Two...errr...THREE ...US banks failed this week: Silvegate and Signature specialized in crypto financing and transactions, Silicon Valley in tech startups. Are the two ... THREE.. events connected?
Yes: they were emblematic institutions in the two market sectors that experienced the most rabid bubble speculation. Their failure comes on the heels of their respective bursts.
The question now is this: are there more dominos to fall? Yes, there are. Our financial system is highly interdependent and leveraged, so it is only a matter of time until losses surface elsewhere.
Normally, when things get precarious the Fed immediately steps in and provides liquidity to the banking system. Can it do so today? With inflation where it is? No, objectively it can’t - but, it will if things get nasty. The Fed simply isn’t wired to be a truly tough taskmaster.
UPDATE: The Treasury and Fed stepped in to protect all Silicon Valley deposits, even those above $250.000 which are covered by FDIC. Turns out 90% of all deposits were over $250.000. And so it begins...
Is this the beginning of a 2008 like run?
ReplyDeleteBy H. My working hypothesis is that we are in the very early stages of a long, drawn out bear market in financial assets and real estate, instead of a sharp V-shaped crash and quick rebound.
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