Today’s News 20th March 2023

• What Follows US Hegemony
  What Follows US Hegemony

  Authored by Vijay Prashad via thetricontiental.org,

  On 24 February 2023, the Chinese Foreign Ministry released a twelve-point plan entitled ‘China’s Position on the Political Settlement of the Ukraine Crisis’.

  This ‘peace plan’, as it has been called, is anchored in the concept of sovereignty, building upon the well-established principles of the United Nations Charter (1945) and the Ten Principles from the Bandung Conference of African and Asian states held in 1955. The plan was released two days after China’s senior diplomat Wang Yi visited Moscow, where he met with Russia’s President Vladimir Putin.

  Russia’s interest in the plan was confirmed by Kremlin spokesperson Dmitry Peskov shortly after the visit: ‘Any attempt to produce a plan that would put the [Ukraine] conflict on a peace track deserves attention. We are considering the plan of our Chinese friends with great attention’.

  

  Ukraine’s President Volodymyr Zelensky welcomed the plan hours after it was made public, saying that he would like to meet China’s President Xi Jinping as soon as possible to discuss a potential peace process. France’s President Emmanuel Macron echoed this sentiment, saying that he would visit Beijing in early April. There are many interesting aspects of this plan, notably a call to end all hostilities near nuclear power plants and a pledge by China to help fund the reconstruction of Ukraine. But perhaps the most interesting feature is that a peace plan did not come from any country in the West, but from Beijing.

  When I read ‘China’s Position on the Political Settlement of the Ukraine Crisis’, I was reminded of ‘On the Pulse of Morning’, a poem published by Maya Angelou in 1993, the rubble of the Soviet Union before us, the terrible bombardment of Iraq by the United States still producing aftershocks, the tremors felt in Afghanistan and Bosnia. The title of this newsletter, ‘Birth Again the Dream of Global Peace and Mutual Respect’, sits at the heart of the poem. Angelou wrote alongside the rocks and the trees, those who outlive humans and watch us destroy the world. Two sections of the poem bear repeating:

  Each of you, a bordered country,
  Delicate and strangely made proud,
  Yet thrusting perpetually under siege.
  Your armed struggles for profit
  Have left collars of waste upon
  My shore, currents of debris upon my breast.
  Yet today I call you to my riverside,
  If you will study war no more. Come,
  Clad in peace, and I will sing the songs
  The Creator gave to me when I and the
  Tree and the rock were one.
  Before cynicism was a bloody sear across your
  Brow and when you yet knew you still
  Knew nothing.
  The River sang and sings on.

  …

  History, despite its wrenching pain
  Cannot be unlived, but if faced
  With courage, need not be lived again.

  History cannot be forgotten, but it need not be repeated. That is the message of Angelou’s poem and the message of the study we released last week, Eight Contradictions of the Imperialist ‘Rules-Based Order’.

  

  In October 2022, Cuba’s Centre for International Policy Research (CIPI) held its 7th Conference on Strategic Studies, which studied the shifts taking place in international relations, with an emphasis on the declining power of the Western states and the emergence of a new confidence in the developing world. There is no doubt that the United States and its allies continue to exercise immense power over the world through military force and control over financial systems. But with the economic rise of several developing countries, with China at their head, a qualitative change can be felt on the world stage. An example of this trend is the ongoing dispute amongst the G20 countries, many of which have refused to line up against Moscow despite pressure by the United States and its European allies to firmly condemn Russia for the war in Ukraine. This change in the geopolitical atmosphere requires precise analysis based on the facts.

  To that end, our latest dossier, Sovereignty, Dignity, and Regionalism in the New International Order (March 2023), produced in collaboration with CIPI, brings together some of the thinking about the emergence of a new global dispensation that will follow the period of US hegemony.

  The text opens with a foreword by CIPI’s director, José R. Cabañas Rodríguez, who makes the point that the world is already at war, namely a war imposed on much of the world (including Cuba) by the United States and its allies through blockades and economic policies such as sanctions that strangle the possibilities for development. As Greece’s former Finance Minister Yanis Varoufakis said, coups these days ‘do not need tanks. They achieve the same result with banks’.

  The US is attempting to maintain its position of ‘single master’ through an aggressive military and diplomatic push both in Ukraine and Taiwan, unconcerned about the great destabilisation this has inflicted upon the world. This approach was reflected in US Defence Secretary Lloyd Austin’s admission that ‘We want to see Russia weakened’ and in US House Foreign Affairs Committee Chairman Michael McCaul’s statement that ‘Ukraine today – it’s going to be Taiwan tomorrow’. It is a concern about this destabilisation and the declining fortunes of the West that has led most of the countries in the world to refuse to join efforts to isolate Russia.

  

  As some of the larger developing countries, such as China, Brazil, India, Mexico, Indonesia, and South Africa, pivot away from reliance upon the United States and its Western allies, they have begun to discuss a new architecture for a new world order. What is quite clear is that most of these countries – despite great differences in the political traditions of their respective governments – now recognise that the United States ‘rules-based international order’ is no longer able to exercise the authority it once had. The actual movement of history shows that the world order is moving from one anchored by US hegemony to one that is far more regional in character. US policymakers, as part of their fearmongering, suggest that China wants to take over the world, along the grain of the ‘Thucydides Trap’ argument that when a new aspirant to hegemony appears on the scene, it tends to result in war between the emerging power and existing great power. However, this argument is not based on facts.

  Rather than seek to generate additional poles of power – in the mould of the United States – and build a ‘multipolar’ world, developing countries are calling for a world order rooted in the UN Charter as well as strong regional trade and development systems. ‘This new internationalism can only be created – and a period of global Balkanisation avoided’, we write in our latest dossier, ‘by building upon a foundation of mutual respect and strength of regional trade systems, security organisations, and political formations’. Indicators of this new attitude are present in the discussions taking place in the Global South about the war in Ukraine and are reflected in the Chinese plan for peace.

  

  Our dossier analyses at some length this moment of fragility for US power and its ‘rules-based international order’. We trace the revival of multilateralism and regionalism, which are key concepts of the emerging world order. The growth of regionalism is reflected in the creation of a host of vital regional bodies, from the Community of Latin American and Caribbean States (CELAC) to the Shanghai Cooperation Organisation (SCO), alongside increasing regional trade (with the BRICS bloc being a kind of ‘regionalism plus’ for our period). Meanwhile, the emphasis on returning to international institutions for global decision-making, as evidenced by the formation of the Group of Friends in Defence of the UN Charter, for example, illustrates the reinvigorated desire for multilateralism.

  The United States remains a powerful country, but it has not come to terms with the immense changes taking place in the world order. It must temper its belief in its ‘manifest destiny’ and recognise that it is nothing more than another country amongst the 193 members states of the United Nations. The great powers – including the United States – will either find ways to accommodate and cooperate for the common good, or they will all collapse together.

  At the start of the pandemic, the head of the World Health Organisation, Dr Tedros Adhanom Ghebreyesus, urged the countries of the world to be more collaborative and less confrontational, saying that ‘this is the time for solidarity, not stigma’ and repeating, in the years since, that nations must ‘work together across ideological divides to find common solutions to common problems’.

  These wise words must be heeded.

  Tyler Durden
  Sun, 03/19/2023 – 23:30

• Best Used Cars Under $15,000 For Those Who Cannot Afford New
  Best Used Cars Under $15,000 For Those Who Cannot Afford New

  Americans are spending too much on their new vehicles, and the average household can no longer afford $1,000 monthly payments. Consequently, a growing number of folks are turning to the secondary market for used cars even though prices are reaccelerating this spring. 

  Business Insider and Consumer Reports have constructed a report of the best-used car’s money can buy for under $15,000. 

  The small cars, sedans, trucks, and SUVs listed below are considered the most reliable, affordable, and equipped with modern safety features built within the last decade. 

  Here’s the list: 

  Small car under $10,000: Nissan Leaf (2013, 2015)

  

  Midsized car under $10,000: Subaru Legacy (2013)

  

  Midsized SUV under $10,000: Nissan Murano (2014)

  

  Small car under $12,000: Ford C-Max (2014-2016) 

  

  Small car under $14,000:Toyota Prius C (2013-2015)

  

  Luxury car in the $10,000-$15,000 range: Lincoln MKZ (2014-2015)

  

  Minivan/wagon in the $10,000-$15,000 range: Toyota Venza (2013-2014)

  

  Small SUVs in the $10,000-$15,000 range: Mazda CX-5 (2014-2016) and Toyota RAV4 (2013)

  

  Pickup truck in the $10,000-$15,000 range: Toyota Tacoma (2013)

  

  The list above would be perfect for Gen Z and Millennials, who are drowning in insurmountable debts and inflation. 

  Tyler Durden
  Sun, 03/19/2023 – 23:00

• Biden DOJ Asks Supreme Court To Fast-Track Case That Could Reinstate Federal Gun Ban
  Biden DOJ Asks Supreme Court To Fast-Track Case That Could Reinstate Federal Gun Ban

  Authored by Matthew Vadum via The Epoch Times (emphasis ours),

  The U.S. Department of Justice (DOJ) is asking the Supreme Court to overturn an appeals court ruling that struck down a federal law preventing people under domestic violence-related restraining orders from having guns.

