The SIVB Bailout Just Keeps Getting Worse

Instead of finding a buyer, the FDIC insisted on nationalization. [The Rude Awakening] March 15, 2023 [WEBSITE]( | [UNSUBSCRIBE]( The SIVB Bailout Just Keeps Getting Worse - The FDIC somehow overruled the Treasury and the Fed. - The FDIC insisted on nationalizing Silly Valley even though it was unnecessary. - Now, the American taxpayer is stuck with a needless blank cheque they’re writing. [New Biden Bucks Follow-Up Available Now]( Hey, it’s Jim Rickards. Since posting my original Biden Bucks presentation online, millions of people have viewed it. Snopes and the Associated Press have even attempted to “fact check” me and claim my warnings are false: [Click here to learn more]( Point being, my message has raised a storm and caused a lot of controversy. But in the time between my message and now, a lot of new developments have come to light. That’s why I’ve just released an update to my original prediction… one which will likely be even more controversial. [>> Click here now to access my new 2023 Biden Bucks follow-up](. [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning on this Ides of March from a sparklingly sunny Asti! Yesterday, I let Jim Rickards do the talking for me. Today, I’ll summarize the latest information I’ve found and try to chart a path forward. Funnily enough, there’s a kernel of truth in what everyone says. It’s the deeper dive that proves them wrong. For instance, Senator Elizabeth Warren is partially correct in saying that Jay Powell started this mess by hiking rates as fast and far as he has. (The Rude has long said Powell had a savior complex.) But what Chief 1/1024th misses is that the Fed left rates on the floor for too long. Fourteen years too long! She wasn’t complaining then. They never do, do they? Remember, the boom comes before the bust. The manipulation of interest rates far below their natural level causes incorrect incentives and accompanying malinvestments. That’s what started this mess. But it felt so good, didn’t it? Jim Grant has long gone on about how the Fed destroyed the pricing mechanism through this malpractice. This is part of the reason the US Treasury market crashed all last year. When rates go from 0.25% to 4.75%, you’ve increased rates 18x in less than a year! And even when entrepreneur David Sacks and hedge fund manager Bill Ackman are talking their books, they’re partially correct. This is a government and central bank-induced mess. Again, if you’re bitching when the Fed is raising rates too fast, then you really ought to have started shouting when the Fed put its foot on the yield curve. But they’re wrong when they say depositors over the $250,000 insurance level must be protected. No, they must get burned. And yes, this may cause contagion (though I think, in this case, it’d be minor). As I’ve written before, unless and until the government’s poor decisions start burning The Lax Rich, the government will continue to make poor decisions. And what about the soft stuff, like how we view those who’ve been bailed out? Last night [I tweeted]( I honestly feel for VCs now. Last week, they were the world’s great innovators. This week, and forevermore, they were in the right place at the right time, benefitted from the largest credit expansion in human history, and bought the right politicians. In other words, they got lucky. It would’ve been better for them to take the “L” and remain respected. I mean every word of that. Now, let’s get to the business of finding out more. The FDIC Nixed a Free Market Merger The Wall Street Journal Editorial Board isn’t having any of it. They inserted this little nugget into their piece titled “[Biden’s Bank Bailout Whoppers]( The Federal Deposit Insurance Corp. says it couldn’t find a private buyer for SVB, though a source tells us Treasury and the Federal Reserve favored one. FDIC Chairman Martin Gruenberg nixed it owing to hostility to bank mergers. How the FDIC gets to overrule the Fed and the Treasury on a bank merger is beyond me. Perhaps it’s because [Janet Yellen is MIA due to “migraines.”]( [Zero Hedge]( reported: Kevin Hassett, former Chairman of the Council of Economic Advisers under Trump, told Fox Business that "there were buyers who were willing to step in & buy [SVB, but] the radicals at the @FDICgov basically weren’t going to allow that to happen ... the Biden Admin had a whitelist of companies that were allowed to buy the failed bank & companies that weren’t." "If this is true," said Grabien founder Tom Elliott, "then this is another Biden scandal." Great, so we’ve got microwaved Soviets running the FDIC. Of course, that couldn’t be it. It had to be Trump! [Will This Company’s Breakthrough Give New Hope To Millions?]