This "Buffett" dude sounds like a commie who hates our freedom. Insiders keep the gains, the government makes good the losses - that's how its supposed to work.
J.P. Morgan was the deal advisor to FR as they tried to shop themselves. So they got a peek inside the kimono, then bought the good stuff and left the FDIC with the dreck. That's how Free Markets are supposed to work!
Good article, succinct summary. My .02, we either have deposit insurance or we have guaranteed deposits. But it should not just be the wealthy of FRC or the tech bros at SVB. What about the small banks with small depositors all equally pressured and just as critical to the economy. We should go through the process of managing a bank failure based on deposit insurance and recovering funds through liquidation which is returned to the deposit holders who might have to take a haircut. But instead we, like with FRC, roll up the failed banks into a few in the too big to fail category and ensure no depositors take a haircut. BTW - isn't there a rule against a bank having more than 10% of the total deposits? Seems like that regulation just got tossed along with the notion of deposit insurance.
I think that a much larger moral hazard exists when a bank (First Republic Bank) which has significant assets and deposits, succumbs to social media induced panic and short selling, then another bank publicly states they will purchase that bank after FDIC receivership is enacted. Finally the second bank is able to purchase the first at a significant discount and wiping out all shareholders, from what I can tell for nothing, and 10-15 billion is added to the second bank's market cap--an approximate value to the first bank which was "Failing".
I purchased a very small amount of shares in FRC in the past week post-earnings, quite honestly thinking they would survive, not be placed into receivership, and/or a "fair" value for FRC ($10-$15 Billion). Oh well, lesson learned, and I believe what this will cause is actually a very similar pattern occurring to any small to medium (or even large) regional bank. I will most definitely stay away from ANY banking moving forward.
Although Jamie Diamond now has the narrative of a Blockchain advocate. Don't be fooled by that hyperbole. All bankers are scared of being left out. Regulations are not going to make Defi "safe". They will only make the rules. The same rules they apply to banking and rig the game of "too big to fail". Defying the principals of cryptocurrency privacy, asset tokenization, smart contracts, QLP, DEX, inflation/deflation prevention mechanisms self governance, peer to peer enterprise and self-banking. Ultimately extinguishing Federal Income Taxation Without Representation for all U.S. Citizens.
Get involved:
Write your Congressperson and demand they actually understand how the Defi system works or keep their mouths shut and admit it.
Join the real patriots of America. I know only of the 4 congressman actually qualified to represent American values regarding Constitutional and Bill of Rights. One is McHenry and he is working Legislatively, with others on it as we speak.
Ravi, you and Warren have it right. Asking depositors to carry the burden of moral hazard is impractical. Put the burden on those in charge. Charlie Munger likes to cite the practice of Roman engineers who were required to stand under the aqueduct as the scaffolding was removed. Or the Naval boat commander who is cashiered, if the boat is involved in an accident. Solomon and Goldman were managed quite differently when they were partnerships.
I'm not really sure that I agree with the idea that large depositors shouldn't monitor the banks. In fact, I think they should. But obviously Warren Buffett would know infinitely more than I do about whether this is practical or not. I really worry about the idea of unlimited deposit insurance and how it might make large depositors too complacent and take some competition out of the banking system. I hope this is discussed at the annual meeting on Saturday.
It is possible that very large depositors could do so diligence. But they would need knowledgeable staff, and that would that be inefficient. Multiply that by 500+ major corporations. I spent a good while this morning reading M&T’s latest 10K. I have a long history with M&T; I know it’s culture. But would I have detected SVB’s or Fed Republic’s weakness in non-mark-to-market securities. We have our checking accounts and mortgage at FRC--they were moved to Chase today. I would put a hard material onus on management and directors. Having a lot to lose focuses the mind, responsibly.
Can we also include the crony regulators in your proposed crusade against moral hazard? While I generally despise the regulatory orgs, if we are going to have them then they should also face ruin for their contributory negligence. The coziness and revolving door (ie regulatory capture) is a top contributing factor of systemic risk, despite their claims of regulating/mitigating it.
I'm all for ending the revolving door. We should have Barney Frank testify under oath about this since he's very experienced in this area given his directorship of Signature Bank.
This "Buffett" dude sounds like a commie who hates our freedom. Insiders keep the gains, the government makes good the losses - that's how its supposed to work.
J.P. Morgan was the deal advisor to FR as they tried to shop themselves. So they got a peek inside the kimono, then bought the good stuff and left the FDIC with the dreck. That's how Free Markets are supposed to work!
