Yesterday a team of banks announced that they will deposit $30 billion with Republic First Bank in an attempt to bolster confidence in what is quickly becoming a banking crisis. Likewise, the Swiss National Bank threw Credit Suisse a lifeline.
My immediate reaction was to remember a parallel from 1929.
On Thursday October 24, 1929 i.e. a few days before the infamous Crash of Black Monday, the stockmarket was getting pummeled. A few top bankers decided to stem the bloodbath by getting themselves physically on the floor of the NYSE and making a show of buying stocks: Charles Mitchell from First National City Bank, JP Morgan Jr., Thomas Lamont and Albert Wiggin from Morgan. Indeed, their show of confidence managed to stop the drop, stabilized prices and even created a rebound. But, it was all extremely short lived, as we know.
Why? Because then as now, fundamentals ALWAYS rule the day, eventually.
And Right After
SVB sets the precedent that surviving banks now bear the cost of bailing out failed banks. They hope their intervention can prevent another imminent failure. We shall see if it works....
ReplyDeleteThe problem today impacts all banks: the rapid increase of short term interest rates after a decade of near zero is destroying the ability of borrowers to pay their loans, particularly corporate loans which are 100% variable rate.
DeleteNo bank is immune, even the huge ones.
It took 60 years of bank lobbying to abolish the Glass-Steagall Act. Maybe there were reasons why it was passed in 1932.
ReplyDeleteBy H. Glass Steagall was 100% a product of the Crash.
DeleteHere are two very important words to keep in mind right now when it comes to banking: Counterparty Risk.
ReplyDelete