Ed-vise: Bank Failure

A took the boy back GOOD MORNING!!! to you all! Yup, took the boy back to the airport for his flight back. A true definition of “Turn and Burn.” Stand by flying, although free, does come with a booking issue meaning sometimes you have to leave early.

Technically Talking Tuesday Ed-vise today. Cause it’s TUESDAY…Technically!

Two banks have been in the press lately: Silicon Valley Bank (SVB) and Signature. I used to have a credit card from Signature a really long time ago. I think it was my first. Fun fact.

The old adage goes “those who don’t know their history are doomed to repeat it” as was believed by George Santanaya (philosopher) and is something I tend to believe as well.

Thus, we see that SVB did NOT study history and, well, repeated it!

In the banking and investing world there is this concept that when interest rates go up, the value of government bonds (and other bonds) goes down. In the 1980s there was this big ass financial mess called the Savings and Loan Crisis. There were all these Savings and Loan banks (S&Ls) that were everywhere. See, back in the day, banks didn’t lend money for people to buy houses. So, the people got together and lent money to each other creating S&Ls. If you watch It’s a Wonderful Life you can get a bit of an idea about them.

Well, in the 1970s, inflation was going crazy. So, interest rates started climbing. The S&Ls bought a whole bunch of government bonds with the profits from lending. The interest rates went up and the value of those bonds went down. People started seeing that the S&Ls weren’t making as much money as before (because of the losses with the bonds) so they started taking their money out of the S&L to invest somewhere else.

As more people started taking money out, the S&L had to come up with the cash. So, they sold the bonds at a loss to make sure they could give the people back their money. More requests for money, more bonds sold at a loss until they had no more bonds to sell and people still wanted their money. Then, the FDIC steps in and eventually shuts down the S&Ls.

Fast forward to recent events. SVB took their short term profits from the tech boom during the pandemic and invested them in government bonds. Not paying attention to the fact they were way heavy invested in these bonds they kept buying them. Then, interest rates go up. Bonds become less valuable. Tech sector starts dropping as the pandemic begins to wane. Tech companies start wanting their money so they can pay their bills and employees. Bank starts selling their bonds at a loss. More withdrawals, more bond sales at a loss. Then comes a run. Lots of withdrawals, no more bonds to sell at a loss. And PRESTO! FDIC is back in it again.

Signature bank had problems due to their exposure in the crypto world. What a mess that is!

Some folks never learn.

I’m just saying

That’s it for today. Be the person a stranger will do CPR on. Check in on each other and remember if you are afraid of speed bumps, you will have to…GET OVER IT! HAHHAHAHAHAHAHA…bump bump


Published by edhlaw

Son, husband, father, uncle, nephew, cousin

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