  

  The Biden administration asked in its new petition (pdf) for the high court to hear the case on a “highly expedited schedule” because of the “significant disruptive consequences” of the lower court’s ruling. The petition was reportedly filed with the court on March 17 but had not been docketed as of press time.

  The case comes as courts nationwide are playing catchup regarding the Supreme Court’s landmark June 2022 ruling in New York State Rifle and Pistol Association v. Bruen that held firearms restrictions must be deeply rooted in American history if they are to survive constitutional scrutiny.

  Senate Judiciary Committee chairman Dick Durbin (D-Ill.) said on March 15 that the Bruen ruling offers little guidance to lower courts on interpreting the decision, as Courthouse News Service reported.

  “The gun lobby saw Bruen as a landmark win, but it is a significant challenge for police, law enforcement, and the population of America when it comes to public safety,” Durbin said.

  The case involves Zackey Rahimi of Texas, who pled guilty to violating a 1994 federal law –Section 922(g)(8) of Title 18 of the U.S. Code— that prohibits a person who is subject to a domestic-violence restraining order from possessing a firearm. Rahimi was involved in five shooting incidents after the restraining order was entered against him in February 2020.

  But when the U.S. Court of Appeals for the 5th Circuit took up Rahimi’s case earlier this year, it overturned the law, finding it was no longer constitutional according to the principles laid down in Bruen.

  The government failed “to demonstrate that § 922(g)(8)’s restriction of the Second Amendment right fits within our Nation’s historical tradition of firearm regulation,” the panel stated. The ban on the possession of firearms by someone under a domestic violence-related restraining order “is an outlier that our ancestors would never have accepted.”

  U.S. Attorney General Merrick Garland said last month the DOJ would appeal the ruling but did not provide a timeline for doing so.

  “Nearly 30 years ago, Congress determined that a person who is subject to a court order that restrains him or her from threatening an intimate partner or child cannot lawfully possess a firearm,” Garland said in a Feb. 2 statement.

  Read more here…

  Tyler Durden
  Sun, 03/19/2023 – 22:30

• Half Of California Lifted Out Of Drought; Flooding Now A Concern As More Rain Looms
  Half Of California Lifted Out Of Drought; Flooding Now A Concern As More Rain Looms

  Authored by Jamie Joseph via The Epoch Times,

  Almost half of California is out of a drought, including San Francisco, Sacramento, and Los Angeles, according to data released by the U.S. Drought Monitor March 16.

  

  But with so much Sierra Nevada Mountain snowpack, the possibility of flooding is a new concern, forecasters in the National Weather Service Office of Water Prediction warned.

  According to the drought monitor, about 45 percent of the state is now out of a drought including nearly all of Central California.

  But some swaths of Northern and Southern California remain in “abnormally dry” and “moderate drought” conditions.

  

  (Courtesy of the U.S. Drought Monitor)

  California has experienced severe drought conditions, off and on, since 2006, leading to water rationing and regulations, in urban and agricultural zones and unprecedentedly low reservoir levels statewide.

  But its long-standing water woes took a positive turn after a series of storms that started in December.

  By mid-January, the mountain snowpack reportedly exceeded 200 percent, according to the National Weather Service.

  

  According to the state’s water data, reservoirs that were once depleted are now filling up with some over 80 percent full – and groundwater reserves have received a significant boost.

  

  (Screenshot via California Department of Water Resources)

  Due to the excessive snowpack, the National Weather Service warned March 16 that approximately 15 million Californians are at risk for some type of flooding in their communities, including 1.4 million for major flooding and another 6.4 million may be hit moderately.

  More rain, according to forecasters, is expected next Tuesday and Wednesday.

  Tyler Durden
  Sun, 03/19/2023 – 22:00

• The Eggheads Vs The Doers
  The Eggheads Vs The Doers

  Authored by Jeffrey Tucker via DailyReckoning.com,

  I recently spoke at one of my favorite venues, the Liberty Forum in New Hampshire, which is an annual conference center on the Free State Project.

  It’s designed to encourage people to pick up and move to the freest state in the country for community and to help protect the state from the fate that befell Massachusetts, Connecticut, and Rhode Island.

  My first time speaking there was 2012, I believe, and I came away with an interesting revelation, which I can summarize as “Liberty is a hands-on task.”

  In my career until that time, the problem of economic and political matters were mostly matters of theory and I had spent most of my time reading and distributing high theory, a task I loved and still do.

  But coming to this event in New Hampshire I found something else entirely; a group of people who were busy doing things in practice to live freer lives.

  They were small business people, real-estate agents, people with alternative currency systems, people raising and selling food on and from their own farms, organizers of houses of worship and community centers, homeschoolers and school entrepreneurs, and much more besides, including office holders focusing on laws and legislation.

  It was here, for example, that I acquired my first Bitcoin, which in the early days showed great promise finally to recreate money in a way that government could not ruin.

  It struck me at the time as among the greatest inventions of the human mind.

  Tellingly, it did not come from academia (so far as we know) but from tinkerers who wanted to solve the problem of double spending on digital monetary units.

  It was genius.

  The economics journals ignored it for many years, of course.

  

  Doers

  At this event were and are the practitioners. There is not one path forward but many, each person creatively implementing their own version of the freedom ideal. I recall being puzzled a bit by this approach but later inspired.

  I felt like a pianist who had only known scales who finds himself listening to a concerto by Liszt. I came to realize the difference between theory and practice, between the academic class and the people in clinical practice.

  Theory should never be put down but we make a mistake in thinking that this is the whole of the task. Theory alone introduces its own dangers of following a logic to the point of absurdity that goes unnoticed. Minor mistakes in thinking can metastasize and create models that make no sense in reality.

  Theory unchecked by practical experience can even be catastrophic.

  I knew an architect at university who received a large grant to develop a community of residences, which he did according to the highest standards of then-fashionable art and a theoretically informed sense of how people should live.

  The results were intriguing but the builders fought with the architect the entire time. The roofs had no overhang, the wiring and pipes under the houses on stilts had no covering, and the bathrooms had no doors, to mention just three problems.

  Sure enough, once houses went on the market and faced the first winter, many design elements had to change. Residents put doors on bathrooms, the roofs were all retrofitted, and the open basements were all closed in and insulated.

  This was all made necessary once the first rains led to flooding and the first freeze caused all pipes to burst. In essence, the result was a disaster simply because the architect was a designer and not a builder.

  There is a lesson in this. Theory without a reality check can make the world unlivable. This is because theorists can build beautiful models that hide grave errors, intentionally or not, and there is no means by which their mistakes are revealed until you test them against the real world.

  You never want them in charge of the whole project.

  The Theorists Dictated COVID Policy

  This is essentially what happened in the Covid years. The designers of the response were academics, bureaucrats, modelers, and other highly credentialed experts. Sidelined were medical practitioners, clinical workers, and other people with hands-on experience in dealing with healthcare.

  As time went on a massive chasm opened between the two camps with the theorists and modelers prevailing with media megaphone.

  Meanwhile, the doctors, nurses, teachers, parents, elderly in nursing homes, and really the whole of everyone else were left without discretion, their concerns and issues not only ignored but censored and blotted out from public life.

  To return to the above analogy, the houses were flooding, the pipes were bursting, the residents humiliated, but there was no one to fix the problem because the architect was sure that he was right.

  The problem is nowhere more clear than on the issue of early treatment. Doctors know how to deal with respiratory infections. Among the products in their toolkit are nasal rinses, zinc and vitamins, hydroxychloroquine and ivermectin, steroids, and antibiotics.

  None of this was a focus of the CDC or the NIH. They had their sights on one thing only, the novel gene therapy they would call a vaccine, and they even went further to remove as far as possible repurposed drugs from the market.

  This was a mind-boggling response because it contradicted all practical and clinical experience. What is the first thing one should do when faced with a new pathogen? Figure out how to make sick people get better.

  Aside from invasive ventilation, the government and academic theorists had no answers except for everyone to lock down and wait for the shot, which turned out to be a flop.

  Fantasyland

  Here is the essence of the scandal without precedent that took place all over the world. The theorists triumphed entirely over the practitioners. The job of the rest of us was to place ourselves into their models.

  We were supposed to comply in order to “flatten the curve” as if any kind of widespread viral infection could be so easily modeled. We were supposed to watch the databases online to make sure we would all be doing the right thing according to someone else’s plan.

  Meanwhile, for nearly two years, if you could leave your home and go to the downtown area of anywhere in the US, you saw boarded up businesses, empty streets, and the periodic saddened straggler making his way through alleyways in a mask while the kids and parents sat lonely at home consuming streaming videos and living on social media.

  The disaster was obvious to everyone but those who created it.

  As time went on, we came to realize that the experiment was much bigger than we thought. They were not just trying to mitigate a pathogen. They were attempting to rebuild “the infrastructures of human existence.”

  Here we have a paradigmatic example of theory gone mad, a vision wholly unconstrained from any reality, a cockamamie idea wholly unmoored from practical tangibilities. It’s utter madness. And yet they had the power and the rest still do not.

  And even today, precious few have admitted that anything went wrong. They are still blocking unvaccinated foreigners from travel, still mandating shots for kids and students, still pushing for human separation with 15-minute cities, and still swearing without a shred of evidence that they saved millions of lives.

