth policies. Liberals have been captured by environmentalist ideologues and there are too many Paul Ryan conservatives.

 

I appreciate you sharing this. It caught my eye because I'd recently read an argument that increased savings helps prosperity by funding innovation which is critical to maintaining consistently high economic grow.

So, I pulled some data on the Fed Funds rate vs GDP growth and I'd like to get your thoughts.



Running my eyeballs over that, I see one situation until 1967, where a time of high GDP growth seems to be brought down by a steadily increasing Funds rate, and it flips over to a new era of very high rates that drive down GDP growth an era that continues to 1992. Savers must have loved that period, you could put your money in savings and it looks like, enjoy a very good real return.

From 1992 to 2009, the effective fund rate is up/down over real GDP growth.

Then since 2009, GDP growth is much lower than previous decades, and the effective funds rate is consistently below the GDP rate. I think you are very much right about the unnecessary barriers to innovation and economic growth, and then given our tremendous national debt, that we have to keep interest rates down in order to keep debt service costs in a range that we can handle.

Greenspan retired in 2006, and as you can see, he did raise rates, but many of us thought he waited too long, probably due to overconfidence. He also seem shocked at how recklessly the big banks had conducted themselves. In short, he underestimated their poor judgement and overestimated his ability to clean it up.

Gold started appreciating after 9/11/01 and Greenspan didn't start aggressively defending the dollar with hikes until gold had more than doubled in price, and he missed the boat, and Bernanke missed it also. If Greenspan would have started hiking when Gold started surging, he would have caught the bubble while it was still small, and likely, the last two decades would have played out much differently.



We've also been at constant war since 9/11 and that's a lot of money spent on killing and breaking things, not improving anyone's standard of living.

Probably, but, taking the restraint off money formation sure made running up the federal debt, easier.



I think we need a Balanced Budget Amendment to the Federal Constitution.

Interesting points.

 

We're better off investing than consuming.

Super-low interest rates discourage savings. Investing is too much of a crapshoot for lower- and middle-income Americans who "invest" in their homes. Unfortunately, the eventual home buyer is also forced to invest in real estate just to have a place to live. Low-income people can't buy a home or invest because their income is sucked up in rent. Homes, as you know aren't productive assets--did you ever see a home make anything?

Why the super-low interest rates? Because government is afraid to tax higher income folks who can afford to pay. Instead, government borrows and low interest rates make it a lighter burden for government. We could have somewhat lower interest rates at the moment if we put a surtax on high-income folks to hold down spending. Instead, we're raising rates which forces a lot of the lower spending pain on low- and middle-income folks.

The worst thing has happened--Republicans have joined Democrats in borrowing to finance government, so there's no one supporting taxing to pay our way. Low-income folks can't save (they pay high rent), can't buy a home, and can't earn a decent living. We have government programs to keep them afloat when we should have a system where average folks can earn a decent living and pay their own way.

This is a very simplified version of a more complex problem that involves increasing returns to capital, foreign trade and increasing competition from areas of the world now fully recovered from WW2 and moving away from socialism.

George H.W. Bush raised taxes and was killed by his own (Perot was a radical conservative). Slick Willie raised taxes and lost control of Congress. Both did the right thing. Republicans capitalized politically and used it their power to loosen controls on banking that lead to the 2008-09 banking crisis and recession.

Hopefully, we have only been digging a hole, not our grave.

Cut government spending? Difficult when many low-skill workers are far worse off than they were 40 years ago. If people can't afford the basics, cutting supports could bring on serious political instability. It already gave rise to Trump. Hillary was more interested in saving the planet and promoting the wellbeing of upper-middle women than in looking after lower- and middle-income folks. Trump said he would help lower- and middle-income folks, then didn't. Paul Ryan and the traditional Republicans wanted the tax cuts to go to rich people. Trump caved.

Average folks have no friends. They've been put at each other's throats. Lower-income white folks aren't causing problems for blacks, nor are lower-income black folks causing problems for whites. The solution isn't for low- and middle-income folks to take it out on each other.

The correction will be realized if and when someone comes along and focuses on the real problems.

Greenspan knew what was going on. If @LangleyMan knew, Greenspan knew, too. He waited because Dubya and Republicans wanted low rates. Having a recession in 2005-2006 when things weren't going well in Iraq wouldn't have been good for Republicans' health. The Bush tax cuts created a structural deficit because they didn't pay for themselves.

Home prices peaked in 2006, Republicans lost Congress, and a recession and banking crisis put Obama in the White House.

Gold reacts to instability and isn't a cause.

