POP! Goes the Weasel

I remember playing that game as a child, lalalala...pop! Goes the Weasel! It was fun because everyone knew what was going to happen but not exactly when; the suspense and the anticipation made it exciting so everyone got an adrenaline rush when it popped. That is a good analogy since last week, anyone holding their deposits at Silicon Valley Bank (SVB) got quite the adrenaline rush when it was announced the the Feds took over the bank in what is now being called the biggest bank failure since the financial crisis of 2008. POP!

What's coming next is going to make 2008 look like a walk in the park.

Anyone who is surprised by this development hasn't been paying attention (or reading this blog). All of the signs have been plain to see for years and even decades. Most recently there was a major disruption in "the farce" on September 17th, 2019 when the REPO market exploded to 10% for overnight capital. That was quickly papered over with Trillions of freshly printed dollars which have been steadily pumped like a fire hose into banks ever since. The last calculation I read was $130 Billion daily. DAILY!!

You might ask, how on earth can banks be insolvent when the fed keeps printing so much? The answer is simple: LIQUIDITY IS NOT THE SAME AS SOLVENCY.

I remind my dear readers something I have written about and even spoken with many of you personally time and again; in 2014 the Dodd-Frank Bill which was ostensibly meant to keep the financial crisis from ever happening again was a Trojan Horse legislation that transferred responsibility to cover losses at failed banks from the Government to depositors. That's right! As the law stands right now money in YOUR account doesn't belong to you, it belongs to the bank. want proof? read this:

"All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."

How many deposits are insured? 4% - that means 96% of deposits at SVB are "Uninsured depositors" who will receive an "advance dividend" of their own money, get it? furthermore it says:

"As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."

"May be made" means "if we want to" - check out the chart below to see the percentage of "Insured" deposits at the top 100 banks:(SVB is #99, or at least it was)

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Even the "Insured" accounts are only covered up to $250,000. Any amount above that is uninsured and is a liability of the bank to the deposit holders who, in the even of a bank failure, become "unsecured creditors" to the bank - good luck getting your money if they go into receivership.

There's more though; the money at SVB wasn't just mundane passbook savings accounts. There were (are) Billions from companies and corporations directly tied to their operations like Accounts payable and payroll - this week, unless the Fed jams their money-printer to full-on and covers every penny, there will be massive fallout.

For those who read this blog regularly you might recall how I have repeatedly warned of coming disruptions in banking. The SVB failure might pass for now but make no mistake, the problem that caused this is everywhere and, now, a lot more people know it. Just ask the ones standing in the long lines outside SVB on Friday trying to withdraw their money.

"I don’t expect a cascade of bank runs immediately and the Fed & Government will respond over weekend. However the fuse has certainly been lit." - Ed Dowd

But wait, there's more! Have you heard of "stable coins" or "Tether"? they are the one-to-one dollar value "coins" used to purchase Crypto like Bitcoin -I never understood why they were needed since one could simply use dollars, right? Wrong. Now there's trouble with the one-to-one dollar peg:

"Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB." (USDC is "stable coin" - they're gonna need a new name for that)

The SVB failure has the potential to be way more than just a "woke' dumpster fire -this will reverberate throught the system making other banks who might be operating on fumes especially vulnerable as business owners and retail deposit holders start to gradually, then suddenly decide to go to cash for safety.

I'm a lender, not a journalist. I write this blog in a very humble effort to inform and educate anyone kind enough to suffer through my poor writting skills. Please forgive me if I am overly long-winded but there is way too much to cover here and it's getting late.

This too shall pass, God bless you all!

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