Nearly half the money — $143 billion — went to holding companies for the two major banks that failed over the past week, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets.
$45B wasn't conjured out of thin air to cover deposits. It came from the ~$100B Deposit Insurance Fund administered by the FDIC.
This new program of swapping long term securities with low interest rates with ones at higher rates is a different story. That's coming out of thin air.
No, that's not accounting fiction. The DIF exists and it's assets were valued at ~$100B last week.
Whether or not the FDIC ceiling should have been raised is again a different question, and one in which I lean toward "No":
I’ve been going back and forth on this. I’m starting to lean towards that they shouldn’t have insured depositors and should have guaranteed payroll up to a certain amount instead. These companies put all of their eggs into one basket because it paid a higher return, which means higher risk. Not only the bank, but many of their customers have fought against regulation or stayed quiet while the banking industry and SVB pushed to be exempted from regulation. If they want their cash fully insured, then depositories should, at the very least, be regulated like public utilities.
https://hexbear.net/post/256772/comment/3313649
The definition of a bailout is the government stepping in to save a company from collapse. That did not happen for any of the three banks. Their shareholder equity and the creditors claims have been wiped out. Whether or not insuring deposits counts as bailing out depositors is up for debate, I can see that going both ways. The other banks that are getting to participate in this security swap program are getting bailed out.
Why are you saying they’re being drawn from one place and not the other when it does not matter?
Because it does matter. The DIF is funded by premiums assessed to banks by the FDIC. The FDIC is separate from the Fed and doesn't have money printer capabilities the same way the Fed or Treasury do with this new securities swap program.
If capitalists wanted to cover their counterparty risk a mechanism exists for that, which we all became familiar with after 2008: credit-default swaps.
Credit-default swaps are for bonds, not bank deposits. They could have used CDARS or ICS up to a certain amount to have their deposits fully insured, which again goes back to the point in my quote that they put all their eggs into one basket in return for higher interest rates on their deposits.
There is no compelling argument against calling this a bailout
This new program of swapping long term securities with low interest rates with ones at higher rates is a different story. That’s coming out of thin air.
If you still have any patience for this conversation, what do you mean by this? Are you talking about the expanded discount window, or is there something in addition to it that developed after the BTFP was set in place through the something or other systemic exception?
I'm talking about both, but the BTFP is more egregious in my opinion than the changes to the discount window. This discount window serves a purpose that I can at least understand in terms of providing short term liquidity. Allowing the banks to basically dump their bonds with the BTFP for a year is a way to keep their profits high instead of letting them rightfully take a bath on their poor asset management. They say it's about liquidity, but I suspect that it's much more about actual solvency, in how SVB "technically" had a liquidity problem, in that their assets weren't capable of generating enough revenue to cover deposits, and that is because if their assets would have been marked to market, they would have also been (and did end up being) insolvent.
What is more egregious is that they are allowing collateral in both the discount window and the BTFP to be valued at par (the face value of the bonds) instead of marked to market, meaning that collateral will be worth less and less as the Fed continues doing the Volker summoning ritual to kill labor gains. The discount window has been around for a long time, but valuing collateral at par is new.
$45B wasn't conjured out of thin air to cover deposits. It came from the ~$100B Deposit Insurance Fund administered by the FDIC.
This new program of swapping long term securities with low interest rates with ones at higher rates is a different story. That's coming out of thin air.
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No, that's not accounting fiction. The DIF exists and it's assets were valued at ~$100B last week.
Whether or not the FDIC ceiling should have been raised is again a different question, and one in which I lean toward "No":
https://hexbear.net/post/256772/comment/3313649
The definition of a bailout is the government stepping in to save a company from collapse. That did not happen for any of the three banks. Their shareholder equity and the creditors claims have been wiped out. Whether or not insuring deposits counts as bailing out depositors is up for debate, I can see that going both ways. The other banks that are getting to participate in this security swap program are getting bailed out.
deleted by creator
Because it does matter. The DIF is funded by premiums assessed to banks by the FDIC. The FDIC is separate from the Fed and doesn't have money printer capabilities the same way the Fed or Treasury do with this new securities swap program.
Credit-default swaps are for bonds, not bank deposits. They could have used CDARS or ICS up to a certain amount to have their deposits fully insured, which again goes back to the point in my quote that they put all their eggs into one basket in return for higher interest rates on their deposits.
What's SVB's current stock price?
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No, it's how capitalists value owning one share of equity in SVB. What's the current price?
Which can be answer by answering my above question.
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Are you talking about the accounting scandal that sent executives to jail and turned the Big 5 in the Big 4?
deleted by creator
21 people were convicted over Enron.
If you still have any patience for this conversation, what do you mean by this? Are you talking about the expanded discount window, or is there something in addition to it that developed after the BTFP was set in place through the something or other systemic exception?
I'm talking about both, but the BTFP is more egregious in my opinion than the changes to the discount window. This discount window serves a purpose that I can at least understand in terms of providing short term liquidity. Allowing the banks to basically dump their bonds with the BTFP for a year is a way to keep their profits high instead of letting them rightfully take a bath on their poor asset management. They say it's about liquidity, but I suspect that it's much more about actual solvency, in how SVB "technically" had a liquidity problem, in that their assets weren't capable of generating enough revenue to cover deposits, and that is because if their assets would have been marked to market, they would have also been (and did end up being) insolvent.
What is more egregious is that they are allowing collateral in both the discount window and the BTFP to be valued at par (the face value of the bonds) instead of marked to market, meaning that collateral will be worth less and less as the Fed continues doing the Volker summoning ritual to kill labor gains. The discount window has been around for a long time, but valuing collateral at par is new.