It’s the weekend, but our fresh Financial Crisis does not sleep. And a recent study says we’ve only seen the tip of the iceberg.
The Washington Post yesterday wrote: “If banks were suddenly forced to liquidate their bond and loan portfolios, the losses would erase up to 91 percent of their combined capital cushion.” In other words, we were already right up against the edge.
The Post cites two studies that total unrealized losses in the system are between $1.7 trillion and $2 trillion. Total capital buffer in the US banking system: $2.2 trillion. That’s about a 10 percent to 20 percent buffer. And now running into a market crisis where bank stocks have declined by about a third in the past few weeks, and are now at a P/E ratio of 7.35.
“Command those who are rich in this present age not to be haughty, nor to trust in uncertain riches but in the living God, who gives us richly all things to enjoy.” 1 Timothy. 6:17
Meanwhile, the Wall Street Journal last week wrote about a brand new study from Stanford and Columbia finding 186 banks are in distress—possibly to the point of seeking a bailout. The study estimates that hundreds of banks are in worse shape than SVB: hundreds have larger losses than Silicon Valley Bank, and hundreds have lower capitalization buffers in case of distress than Silicon Valley Bank.
How did it Happen?
In short, while tech bros and loose bankers hog the headlines, what drives hundreds of banks to the edge is our crony banking system.
In this case, rapid Fed rate hikes crashed into a banking system that fractional reserve banking and the Fed’s “Lender of Last Resort” (LOLR) permanent bailout have driven to permanently drive as fast as possible, as close to the edge of the cliff as possible.
Together, the moral hazard has given a green light to those reckless tech bros, to those loose bankers who hand out millions—it turns out hundreds of billions. And it drives the entire banking industry to use opaque accounting tricks to hustle sleepy regulators and innocent taxpayers and dollar-holders who get stuck with the bill.
The bankers themselves sleep like babies because they know you’ll cover their losses, but they keep their wins.
Read the entire article @ Mises Institute HERE
