As Connor MacLeod said in the film Highlander, “There can only be one!” The US banking system under Joe Biden’s Reign of Error is like the film Highlander: apparently, there can only be one bank. And it is likely JP Morgan Chase.
Take the JP Morgan Chase (JPMC) acquisition of First Republic Bank:
In Acquiring First Republic Bank, JP Morgan Has:
Bypassed laws against acquiring bank while controlling 10%+ of US deposits
Shared $13 billion in losses with the FDIC
Received a $50 billion loan from the FDIC
Effectively bought back its own deposits
Expects to profit $5 billion+ over the next 5 years
This crisis has taught us that rules don’t matter in times of panic, particularly to regulators.
And now we have PacWest Bancorp. Lender says it’s been approached by potential investors. Bill Ackman warns US regional banking system at risk.
The turmoil at PacWest shows how investor angst still remains elevated after a string of failures and deposit outflows in the sector despite Federal Reserve Chair Jerome Powell’s assurance Wednesday that authorities were closer to containing the crisis. It’s reignited the debate over whether more US regional lenders will fall after this year’s collapse of SVB Financial Group’s Silicon Valley Bank, Silvergate Capital Corp., Signature Bank and most recently First Republic Bank.
Smaller banks are under pressure after a year of interest-rate hikes hammered the value of their bond holdings and drove unrealized losses to an estimated $1.84 trillion. Trouble in commercial real estate is adding to the pain, while depositors take their money out to seek better returns elsewhere. These stresses have put the spotlight on these lenders, which typically have fewer resources to defend themselves.
We are seeing a consolidation of the banking system .. again as smaller and regional banks fail and get gobbled up by the Too-Big-To-Fail (TBTF) banks like … JP Morgan Chase.
Biden’s Reign of Error is not over yet. His campaign slogan (which was also Bill Clinton’s campaign reelection slogan) is “Finish the job!” With Biden’s idiotic mortgage idea of punishing borrowers with good credit and giving subsidies to those with bad credit, Biden is trying to finish off the US economy and banking system.
James Carter (no, not Mr. Peanut, the smart one at America First Policy Institute’s Center for American Prosperity) had a nice op-ed on American Thinker entitled “The Biden Administration’s Budget Hypocrisy.”
The Biden administration’s claims of deficit reduction come in stark contrast to the president and his team, having added $4.8 trillion to the deficit through 2031.
You might call anyone uttering such claims a hypocrite. As Adlai Stevenson, the grandfather of the future Illinois governor and two-time presidential candidate of the same name, reportedly quipped: “A hypocrite is the kind of politician who would cut down a redwood tree, then mount the stump and make a speech for conservation.” Sounds about right.
Why does this matter? It matters because President Joe Biden fancies himself a champion of deficit reduction. As he bragged in a “60 Minutes” interview last month, “By the way, we’ve also … reduced the deficit by $350 billion my first year. This year, it’s going to be over $1.5 trillion, reduced the debt.”
But the president’s attempts to redefine his reckless spending as deficit reduction don’t end there. According to The Washington Post, “Just in the week before the 60 Minutes interview, the president mentioned having reduced the budget deficit by $350 billion six times, sometimes saying he wants to counter accusations that he’s running up the federal tab.” (emphasis added)
What the president fails to mention, however, is that this near-term deficit reduction has nothing to do with him or his administration. Instead, it’s the result of emergency COVID-19 spending that is now ending as planned.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, points out what the Biden administration is loath to admit:
“The White House has been trying to paint President Biden as the champion of prudent economic stewardship. Biden’s ‘record on fiscal responsibility is second to none,’ it asserts. As temporary covid measures end — and record-high deficits predictably decline — the administration is congratulating itself for that supposed achievement.
But the administration’s record is, sadly, the opposite of what it argues. Since entering office, the president has approved policies adding $4.8 trillion to the deficit over the next decade. This is an extraordinary sum, which makes it all the more astonishing that the administration would try to pull off this claim.”
According to the Office of Management and Budget, even if the 117th Congress had enacted the Biden administration’s fiscal year 2023 budget in its entirety, net interest costs would more than triple from $352 billion in 2021 to $1.1 trillion by 2032. Is a tripling of future net interest costs something typically associated with an administration committed to tackling the federal budget deficit? No.
President Biden’s rhetoric aside, his mid-session budget review forecasts endless $1 trillion-plus annual deficits totaling more than $14 trillion over the coming decade. Even adjusted for inflation, these deficits would be among the largest ever generated by the federal government. Is that “fiscally responsible?” No.
President Biden is not serious about reducing the deficit. He claims progress on the deficit but obscures the facts that every American should know.
Not only does President Biden fail to try to balance the budget, but he actively pursues policies that he must know will balloon federal spending and deficits.
No, but Biden and Congress are serious about bankrupting the US Treasury and moving to a Socialist model.
And what even James Carter doesn’t mention is the staggering levels of UNFUNDED LIABILITIES of $187 TRILLION. The question for Biden is …. how are deficits and the massive debt going to play out when we are on the hook for $187 TRILLION?