  If you doubt it, they will send you to an academic study hosted on the website of the NIH.

  What Makes Society Work?

  It was the triumph of theory over practice and experience. And look what they did to the world!

  The writings of Friedrich Hayek, building on Adam Smith, take the insight to a deeper level.

  There are many answers to social problems that are not readily part of human cognition in the present generation, certainly not to the theorists in charge, and not even to any one of us as intellectuals.

  Rather, the essential knowledge that makes society work properly — in vast amounts of its functioning — and to the advantage of all its members, is dispersed among millions and billions of minds, living tacitly in our mental spaces, and it is often the product of habits and rituals of living that are inherited from long experience deep in history.

  We take all of this for granted and hardly think about it. Much of it is inaccessible to us and certainly cannot be extracted, modeled, and codified into a grand plan.

  The great lesson of our time should certainly include grave incredulity toward any philosopher king who comes along to tell us that it is all wrong and must be replaced with a wholly new way, else we will all die from a scary new threat, whether be a new pathogen or a change in the climate or some other invisible enemy.

  Looked at this way, it’s truly hard to believe that anyone gave the time of day to these people in the first place.

  Tyler Durden
  Sun, 03/19/2023 – 21:30

• Turley: Soros-Backed Manhattan DA's Made-For-TV Trump Prosecution Is "Legally Pathetic"
  Turley: Soros-Backed Manhattan DA’s Made-For-TV Trump Prosecution Is “Legally Pathetic”

  George Washington University Law Professor Jonathan Turley panned reports of the looming potential case against former President Donald Trump after the former commander-in-chief announced he may be arrested in the next week.

  

  As The Epoch Times’ Jack Phillips reports below, alleged unnamed court sources have told multiple news outlets that Trump could be indicted in the near future, while Trump said via Truth Social that he expects to be arrested by Manhattan District Attorney Alvin Bragg’s office on Tuesday. Bragg’s office has not publicly confirmed reports that he may possibly indict the former president for allegedly misclassifying a $130,000 hush payment made to Stormy Daniels in 2016.

  Trump has denied claims that he had an affair with Daniels in the early 2000s.  However, unconfirmed reports alleged that a grand jury in New York has been empaneled and may be seeking an indictment of the former president.

  But Turley said that based on those reports, the DA’s case against Trump “is legally pathetic” and “is struggling to twist state laws to effectively prosecute a federal case long ago rejected by the Justice Department against Trump.”

  “In 2018 (yes, that is how long this theory has been around), I wrote how difficult such a federal case would be under existing election laws. Now, six years later, the same theory may be shoehorned into a state claim,” wrote Turley, who was a former expert witness for Trump’s first impeachment trial, for The Hill.

  “While we still do not know the specific state charges in the anticipated indictment, the most-discussed would fall under Section 175 for falsifying business records, based on the claim that Trump used legal expenses to conceal the alleged hush-payments that were supposedly used to violate federal election laws,” Turley said.

  “While some legal experts have insisted such concealment is clearly a criminal matter that must be charged, they were conspicuously silent when Hillary Clinton faced a not-dissimilar campaign-finance allegation.”

  He noted that a Section 175 charge “would normally be a misdemeanor” and that the “only way to convert it into a Class E felony requires a showing that the ‘intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof.’ That other crime would appear to be the federal election violations which the Justice Department previously declined to charge.”

  Bragg’s office, meanwhile, could not prosecute the charge as a misdemeanor as it falls outside the two-year statute of limitations, Turley wrote. Instead, Bragg would have to pursue a felony charge.

  “Prosecutors working under Bragg’s predecessor, Cyrus Vance Jr., also reportedly rejected the viability of using a New York law to effectively charge a federal offense,” Turley noted.  

  DA Bragg (who was elected with a million dollars of support from George Soros funneled through the Color of Change PAC) also previously expressed doubts about the Daniels case and shut it down when he took office several years ago, he said, adding that two lead prosecutors resigned at the time.

  “…Bragg himself threw a flag on this play. I mean, he stopped the two prosecutors who were moving toward a trial. They resigned in protest. One of them then wrote a book. In my view, that book was deeply improper and unprofessional. The book was about prosecuting someone who had not been charged, let alone convicted. But it triggered a huge amount of pressure on Bragg. It does appear that it works. He then proceeded to bring this case.“

  If Trump is indicted, it may require Trump to travel to the district attorney’s office in downtown New York to surrender. In white-collar cases, the defendant’s lawyers and prosecutors typically agree on a date and time, rather than arresting the person at home.

  Trump would have his fingerprints and mugshot taken and would appear for arraignment in court. He would likely be released on his own recognizance and allowed to head home, legal analysts told Reuters.

  Trump’s lawyer, Joe Tacopina, told CNBC on Friday that Trump would surrender if charged. If Trump refused to come in voluntarily, prosecutors could seek to have him extradited from Florida, where he currently resides.

  On Saturday, Trump spokesperson Steven Cheung told The Epoch Times in an emailed statement that the former president has not been formally notified of any pending arrest. Both Cheung and Trump accused Bragg, a Democrat who received $1 million in campaign cash from a George Soros-linked organization, of targeting him for political gain and could try to seek dismissal of the charges on those grounds.

  “There has been no notification, other than illegal leaks from the Justice Dept. and the DA’s office, to NBC and other fake news carriers, that the George Soros-funded Radical Left Democrat prosecutor in Manhattan has decided to take his Witch-Hunt to the next level,” Cheung said.

  “President Trump is rightfully highlighting his innocence and the weaponization of our injustice system,” he added.

  The Manhattan District Attorney’s Office has not responded to a request for comment.

  As Jonathan Turley concludes, via The Hill, while some will view it as poetic justice for this former reality-TV host to be tried like a televised talent show, the damage to the legal system is immense whenever political pressure overwhelms prosecutorial judgment. The criminal justice system can be a terrible weapon when used for political purposes, an all-too-familiar spectacle in countries where political foes can be targeted by the party in power.

  None of this means Trump is blameless or should not be charged in other cases. However, we seem to be on the verge of watching a prosecution by plebiscite in this case.

  The season opener of “America’s Got Trump” might be a guaranteed hit with its New York audience — but it should be a flop as a prosecution.

  Tyler Durden
  Sun, 03/19/2023 – 20:30

• Visualizing California's GDP Compared To Countries
  Visualizing California’s GDP Compared To Countries

  Comedian Trevor Noah once said America is fifty little countries masquerading as one.

  From an economic sense, this might carry some truth. As Visual Capitalist’s Aran Alai details below, when looking at the economic output of each state, especially the largest and wealthiest ones, they often compare to or even exceed the GDPs of entire nations.

  To illustrate, this visual from StatsPanda looks at California’s $3.36 trillion GDP using data from The World Bank and compares it to 10 sizable country economies.

  

  Let’s take a closer look.

  Sizing Up California’s GDP in 2021

  California’s $3+ trillion GDP is an enormous figure in its own right, so it’s no surprise that it is larger than certain nations’ economic output.

  But even when comparing with economies like Malaysia, Colombia, and Finland, all among the top 50 countries by GDP, California stands tall.

  

  What’s more, these 10 countries are quite densely populated, with a combined population of 653 million compared to California’s 39 million total.

  A Closer Look At California’s Economy

  What makes California’s GDP so vast and their economy so powerful?

  Relative population is a big factor, as the state is the most populous in the U.S. with roughly 12% of the country’s population calling it home. But since California’s GDP makes up over 15% of the country’s economic output, there must be something else at work.

  One key driver is the technology sector. Not only does Silicon Valley generate massive amounts of technological output, this also translates directly to wealth and economic activity. Many tech markets follow winner-take-all dynamics, bringing large revenues back to the state. In addition, smaller technology companies are frequently gobbled up by larger competitors, adding wealth back into the mix through M&A.

  This might partly explain why California’s GDP is actually estimated to overtake Germany’s in the coming years and become the world’s 4th largest economy.

  Tyler Durden
  Sun, 03/19/2023 – 20:00

• Were The Bank Bailouts The Result Of Rising Wealth Concentration?
  Were The Bank Bailouts The Result Of Rising Wealth Concentration?

  Authored by Yves Smith via NakedCapitalism.com,

  Typically, financial crises, as in the sort that might or actually do impair the banking system, are the result of leveraged speculation. Is this one of those rare instances when this time might actually be different, via rising wealth inequality creating new levels of hot money that can slosh in and out of banks, making many of them fundamentally less stable?

  

  Now admittedly, the continued rise in wealth inequality is an effect of sustained low central bank interest rates, which goosed asset prices generally and particularly favored speculative plays as investors reached for returns. A great deal of commentary has correctly focused on the effects of deflating these asset bubbles and how the rollback of paper wealth can be particularly harmful to financial firms that wrongfooted the correction.

  But the reduction in wealth also produces a system wide reduction in liquidity (mind you, we’ve always thought liquidity is not the virtue that investment touts make it out to be; the world got by just fine in the stone ages with less that instantaneous trading times and higher transaction costs). The effect in a regime, where for better or worse, there are (or have been) lots of big fish with tons of cash who are accustomed to moving it quickly would wind up looking like an emerging market, where US interest rate moves wind up producing huge and destabilizing waves of hot money moving in and out. It appears not to have occurred to the authorities that we were restructuring our financial system so as to make it possible to generate banana-republic levels of upheaval.

