SVB passed its stress tests with flying colors. It also passed its FDIC examinations, its financial audits, and its state regulatory audits. SVB published its 2022 annual financial report after the market closed on January 19, 2023. This is the same financial report where they posted $15 billion in unrealized losses which effectively wiped out the bank’s capital. The FDIC saw Silicon Valley Bank’s dismal condition and did nothing. The Federal Reserve did nothing. Investors cheered and bid the stock up, writes Sovereign Research and Advisory Group.
Since the 2008 financial crisis, legislators and bank regulators have rolled out an endless parade of new rules to prevent another banking crisis. One of the most hilarious was the new rule that banks had to pass “stress tests”, i.e. war game scenarios to see whether or not banks would be able to survive certain fluctuations in macroeconomic conditions.
…A week ago, everything was still fine. Then, within a matter of days, SVB’s stock price plunged, depositors pulled their money, and the bank failed. Poof.
The same thing happened with Lehman Brothers in 2008. In fact over the past few years we’ve been subjected to example after example of our entire world changing in an instant.
We all remember that March 2020 was still fairly normal, at least in North America. Within a matter of days people were locked in their homes and life as we knew it had fundamentally changed.
This is the financial catastrophe, but it’s just getting started. Like Lehman Brothers in 2008, SVB is just the tip of the iceberg. There will be other casualties– not just in banks, but money market funds, insurance companies, and even businesses.
Foreign banks and institutions are also suffering losses on their US government bonds… and that has negative implications on the US dollar’s reserve status.
Think about it: it’s bad enough that the US national debt is outrageously high, that the federal government appears to be a bunch of fools incapable of solving any problem, and that inflation is terrible.
Why would anyone want to continue with this insanity? Foreigners have already lost so much confidence in the US and the dollar… and financial losses from their bond holdings could accelerate that trend.
This issue is particularly of mind now that China is flexing its international muscle, most recently in the Middle East making peace between Iran and Saudi Arabia. And the Chinese are starting to actively market their currency as an alternative to the dollar.
But no one in charge seems to understand any of this.
The guy who shakes hands with thin air insisted this morning that the banking system is safe. Nothing to see here, people.
The Federal Reserve – which is the ringleader of this sad circus – doesn’t seem to understand anything either.
Even after last week’s banking crisis, the Fed probably still hasn’t figured it out. They appear totally out of touch with what’s really happening in the economy. And when they meet again next week, it’s possible they’ll raise rates even higher (and trigger even more unrealized losses).