We are seriously suspecting there is a master plan here. Realizing central bankers have the luxury of executing plans decades into the future and making moves NOW to accomplish those “ends”, if one is to consider what their true objectives are, this all makes total sense. Hard to see those long term objectives thru a short term lens.
The consolidation of the banking industry seems to be an end goal here. When you look at SVB debacle and realize Moody’s as well as the San Fran Fed were acutely aware of the fraud going on (Moody’s had sent out repeated red flags on the situation in the months prior) and the lopsided in flow outflow deposit reality of that bank’s operation, it seems that they waited till the last minute before the whole thing toppled, allegedly by one major depositor who called in his “chips” and when the bank choked realizing the spread on the bonds they were holding in forced liquidation created a multi BILLION dollar loss in getting the liquidity to cover the withdrawal demanded.
We do not clearly understand the Fed thinking the end all result of these unprecedented rate hikes in a short amount of time will result in taming of the “inflation monster” while the hikes have literally created massive multi HUNDRED BILLION dollar losses across the spectrum of the smaller regionals who thought placing/hoarding PPP money and stimulus savings into government bonds a safe and conservative bet at the time. The sudden rise in interest rates caught many bankers flat footed in the “spread” but luckily the FED contained the bank runs to eliminate the need for forced liquidations at monstrous losses FOR NOW.
With inflation rates tapering off, the “residue” of these moves resonate in the balance sheets of the regionals exacerbated by their massive exposures to commercial real estate. When one considers almost 2/3 of all lending in the commercial sector is held by the smaller regionals and almost 1.5 TRILLION (yes1,500 billions) is coming due in the next 16 months it forebodes a sinister financial reckoning. Anyone can drive down a major thoroughfare in almost ANY city and see the empty storefronts, many in seemingly good areas while the work from home movement has decimated the office occupancy rates and created somber long term outlooks for the industry. We are hearing many cases already in our neck of the woods where owners are throwing the keys back at lenders on Class A office properties as mortgages up for renewal who are REFUSING to accept them and forcing owners to accept rewritten loan terms instead.
Another major consideration in all of this is the looming US dollar CBDC. Crypto ventures and the financing of them were mostly concentrated in SVB as the go to bank in Silicon Valley where the nexus of that industry was concentrated and in one fell swoop that bank was wiped off the face of the earth and the prime components of THAT portfolio were absorbed into JP Morgan Chase.
Food for thought moving forward as the Fed seems to want to raise rates even more this year. We shall see as 8 weeks of data will determine what happens next as next Federal Reserve meeting slated for mid September