  The Great Crash blew back to the banking system because stock buyers were making heavy use of margin loans, and on top of that, stock operators were creating leveraged structures (trusts of trusts of trusts). By contrast, the 1987 crash, the result of leveraged buyouts producing a stock market bubble, didn’t do lasting damage, and neither did the later leveraged buyout collapse and large-scale workouts o LBO loans (a big reason is that the loans were syndicated and big foreign banks were big buyers but they didn’t eat enough of this bad US cooking to get really sick). But the Japanese financial crisis was the result of a dual commercial real estate and stock market crash, together on a scale that has stalled Japanese growth for decades. The 2008 crisis looks like a housing crisis, but the severity of the damage resulted from credit default swaps creating synthetic subprime debt that was four to six times real economy exposures.

  This is a long-winded way of saying that herd behavior in bad lending and/or leveraged speculation produced enough in the way of actual or soon to be realized losses to damage a lot of banks. And banks are interconnected: if one bank gets in trouble, its depositors are the customers or employers of customers of other banks. If those linked customers of other banks have an unexpected hit to income, they could default on their debt payments, propagating damage across the system.

  The crisis of the past week was not that. Three different banks with very different business strategies and asset mixes got in trouble at the same time. Some like Barney Frank, on the board of Signature Bank, argue that the common element was a regulatory crackdown on banks too cozy with the crypto industry. But that’s not really the case with Silicon Valley Bank, which has been suffering for a while from declines in its deposits due to a falloff in new funding all across tech land, as well as more difficult business conditions leading to not much in the way of new customers and falling deposit balances at most existing customers.

  What the three banks did have in common was a very high level of uninsured deposits which made them particularly vulnerable to runs and therefore should have led the banks’ managements to be very mindful of asset-liability mismatches and liquidity. And they should have focused on fees rather than the balance sheet to achieve better than ho-hum profits.

  Silicon Valley Bank has attempted to wrap itself in the mantle of being a stalwart of those rent-extracting innovative tech companies. But Silicon Valley Bank is hiding behind the skirts of venture capital firms. They are the ones who provided and then kept organizing the influx of capital to these companies. The story of the life of a venture capital backed business is multiple rounds of equity funding. Borrowing is very rarely a significant source of capital. So the idea that Silicon Valley Bank was a lender to portfolio companies is greatly exaggerated.2

  Both the press and several readers have confirmed that the reason for Silicon Valley Bank’s lock on the banking business of venture-capital-funded companies was that the VCs required that the companies keep their deposits there. And that’s because the VCs could keep much tighter tabs on their investee companies by having the bank monitor fund in and outflows on a more active basis than the VCs could via periodic management and financial reports.

  Now what flows from that? One of the basic rules of business is that it is vastly cheaper to keep customers than find them. Silicon Valley Bank would be highly motivated to attract and retain both the fund and the personal business of its venture capital kingpins. Accordingly, the press has pointed out that loans to vineyards and venture capital honchos’ mortgages were important businesses. It’s not hard to think that these were done on preferential terms to members of a big VC firm’s “family” as a loyalty bonus of sorts.

  On top of that, recall that Silicon Valley Bank bought Boston Private with over $10 billion in assets, in July 2021. The wealth management firm also had a very strong registered investment adviser platform and additional assets under management. That suggests Silicon Valley recognized increasingly that the care and feeding of its rich individual clients was core to its strategy.

  It’s impossible to prove at this juncture, but I strongly suspect that the individual account withdrawals were at least as important to Silicon Valley Bank’s demise as any corporate pullouts. One tell was the demand for a backstop of all unsecured deposits, and not accounts that held payrolls. A search engine gander quickly shows that it’s recommended practice for companies to keep their payroll funds in a bank account separate from that of operating funds. One has to assume that the venture capital overlords would have their portfolio companies adhere to these practices.

  The press also had anecdata about wealthy customers in Boston getting so rowdy when trying to get their money out that the bank called the police, as well as Peter Thiel (to the tune of $50 million), Oprah, and Harry & Meghan as serious depositors.

  Similarly, there is evidence that the run at Signature Bank was that of rich people. Lambert presented this tidbit from the Wall Street Journal yesterday in Water Cooler:

  A rush by New York City real-estate investors to yank money out of Signature Bank last week played a significant role in the bank’s collapse, according to building owners and state regulators. The withdrawals gained momentum as talk circulated about the exposure Signature had to cryptocurrency firms and that its fate might follow the same path as Silicon Valley Bank, which suffered a run on the bank last week before collapsing and forcing the government to step in. Word that landlords were withdrawing cash spread rapidly in the close-knit community of New York’s real-estate families, prompting others to follow suit. Regulators closed Signature Bank on Sunday in one of the biggest bank failures in U.S. history. Real-estate investor Marx Realty was among the many New York firms to cash out, withdrawing several million dollars early last week from Signature accounts tied to an office building, said chief executive Craig Deitelzweig.

  This selection also illustrates a point that makes it hard to analyze these bank crashes well. The very wealthy regularly use corporate entities for personal investments, so looking at corporate versus purely individual account holdings is often misleading in terms of who is holding the strings. A business owned by a billionaire does not operate like a similar-sized company with a typical corporate governance structure.

  Ironically, First Republic Bank, which holds itself out as primarily a private bank, had the lowest level of uninsured deposits, 67% versus 86% at Silicon Valley Bank and 89% at Signature. But its balance sheet was heavy on long-term municipal bonds, which are not eligible collateral at the discount window or the Fed’s new Bank Term Funding Program facility. Hence the need for a private bailout.

  Before you say, “Well, even if there was time to figure out how to backstop payrolls, which there wasn’t, we had to go whole hag because contagion,” that is not a satisfactory answer. Because nearly all banks have sizable Treasury and/or agency holdings (First Republic was unusual), the new Fed interventions come very close to being a full backstop of uninsured deposits. That means vastly more subsidized gambling. There should be a great increase in supervision and regulation to try to prevent more sudden meltdowns, which one would expect to become more frequent otherwise due to even greater government backstopping:

  As Georgetown law professor Adam Levitin put it:

  ….. the Bank Term Funding Program bears some consideration. No one in the private market would lend against securities at face, rather than at market. But that’s what the Fed’s doing in order to enable banks that have held-to-maturity securities avoid loss realization. The Bank Term Funding Program is a lifeline for banks that failed at banking 101—managing interest rate risk. The whole nature of banking is that it involves balancing long-term assets and short-term liabilities. Firms that can’t do that well probably shouldn’t be in the banking business.

  Moreover, European banking regulators, regularly been criticized for last minute, kick-the-can interventions, are finding out how the US rules-based order of “we get to rewrite the rules when we feel like it” works in their arena. From the Financial Times:

  Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write.

  While the disapproval has yet to be conveyed in a formal setting, some of the region’s top policymakers are seething over the decision to cover all depositors at SVB, fearing it will undermine a globally agreed regime.

  One senior eurozone official described their shock at the “total and utter incompetence” of US authorities, particularly after a decade and a half of “long and boring meetings” with Americans advocating an end to bailouts.

  Europe’s supervisors are particularly irate at the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a “systemic risk exception” — despite claiming the California-based lender was too small to face rules aimed at preventing a rerun of the 2008 global financial crisis.

  Mind you, the Europeans are not being hypocrites. They forced the unsecured depositors at Cyprus bank to take 47.5% haircuts in its banking crisis. Admittedly those were banks in a country seen as a money laundering haven, but it had a lot of British retirees banking there too. The EU also tried to get banks to use bail-in structures like co/cos bonds. The US was skeptical of them and as we predicted, they had perverse effects. But the point is the EU has made a much more serious attempt at renouncing bailouts than we have, even if they have yet to find the secret sauce.

  And they are not shy about calling out who bears the cost. Again from the Financial Times:

  The US has claimed SVB’s failure will not hit taxpayers because other banks will cover the cost of bailing out uninsured depositors — over and above what can be recouped from the lender’s assets.

  However, a European regulator said that claim was a “joke”, as US banks were likely to pass the cost on to their customers. “At the end of the day, this is a bailout paid for by the ordinary people and it’s a bailout of the rich venture capitalists which is really wrong,” he said.

  So not only are the bailouts an effect of rising wealth concentration, they are going to make it worse. Nicely played.

  Tyler Durden
  Sun, 03/19/2023 – 19:35

• Mike Wilson: "Why On Earth Did US Stocks Rally Last Week?"
  Mike Wilson: “Why On Earth Did US Stocks Rally Last Week?”

  By Michael Wilson, chief equity strategist at Morgan Stanley

  Over the past two weeks, the markets have been fixated (rightly) on the rapid failure of two major banks that up until very recently had been viewed as “safe” depository institutions. The reason for their demise is crystal clear in hindsight and not that surprising when you see what they were doing with the deposits and the fact that interest rates are up 500bp year over year. The uninsured deposit backstop put in place last weekend by the Fed/FDIC will help to alleviate further major bank runs, but it won’t stop the already tight lending standards across the banking industry from getting even tighter. It also won’t prevent the cost of deposits from rising, thereby pressuring net interest margins. In short, the risk of a credit crunch has increased materially.

