The Fed hasn't learned, and maybe never will

Treasury bonds, issued when interest rates were low, have only one way to move as the Fed increases interest rates.  Their face value must go down.

An aggressive big bank, making lots of money, may not be watching the balance sheet as closely as it should.  So it was with Silicon Valley Bank.  Suddenly, SVB realized that it was stuck with lots of Treasury bonds that had lost value.  So SVB set about to raise several billion dollars to make its balance sheet look more balanced.  Due to this action, unfortunately, some depositors decided that their money might be safer in another bank.  Thus, the historic "run on a bank" occurred once again.  Within several days, SVB was insolvent.  That was last Friday. 

As an aside, might I ask what federal agency is responsible for watching bank balance sheets? 

On Monday, just two days later, the Fed proposed, again, to ignore history, economics, and common sense.  Need I warn them that you can fool Mother Nature and the laws of economics for only so long before you must face the consequences? 

Today's word is that our Fed chairman, Mr. Powell, proposes to spend $25 billion to make sure every depositor in SVB is made whole.  So what is the purpose of the FDIC guaranteeing $250,000 in deposits if 100% is guaranteed by the Fed?  

This has happened before.  When will we ever learn?  Seems that just 15 years ago, we went through a similar scenario, and it wasn't pretty.  Remember "Too Big to Fail"?  When the big investment banks ganged up on the Fed, and for the first time ever, the Fed used taxpayers' money to fill the void for undervalued mortgages?  Fifty billion dollars' worth?

Bankruptcy is healthy in a free and fair economy.  Invariably, it results from poor managers, often caught up in their pride as great business people.  Our bankruptcy laws are designed to minimize damage to creditors and help design a plan for the future of the organization.  Why does our government continue to un-level the playing field by "saving" only banks?   

Where will the Fed get the $25 billion?  They currently operate at a loss.  Oh, I forgot — they will print it.  It takes only paper and ink! 

So much for arresting inflation.  Another short-term fix.  Although how many short-term fixes can the dollar take before it becomes a third-world currency?

Good job, Fed.  You are good at kicking cans, poor at solving problems.  The soft landing gets harder every day!

Image: kolyaeg via Pixabay, Pixabay License.

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