The Bank Panic of 2023 isn’t over. The collapse of the Silicon Valley Bank, the second largest bank failure in U.S. history, was followed by a landslide of banking crises.
Credit Suisse, the second largest Swiss bank after UBS, faces possible failure. With the shares of Credit Suisse falling 30% on March 15, the Swiss central bank provided a $54-billion rescue lifeline.
Credit Suisse barely survived the 2007-08 financial crisis. European bank stocks crashed 15% in the week following SVG’s failure.
On March 13, the credit rating agency Moody’s downgraded the entire U.S. banking system outlook to negative from stable. Again, that’s the whole banking system, not just one or two banks.
The collapse of Silicon Valley Bank could be the start of “a slow-rolling crisis” in the financial system with “more seizures and shutdowns coming,” the chief executive of BlackRock, the world’s largest asset manager, said.
The Guardian reported, “The high-profile economist Nouriel Roubini told Bloomberg News that if Credit Suisse were to collapse it could result in a ‘Lehman moment’ – a reference to the collapse of the U.S. investment bank Lehman Brothers in August 2007 at the start of the global financial crisis.”
Immediately after the collapse of Silicon Valley Bank, the Biden administration announced a complete bailout of all wealthy uninsured depositors.
In the New York Times, Paul Krugman wrote: “Yes, it was a bailout. The fact that the funds will come from the Federal Deposit Insurance Corporation rather than directly from the Treasury doesn’t change the reality that the government came in to rescue depositors.”
“The Federal Reserve announced an emergency lending facility on March 12 to shore up the U.S. banking system,” the Financial Times reported. “The Fed said it would make additional funding available to eligible depository institutions to ‘help assure banks have the ability to meet the needs of all their depositors.’ It added that it is ‘prepared to address any liquidity pressures that may arise.'”
In effect, the government has nationalized the bank insurance system to guarantee all deposits, starting with the wealthy depositors at Silicon Valley Bank, Signature Bank, and Silvergate Bank. Silvergate collapsed just days before Silicon Valley Bank and Signature two days after. The Signature collapse was the third-largest bank failure in U.S. history.
Those three banks were related in two ways. First, both their borrowers and depositors were heavily concentrated among technology companies. Big Tech expanded rapidly during the pandemic and is now laying off thousands of workers.
Secondly, the three banks were heavily invested in long-term U.S. Treasury bonds, considered safe during the COVID shutdown, when the Fed lowered interest rates to almost zero. But a surge in inflation started in 2021, and the Fed responded with aggressive rate hikes that slashed the market value of the long-term Treasuries.
The New York Times reported on March 16 that many banks are holding big portfolios of long-term Treasury bonds that are now worth a lot less than their original value. U.S. banks are sitting on $620 billion in unrealized losses from Treasury securities according to Federal Deposit Insurance Corporation data, with many regional banks facing big hits. “Adding in other potential losses, including on mortgages that were extended when rates were low, economists at New York University have estimated that the total may be more like $1.75 trillion,” the Times says.
Inflation is still ravaging as real wages have continued to drop for the 23rd straight month.
Shelter (the government’s term for housing costs, primarily based on rent levels) was the most significant contributor to monthly inflation, accounting for over 70% of the increase. Food, household furnishings, and daily household upkeep also increased.
Rents were up 8.76% in February, the highest on record.
The cost of living has outpaced wage growth for 23 straight months, bringing wages down 1.3%.
The obvious question is, if they can bail out the banks, why can’t they roll back prices and end the inflation crisis for the working class? They could do it but won’t unless there’s a fight for it.
As Frederick Douglass declared: “Power concedes nothing without a demand. It never has and it never will.”
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