On Thursday, Treasury Secretary Janet Yellen on Thursday testified before the Senate Finance Committee.
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During her testimony, Secretary Janet Yellen admitted that smaller regional banks across the country will not be bailed out by the US government. Only larger banks will be bailed out like Silicon Valley Bank and their depositors from China connected to the Chinese Communist Party. You really wouldn’t believe it unless you heard it for yourself.
Whether intentional or not, they are pushing all of the nations money into a few banks which seems riskier than ensuring small, regional banks can continue to exist. That means that if the 4 banks collude and decide to overlay 30% fees on checking accounts, you won't have any alternative option.........obviously, this is worst case scenario but you see how this could go. You can also see that the Govt would have more control over 4 banks vs 400 banks.
The other interesting thing is how quickly the FDIC stepped in to seize control of Signature Bank when it wasn't insolvent and actually had returned to decent shape a day later. Lots of Wall Street are starting to think that was intentional and specific to Crypto deposits as the Govt tries to launch their own coin. Strange that they used FDIC to do it though.
Let's unpack Dodd Frank to see how we've landed here:
-No proprietary trading at any of the banks which was a HUGE money maker for them, all of that firepower has now gone to the buy-side and the banks are now nothing more than passive order takers (with the exception of market making)
-Removal of trading means that most of their income has to come from lending, Sec Lending, M&A and retail fees (barring they have retail arms)
-The balance sheets are so restrictive post Dodd Frank that the historical leveraged finance deals won't fit on the balance sheet anymore, that's a huge blow to the banks as they can't tie up capital long term for decent returns on capital.
For the last several years, the Central bank tells the banking system to go long treasuries, MBS, Bonds (ie, floating/moving interest rate assets) which almost every bank complies with and then the Fed goes on a rate hike march like nothing the economy has ever seen and everyone is shocked we are about to break given the banks are mostly holding moving interest rate assets.
The point here is the economic system is on the verge.........the large bank CEO's approached the Fed with concerns over the corporate debt bubble which is about to also pop due to interest rates. Some ultra large household names can't service their debt and the banks can't recapitalize them. What's going to be the lesser of two evils.....6 % interest or total collapse?
200,000 layoffs in the tech sector in the last 12 months is a direct indicator as those companies are the most cash rich from a balance sheet perspective. It's all about to break and the FEd is going to ensure it with another rate hike.
But the Inflation Reduction Act and stupid spending is going to save us.......
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