I am sure that Bernie Sanders, Elizabeth Warren and The Squad will suggest much higher taxes to cover it. And remember, Biden was the idiot that helped taxed Social Security for seniors. And he has also worked towards cutting Social Security and Medicare in the past.
The only out is 1) default on the US debt which would be catestophic and 2) renegging on the massive unfunded liability load. Remember, France is rioting over raising their retirement age by 2 years. Let’s see if Americans riot over inevitable cuts to Social Security, Medicare and Medicaid.
Cut mandatory spending without riots? Please.
The theme song of Biden’s insane, economy destroying, inflation creating budget should be “Keep on printing!”
Yes, this is Government Gone Wild! But no pics or videos of ancient Congress members like Warren or President Biden, please.
Here is a chart of US office vacancies nationally (yellow), New York (white), San Franciso (green) and Los Angeles (orange). Note the rapid decline in office vacancies just prior to the financial crisis (often mislabeled as the subprime mortgage crisis). Then look at office vacancies after The Fed’s massive monetary experiment of setting rates to near zero and buying a ton of Treasuries, Agency MBS. etc. While San Francisco returned to pre-financial crisis levels of office vacancy, in general the office market never fully recovered.
And then “the slammer” struck: the COVID economic shutdowns. After 2020 shutdowns, office vacancy rates rose dramatically. Two complicating factors: 1) the US moved to working at home rather than commuting to an office and largely remains that way. 2) crime is going bonkers in American cities, particularly New York, Los Angeles and San Francisco (don’t worry, I haven’t forgotten about other gang nests like Chicago and Detroit). I saw that California’s woke governor Gavin “Nancy Pelosi’s nephew” Newsom said the word “gang” then apologized and replaced it with “organized groups.” No wonder Newsom can’t fix anything, but he is running for President of the US! (insert Edvard Munch’s “The Scream” painting here,)
The Fed responded to the financial crisis by lower rates to 25 basis points and printing a boat load of money. Unfortunately, office vacancies rose to a peak in October 2010 then began falling again. Only to start rising again after Trump took office in 2017. Alas, Covid struck in 2020, The Fed and Federal government panicked. States and local governments (not to mention teacher’s unions) shut down economies and schools. Office vacancies are now higher than at peak of the Covid shutdowns!!!
Consumer considence (according to the Conference Board) remains below pre-Covid levels despite the massive Federal spending spree and Fed money printing).
The Federal Reserve never died. In fact, The Fed is growing its balance sheet again. Why? A slowing economy and weakness in the banking sector (thanks to inflation and the Fed trying to get inflation back to 2%.
And the banking fiasco keeps rolling, particularly in Europe where Credit Suisse has been in the news for failing and now my former employer, Deutsche Bank (aka, The Teutonic Titanic).
Deutsche Bank AG became the latest focus of the banking turmoil in Europe as ongoing concern about the industry sent its shares slumping the most in three years and the cost of insuring against default rising.
The bank, which has staged a recovery in recent years after a series of crises, said Friday it will redeem a tier 2 subordinated bond early. Such moves are usually intended to give investors confidence in the strength of the balance sheet, though the share price reaction suggests the message isn’t getting through.
“It is a clear case of the market selling first and asking questions later,” said Paul de la Baume, senior market strategist at FlowBank SA. “Traders do not have the risk appetite to hold positions through the weekend, given the banking risk and what happened last week with Credit Suisse and regulators.”
Deutsche Bank slumped as much as 15%, the biggest decline since the early days of the pandemic in March 2020. It was the worst performer in an index of European bank stocks, which fell as much as 5.7%. Crosstown rival Commerzbank AG, Spain’s Banco de Sabadell SA and France’s Societe Generale SA also saw steep drops.
The widespread declines undermine hopes among authorities that the rescue of Credit Suisse Group AG last weekend would stabilize the broader sector. Central banks from the Federal Reserve to the Bank of England this week raised interest rates once again, keeping their focus on inflation amid hopes that the worst of the financial turmoil was past.
All week, regulators and company executives have sought to reassure traders about the health of the banking industry. Deutsche Bank management board member Fabrizio Campelli said Thursday that the government-brokered takeover of Credit Suisse by UBS is “no indication” of the state of European banks.
Standard Chartered Plc Chief Executive Bill Winters said Friday that while there are still some issues to be addressed, “it seems that the acute phase of the crisis is done.”
The latest moves in Europe follow losses in US banks, which tumbled Thursday even after Treasury Secretary Janet Yellen told lawmakers that regulators would be prepared for further steps to protect deposits if needed.
And apparently bank bailouts never died. They just got relabeled.
And on growing banking fears, the 10-year Treasury yield is down -11.7 basis points.
I feel like I am watching the Star Trek original series episode “The Doomsday Machine” as former Fed Chair and current US Treasury Secretary effectively just guaranteed ALL US bank deposits. Aka, a massive bank bailout. The episode was about a robot space vehicle that destroy planets … and anything in its path. And if it changed course to destroy something, it gradually returned to its original destructive path. Like The Federal Reseve.
But after a few days of declining Treasury yields because of the mess created by Bernanke/Yellen’s too low for too long policies, and the Biden/Congress insane spending, the US Treasury 2-year yield is up 16.1 basis points.
