Deception

“Tricks and treachery are the practice of fools that don’t have brains enough to be honest.” Benjamin Franklin

You have to love Benjamin Franklin who said so much with so few words. Here we have the best explanations not only for the recent bank failures, but those who rush in to save the day; not only were we initially told what later proved to be at best inaccurate, but then that there was nothing to worry about and further that the cure would not be at the tax payers expense. We’ve seen this movie before, as the saying goes, as most of us are still around who witnessed the “Financial Crisis”, so why the obvious deceptions?

We should start with the facts. SVB’s and Signature’s problems had nothing to do with crypto currencies any more than FTX’s problem, which was a Ponzi Scheme; such reports in the legacy media are at best deflections. These two banks were both very poorly managed; they bought assets such as USTs and MBSs when both had marginal yields and/or very low ratings, which comprised the majority of their assets. Now, with ever rising interest rates, these assets depreciated so much that even when sold, which was at considerable discounts, they failed to provide sufficient capital to meet the demand of depositors seeking higher yields or withdrawal of their money. What you had was a good old fashion bank run, something we were told back in 2010 the Dodd Frank Law was meant to avoid.

What we need to appreciate here is that the dilemma that these banks got into was created by the very government that came to save the day; both the Federal Reserve and the Federal Government has, through egregious print and spend policies, created high inflation, which in turn caused the need for ever higher interest rates. Further, that 2010 Dodd Frank Law, which required banks to meet high standards through what was called “stress tests”, was amended in 2018 with large bi-partisan support, lowering the standards for “medium and small” size banks in order to encourage lending.

On top of this, much of the lending by these banks was to high risk start-ups and “zombie” companies, adding to the risks already exposed by fractional banking levels greater than what was even now allowed, clearly a failure of both regulatory and supervisory practices and procedures. In fact, Gregory W. Becker, the CEO of SVB until the collapse, is a director of the Federal Reserve Bank of San Francisco, a clear conflict of interest. While it’s true that Barney Frank is on Signature Bank’s Board, he was not in public office at the time; however, it’s curious that in a recent interview he claims that the 2018 amendments to the law that bears his name had nothing to do with Signature’s collapse.

It remains to be seen if these bank failures, and the destabilization of some other “medium and small” banks, mostly regional but still important, creates a “contagion” similar to the 2008 Financial Crisis; we have been told that’s pure speculation and unlikely because this time it’s different. While it’s true that the circumstances differ as the 2008 crisis devolved from a bust in the speculative residential mortgage market as house values tanked below mortgage debt, creating a huge number of defaults, the results are basically the same, i.e. banks owned assets worth less than their liabilities. What we got was a huge bailout program by the Federal Reserve and Federal Government and the birth of “QE” as interest rates were cut to nearly nothing, and the Fed took on huge depreciated assets on their balance sheet, a practice that technically made the Fed insolvent.

Now with SVB we have the government paying higher than the FDIC $250K deposit insurance; we have to call it like it is as we have again another case of bailouts and corporate welfare at the taxpayer’s expense; for us to be told otherwise is insult on injury, which creates such a smoke and mirrors environment that we are left with the inevitable conclusion that such a deflection has become deception. Adding to that, we also have the case of First Republic Bank, a regional based in San Francisco providing wealth management for the rich. Following SVB’s demise those wealthy clients with deposits in excess of the FDIC’s insured limits headed for the exits. Under Fed direction a consortium of major banks lent $30B to address FRB’s distress; despite that, its shares continue to fall.

Pardon my skepticism, but isn’t this like a doctor spreading a disease among his patients as a remedy for one patient’s affliction? What happens to the lending banks should First Republic collapse despite the infusion of so much money? What we get from the administration is a blame for its predecessor as it was they who amended the Dodd Frank Law. What’s forgotten is that the amendment was a bipartisan action; as George Carlin famously said, “Bipartisan usually means that a larger-than-usual deception is being carried out.” What we need now is not blaming the past, but addressing the present to insure the future.

For Joe Biden to hold a press conference where he attempts to assure us that all’s well, that there’s nothing to worry about, and that the bailouts will not be at the tax payer’s expense, is a deception only the delusional would attempt. Add to this that both SVB and Signature made considerable donations for Biden’s election campaign and you have the makings of a deflection morphing as it usually does into a deception. That was only made worse by his turning his back on the press conference as he left it, refusing to answer any questions. Perhaps it’s true that there’s nothing more deceptive than the obvious.