Simon Black Wrote:
> You know the old joke – “Predictions are
> hard… especially about the future.”
> And it’s true, nobody has a crystal ball.
> But it’s astonishing to see just how horribly
> wrong the people in charge can be in their
> predictions, especially about the very near
> You probably remember Joe Biden famously insisted
> in the summer of 2021 that the Taliban was
> “highly unlikely” to take over Afghanistan.
> Boy did he turn out to be wrong.
> Only a few weeks later, the Taliban was in control
> of the entire country… and the world watched in
> utter astonishment as US military helicopters
> evacuated embassy personnel from Kabul in one of
> the most shameful episodes in modern American
> Not to be outdone, it appears that the Federal
> Reserve has just had its own Afghanistan moment.
> It was only Tuesday of last week that the Fed
> Chairman testified before a committee of concerned
> senators who thought the Fed may be tightening
> monetary policy (i.e. raising interest rates) too
> This was a valid concern; rapid interest rate
> hikes DO create a LOT of risks. And one of those
> risks is that asset prices– especially bond
> prices– plummet in value.
> This risk is particularly problematic for banks
> because they tend to invest their customer
> deposits in bonds.
> In fact, now that the Fed has tightened its
> monetary policy so quickly, banks across the US
> have more than $600 billion in unrealized losses
> on their bond portfolios. This is a pretty major
> problem… because that $600 billion is ultimately
> YOUR money.
> And it’s not like the Fed doesn’t have access
> to this information; after all, the Fed supervises
> nearly EVERY bank in the US financial system.
> And yet last week the Fed Chairman completely
> rejected this risk, telling worried senators flat
> out that “nothing about the data suggests to me
> that we’ve tightened too much. . .”
> In other words, he believed the Fed’s rapid
> interest rate hikes posed ZERO risk.
> Talk about a terrible prediction; just THREE DAYS
> LATER, one of the largest banks in the US
> imploded, multiple bank runs unfolded across the
> country, the bond market fell into turmoil, and
> the Fed had to essentially guarantee the entire US
> banking system in order to restore confidence.
> (More on that in a moment.)
> The mental image of bank runs in America, just
> days after the Chairman dismissed any risk, is the
> Fed’s equivalent of the Afghanistan debacle.
> It’s shameful.
> But what’s REALLY concerning is the Fed’s
> response to this panic– their de facto guarantee
> of the entire US banking system. Because
> ultimately they just put YOU on the hook for the
> potential bond losses of every bank in America.
> I’ll explain–
> After Silicon Valley Bank went bust, the FDIC
> announced that they will guarantee ALL deposits at
> the bank.
> This is a departure from the FDIC’s normal
> pledge to guarantee deposits of up to $250,000,
> and their decision drew a lot of ire from pundits
> and politicians across the ideological spectrum.
> Many people concluded that the FDIC’s pledge was
> tantamount to a “taxpayer-funded bailout.”
> But that assessment is wrong. Anyone who is
> intellectually honest and well-informed will
> easily understand that the FDIC is not funded by
> taxpayers. The FDIC is funded by charging fees to
> its member banks.
> So when the FDIC decided to guarantee every
> depositor at Silicon Valley Bank, including those
> with balances exceeding $250,000, it means
> they’re bailing out SVB’s wealthy customers at
> the expense of big Wall Street banks.
> But most people seem to have missed the real
> story… because the ACTUAL bailout is coming from
> the Fed, not the FDIC.
> Despite the Chairman’s terrible prediction in
> front of the Senate Banking Committee last week,
> the Fed now seems keenly aware of the risks in the
> US banking system. They realize that there are
> LOTS of other banks that are sitting on massive
> unrealized losses, just like SVB.
> So in order to prevent these banks from going
> under, the Fed invented a new facility they’re
> calling the “Bank Term Funding Program”, or
> But the BTFP is really just an extraordinary lie
> designed to make you think that the banking system
> is safe. They might as well have called it,
> “Believe This Fiction, People”, and I’ll
> show you why.
> Whenever people borrow money from banks, we
> normally have to provide some sort of collateral.
> Banks make home equity loans using real estate as
> collateral. They make car loans where the car is
> collateral. Manufacturing businesses borrow money
> using factory equipment as collateral.
> Well, banks do the same thing when they borrow
> money. And sometimes banks will even borrow money
> from the Federal Reserve. This is actually one of
> the reasons why the central bank exists– to act
> as a “lender of last resort” if banks need an
> emergency loan.
> And when banks borrow money from the Fed, they
> have to post collateral too.
> Instead of automobiles and houses, though, banks
> use their financial assets as collateral–
> specifically their bonds.
> This is actually codified by law (12 CFR 201.108)
> whereby Congress lists specific assets that the
> Fed can accept as collateral when making loans to
> banks. The list is basically different types of
> But this is the root of the problem. Banks are in
> financial trouble because their bond portfolios
> have lost so much value. Some banks (like SVB) are
> even insolvent because of this.
> So now, through the BTFP, the Fed will now accept
> banks’ sagging bond portfolios as collateral,
> but loan the bank MORE money than the bond
> portfolios are worth.
> Let’s say you’re an insolvent bank that
> invested, say, $100 billion in bonds. Those bonds
> are now worth $85 billion, and your bank is about
> to go under. “NO PROBLEMO!” says the Fed.
> The bank simply posts their bond portfolio (which
> is only worth $85 billion) as collateral, and the
> Fed will loan the bank the full $100 billion… as
> if those losses never occurred.
> It’s a complete lie. Everyone is pretending that
> the banks haven’t lost any money to give you a
> false sense of confidence in the financial system.
> “Believe the Fiction, People.”
> Remember that banks in the US have more than $600
> billion in unrealized bond losses right now. And
> that number will keep increasing if interest rates
> continue to rise.
> So this means that the Fed has essentially
> guaranteed that entire $600+ billion. Commercial
> banks won’t lose a penny— they can now pass
> their financial risks down to the Federal
> This isn’t a bailout… it’s a time bomb.
> We can keep our fingers crossed and hope that this
> time bomb never explodes. But if it does, the
> Federal Reserve is going to be looking at hundreds
> of billions in losses… which would trigger
> devastating consequences for the US dollar.
> This means that everyone who uses US dollars…
> including every man, woman, and child in America,
> is ultimately on the hook for the potential
> consequences of the BTFP.
> And that’s what is so remarkable about this: the
> Fed just made this decision all on its own.
> Congress didn’t pass a law. There were no
> hearings, no judicial oversight, no votes.
> Instead, several unelected bureaucrats who have
> been consistently wrong got together in a room and
> decided to guarantee $600+ billion in bank
> losses… and stick the American people with the
> This is the same organization that said in
> February 2021 that there was no inflation.
> The same organization that said in July 2021 that
> inflation was transitory and would pass in a few
> The same organization that said in June 2022 that
> they finally understand “how little we
> understand about inflation.”
> The same organization that said THREE DAYS before
> SVB’s collapse that “nothing about the data”
> suggested any risks with their policy actions.
> The Fed has been wrong at every critical point
> over the past few years. And they’ve now
> unilaterally signed up every single person in
> America to a $600+ billion bank bailout without so
> much as a courtesy phone call to Congress.
> This is apparently what Democracy means in America
> We’ve all been subjected to endless vitriol over
> the past few years with people on all sides
> howling that “Democracy is under attack.”
> Well, we just watched an unelected committee of
> central bankers hijack democracy and stick the
> American people with a potential $600+ billion
> bank bailout.