( [Click here to learn more]( If You Or Somebody You Know Suffers From Arthritis, Pay Close Attention [>> Click Here For All Of The Urgent Details <<]( [Click Here To Learn More]( No, Trump’s Deregulation Didn’t Cause This Mess The Wall Street Journal Editorial Board smacked Joke Biden in the mouth over blaming Trump’s 2018 deregulation for this mess. Before I get to Trump, let’s just say we were correct that ordinary folk are financing this bailout (bolds mine): The White House says special assessments will be levied on banks to recoup these losses. That means bank customers with less than $250,000 in deposits will indirectly pay for this through higher bank fees. In other words, this is an income transfer from average Americans to deep-pocketed investors. As for “Trump’s Deregulation” being the cause of this mess, that’s about as real as “Putin’s Price Hike.” For clarity, the Barney Frank (of Dodd-Frank fame) you see quoted below is indeed the former Chairman of the House Finance Committee and sat on the board of Signature Bank before its nationalization. Again, from the Journal’s Editorial Board: As he so often does, the President also blamed the bank panic on the Trump Administration—in this case for modifying some 2010 Dodd-Frank Act rules. He seems to be referring to the 2018 bipartisan banking law, which raised the threshold for systemically important financial institution (Sifi) classification to $250 billion from $50 billion in assets. But not even Barney Frank, the Dodd-Frank co-author, believes that is to blame. The point of the 2018 law was to ease costly compliance burdens on mid-sized banks that made them less competitive with the giants, which benefit from a lower cost of funding owing to their implicit government backstop. Excessive Dodd-Frank regulation was driving more deposits to big banks. Before the 2018 law, most mid-sized banks had to comply with the same regulations as big banks. But these wouldn’t have prevented either bank’s failure from their risk-management mistakes. The 2018 law didn’t absolve mid-sized banks of the requirement to conduct quarterly liquidity stress tests to ensure they could weather “adverse market conditions” and “combined market and idiosyncratic stresses” such as interest-rate shocks. They also must hold a liquidity buffer of “highly liquid assets” such as Treasurys and government agency mortgage-backed securities. Dodd-Frank encouraged banks to load up on these assets, which were especially sensitive to the rapid rise in interest rates. Yet somehow regulators failed to monitor this interest-rate duration risk. And what will happen because of this bailout? Now, the Fed wants stricter rules on mid-sized banks. And more deposits will go to the biggest banks. It’s not ideal if you want a genuinely free market banking system. What the Fed Will Probably Do In short: they’ve got to hike. The President unleashed an inflationary storm. That’s thanks to a blank cheque he signed on behalf of the taxpayer for the banking system. It’s an expansionary policy totally at odds with your contractionary story. You’ve got to signal you haven’t lost sight of the inflation story. The CME FedWatch Tool puts the probability of a 25-bp hike at 85.6%, while unchanged currently sits at 14.4%. [SJN] Credit: [CME FedWatch Tool]( This makes sense to me. Fifty basis points would have been too much at this time. How the Market Will Probably React But I still think the stock market will react badly to a 25-bp hike. Something tells me the yahoos over in the equity department think the hiking cycle is over. If they believe that, they’ll surely be disappointed. But one place that should do well is gold. If you were on the March 3rd Rickards Uncensored call with Byron King and me, you would’ve heard us shouting to buy gold. If you read the [2023 Daily Reckoning Gold Buying Guide]( Byron and I published on March 9th and bought some gold, you’d be in a great position now. [SJN] Yesterday, Jim Rickards wrote in the [Daily Reckoning]( regarding future dollar weakness (bolds mine): As payments move from dollars to other currencies, the exchange value of the dollar should decline, and the exchange value of the other currencies (mostly the euro) should go up. This means that the dollar price of commodities will go up as the exchange value of the dollar goes down. This is basically inflationary. Still, inflation can be a good thing if you’re the owner of hard assets including gold. The U.S. dollar value of those assets should rise. While gold and silver are money substitutes (or actual money), this does not mean that the commodity price inflation will be limited to gold and silver. We’ll see it in: Gold, silver, oil, natural gas, water, copper, strategic metals, agricultural produce, farmland, and other commodity assets. Mining stocks are definitely in the mix. Byron gave away five “golden” opportunities in our Rickards Uncensored talk. Wrap Up The FDIC is the new Soviet on the block. No, this mess has nothing to do with The Donald. The Fed will almost certainly hike only 25 basis points next week. The stock market will probably hate it, but gold and other commodity assets look good. And there you have it. Have a wonderful day ahead! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… Be Angry. Yes, This is a Bailout. Yes, You’re Paying for It. [Sean Ring] SEAN RING Good morning from a gorgeous, bright Asti! I haven’t stopped shaking my head for two days. I’m still shocked, stunned, and disappointed with the Biden administration’s decision to bail out the depositors at Silly Valley Bank. It’s bad enough that Janet Yellen, the USeless Treasury Secretary, was briefed on the situation over a month ago. It’s worse that the President was separately briefed on SIVB when Yellen was. That’s two too many people who saw this coming and did nothing about it before a bailout was “necessary.” But I still hold that the best thing to do was nothing. Say it with me: Deregulation is okay when you let businesses (especially banks) fail. I’m still trying to understand what’s happening in the market. So, I’m going to take today to give it a closer look and then report back to you tomorrow. In the meantime, my friends and colleagues have put together [a fantastic half-hour