Banking Crisis Unfolds
171: Where is your money actually safe?
Stop look and listen friends — there is more fuckery afoot in the financial system.
It wasn’t like we needed another absurd financial markets calamity after the last several months but it looks like this recent one could be the catalyst for a much more serious and widespread series of bankruptcies, collapses, and insolvencies. People’s money is gone.
Billions of dollars potentially vaporized with no clear answers as to what really just happened and when or if, depositors will ever see there money again.
On Thursday Silicon Valley Bank (SVB), suddenly and unexpectedly collapsed.
Outside the aggressive shift in Federal Reserve policy, several high profile ponzi schemes, leveraged explosions, and complete rug pulls that have played out — with the explosion of FTX being one of the largest, losing investors over $8B — the recent destruction of Silicon Valley Bank could be the largest and most grave financial markets crisis to play out in a very long time.] and it comes on the heels of the failure of two other crypto friendly banks as well.
This will likely end up impacting people you know.
More banks and companies are going to implode this week.
Though some depositors are insured by the FTIC up to $250,000.
More than 95% of the bank's deposits were uninsured over that 250,000 threshold, according to regulatory filings from the end of 2022.
This SVBN Financial situation is the largest bank closure since the financial crisis of 2008. This coming week could be an insane one considering much of the contagion from SVBNS nuking has yet to play out. Public companies like Roku held cash with the bank so we will have to wait and see how these liquidity crises impact these publicly traded companies down the line.
What would you do if you woke up tomorrow and tried to take money out at the bank or an ATM and you had no access to your cash?
Do you have any gold or cash in your home?
If not what would you do if you had no access to money and you needed to buy food, pay rent, and live?
A common theme of the post bull run era in the last year or so has been the failure of many high profile financial institutions involved in the lending, trading, and banking space — both in crypto and in traditional equity and bond markets.
When interest rates were near zero, banks took advantage of the opportunity to collect a lot of bonds and treasuries — the sudden reversal of the Federal Reserve’s loose fiscal policy left many holes in the side of these banks who had recklessly taken on far too much risk.
It remains to be seen what will come of this large catastrophe, but one thing is for certain — SVB won’t be the only bank to blow up and we don’t expect the trust people have for institutions or banks to return to normal.
Most people don’t consider what situation they would find themselves in if their bank was hit or there were widespread issues with internet connectivity, redemptions, or withdrawals.
Everyone should be prepared to deal with it and if they aren’t they are leaving themselves open to significant risks as we find out how deep the reckless gambling was going with these large institutions during the era of free money and low interest rates.
Today we will synthesize the events of the last 72 hours, cover the basics of bank run dynamics historically, and provide all the updates we have on proposed outcomes, those effected, and how you should think about ensuring you have at least partially thought about how to hedge yourself against similar blow ups that have worse outcomes.
These events will likely dictate the presence or lack of additional Fed rate hikes, the general direction of the market, and whether or not the Fed can avoid a full blown recession.
It’s clear this is going to spread fast and pre market numbers for Monday look horrific.
Is your money safe? Is this going to leak into other regional banks and maybe even larger ones?