  Bond markets have exhibited extreme volatility around these developments as market participants realize the ramifications of tighter credit. The yield curve has bull steepened by 60bp in a matter of days, something seen only a few times in history and usually the bond market’s way of saying recession risk is now more elevated. An inversion of the curve  typically signals a recession within 12 months, but the real risk starts when it re-steepens from the trough. Meanwhile, the ECB decided to raise rates by 50bp last week despite Europe’s own banking crisis and very sluggish economy. The German Bund curve seemed to disagree with that decision and bull steepened by 50bp.

  If growth is likely to slow from the effective tightening rolling through the US banking system, as we expect, and the bond market seems to be supporting that conclusion, why on earth did US stocks rally last week? We think it had to do with the view we have heard from some clients that the Fed/FDIC bailout of depositors is a form of quantitative easing (QE) and provides the catalyst for stocks to go higher [ZH: it may not be technically right now, but give it a few weeks and a few more failed banks].

  While the massive increase in Fed balance sheet reserves last week does reliquefy the banking system, it does little in terms of creating new money that can flow into the economy or the markets, at least beyond a brief period of, say, a few days or weeks. Secondarily, the fact that the Fed is lending, not buying, also matters. If a bank borrows from the Fed, it is expanding its own balance sheet, making leverage ratios more binding. When the Fed buys the security, the seller of that security has balance sheet space made available for renewed expansion. That is not the case in this situation.

  According to the Fed’s weekly release of its balance sheet on Wednesday, the Fed was lending depository institutions $308B, up $303B week over week. Of this, $153B was primary credit through the discount window, which is often viewed  as temporary borrowing and unlikely to translate into new credit creation for the economy. $143B was a loan to the bridge banks the FDIC created for Silicon Valley Bank and Signature. These reserves are obviously going nowhere. Only $12B was lending through its new Bank Term Funding Program (BTFP), which is viewed as more permanent but also unlikely to end up converting into new loans in the near term. In short, none of these reserves will likely transmit to the economy as bank deposits normally do. Instead, we believe the overall velocity of money in the banking system is likely to fall sharply and more than offset any increase in reserves, especially given the temporary/emergency nature of these funds. Moody’s recent downgrade of the entire sector will likely contribute further to this deceleration.

  Over the past month, the correlation between stocks and bonds has reversed and is now negative. In other words, stocks go down when rates fall and vice versa. This is in sharp contrast to most of the past year when stocks were more worried about inflation, the Fed’s reaction to it, and rates going higher. Instead, the path of stocks is now about growth, and our conviction that earnings forecasts are 15-20% too high has increased. From an equity market perspective, the events of the past week mean that credit availability is decreasing for a wide swath of the economy, which may be the catalyst that finally convinces market participants the equity risk premium (ERP) is way too low. We have been waiting patiently for this acknowledgment because with it comes the real buying opportunity.

  

  Just to remind readers, the S&P 500 ERP is currently 220bp. Given the risk to the earnings outlook, risk/reward in US equities remains unattractive until the ERP is at least 350-400bp, in our view.

  More in the full note available to pro subs.

  Tyler Durden
  Sun, 03/19/2023 – 19:10

• Musk Blasts Biden After Prez Lies Twice About '3% Billionaire Tax'
  Musk Blasts Biden After Prez Lies Twice About ‘3% Billionaire Tax’

  On Saturday, President Biden’s social media galaxy brains tweeted out a twice-corrected lie, quoting the president telling said lie, that billionaires are getting away paying just 3% of their average earnings in taxes.

  

  “You know the average tax billionaires pay?

  THREE PERCENT.

  No billionaire should be paying a lower tax than somebody working as a schoolteacher or firefighter,” reads the erroneous tweet.

  

  To which Musk replied: “I paid 53% taxes on my Tesla stock options (40% Federal & 13% state), so I must be lifting the average!“

  “I also paid more income tax than anyone ever in the history of Earth for 2021 and will do that again in 2022.”

  I certainly agree that everyone should pay taxes and not engage in elaborate tax-avoidance schemes.

  Would be curious to hear how these other “billionaires” are so good at avoiding taxes!

  We should get rid of GRATs, but maybe other things too.

  — Elon Musk (@elonmusk) March 18, 2023

  As Ian Bremmer points out, “the 3% number isn’t even close to true.” 

  Bremmer’s tweet includes a screenshot from CNN, which fact check’s the claim and notes that it’s from a 2021 finding that found the 400 wealthiest billionaire families pay an average of 8.2% of their income in federal taxes.

  In response so Biden’s original claim that was fact checked, the White House published a corrected transcript.

  the 3% number isn’t even close to true pic.twitter.com/62oX3tKlLx

  — ian bremmer (@ianbremmer) March 19, 2023

  Politifact found that the 25 highest-earning billionaires are paying around 16% in federal taxes, while most teachers and firefighters pay between zero and 15%.

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  Tyler Durden
  Sun, 03/19/2023 – 18:45

• The Longer It Takes The Fed To "Go Big", The Deeper The Damage Will Be, And The Bigger The "Big" Will Be
  The Longer It Takes The Fed To “Go Big”, The Deeper The Damage Will Be, And The Bigger The “Big” Will Be

  By Eric Peters, CIO of One River Asset Management

  “They went big last weekend, which was the right thing to do,” said the Chairman, a veteran of financial crises, the two of us discussing the ongoing bank run, how policy can end it.

  “But the market always tests statements of confidence, whether from companies or the government,” he continued.

  “This week, at the first real test, policymakers mumbled.”

  Treasury Secretary Yellen’s responses to Senator Lankford in Thursday’s Senate hearing gave a glimmer of light to the worst fears of small business owners and savers at America’s non systemically important banks. 

  The administration’s failure to dash these fears for depositors of $2, $5, $10 million has created a two-tier banking system in which the big banks are safe and most others are not.

  “The American people should know that the banking system, which is at the core of our economy, is a safe place for them to keep their money. And this is particularly true for the middle class and small business owners, who generally do not have easy access to treasuries. The idea that their banks are unsafe for their day-to-day operations and needs is absurd.”

  How we got here and how to prevent a repeat is a matter for another day. The fear and potential damage must be stemmed immediately.

  “For regulators and policy makers in times of stress, silence is the reward for good work,” said the Chairman.

  “In 2020, we went big on everything. The times called for it. For example, can you imagine if we had allowed the entire airline industry to be liquidated?”

  The cost of restarting the world’s largest economy with a severely crippled airline industry would have been staggering.

  “So, despite last weekend’s actions, deposits are flowing from small banks to large ones, and deposits at big banks are shifting into treasuries. The decisions that drive these flows are binary and irreversible. These are not tactical portfolio shifts of a percent or two, these are not moves to slightly trim exposure to small banks. These are zero-to-one decisions, all-or-nothing shifts,” said the Chairman.

  “The market is testing whether they will go big again. And the longer it takes them, the deeper the damage, and the more aggressively they will need to go, the bigger the “big” in go big.”

  [ZH: the market is already showing The Fed the way in the short-term interest rate market – one more small token hike and then cut-cut-cut for the next two years!]

  

  [ZH: Did The Fed just get the message from the market and “go big” enough, with its global swap line plan?]

  Tyler Durden
  Sun, 03/19/2023 – 18:20

• Gold, Stocks, Bonds, & Bitcoin All Higher After Fed, SNB Panic
  Gold, Stocks, Bonds, & Bitcoin All Higher After Fed, SNB Panic

  The market is not yet convinced by this weekend’s actions, but it’s getting there as Michael Hartnett notes:

  “The market stops panicking when central banks start panicking”

  Equity futures are higher, but are fading back…

  

  Treasury futures opened down in price but have ripped back into the green…

  

  Gold is holding on to late Friday’s gains…

  

  And Bitcoin has surged back above $28,000…

  

  It sure is a land of confusion for now.

  But of course the two biggest things to watch are UBS CDS (which is quoted higher in very quiet early trading)…

  

  And the pain felt when all of Credit Suisse’s AT1 bonds are marked to zero…

  

  Brace for more as we expect to see Fed rate-hike expectations collapse even further than they already are…

  

  “I love the smell of central bank capitulation in the morning.”

  Tyler Durden
  Sun, 03/19/2023 – 18:12

• "True Stories… Could Fuel Hesitancy": Stanford Project Worked To Censor Even True Stories On Social Media
  “True Stories… Could Fuel Hesitancy”: Stanford Project Worked To Censor Even True Stories On Social Media

  Authored by Jonathan Turley,

  While lost in the explosive news about Donald Trump’s expected arrest, journalist Matt Taibbi released new details on previously undisclosed censorship efforts on social media. The latest Twitter Files revealed a breathtaking effort from Stanford’s Virality Project to censor even true stories. After all, the project insisted “true stories … could fuel hesitancy” over taking the vaccine or other measures. The effort included suppressing stories that we now know are legitimate such as natural immunity defenses, the exaggerated value of masks, and questions over vaccine efficacy in preventing second illnesses. The work of the Virality Project to censor even true stories should result in the severance of any connection with Stanford University.

  

  We have learned of an ever-expanding coalition of groups working with the government and social media to target and censor Americans, including government-funded organizations.

