Yet More Bank Garbage

Trump and his minions are claiming the recent bank failures were caused because those banks were "woke".  As with everything else having to do with their use of that word 1) it's meaningless, and 2) it's just being thrown out there to provide cover for the accusers' wrongdoings.

Immediately after taking office, Trump took steps to "relieve community banks" from the evils of Dodd-Frank.  SVB was a community bank the way Elim Garak was a plain, simple tailor.  Once again Der Drumpfenfuehrer and the Reich Wing Media are lying.  There is no way they can connect these dots so they have meaning for anyone other than their tin-foil-hat minions.  The actual dots lead straight to Trump.  In standard GOP form, Trump lifted a bunch of Dodd-Frank liquidity regulations for no reason other than "Regulations BAD!"  (If I were to let my more cynical side run, I could say he also did so to facilitate grift by financial executives, but....).  SVB, which had become Deposit and Clearing Central for a number of crypto companies, now had effectively all of its cash reserve requirements removed.  SVB took the newly freed cash and put it with most of its other investments, buying long Treasury bonds (This was actually a fairly prudent move.  Under normal circumstances.).  Then FTX failed, and seismic shock waves moved through the crypto community.  People decided to cash out of crypto, and the crypto companies had to make large withdrawals from their SVB accounts to cover.  So the run wasn't actually on SVB; it was on the cryptos, who then made withdrawals on their accounts.  The problem was SVB didn't have the cash on hand.  It had to raise it, and that meant selling its Treasury bond positions.  Unfortunately, the Fed has been raising interest rates, and when that happens the value of older bonds goes down because they have the older, lower rates.  SVB had to sell its bond positions at a discount, which left it short.  Also unfortunately, much of the rest of its investment positions were loans back to its depositors, and since those loans had been made with the deposits that were now being drawn on, SVB had a liquidity loop going nowhere.   On top of that SVB was going to have to mark these investments to market, and since they had lost value, that meant its assets would have to be written down.  It was teetering on insolvency when DFPI and FDIC walked in.  This doesn't address some the shadier insider moves, nor does it address just how much cash reserve would have been needed to shield SVB from its crypto positions, but Trump's moves definitely let SVB's executives bury it roof-deep in a mud hole.

It Isn't Just a Residential Crisis

There's been a lot of noise about the housing market, bad mortgages, and banks failing as a result. People haven't been paying as much attention to the next real estate tsunami: commercial loans. The retail failures and dark spaces have been chipping away at commercial, though, and now it can't be ignored. The state seized commercial development lender MagnetBank Friday. If that isn't bad enough, the FDIC is having to eat this one because it can't find a buyer. What does that mean? Game over. In spite of the bailout money, no other bank could be convinced to buy in. The commerical picture is that grim. And what does that say about the effect the downtown mall and office buildings will have on the market? Or the odds of completing Cottonwood, Valley Fair, Sugarhouse, or the downtown Ogden projects? Or of filling the growing collection empty, faux-Tuscan commercial buildings that have sprouted up everywhere? There will be blood.

It's Over

No, not the End of the World, drama queens, but certainly the end of the American way of doing business. From the first colonists to now, the US economy has been based on the single-family home. Industry, energy, transportation, fiscal policy, everything was geared toward home ownership. That's what Fannie and Freddie were all about: keeping the cost of buying a home down. Now they're gone. They held half the home mortgages in the US, so there is simply no way this will not make it more difficult and more expensive to get a mortgage. Some pundits are claiming that the government takeover will ease the credit crunch and lower rates, but folks there's only so much debt Uncle Sam can absorb, and he's already up to his earlobes. Not all F&F paper will have to be covered, but a lot of it will be because they weren't exactly holding the best. And what happens when the FDIC come knocking (Silver States went down last week, and we're just getting started.)? Believe it or not, there is only so much to go around.

What happens now? Home ownership rates decline. Development capital shifts to rentals. At some point you'll see whole condo complexes convert to apartments.

Who wins? Who knows? The details are still fuzzy. F&F shareholders have one last chance to find suckers to sell to, so maybe they win. Bondholders have federal backing, for what that is ultimately worth. There are supposed sweeteners for home owners, but those are election year window dressing that will cause more trouble than they're worth.

I can tell you who loses, though: the US Taxpayer. I guarantee it.