House of Cards

Great Moments In Socialism It's Probably Nothing 37 Comments

When even the leftist corporate media starts to pick up on the perilous state of the banking system, you know things are going to get a lot worse. This is what zero percent interest rates get you combined with government sanctioned accounting tricks that let you invent whatever asset valuations suit you.

For a glimpse at why the recent banking mayhem might be far from over, consider two numbers.

Total capital buffer in the U.S. banking system: $2.2 trillion.

Total unrealized losses in the system, as calculated in a pair of recent academic papers: between $1.7 trillion and $2 trillion.

In other words, if banks were suddenly forced to liquidate their bond and loan portfolios, the losses would erase between 77 percent and 91 percent of their combined capital cushion. It follows that large numbers of banks are terrifyingly fragile.

 

37 Replies to “House of Cards”

  1. “In other words, if banks were suddenly forced to liquidate their bond and loan portfolios, the losses would erase between 77 percent and 91 percent of their combined capital cushion. It follows that large numbers of banks are terrifyingly fragile.”

    That’s….silly. Yes, if banks had to liquidate everything it would be a disaster. That’s just not scenario worth worrying about.

    1. And you’re okay with that type of business model?
      It seems flying on the seat of your pants has way too many risks. Just because everyone is doing it is no reason for copying it.

      1. I’ve seen situations where Canada’s financial regulator has stuck its head in the sand or allowed rules to be changed to give aid and comfort to financial institutions that are in trouble. In some cases the bet goes the right way and things work out; regardless it is an abdication of responsibility as it becomes a pyramid scheme suckering in new customers who are unaware. Other cases are still being played out but a compliant regulator can hide trouble for a very long time.

  2. The banks, are they worried?
    Heh, I laugh.
    Biden and congress will take care of them.
    Those that run them will keep the millions they scammed out.
    The family that put their savings there?
    Well, I laugh again, why would Biden and congress care beyond the lip service.

  3. Someone is always making the case that we’re on the brink of economic disaster. Occasionally they’re right, usually they’re wrong.

    2. Thing is, the past two decades of sub-mediocre economic growth *is* the disaster. The 2008 GFC was a partial healing that was aborted (that we’re still wildly better off for having) and the coming Purge will be the next round of healing. After that, quite possibly an era of serious prosperity.

  4. The extremely rapid rise in interest rates brought this to the fore. You cannot fix supply side shortages by increasing interest rates.
    But you can destroy the economy and throttle even basic demand down to subsistence levels to “balance” the demand with the short supply. Which is what Powell is doing – he admitted in congressional testimony.

    I posted on another thread the Fed stress tests and forecasts for 2022- 2025. The Fed – the guys who set interest rates – did not forecast the rapid increase. Now the 2023- 2026 stress test has built them in.

    Fed is just another co-opted institution.

    1. Au contraire it’s the supply side shock that brought the situation to fore after it was potentiated by decades of loose monetary policy.

      And no this is not about supply side issues at least not anymore. The supply chains are working (as well as governments will let them). You can predict basically every country’s inflation problem by looking at its M2 growth far enough back. Pure Monetarism. It’s Milton Friedman’s world, we just live in it.

      1. Au contraire our ENTIRE inflationary spiral can be traced to a SINGULAR cause … the spiraling cost of energy. That’s it. It’s not supply or demand … it’s INPUT COST. Yes, spikes in lumber prices were caused by demand … but that demand subsided and prices have fallen long before The Fed even called inflation “transitory”. The marketplace did what the marketplace does. But the cost of EVERYTHING … esp. FOOD is caused by a lack of energy SUPPLY. That was caused by one Joe Biden and his puppeteers in the church of Global Warming.

        We desperately NEED Donald Trump to restore the flow of cheap, abundant, energy. That … and that alone … will solve the economic catastrophe. Otherwise … we are looking at a decade of economic malaise, and Jimmy Carter sweaters indoors.

        1. Nope. Inflation is centered in services, which rules out energy or the supply side issues. That leaves M2.

          Trump had his chance to deliver cheap energy and delivered import taxes and more bad monetary policy instead. Oh and he’s probably going to jail lol.

        2. Canada 3Xed its money supply in two years…

          Energy prices are the only (singular cause)?

          No… That is demonstrably false. Commodities do not change. The subjective value of a dollar does however.

          1. I’ll cede that … tripling the amount of plastic money and swelling the National Debt was the OTHER cause. That’s two. Simple.