  However, the new files are chilling in the details allegedly showing how the Virality Project labeled even true stories as “anti-vaccine” and, therefore, subject to censorship. These files would suggest that the Project eagerly worked to limit free speech and suppress alternative scientific viewpoints.

  Taibbi describes the Virality Project as “a sweeping, cross-platform effort to monitor billions of social media posts by Stanford University, federal agencies, and a slew of (often state-funded) NGOs.”

  1.TWITTER FILES #19
  The Great Covid-19 Lie Machine
  Stanford, the Virality Project, and the Censorship of “True Stories” pic.twitter.com/v41dyC26ZR

  — Matt Taibbi (@mtaibbi) March 17, 2023

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  He added: “We’ve since learned the Virality Project in 2021 worked with government to launch a pan-industry monitoring plan for Covid-related content. At least six major Internet platforms were ‘onboarded’ to the same JIRA ticketing system, daily sending millions of items for review.”

  5.Just before @ShellenbergerMD and I testified in the House last week, Virality Project emails were found in the #TwitterFiles describing “stories of true vaccine side effects” as actionable content. pic.twitter.com/dKxTnxDc3a

  — Matt Taibbi (@mtaibbi) March 17, 2023

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  According to Taibbi, it targeted anyone who did not robotically fall in line with the CDC and media narratives, including targeting postings that shared “Reports of vaccinated individuals contracting Covid-19 anyway,” research on “natural immunity,” suggesting Covid-19 “leaked from a lab,” and even “worrisome jokes.”

  That included evidence that it “knowingly targeted true material and legitimate political opinion, while often being factually wrong itself.”

  The Virality Project warned Twitter that “true stories … could fuel hesitancy,” including stories on “celebrity deaths after vaccine” and the closure of a central New York school due to reports of post-vaccine illness.

  The Project is part of the Cyber Policy Center at Stanford and bills itself as “a joint initiative of the Freeman Spogli Institute for International Studies and Stanford Law School, connects academia, the legal and tech industry and civil society with policymakers around the country to address the most pressing cyber policy concerns.”

  The Center launched the Project as a “a global study aimed at understanding the disinformation dynamics specific to the COVID-19 crisis.”

  As with many disinformation projects, it became a source of its own disinformation in the effort to suppress alternative views.

  It is being funded by Craig Newmark Philanthropies and the Hewlett Foundation.

  On its website, it proclaims: “At the Stanford Internet Observatory our mission is to study the misuse of the internet to cause harm, and to help create policy and technical mitigations to those harms.” It defines its mission to maintain the truth as it sees it:

  “The global COVID-19 crisis has significantly shifted the landscape for mis- and disinformation as the pandemic has become the primary concern of almost every nation on the planet. This has perhaps never happened before; few topics have commanded and sustained attention at a global level simultaneously, or provided such a wealth of opportunities for governments, economically motivated actors, and domestic activists alike to spread malign narratives in service to their interests.”

  What is even more disconcerting is that groups like the Virality Project worked against public health by suppressing such stories that are now considered legitimate from the efficacy of masks to the lab origin theory. It was declaring dissenting scientific views to be dangerous disinformation. Nothing could be more inimical to the academic mission. Yet, Stanford still heralds the work of the Project on its website.

  There is nothing more inherently in conflict with academic values than censorship. Stanford’s association with this censorship effort is disgraceful and should be a matter for faculty action. This is a project that sought to censor true stories that undermined government or media narratives.

  I am not hopeful that Stanford will sever its connection to the Project.  Censorship is now the rage on campuses and the Project is the perfect embodiment of this movement. Cloaking censorship efforts in self-righteous rhetoric, the Project sought to silence those who failed to adhere to a certain orthodoxy, including scientific and public health claims that were later found flawed or wrong. The Project itself is an example of what it called “media and social media capabilities – overt and covert – to spread particular narratives.”

  Stanford should fulfill its pledge in creating the Virality Project in fighting disinformation by eliminating the Virality Project.

  Tyler Durden
  Sun, 03/19/2023 – 17:55

• Fed Panics, Announces "Coordinated" Daily US Dollar Swap Lines To Ease Banking Crisis
  Fed Panics, Announces “Coordinated” Daily US Dollar Swap Lines To Ease Banking Crisis

  “The market stops panicking when central banks start panicking”

  In January 2022, just around the time the Fed announced it was launching its most aggressive tightening campaign since Volcker, we warned “remember, every Fed tightening cycle ends in disaster and then, much more Fed easing”

  Remember, every Fed tightening cycle ends in disaster and then, much more Fed easing pic.twitter.com/zX7Dur8nLG

  — zerohedge (@zerohedge) January 5, 2022

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  Fast forward to just over a week ago, when the Fed tightening cycle indeed ended in disaster when SIVB became the first (of many) banks to fail, triggering a chain of dominoes that culminated with today’s collapse of Credit Suisse – a systematically important bank with $600BN in assets.

  And then, at 5pm, the easing officially began, because while a bunch of laughable macrotourists were arguing on FinTwit whether last week’s record surge in the Fed’s discount window was QE or wasn’t QE  (answer: it didn’t matter, because as we said, it assured what comes next), the Fed finally capitulated, just as we warned over and over and over that it would…

  Every time FRAOIS has been here, the Fed capitulated

  — zerohedge (@zerohedge) March 17, 2023

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  If the Fed does not contain the regional bank collapse, there will be another great depression.

  Small/medium banks account for 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending pic.twitter.com/wzTMHxSnXI

  — zerohedge (@zerohedge) March 18, 2023

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  “Fed either pivots too early and turns dovish in to a high inflation scenario which is fairly bearish the USD thus helping gold or they pivot too late and cause a much bigger recession than is priced in right now, resulting flight to safety helps gold.” – Goldman

  — zerohedge (@zerohedge) January 5, 2023

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  … and at exactly 5pm the Fed announced “coordinated central bank action to enhance the provision of U.S. dollar liquidity” by opening daily Dollar Swap lines with all major central banks, in a carbon copy repeat of the Fed’s panicked post-covid crisis policy response playbook.

  The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

  To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April.

  The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.

  And once the USD swap lines are reopened, the rest of the cavalry follows: rate cuts, QE (the real stuff, not that Discount Window nonsense), etc, etc. In fact, we have already seen a near record surge in reserve injections:

  

  The Fed may as well formalize it now and at least preserve some confidence in the banking sector, even if it means destroying all confidence left in the “inflation fighting” Fed, with all those whose were in charge handing in their resignation for their catastrophic handling of this bank crisis.

  Powell/Yellen out. Just a matter of time now

  — zerohedge (@zerohedge) March 19, 2023

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  Then again, maybe they should just wait until he Fed hikes its inflation target to 3% or more – something else we predicted…

  At some point Fed will concede it has no control over supply. That’s when we will start getting leaks of raising the inflation target

  — zerohedge (@zerohedge) June 21, 2022

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  … because now that we are back in liquidity injection mode, well, say goodbye to hopes of seeing affordable eggs every again.

  Tyler Durden
  Sun, 03/19/2023 – 17:34

• Biden In Touch With Buffett On Bank Crisis
  Biden In Touch With Buffett On Bank Crisis

  What do you call it when an 80-year-old seeks the advice of a 92-year-old?

  Answer: the worst financial crisis since Lehman.^TM

  Realizing that Berkshire Hathaway had a near-record $128 billion in cash at the start of the year, more than most countries…

  

  … Joe Biden, who on Monday lied to the American people that the “our banking system is safe“…

  The bottom line is this: Americans can rest assured that our banking system is safe, and your deposits are safe. pic.twitter.com/hM36ZmZ22x

  — Joe Biden (@JoeBiden) March 13, 2023

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  … appears to have changed his mind and is urgently hoping to recreate the zeitgeist surrounding the infamous Oct 16 “Buy American” NYT op-ed by Warren Buffett.

  

  … which ended up being memorable but only after the biggest bailout of US banks and capital markets in history and the start of the neverending QR/ZIRP->bust->QE/ZIRP cycle.

  According to Bloomberg, Berkshire’s Warren Buffett has been in touch with senior officials in President Joe Biden’s administration in recent days as the regional banking crisis goes from bad to worse to Savings And Loan 2.0 (if only America had any savings left).

  The buzz of private jet activity centering on Omaha was first reported by Fuzzy Panda who noted that “a large number (>20) of Private Jets landed in Omaha yesterday afternoon” with jets flying from HQs of Regional Banks, Ski Resorts & DC, and prompting the question “Did Buffett just fly all the regional bank CEOs into Omaha & offer a deal to SAVE the banks?”

  The Private Jets arrived in Omaha in multiple groups. Sometimes landing at almost the same exact time.

  Did Buffett schedule some meetings with different groups of CEOs every hour?

  Number of Jets arriving:
  5 ~10am (est)
  3 ~2pm
  5 ~3:30pm
  5 ~5pm
  6 ~6:15pm
  3 ~7:30pm pic.twitter.com/68Ok6zl8cA

  — FuzzyPanda 🇺🇦 (@FuzzyPandaShort) March 17, 2023

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  For now the answer is unclear, nor is it clear what role, if any, the billionaire investor may play to contain the crisis after the cascading failures of Silicon Valley Bank, Signature Bank and Silvergate.

