Yes, and they’ve become so convoluted and intertwined!
The financial authorities are soon going to have to choose between ongoing inflation, or allowing more banks to fail. There must be some financial mechanism to avoid both of these political disasters, but I sure don’t know what it would be.
When the mortgage meltdown of 2008-2009 unfolded, I was surprised that they had mechanisms such as quantitative easing to ‘fix’ it. (Sure, it effectively was just printing money, inflating certain asset classes, and kicking the problem down the road, but it calmed the public and bought years of time). But NOW what are they going to do?
Keep in mind that the securities portfolios at the core of this crisis are within themselves doing okay. Default risk is fairly low.
The problem is the securities themselves are locked into low yields, which makes them unattractive in the secondary market. Their fair market value is thus less than what the banks paid, and the banks are consequently compelled to hold them to maturity and let them "roll off" the books.
Unfortunately for the banks, this ties up capital and impairs liquidity, which means the banking sector needs to collectively raise $620 Billion in fresh capital, from investors who would be pissed at the ask. That is basically what happened to SVB--Wall Street told the bank to "f*** off" with their emergency public offering last week.
All of which makes the problem as large as bank managements' collective egos.
Which financial dilemma? There are so many from which to choose! 😁
Yes, and they’ve become so convoluted and intertwined!
The financial authorities are soon going to have to choose between ongoing inflation, or allowing more banks to fail. There must be some financial mechanism to avoid both of these political disasters, but I sure don’t know what it would be.
When the mortgage meltdown of 2008-2009 unfolded, I was surprised that they had mechanisms such as quantitative easing to ‘fix’ it. (Sure, it effectively was just printing money, inflating certain asset classes, and kicking the problem down the road, but it calmed the public and bought years of time). But NOW what are they going to do?
Keep in mind that the securities portfolios at the core of this crisis are within themselves doing okay. Default risk is fairly low.
The problem is the securities themselves are locked into low yields, which makes them unattractive in the secondary market. Their fair market value is thus less than what the banks paid, and the banks are consequently compelled to hold them to maturity and let them "roll off" the books.
Unfortunately for the banks, this ties up capital and impairs liquidity, which means the banking sector needs to collectively raise $620 Billion in fresh capital, from investors who would be pissed at the ask. That is basically what happened to SVB--Wall Street told the bank to "f*** off" with their emergency public offering last week.
All of which makes the problem as large as bank managements' collective egos.
Very well said!