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Thanks for the real numbers. It's still Love , it ain't Prime. And how is it still not a bailout accepting the collateral at par value...

Only institutions get this type of treatment when they screw up...

⚡️🌱🌙 2y ago

You personally can sell any Treasuries you have at par value because you are small enough to not test the liquidity of the UST market.

So BTFP is of zero use to you. You would be stupid to use it, even if you had access to it.

An institution is big, and selling at par might not be possible if the liquidity of the bid side of the book isn’t strong enough to support their selling.

The Fed is taking a precaution in the event that UST liquidity is too weak tomorrow to accommodate orderly liquidation of bonds to finance deposit withdrawals at some banks.

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Discussion

bigmarh 2y ago

The crazy thing, is the Fed started this issue for SVB, by aggressively raising rates, making SVB's balance sheet weaker.

Now they want to play clean up. It's like they either explicitly know what they are doing, or they have no clue!!

The domino train begins and ends with the Fed.

Mike Brock 2y ago

They had to raise rates. If they hadn't, we'd have like 20%+ inflation right now.

Chilidem 2y ago

And they are going to have to lower them or the debt will go higher much faster.

⚡️🌱🌙 2y ago

They need GDP to grow faster than debt in order to avert a Malthusian event.

If debt/GDP gets too high then the cost of servicing your debt can accelerate faster than your ability to service it and ultimately outrun you.

This is how South American currencies collapse.

So the Fed actually needs high inflation in order to bring down debt/GDP ratio because GDP inflates with inflation, whereas debt does not.

They probably want 5-10% inflation, not so hot to trigger capital flight but hot enough to inflate away some debt.

Not sure they will touch rates. They will use esoteric tools now that they have the patient sedated and the thorax open.

bigmarh 2y ago

They are always lagging what's really going on. Inflation was a product of supply chain issues. The balance was jacked after the pandemic shutdowns.

Squeezing too hard is slowing down the minuscule growth we already seeing. Choking off growth in this environment seems like a formula that will wreck the small guy, more than inflation will.

⚡️🌱🌙 2y ago

The Fed exists to fight inflation and to mop up the stains on the carpet left by all the banks that get rekt in the process.

That’s what the Fed is.

They’ve been killing banks for 90 years. It’s literally what they do. They knew exactly what they were doing, and they told everyone “this is what we are doing”.

This is the Central Bank system.

bigmarh 2y ago

Then why intervene selectively. If they are meant to kill banks. Why not allow the market to work itself out?

Maybe there should be way more banks, smaller more local banks so that you don't keep having these single points of failure.

Mike Brock 2y ago

These were smaller, regional banks ...

jacob 2y ago

SVB was the 16th largest bank by deposit base in the country

⚡️🌱🌙 2y ago

I’m not sure what you mean?

They haven’t intervened in SVB or Sovereign bankruptcies.

They’re merely providing a means of overnight UST liquidity without going to the bond market.

bigmarh 2y ago

Again, it's the institutions they bank that triggered the response.

I don't mind them dying, but let them all die or save all depositors. This feels selective due to who was depositing there.

See my earlier comment about farmers and coal miners...

#[7]

That's not the point. The point is there should be far more banks. It shouldn't be so hard to get chartered. Free the market and will have less of the single points of failure and the good banks will rise to the top.