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The Rational Walk's avatar

As suspected, a bailout of SVB (and newly failed Signature Bank) was announced tonight:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm

Although I didn’t enter the weekend thinking that I’d write about this situation, having written two articles on the topic, I will probably put together some thoughts tomorrow.

For now, I will just point out that the following statement from the press release is disingenuous at best:

“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Costs of bailing out uninsured deposits will come from a special assessment on all solvent banks. This assessment is a socialization of losses, borne by other banks and that is a cost to the real economy.

Also, the Fed announced that it will make loans to banks against fixed income securities with market value deeply below par (due to rising interest rates) *at par*:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm

It’s like getting a mulligan. If you have a pile of long duration fixed income securities on your books classified as “held to maturity”, and you need liquidity, no worries, the Fed will pretend the securities are currently worth par and loan you the money for up to a year.

Make no mistake: tonight, the federal government announced a massive bailout for the VC industry.

BTW, isn’t it odd that all the MSM stories about the failure of signature that I’ve read don’t mention that Barney Frank was on that bank’s board since 2015? Yeah, that Barney Frank of Dodd Frank fame. Must just be an oversight.

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The Rational Walk's avatar

I recommend Rudy Havenstein’s latest post on Ackman:

https://rudy.substack.com/p/bill-ackman-personifies-everything

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