Whether it was politcally motivated to protect Obama/Biden or Obama/Biden’s economic recovery was terrible, The Fed only raised their target rate once before Trump’s election. And then Yellen raised rates like crazy. Only to hand her mess off to Powell who had to drop rates like a rock and massively expand the balance sheet … again … to fight Covid.
For all the focus on whether the Federal Reserve is about to pause its interest-rate hikes, there’s another critical policy decision sure to draw plenty of attention come Wednesday: What the central bank does with its massive pile of bond holdings.
The banking-sector turmoil that has only appeared to deepen, combined with a previous increase in funding pressures, has left financial markets keenly attuned to what the Fed will say about its $8.6 trillion balance sheet.
Until this month the stash had been shrinking as part of the Fed’s efforts to return it back to pre-pandemic levels. But now it has started to expand again as the Fed acts to bolster the banking system through a slate of emergency lending programs. Its latest step came Sunday, when it moved with other central banks to boost US dollar liquidity.
Some say financial-stability concern may spur policymakers to dial back the runoff of its bond portfolio, a process known as quantitative tightening that’s designed to drain reserves from the system. Still, others argue that even if the Fed does pause its rate increases, the central bank’s overarching goal of taming inflation means it’s unlikely it will signal any shift this week in efforts to shrink the holdings of Treasuries and mortgage-backed debt. The one exception, they note, would be if stress in the banking sector were to become much more severe.
The Fed’s move to backstop US banks “clearly expands the Fed’s balance sheet,” said Subadra Rajappa, head of US rates strategy at Societe Generale SA. If usage of the Fed’s liquidity facilities is “small and contained they probably continue QT, but if the take-up is large then they probably stop as it then starts to raise concerns over reserve scarcity.”
The fate of the Fed’s portfolio is a subject of debate after the collapse of several US lenders led the central bank to create a new emergency backstop, known as the Bank Term Funding Program, which it announced March 12. Banks borrowed $153 billion from the Fed’s discount window — lenders’ traditional liquidity backstop — in the week ended March 15, Fed data show, a record that eclipsed the previous all-time high set during the 2008 financial crisis. They also tapped the new program for $11.9 billion.
The central bank’s various liquidity programs added about $300 billion to the Fed’s balance sheet last week, reversing about half of the reduction the Fed has achieved since the runoff began last June. But some economists say the two programs can work in tandem, with the banking efforts targeting financial stability and QT remaining a steady part of the Fed’s plan to remove the support it provided during the pandemic.
It looks like a 25 basis point increase at the next meeting, then cuts in The Fed Funds Target Rate to 3.820% by January 2024.
The labor market is still tight. So tight, we get this!!
Despite endless promises from Washington DC that there would never be another bank bailout, the Biden Administration bailed out Silicon Valley Bank (SVB) by removing the $250,000 cap on deposit insurance. Then Treasury Secretary Janet Yellen added that in the future, only banks that posed SYSTEMIC RISK to the economy will be bailed out. Translation: only the big four Too Big To Fail (TBTF) banks will be bailed out. Meaning that the Biden Administration prefers big banks to community banks. “Middle-class Joe” loves BIG Pharma, BIG defense, BIG tech, BIG media and now BIG banks. He should rename himself “Big Joe” Biden for the 2024 Presidential election.
Of course, we are aware of The Fed’s about face on shrinking their balance sheet (green line). While Bankrate’s 30-year mortgage rate has now declined below 7% to 6.97%, it has only fallen -15 basis points since the recent peak of 7.12% on 3/2/2023 when the 10-year Treasury yield was 4.056%. So, the 10-year Treasury yield has fallen -62.7 basis points since 3/2/2023 while the 30-year mortgage rate dropped only -15 basis points.
On the European banking front, Credit Suisse is kaput and both Swiss Bank and Deutsche Bank are considering buying the assets of Credit Suisse. In other words, MORE bank consolidation.
Here is a chart of US bank consideration as of 2009 with 37 banks in 1990 shriveling to 4 mega, TBTF banks in 2009 that remain today. But will the now unprotected community and local banks be absorbed into the 4 superbanks? Time will tell, but if history is repeated, the answer is yes.
The KBW bank index continued to fall despite the bailouts of SVB and Signature Banks. But at least total returns on Treasuries and MBS that banks hold increased with the return of QE!
Yellen and Biden compete for the Knucklehead Of The Century Award. While not as sloppy as the sudden Afghanistan withdrawal, bailing out the Silicon Valley elites will not end well.
Cry for Argentina! Their central bank boosted its benchmark Leliq rate by 300 basis points to 78%. The monetary authority’s board considered the increase in response to accelerating inflation and after leaving the key rate unchanged for several months.
Of course, the US Federal Reserve is going in the opposite direction to combat the US banking crisis created by inflation and Yellen’s “Too low for too long” Fed policies.
I am beginning to wonder in Treasury Secretary Janet Yellen and Chicago Mayor Lori Lightfoot are the same person. Both complete Statist screw-ups.
Confounded Interest - Anthony B. Sanders 
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