13 March 2023

Stocks and Precious Metals Charts - Economic Donkeys


"To put it bluntly, this [Silicon Valley Bank] was a Wall Street IPO machine that enriched the investment banks on Wall Street by keeping the IPO pipeline moving; padded the bank accounts of the venture capital and private equity middlemen; and minted startup millionaires for ideas that often flamed out after the companies went public. These are the functions and risks taken by investment banks. Silicon Valley Bank – with this business model — should never have been allowed to hold a federally-insured banking charter and be backstopped by the U.S. taxpayer, who was on the hook for its incompetent bank management.

Wall Street On Parade, SVB Was an IPO Pipeline in Drag as a FDIC Bank, March 13, 2023

"The real problem with our financial system is that our economic and political system work together to encourage excessive risk, and this risk in turn leads to cycles of prosperity and collapse.  This policy of responding to the aftermath of bubbles, rather than addressing them before they get going, through tighter regulation, has become the mantra of most central banks. 

Each time banks fail, by bailing the system out again, we teach our finance sector a lesson: you can safely take too much risk because, when you lose, the taxpayer will pick up the bill.  Such a system is destined to fail, but the party can run for a long time."

Simon Johnson and Peter Boone, Economic Donkeys, 19 September 2009

"You should thank God for bank bailouts.  Now, if you talk about bailouts for everybody else, if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.   There's danger in just shoveling out money to people who say, 'My life is a little harder than it used to be.'  At a certain place you've got to say to the people, 'Suck it in and cope, buddy.'"

Charlie Munger, September 2010

"It [inequality] is visible in the ever rising costs of healthcare and college, in the coronation of Wall Street, and the slow blighting of wherever it is that you happen to live. And you catch a glimpse of inequality every time you hear about someone that had to declare bankruptcy because a child got sick. Inequality is about the way in which speculators, and even criminals, get a helping hand from Uncle Sam, while the Vietnam Vet down the street from you loses his house."

Thomas Frank, Listen Liberal

"Moral hazard is the probability that a party insulated from risk will behave differently from the way they would behave if fully exposed to the risk. It also encourages the rise to power of the sociopath in the affected organizations.  Unfortunately there is a small but powerful oligopoly of privilege that is trying to project themselves onto the global stage while believing that they are immune to ordinary consequence, and have become addicted to the notion that 'others must pay' for their failures.  Moral hazard comes from rewarding bad behaviour in markets with wristslaps and bailouts.  It is a danger to the economy and to the public."

Jesse, Moral Hazard, 22 March 2008

A fresh run on some of the 'banks' and their subsequent failure had the risk markets reeling.

The government took extraordinary action to bail out wealthy depositors and tech startups over the weekend.

The President appeared before the market open with encouraging words, and to reassure the public that they would not be paying for the bailout this time:  at least not right away.

Does anyone really believe that the Big Banks will be eating their FDIC fees and not passing them along to the public?  

That the bailout of the wealthy and their tech toys scams are essential to the future of democracy?

Let's call it self-righteous pigman syndrome. 

 There was a remarkable plunge in short term Treasury yields as expectations of more draconian Fed rate increases fell off the table.

The provided some support for stocks which went on an intraday roller coaster ride.  Almost business as usual.

The Dollar took those yield drops on the chin.

As you might expect gold and silver rocketed higher in a genuine flight to safety.

Here we go again.

There is still plenty of time to machinegun the lifeboats as we have a quad option expiration on Friday, and a Comex metals option expiration next week.

We are the hollow men.  We learn nothing.

Have a pleasant evening.