Good article, succinct summary. My .02, we either have deposit insurance or we have guaranteed deposits. But it should not just be the wealthy of FRC or the tech bros at SVB. What about the small banks with small depositors all equally pressured and just as critical to the economy. We should go through the process of managing a bank failure based on deposit insurance and recovering funds through liquidation which is returned to the deposit holders who might have to take a haircut. But instead we, like with FRC, roll up the failed banks into a few in the too big to fail category and ensure no depositors take a haircut. BTW - isn't there a rule against a bank having more than 10% of the total deposits? Seems like that regulation just got tossed along with the notion of deposit insurance.
Pam and Russ Martens wrote about the 10% of deposits rule today. Apparently it is being disregarded! This is TBTF on steroids.
https://wallstreetonparade.com/2023/05/jpmorgan-chase-officially-the-riskiest-bank-in-the-u-s-is-allowed-by-federal-regulators-to-buy-first-republic-bank/
Laws are for little people. Policy is for the wealthiest and powerful; they determine who policy and laws apply to.
I think that a much larger moral hazard exists when a bank (First Republic Bank) which has significant assets and deposits, succumbs to social media induced panic and short selling, then another bank publicly states they will purchase that bank after FDIC receivership is enacted. Finally the second bank is able to purchase the first at a significant discount and wiping out all shareholders, from what I can tell for nothing, and 10-15 billion is added to the second bank's market cap--an approximate value to the first bank which was "Failing".
I purchased a very small amount of shares in FRC in the past week post-earnings, quite honestly thinking they would survive, not be placed into receivership, and/or a "fair" value for FRC ($10-$15 Billion). Oh well, lesson learned, and I believe what this will cause is actually a very similar pattern occurring to any small to medium (or even large) regional bank. I will most definitely stay away from ANY banking moving forward.
R. Rep. McHenry is well aware of the situation.
https://link.coindesk.com/click/31338833.258892/aHR0cHM6Ly93d3cuY29pbmRlc2suY29tL3BvbGljeS8yMDIzLzA0LzI4L3VzLWhvdXNlLXdpbGwtaGF2ZS1jcnlwdG8tYmlsbC1pbi0yLW1vbnRocy1tY2hlbnJ5Lw/64468647a742912ae366d5e5Ccabb0afc
Although Jamie Diamond now has the narrative of a Blockchain advocate. Don't be fooled by that hyperbole. All bankers are scared of being left out. Regulations are not going to make Defi "safe". They will only make the rules. The same rules they apply to banking and rig the game of "too big to fail". Defying the principals of cryptocurrency privacy, asset tokenization, smart contracts, QLP, DEX, inflation/deflation prevention mechanisms self governance, peer to peer enterprise and self-banking. Ultimately extinguishing Federal Income Taxation Without Representation for all U.S. Citizens.
Get involved:
Write your Congressperson and demand they actually understand how the Defi system works or keep their mouths shut and admit it.
Join the real patriots of America. I know only of the 4 congressman actually qualified to represent American values regarding Constitutional and Bill of Rights. One is McHenry and he is working Legislatively, with others on it as we speak.
*Jamie Dimon
Ravi, you and Warren have it right. Asking depositors to carry the burden of moral hazard is impractical. Put the burden on those in charge. Charlie Munger likes to cite the practice of Roman engineers who were required to stand under the aqueduct as the scaffolding was removed. Or the Naval boat commander who is cashiered, if the boat is involved in an accident. Solomon and Goldman were managed quite differently when they were partnerships.
I'm not really sure that I agree with the idea that large depositors shouldn't monitor the banks. In fact, I think they should. But obviously Warren Buffett would know infinitely more than I do about whether this is practical or not. I really worry about the idea of unlimited deposit insurance and how it might make large depositors too complacent and take some competition out of the banking system. I hope this is discussed at the annual meeting on Saturday.
It is possible that very large depositors could do so diligence. But they would need knowledgeable staff, and that would that be inefficient. Multiply that by 500+ major corporations. I spent a good while this morning reading M&T’s latest 10K. I have a long history with M&T; I know it’s culture. But would I have detected SVB’s or Fed Republic’s weakness in non-mark-to-market securities. We have our checking accounts and mortgage at FRC--they were moved to Chase today. I would put a hard material onus on management and directors. Having a lot to lose focuses the mind, responsibly.
Looks like there are discussions underway to formally raise the $250K limit. https://www.wsj.com/articles/fdic-signals-support-for-narrow-changes-to-deposit-insurance-43e88530
Clawbacks of compensation are a good idea, but I’m afraid the system is too corrupt. Banksters gonna bankster.
Unfortunately, I agree. Real reforms are unlikely.
Can we also include the crony regulators in your proposed crusade against moral hazard? While I generally despise the regulatory orgs, if we are going to have them then they should also face ruin for their contributory negligence. The coziness and revolving door (ie regulatory capture) is a top contributing factor of systemic risk, despite their claims of regulating/mitigating it.
I'm all for ending the revolving door. We should have Barney Frank testify under oath about this since he's very experienced in this area given his directorship of Signature Bank.