  Buffett, who will be 100 years old in 2031, has a long history of stepping in to aid banks in crisis, providing funding at daylight robbery terms (10% prefs + warrants), and leveraging his cult investing status to restore confidence in ailing firms. Bank of America won a capital injection from Buffett in 2011 after its stock plunged amid losses tied to subprime mortgages. Buffett also tossed a $5 billion lifeline to Goldman in 2008 to shore up the bank following the Lehman Brothers collapse.

  Meanwhile, Biden’s team, wary of political blowback among progressives, has sought to implement bailouts that are spun as magically not being bailouts and which don’t require direct government spending from taxpayers, including the Federal Reserve’s actions (narrator: of course they require taxpayer backing). Alas, so far Biden’s plan has been a disaster: on Thursday, big US banks voluntarily deposited $30 billion to stabilize First Republic Bank this week, a move regulators described as “most welcome.” On Friday, the stock collapsed another 50%.

  Any investment or intervention from Buffett or other figures would continue that playbook, looking to stem the crisis without direct bailouts…. until of course direct bailouts, rate cuts and QE are inevitable since a cascading wave of defaults among the regional banks would lead to another great depression as small/medium banks account for 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending.

  This is a serious risk

  — Elon Musk (@elonmusk) March 18, 2023

  https://platform.twitter.com/widgets.js

  But before we get there, and since we are now following the playbook of the 2008 crisis, expect the SEC to “halt short selling of financial stocks to protect investors and markets”, just like it did 3 days after Lehman collapse sparking the worst banking crisis… until now.

  Tyler Durden
  Sun, 03/19/2023 – 17:29

• Liz Warren Makes War On Powell, And How 'Woke' SF Fed Chief Failed On SVB
  Liz Warren Makes War On Powell, And How ‘Woke’ SF Fed Chief Failed On SVB

  Senator Elizabeth Warren (D-MA) says Federal Reserve Chair Jerome Powell has racked up “an astonishing list of failures,” which contributed to the implosion of Silicon Valley Bank and Signature Bank, Bloomberg reports.

  

  “SVB and Signature accumulated risk and made dangerous decisions about how to manage that risk,” said Warren in a Wednesday letter to Powell. “They did so in part because of greed and incompetence – but were allowed to do so under faulty supervision and in a weakened regulatory environment that you helped to create.”

  “You owe the public an explanation,” Warren continued, demanding that Powell respond to 11 questions by March 29.

  This is the biggest disaster in recent Fed history. Four days ago, Powell was saying he could hike 50bps.

  Powell has to be fired immediately

  — zerohedge (@zerohedge) March 12, 2023

  https://platform.twitter.com/widgets.js

  Warren’s letter outlines several efforts to weaken regulations that were implemented following the 2008 financial crisis, which was enabled by lax supervision by the Fed.

  

  Warren also demanded that Powell recuse himself from an internal investigation by the Fed into regulatory failures concerning SVB – the results of which will be made public by Vice Chair Michael Barr by May 1. Instead, a bipartisan group of lawmakers wants an independent investigation.

  The Fed and other regulators announced emergency measures to help contain the budding crisis, including a new loan program from the central bank that will make is easier for banks to borrow to meet deposit withdrawal demand.

  In her letter, Warren also said Powell supported a 2018 law that exempted mid-sized banks like SVB from the same stringent oversight requirements faced by the biggest banks, a change that she and some other progressives have said contributed to SVB’s demise. Testifying about the bill at the time, Powell said the Fed would still have the ability to regulate mid-size banks if warranted, and that gave them “the tools that we need.” -Bloomberg

  “Make no mistake: your decisions aided and abetted this bank failure, and you bear your share of responsibility for it,” wrote Warren.

  Meanwhile, woke ‘Frisco Fed’ chief Mary Daly has also come under fire. As Paul Sperry writes in the NY Post: “Wokeness has replaced competence and merit across the banking sector, and San Francisco Fed Chief Mary Daly is the poster child of this pernicious trend.”

  

  A protege of Treasury Secretary Janet Yellen and short-list candidate for Federal Reserve vice chair, Daly was supposed to be supervising Silicon Valley Bank but apparently was too busy playing politics and pushing woke agendas to regulate rogue banks like SVB, the second-biggest bank failure on record.

  Daly had other priorities, including climate change, George Floyd and Black Lives Matter, inequities between blacks and whites, LGBTQ+ rights and a host of other woke social-justice issues that had nothing to do with banking and finance. -NY Post

  According to Daly’s bio, her commitments include “understanding the economic and financial risks of climate change and inequities.”

  Sperry highlights a recent LinkedIn post from Daly, in which she appears ‘sidetracked’ by racial justice, writing “What Black voices have I lifted up? Equity & inclusion begins with me. #GeorgeFloyd.”

  And while Daly has been focused on everything but banking, she was completely oblivious to the warning signs of inflation.

  Two years ago, as inflation was spiraling out of control, she said: “I am not thinking that we have unwanted inflation around the corner. I don’t think that’s a risk.”

  Last year, she denied that the economy was suffering from horrific inflation, saying “That’s not what I see.”

  And in August, Daly – who makes $422,000 per year, said “I don’t feel the pain of inflation anymore.”

  “I’m not immune to gas prices rising, food prices rising,” she continued, adding “But I don’t find myself in a space where I have to make trade-offs, because I have enough, and many, many Americans have enough.”

  From her policy papers, speeches and interviews, it’s clear that Daly thinks the Fed’s core mission isn’t controlling inflation but achieving full employment — and raising interest rates just hurts that goal. Her agenda is more jobs and higher wages for minorities, so sound money is not a priority for her — even though inflation is a huge tax on the working class and especially minorities.

  Until recently, Daly was opposed to the Fed’s hawkish shift to tightening credit to fight inflation. Her bank examiners no doubt shared her dovish mindset and didn’t anticipate rates increasing, which may also explain why alarms weren’t raised at SVB. -NY Post

  Sperry also notes that Daly has zero experience in banking or managing risk. According to her, Treasury Secretary Janet Yellen has been an “important mentor in my life . . . [S]he made my career kind of explode.”

  And now banks under her watch are, ‘kind of imploding.’

  Tyler Durden
  Sun, 03/19/2023 – 17:00

• 'Not QE' As Fed Trapped Between A 'Rock And A Hard Place'
  ‘Not QE’ As Fed Trapped Between A ‘Rock And A Hard Place’

  Authored by Lance Roberts via The Epoch Times,

  “QE” or Quantitative Easing has been the bull’s siren song for the last decade, but will “Not QE” be the same?

  

  Last week, amid a rash of bank insolvencies, government agencies took action to stem a potential banking crisis. The Federal Deposit Insurance Corporation (FDIC), the Treasury, and the Fed issued a Bank Term Lending Program with a $25 billion loan backstop to protect uninsured depositors from the Silicon Valley Bank failure. An orchestrated $30 billion uninsured deposit by 11 major banks into First Republic Bank followed. Those deposits would not occur without Federal Reserve and Treasury assurances.

  The details of the Bank Term Funding Program were described in the Federal Reserve press release.

  “The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

  “With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.”

  Banks quickly tapped the program, as shown by a $152 billion surge in borrowings from the Federal Reserve. It is the most significant borrowing in one week since the depths of the Financial Crisis.

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  The importance of this program is that it will inject up to $2 Trillion into the financial system, Bloomberg reported.

  “‘The usage of the Fed’s Bank Term Funding Program is likely to be big,’ strategists led by Nikolaos Panigirtzoglou in London wrote in a client note Wednesday. While the largest banks are unlikely to tap the program, the maximum usage envisaged for the facility is close to $2 trillion, which is the par amount of bonds held by US banks outside the five biggest, they said.”

  As Bloomberg notes, major banks like JP Morgan likely will not tap the Feds lending program due to the stigma often attached to such usage. Moreover, there are roughly $3 Trillion in reserves in the U.S. banking system, of which the top five major banks hold a significant portion. However, as I noted last week in “Bank Runs:”

  The Fed caused this problem by aggressively hiking rates which dropped collateral values. Such has left some banks which didn’t hedge their loan/bond portfolios with insufficient collateral to cover the deposits during a ‘bank run.’

  As shown, the rapid increase in rates by the Fed drained bank reserves.

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  The demand by banks for liquidity has now put the Federal Reserve between a rock and a hard place. While the Fed remains adamant in its inflation fight, the BTFP may be the next QE program disguised as Not QE.

  Investor Conditioning

  Classical conditioning (also known as Pavlovian or respondent conditioning) refers to a learning procedure in which a potent stimulus (e.g., food) becomes paired with a previously neutral stimulus (e.g., a bell). Pavlov discovered that when he introduced the neutral stimulus, the dogs would begin to salivate in anticipation of the potent stimulus, even though it was not yet present. This learning process resulted from the psychological “pairing” of the stimuli.

  Such conditioning has happened to investors over the last decade.

  In 2010, then Fed Chairman Ben Bernanke introduced the “neutral stimulus” to the financial markets by adding a “third mandate” to the Fed’s responsibilities—the creation of the “wealth effect.”

  “This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose, and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion,” Ben Bernanke said in a Washington Post Op-Ed in November 2010.

  Importantly, for conditioning to work, when the “neutral stimulus” is introduced, it must be followed by the “potent stimulus” for the “pairing” to complete. For investors, as the Fed introduced each round of “Quantitative Easing,” that is, the “neutral stimulus,” the stock market rose, that is, the “potent stimulus.”

