The Banks Are Not Alright
Andy Snyder|May 8, 2023
Here’s a critical public service announcement…
The same people who brought us the COVID mess are bringing us a financial disaster.
The same folks who told us it’d be just two weeks…
That masks weren’t needed…
That masks were mandatory…
That two masks were better than one…
That masks didn’t really work…
That we should trust the science…
And that once you got the jab, you wouldn’t get sick… or make others sick…
Are now telling us the banking system is perfectly fine. There’s nothing to worry about.
Out of Hand
Oh sure, the power of the system is once again being condensed into the hands of the mighty. This time it’s not Pfizer and Moderna. It’s JPMorgan Chase and Goldman Sachs (which, by the way, gave what may have been some criminal guidance to Silicon Valley Bank just before it failed) soaking up the riches.
Despite the coughing and wheezing in the streets, Jay Powell tells us the nation’s banks are “sound and resilient”… and that the worst of it is over.
Meanwhile, a fresh study shows that nearly 200 banks could go belly up if their withdrawals suddenly mirror those of the failed banks in the headlines.
Golly… somebody needs to poke Fauci and bring him out of retirement. All of this sounds like the gain-of-function argument that kept the old doc’s cheeks so rosy anytime it was brought up.
Surely the Fed will downplay the situation. It 100% created this mess by raising rates to multidecade highs (whether it had to or not).
But perhaps, dare we say it, as was the case when the folks in charge found out a bat was swooping through the city, the Fed didn’t expect things to get out of hand.
Or maybe it did…
Either way, interest rates are now far higher than they were a year ago.
A New Plague
For investors paying attention, it’s good news. We can finally find yield in places where it’s been gone for decades.
For banks, though… oh boy. The cure is worse than the disease.
Not only is money flooding out of traditional banks and into higher-yielding assets like CDs, money markets and online savings accounts… but the securities the bankers must sell to pay out withdrawals are worth significantly less than they paid for them.
But things are okay, Powell tells us.
The worst is over.
It’s odd… We swear we’ve heard that before.
We all know how this ends. We’ve seen it play out in the past.
The economy will buckle, the election-pressured politicians will bend and the printing presses will be wheeled out of storage once again.
Rates will fall soon. And stocks will rise on the back of more easy money.
All it will take to rid us of this latest financial plague is another shot in the arm… or two… or three… or four.
