When central banks started hiking short term interest rates in recent months, banks with balance sheets full of supposedly “safe” long-term treasury bonds suddenly found themselves staring at serious capital losses. But not to worry. Troubled banks can now offer up these assets as loan collateral at the Fed at purchase value instead of market value. And no one needs to know that they’re doing it. What could possibly go wrong?
https://twitter.com/JoeConsorti/status/1666946804892532738
It’s digits…not cash.
Cash is physical.
Not to worry … this is “NEW” monetary theory! Where governments can print ALL the dollars they want … to spend on all the STUPID, FAKE, things and people, err “infrastructure” they want with no ill-effect. It’s “progressive” monetary theory. And haven’t the “progressives” made everything so swell already!? Aren’t “progressive”, BLUE cities the shit? Sorry.
We need to dismiss the naysayers who believe in archaic things like the VALUE of money. Of course your neighbor will accept the same amount of devalued dollars for their services. Why would dollars ever become less valued? Our government can print all the money … digital currency it wants!
And the electorates of Western democracies keep sailing on in the SS Blissful Ignorance.
“suddenly found themselves staring at serious capital losses”
Only if they need to cash those bonds. Their market value drops significantly, but that alone does not create a cash flow issue.
A little panic and then the scramble to maintain required fractional reserves is all it takes – slowly at first, then, all of a sudden.
Yep. Deposit runs result in the underwater bonds being cashed, therefore real losses.
I think banks will learn to keep bigger cash reserves whenever interest rates may go up. Or go with shorter terms.
Why would bank executives learn?
They know they’ll get bailed out, and they’ll keep their bonuses too
They take risks, cash in on the upsides, and get bailed out on the downsides.
– And if worst comes to worst, they’ll be shown the door – and then go and retire on their $100-million-plus golden parachute. After all, (1) every bank exec who was fired last time got at least that much, (2) none of them were charged and ended-up in jail for their glaring and “interested” malfeasance, and (3) whoever is brought-in to clean-up the mess won’t come to work in the first place unless they’re promised at least the same amount.
– Adjusted upwards for inflation, of course.
Amen.
alla unDORK
Try schitt like that as a private citizen.
They would “Trump” you!
Allan, that is not correct. Those bonds generate interest at a rate far below what the banks must now pay for their deposits, or lose them to money market and other short term options available. That creates the cash flow problem. The capital value of the bonds merely reflects that reality.
In essence a secret bailout. Public bailouts led to accelerated runs.
What could go wrong? When failures occur the losses are greater than otherwise would have been. Good money sent after bad. Whole system put at risk. Or more money printed to bail out the wealthy as a stealth tax on the poor and middle classes.
It’s a roll of the dice. If the bankrupt banks can recover before they fail, it works out.
It is equivalent to you going to the bank and asking for an increase in your mortgage of $100,000. The bank responds that your mortgage is already under water, you owe us $500,000 and your house’s market price went down from $600,000 to $400,000. Well, if Mr. Bankster, lend me $100,000 now and everything will work out (real estate will go up, I’ll make my mortgage payments) or I default now and you’ll be looking at losing $100,000 when you foreclose.
The Fed as the Bankster to the Banksters response is, okay, makes sense here is a $100,000 increase on your mortgage.
Some banks are now requesting details of financial transactions before they’ll release the money
Here’s an interesting example. Great reply to the bank.
https://twitter.com/ViktoriaMullova/status/1666812287091605506
Nothing to see. Anyone remember when Harper passed legislation allowing banks to replace your cash with bank shares? To me , the question is no longer what is going to happen, it is when and what shall they let you keep to survive. We have been told you will own nothing ( and be happy?) , but we really don’t comprehend nor believe it.
concerned
That “own nothing” just got closer to reality, butt many will not understand that!
You will be happy… or else!
Off to the gulag, concerned. Can’t have any unhappy campers around harshing the mellow, can we?
Eventually these loans will start showing up on balance sheets, making those banks appear to be in even worse shape than they were before, which might allow Treasury to conspire with JP Morgan Chase to screw over stockholders of the troubled banks…
About 5 years ago my wife and I were evaluating our financial situation as we neared retirement and I remember saying to her, “We are in pretty good shape so long as inflation stays under control; taxes do not increase; and the government doesn’t devalue our currency like Zimbabwe.”
Her response was, “That’ll never happen.”
Imagine that,in modern speak,fraud is now “Super Secret Banking”.
Where the profit(Or apparent profit) is privatized.
And the losses are socialized..
With the actual facts being kept from the shareholders..
A perfect situation in Justine,the Petulant’s Can Ahh Duh..
Where we have “Super Secret Orders in Council”,which have the full authority of law..
Justine says “People with ‘unacceptable views’ are terrorists..Its the law!.