        3. Trump wont be back to save us.
          He is to be indicted on Tuesday and perp walked in cuffs, he said as much on Truth Social.
          Stormy Daniels is coming back to haunt.
          The commies are throwing everything they have at him including the kitchen sink to see what sticks.
          If they can create the illusion of criminality , they can keep him out of race.

  7. I’m not a banker or a fan of unme but if banks liquidated their bond and loan portfolio what assets would they have left? Their logo?

    1. Depositors are creditors to the bank. No different than creditors to any business. Once those creditors take notice that the borrower only has enough value in the business to cover a fraction of their debts, they will start calling in the loans. The first ones to show up might get all their money, but the rest will get progressively less and most none at all.

      Better to be a year early than an hour late.

  8. Nothing to see here folks. Move right along. Just a minor liquidity problem like in 2008. We fixed that with some QE.
    AND conveniently ignore the decade of ZIRP and credit expansion to reinflate the assets prices and blow a bigger bubble yet.
    ZIRP came a horrid price to the savings of moms and pops. Now ZIRP induced inflation is chewing up what is left of savings.
    Others believe in a free lunch and have become accustomed to that lifestyle based on blowing asset bubbles like the smoke out of their asses.

  9. Wait til Turdeau announces Bail-In provisions that Harper quietly passed after the GFC.

  10. Each and every windmill and solar panel was financed with a zero % interest rate.. I look back at the 2008 crash and wonder if the solution to that was the goal all along..

  11. Ain’t Can Ahh Duh the debtors of 9 Trillion Dollars?
    Every past Empire of man has collapsed.
    Usually by spending vastly more than they earned,debasing the currency of the realm to hide that indebtedness,until lead slugs were refused by traders..
    Then WAR was employed,either to steal enough to buy the empire more time,or to reduce it to ashes..
    A tired,old and very effective playbook.
    We are being marched off to war.
    Because our Dear Leaders have stolen,wasted and destroyed more wealth than we can produce..
    As rumbling of discontent grow and as the mob (Democracy) seeks to reward these same Dear Leaders,WAR will be declared.
    Even more massive thefts of wealth and resources will be accepted and all those outspoken seekers of Justice,will be declared “Enemies of the State” and murdered.
    Ask Dietrich Bonhoeffer how that worked out for him..
    At least he got time to leave behind a warning,unlike so many others buried in mass graves and old ditches.
    Our Statist Thugs are “The Enemy”.
    And they know it.
    Most of us,seem unwilling to consider the possibility..
    Until too late.
    When a man comes forth,promising free stuff and endless wealth,at the expense of others..
    He is not your friend.
    But he for sure sees you as a fool.
    A Gullible Fool.

    1. “ They want you to panic. Just like with COVID.”

      They succeeded with the COVID panic. Unfortunately with this, a successful panic causes the run on the banks, and those skeptics that don’t believe/don’t act are the ones who come last and find out the bank is empty. As was said above, with this it’s better to be a year early than an hour late.

      RNrn

    2. Both panics are born of threats to our very lives. We were FEARFUL of rampant COVID death (fraudulently exaggerated) and to lose all your money is to lose your life … bankruptcy is an existential threat.

      Death by disease
      Death by hunger and homelessness

      Yeah … when The State wants you scared … they go for your throat and your balls.

      1. And, at its heart, the “Man-made Global Warming” fabrication is a government scare tactic.

  13. Employing simple risk management where you match the timing of long term assets with long-term liabilities and there is no problem. Lending out 10 year 2.5% mortgages funded by short-term borrowing will eventually lead to disaster. A whole generation of bankers, likely diversity hires, have never had to worry about such things because of the relative stability of interest rates for almost 40 years. Huge banks that failed to employ risk managers had stables of pronoun police. It was the mini-Madoff amateur show all over again. Stupid people should be allowed to go broke.

    1. My 2.5% mortgage is for 30 years. Anyone who didn’t GRAB that kind of “free” money was a fool.

      1. I’ve spent the last 20 years telling clients and anyone who will listen to go long-term on mortgages. The downside of floating rates was so much more disastrous that the upside. The upside was gaining 1/4 points going short was nothing compared to the risk of a 20% increase and living on the streets. A lot of fools thought saving that 1/4 point was a sign of genius. Kind of like everyone bragging how rich they were before the .com bubble popped.

  16. I knew this thread would have alla unDORK acting like the south end of a north facing BULL, that has diarrhea.

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