I get it.. they’re going belly up and not protecting the little guy taxpayer. Amd we’re all screwed
But how does it trickle and spill over from one to another? How is the stock market tied in, gold and silver tied in, China/Russia, fed reserve printing like its going out of style, hyperinflation, bailing out other countries banks. WTH? So confusing!!!
Any links or info I can use to fully understand this would be Great!
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I can take a stab and a couple of items you listed.
Banks practice fractional reserve lending/investing. That means that they are required to keep a minimum amount of the money you deposit on-hand (maybe 10%). The rest they can lend out, or put into investments. If everyone goes to get their money out, it's not there. But the FDIC insures your deposits up to $250K. That's meant to keep people from demanding their money in a panic. We'll see.
A bank should keep their leverage down to 4:1 or so -- for every $5 dollars deposited, they use $4 of it as they see fit. Investment banks can go up to 8:1. SVB was leveraged at 180:1!
So when a big customer like Peter Thiel withdraw his substantial Founder's Fund, SVB couldn't cover it. Normally that's not an issue -- the bank just sells some investments, most likely 10 or 20 year T-bills. These are bonds that have a good return, and are "safe". They even come with a tax break. But with the interest rates being jacked up, the yield curve has inverted, which means that the long term bonds are underwater and sell at a loss.
The yield curve shows what bonds pay. Arrange bonds by maturity period from left to right with short term on the left, and long term on the right. Then plot the rate each pays. In normal times you will get a curve that is low on the left, building to a peak on the right, because a 4-week bond pays less interest than a 10-year bond. You are rewarded for tying your money up for so long, and taking more risk. But now, things are upside down, or inverted, the 4-week bond you can buy now is, because of the interest rates, paying more than the 10-year bond you bought a couple months back, at much less risk to boot. And no one will buy your underwater bond at anything near par -- they will want a 30 to 40% discount, so if you need money in a hurry to cover withdraws, you are going to have losses, and the more leveraged you are the greater those losses will be.
Janet Yellen has essentially said that the FDIC and the Treasury will cover all losses, even for uninsured deposits. Something that is impossible to do: insured deposits are at $11 trillion. Add in the uninsured and it's $18 trillion. The US GDP is around $20T, and the national debt is around $31. She is smoking dope.
That fractional reserve part is zero percent. I forget when it was removed, probably covid 2020. Fdic is broke, they maybe have a penny per person. But no one is getting their money unless the are part of the cult
The examiners still require reserves, the FDIC has removed them. The bank doesnt loan out 90% of your money and save 10 percent. They take your 100 dollars and get 900 from the discount window, which is "printed" by the fed, and loan that out. The pay 4% interest to you for your 100 and receive interest payments up t0 25% or more on the 900 they borrow at prime. Without doing the math its obvious they are turning a huge profit on your money. When you withdraw your money, they no longer have the reserves they need, so they must raise what they pay out on cds and money markets to get their reserves back up. The money printed for the loans is what causes inflation, conversely the paying down of loans causes deflation. The 10% reserve no longer exists, except for examiners (States charter banks) and when they allow those reserves to drop to a smaller percentage, the banks make more profit, but the risk of a run increase exponentially. I believe we will find that examiners in CA lowered the reserve requirements to yield higher profits, and as a result caused the bank runs without anyone standing in line. This is what fractional reserve banking is, and this is why you are seeing bank failures, it is by design. After the banks fail, the "too big to fail" banks buy up the assets of the smaller banks for pennies on the dollar and the competition is gone. Remember, the FED is owned by the "too big to fail" banks. However, in this case no one stepped up to buy SVB. Why? either it is backed by worthless loans, or the Biden administrations paln is for a complete failure of the banking system, CBDC to the rescue.
This is a very good explanation!
Thanks, but it is in no way complete.
I actually modified my 401k to be more aggressive on the off chance that if the market ever recovers, that I would have something lol. But maybe I'm wrong. I am only counting on money developing in a short period of time