Bill Bonner’s grandson got the right grandpa. From Bill Bonner at bonnerprivateresearch.com:
From banking crises to our chapel on the ranch, a look at solid foundations
(Source: Getty Images)
Bill Bonner, reckoning today from San Martin, Argentina…
As predicted…when the fight gets tough, the Fed takes a dive.
That is what we are watching now…in slow motion.
After the crisis of ’08, the feds insisted that the banks hold more reserves. They were told to buy safe, government debt – T-bonds. The Treasuries were supposed to be financial ballast, designed to keep them safe in a market squall.
Oh, if only Mother Nature, in all her guises and disguises, would cooperate!
A storm blew up last week. Now loaded up with Treasury debt, banks are much more solid – on paper – than they were in 2008. But what happened? The ballast sank. And two banks sank with it.
Foxes in the Henhouse
The California bank, Silicon Valley Bank, has a CEO, Greg Becker, who was also a director of the San Francisco Fed. The New York bank, Signature, has none other than Barney Frank, who, along with Elizabeth Warren, actually wrote key parts of the 2010 bank regulations.
But neither regulators nor regulations saved them. As interest rates rose, fixed-return assets, notably bonds, were not as valuable as they had been before. Two years ago, you could get only a 1.5% yield from your 10-year Treasury. Today, the yield is 3.7%. The income stream from the old bond is now worth only half as much as it was. Which means, the value of the banks’ reserves – their balance sheets – fell. As this continues, more banks can be expected to get into trouble. And the Fed will have to bail them out. Or give up its interest rate hikes altogether.