video]( for you to watch, so you’re fully briefed on the situation. Pro tip: I watched it at 2x speed. That way, it only took 15 minutes, and I didn’t lose any of the messaging. The Man Himself, Jim Rickards; the smartest working analyst in the newsletter business, Dan Amoss; and our fearless leader/publisher, Matt Insley, have put together [a short video that’s well worth watching](. In today’s Rude, I will prep you for that video. Once you read this, you’ll be fully ready to absorb Jim’s, Dan’s, and Matt’s fantastic revelations. [Trump’s Nemesis Just TORPEDOED the U.S. Dollar]( [Click here to learn more]( Trump’s Nemesis Just TORPEDOED the U.S. Dollar This is the scenario we’ve been fearing… Instead of President Trump… We’ve got “Sleepy Joe” Biden behind the wheel. And now, a [sinister move that Biden just made]( could TORPEDO the U.S. dollar once and for all. In fact, thanks to this one move… Your dollars could be made worthless, or even CONFISCATED. Do NOT get caught off guard. [Click here to discover 4 EASY STEPS you can take to protect your wealth NOW](. [Click Here To Learn More]( Why Is This Genuinely a Bailout and Not a Bail-in? From Jim: So, Friday afternoon, they said, we're shutting the bank. All deposits up to $250,000 are fully insured. You'll get your money. They moved the deposits over to a new bank called the Deposit Corporation Bank of Santa Clara. Those under the $250,000, you'll get your money Monday morning, but everyone else… you're wiped out. By the way, they didn't freeze those deposits. Those deposits were gone. And they said, “What we're going to do is give you a certificate in place of the deposit. We'll tell you what it's worth. It's completely illiquid. You can't use it for anything. We're going to sell the assets, get the money, and see how much there is relative to these liabilities.” Um, and then we'll pay them off, you know, as and when possible. But it could be a year, could be longer. Who knows how long it will take to sell the assets or what they will be worth? Nobody knew. Well, if you're a startup and you got, let's say, $5 million in venture capital from Kleiner Perkins, and you had it all in Silicon Valley Bank, your $5 million is now gone. You hold a certificate of uncertain value but can't meet payroll. You might have a payroll Monday morning, you can't pay your vendors, you can't pay your rent, you can't pay the light bill, you can't do anything. You're out of business. And then, there would've been a wave of bankruptcies, which would've rippled through to the venture capital firms. These things always happen on a Friday. They always happen on Fridays because they need the weekend to figure it out. So, watch out for Fridays! So that's the story as of the end of the day Friday. So, over the course of the weekend, the Treasury’s Yellen's (you know, Ms. Clueless), Jay Powell, Martin Greenberg, the head of the FDIC, and I'm sure there's a lot of input from the White House from Lael Brainard. She just moved from the Fed to the White House. So, no one in the White House knows much about this, but she does. So, she's the White House kind of point person on this. So, they came up with a new plan. It was announced at 6:15 pm Sunday, which was no coincidence because six o'clock Sunday is when the futures start trading. And they opened down. So they changed our minds. They weren’t going to limit the insurance to $250,000. They just blew it away. Unlimited insurance, all depositors are fully insured. If you had $5 billion in the bank, you're getting $5 billion, not $250,000. That business of sticking to the deposit insurance and not paying for the rest that's called a bail-in. We're used to bailouts. We've seen those a lot. But the bail-in is “No, we're not going to use taxpayer money to bail out the rich guys. The depositors are actually going to lose." And this was something they produced in 2014. It was nine years ago. But the problem is, in nine years, there hasn't been a bankruptcy of this magnitude. They've never had a bank resolution in the whole nine years where they actually had to do what they said they were going to do, which was bail-in, not bail-out. They tore the bail-in rules up, threw it to one side, and bailed out all the depositors 100%. So, the FDIC did a 180 in 48 hours. I’m thrilled whenever Jim and I agree. He’s one smart cookie, you know! Wrap Up I will keep this short today because I want you [to watch the video](. No information is required, and certainly no credit card! Just click this pic and hit play. [Click here to learn more]( This emergency video briefing from Jim Rickards, Dan Amoss, and Matt Insley is where Jim breaks down everything you need to know about the past of SVB, the present of the FDIC, and THREE major pitfalls to keep an eye on in the coming days. Again, there’s no credit card needed for this one. This situation is so important that we want as many people as possible to [view this video](. Jim answers three critical questions: - Now that we’ve got this bailout, what will the Fed do next? - If printing money solves the SIVB problem, where does that leave the Fed’s balance sheet? - Did this whole situation start when part of the cryptocurrency space got upended? His answers may stun you… but not if you’ve read the Rude for a while. Tomorrow, I’ll have more market stuff for you. Until then, have a wonderful day. And watch the video! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. 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