There are true bad guys in the world and we can't afford to ignore them. What we shouldn't do is start wars we don't need to fight--Vietnam and Iraq in 2003. I think we failed to make it clear to Saddam he needed to keep his hands off Kuwait, so we might have avoided the Gulf War, too.

As they say, "Right church, wrong pew." I don't see how we could possibly get an amendment without a huge majority of pols who want to pay with taxes for whatever level of government we choose to have. If we had such a majority, only possible if we also have some consensus on how much to spend, we would see an end to the problem that pushes you to look for an amendment.

Too bad the real problems are hard to understand for most people who are miseducated in school and by the media. They can understand because I taught high school students and saw them get it.

So, what are we arguing about these days? Phony school problems, abortion, gun grabbing and the old staples of racism and the war on drugs.

 

All good points. The Balanced Budget Amendment would require the agreement of 38 State Legislatures and using Article V does not require the agreement of a single federal politician, so while I agree that there will never be federal support for it, that doesn't mean that the States can't impose it. The trick is getting the agreement of 38 states. Not an easy path, and I only support because I've run out of other ideas.

1. Vermont D+16 Republican Democratic* 1D
2. Massachusetts D+15 Democratic Democratic 9D
3. Hawaii D+14 Democratic Democratic 2D
4. Maryland D+14 Democratic Democratic 7D, 1R
5. California D+13 Democratic Democratic 40D, 12R
6. New York D+10 Democratic Democratic 15D, 11R
7. Rhode Island D+8 Democratic Democratic 2D
8. Washington D+8 Democratic Democratic 8D, 2R
9. Connecticut D+7 Democratic Democratic 5D
10. Delaware D+7 Democratic Democratic 1D
11. Illinois D+7 Democratic Democratic 14D, 3R
12. New Jersey D+6 Democratic Democratic 9D, 3R
13. Oregon D+6 Democratic Democratic 4D, 2R

Assuming the rest of the states were on board, it would come down to adding one of these to the 37 below.

1. Wyoming R+25 Republican Republican 1R
2. West Virginia R+22 Republican Both 2R
3. North Dakota R+20 Republican Republican 1R
4. Oklahoma R+20 Republican Republican 5R
5. Idaho R+18 Republican Republican 2R
6. Arkansas R+16 Republican Republican 4R
7. Kentucky R+16 Democratic Republican 5R, 1D
8. South Dakota R+16 Republican Republican 1R
9. Alabama R+15 Republican Republican 6R, 1D
10. Tennessee R+14 Republican Republican 8R, 1D
11. Nebraska R+13 Republican Republican 3R
12. Utah R+13 Republican Republican 4R
13. Louisiana R+12 Democratic Republican 5R, 1D
14. Indiana R+11 Republican Republican 7R, 2D
15. Mississippi R+11 Republican Republican 3R, 1D
16. Montana R+11 Republican Both 2R
17. Kansas R+10 Democratic Republican 3R, 1D
18. Missouri R+10 Republican Republican 6R, 2D
19. Alaska R+8 Republican Republican 1D
20. South Carolina R+8 Republican Republican 6R, 1D
21. Iowa R+6 Republican Republican 4R
22. Ohio R+6 Republican Both 10R, 5D
23. Texas R+5 Republican Republican 25R, 13D
24. Florida R+3 Republican Republican 20R, 8D
25. Georgia R+3 Republican Democratic 9R, 5D
26. North Carolina R+3 Democratic Republican 7D, 7R
27. Arizona R+2 Democratic Democratic* 6R, 3D
28. Pennsylvania R+2 Democratic Democratic 9D, 8R
29. Wisconsin R+2 Democratic Both 6R, 2D
30. Michigan R+1 Democratic Democratic 7D, 6R
31. Nevada R+1 Republican Democratic 3D, 1R
32. Minnesota D+1 Democratic Democratic 4D, 4R
33. New Hampshire D+1 Republican Democratic 2D
34. Maine D+2 Democratic Both* 2D
35. New Mexico D+3 Democratic Democratic 3D
36. Virginia D+3 Republican Democratic 6D, 5R
37. Colorado D+4 Democratic Democratic 5D, 3R

 

I just don't see it happening at the state level without significant federal support.

Both major parties have been happy to run budget deficits to avoid increasing taxes or cutting spending.



Those of us who don't want to run up debt may as well shout into a barrel.

I want to fix our system so workers can earn a living and take care of themselves. We have a terrible situation where we create government programs to help workers keep food on the table instead of workers having the dignity of doing for themselves.