  As shown, asset prices rose as the Fed expanded its balance sheet.

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  While many suggest that the Fed’s QE programs have no impact on the financial market, the near 87 percent correlation between balance sheet changes and the market would imply otherwise.

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  This is why investors cling to each Fed meeting in anticipation of the “ringing of the bell.”

  In Pavlovian terms, the “pairing is complete.”

  BTFP Is Not QE

  While the BTFP facility is technically Not QE, it does reverse the Fed’s efforts to reduce financial liquidity. The chart below shows that the Fed’s balance sheet has surged since last week, reversing more than six months of previous tightening.

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  This reversal of liquidity is not surprising given the recent rout in the banking sector. J.P. Morgan noted on Friday that U.S. banks lost nearly $550 billion in deposits last week. Panicked investors were transferring funds to major banks from regional banks, which put further stress on already discounted collateral due to the Fed’s rate-hiking campaign.

  “The big picture from the H.4.1 release is that the U.S. banking system induced the Fed to expand its balance sheet and inject $440 billion of reserves in just one week. That large liquidity injection reverses a third of the previous $1.3 trillion of reserve tightening since the end of 2021. Given such a backdrop of elevated banking system liquidity or reserve needs, this naturally raises the question of whether the Fed can continue QT [Quantitative Tightening], similar to 2018/2019.”

  As we have repeatedly discussed, it was only a matter of time before the Fed “broke something.”

  “The economy and the markets (due to the current momentum) can DEFY the laws of financial gravity as interest rates rise. However, as interest rates increase, they act as a “brake” on economic activity. Such is because higher rates NEGATIVELY impact a highly levered economy.”

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  History is clear about the outcome of rate hiking campaigns.

  The question is whether the Fed’s Not QE can fix the problem.

  The Fed Created This

  As noted in this past weekend’s newsletter, the Fed must choose between fighting “inflation” or again bailing out the financial system in the name of “financial stability.”

  Of course, this entire situation is entirely due to the Federal Reserve.

  In October 2020, I wrote an article arguing that Neel Kashkari was wrong and the Fed was indeed creating a “moral hazard” by injecting massive stimulus into the economy following the pandemic. The Oxford Languages definition of moral hazard is: “The lack of incentive to guard against risk where one is protected from its consequences, e.g., by insurance.”

  Unsurprisingly, zero interest rates, $5 trillion in fiscal policy to households, and $120 billion in monthly QE removed all “risk” from owning risk assets. The spike in inflation and speculative risk-taking was the result.

  The “lack of incentive to guard against risk” becomes problematic when monetary, fiscal, and zero-interest-rate policies are reversed.

  Yes, this is all the Fed’s doing.

  However, since the turn of the century, the Fed has been able to repeatedly support financial markets by dropping interest rates and providing monetary accommodation. This was because inflation remained at low levels as deflationary pressures presided.

  

  (Refinitiv Chart: RealInvestmentAdvice.com, Data: St. Louis Federal Reserve)

  With inflation running at the highest levels since the 80s, the Fed risks creating another inflationary and interest rate spike if they focus on financial stability. However, if they focus on inflation and continue hiking rates, the risk of a further crack in financial stability increases.

  I don’t know which path the Fed will choose, but the markets have little upside. The moral hazard the Fed created in the first place has now come home to roost.

  Tyler Durden
  Sun, 03/19/2023 – 16:30

• Leftist Parents Flee Florida As Gender Treatments For Children Made Illegal
  Leftist Parents Flee Florida As Gender Treatments For Children Made Illegal

  It really is a brilliant strategy on the part of conservative states.  As the political left goes further into ideological extremism they become more and more intolerant of restrictions on their behavior, which they view as righteous and sacrosanct.  Zealotry breeds brittleness, meaning, any enforcement of practical and reasonable standards, even those protecting children, will drive leftists insane and make them want to leave.

  The more socially normal a state becomes the less leftists want to live there, and there are a lot of states that would be much happier without them.  Until recently, many state legislators and governors have been too afraid or too uninformed to take action against the invasion of deconstruction philosophies, but this is changing.

  Florida has joined seven other states so far in officially outlawing “gender affirmation treatments” for minors, including hormone blockers and surgeries that could disrupt the natural biological processes of those children for the rest of their lives.  Trans activists have admonished the laws as prejudiced and a violation of their rights, claiming that the treatments are “safe and reversible.”  However, scientists in the field admit that data on the long term consequences of hormone replacement and other therapies is far too limited to say for certain.  In other words, the newest generation of children have become guinea pigs for a baseless experiment in mass de-gendering.

  

  Red states want nothing to do with it, and leftist parents who gain considerable virtue signal points for having a trans child are so incensed that they are ready to leave for more woke shores.  If they can’t exploit their children to climb the victim status ladder, then they are taking their ball and going somewhere else.   

  The common argument among tans activist groups is that gender affirmation treatments “save lives.”  As noted, there is no long term data to support this claim.  Beyond their appeals to emotion, activists can’t offer any scientific evidence supporting gender fluid theories.  There are many people who would in fact oppose the notion that “trans children” even exist, with far too many factors at play including peer pressure, parental manipulation and school indoctrination.   

  Politically, the leftist ability to impose hormone therapies and gender based surgeries on children would ostensibly lock those children into the woke fold for the rest of their lives.  Take that ability away and the social justice movement loses a primary tool for perpetuating their ideology on the next generation.  The effort to protect kids from gender cultism is indirectly driving further separation of normal Americans from woke leftists, and maybe that’s a good thing. 

  Tyler Durden
  Sun, 03/19/2023 – 16:00

• 'Occupy Wall Street' Redux
  ‘Occupy Wall Street’ Redux

  Authored by MN Gordon via EconomicPrism.com,

  “The bank is something more than men, I tell you.  It’s the monster.  Men made it, but they can’t control it.”

  – John Steinbeck, The Grapes of Wrath

  Negative Carry

  Borrowing short and lending long works mostly well most of the time.  This is how modern banking works.  You may be a customer at a bank.  But you also supply the product.

  In short, a bank will pay you a small percent for the deposits in your checking and savings accounts, which you can withdraw at any time.  This is the borrowing short side of the operation.

  The bank then takes your deposits and invests the money in some longer-term assets, such as loans and bonds that aren’t paid back for years.  Say the bank earns 2 percent on its money while paying depositors a fraction of a percent.  The bank pockets the spread, the net interest margin.  Easy money.

  However, when the Federal Reserve intervenes in the market and presses the federal funds rate to zero and holds it there for 2 years (March 2020 to March 2022), driving yields across the range of maturities to 5,000-year lows, something bad is bound to happen.

  The experience for consumers over the last 24 months has been raging consumer price inflation.  But that’s only a small part of the bad stuff that can happen.

  Because as the Fed jacked up the federal funds rate starting in March 2022, to contain the consumer price inflation of its own making, the yield curve has inverted.  Short term yields are higher than long term yields.  And banks, having borrowed short to lend long, have negative carry.

  Perhaps it would all works out for the banks if depositors stayed put.  But in a world where you can score nearly 5 percent from Treasury Direct – with no brokerage fees – why keep excess deposits in the bank when you only get a fraction of a percent?

  It’s a good question…

  Answering the Call

  Customers at Silicon Valley Bank (SVB) recently answered this question by pulling their deposits en masse.  On March 9, SVB customers withdrew more than $1 million per second for 10 hours straight – totaling $42 billion – before the Federal Deposit Insurance Corporation (FDIC) seized the bank and declared it insolvent.

  This, in essence, was an old fashion bank run with a twist.  The digital age pushed the bank run into hyperdrive.

  SVB isn’t the first bank to go bust borrowing short and lending long.  It certainly won’t be the last.  In fact, since SVB failed, Signature Bank has also failed.  In addition, Credit Suisse is now getting a bailout from the Swiss National Bank.  At this rate, any number of other banks could soon be toast.

  Quite frankly, we don’t’ care what banks go bust.  What we’re really interested in is what happens after these banks go bust.  In the case of SVB, a bailout – above and beyond FDIC deposits – is in the works, through the creation of something called the Bank Term Funding Program (BTFP).

  What you need to know about BTFP is that it’s code for socializing losses.  The regulators may say it isn’t a bailout.  The taxpayer isn’t directly paying for it.  Nonetheless, if you – the taxpayer – have a bank account, you will be picking up the tab via surcharges and fees your bank imposes to bailout SVB depositors.  Is that fair?

  Should you have to pick up the tab for California Governor Gavin Newsom’s wineries, billionaire businessman Mark Cuban’s drug company, or any of the other rich elites that failed to appropriately manage their risk?

  On top of that, what will ultimately happen to the remains of SVB or other failed banks?  Will the FDIC sell them off to one of the big banks like Washington Mutual (WaMu) was to JPMorgan Chase in 2008?

  Government bailouts and the consolidation of the banking business does not make banking safer.  Rather it spreads the risk across the whole landscape like mustard seeds on a hillside.  This, in effect, propagates a much larger banking crisis sometime in the future.

  It also propagates civil disorder and social discontent.  And for what?

  When banks merge and consolidate over and over again the implications can be heinous.  To this point, for fun and for free, we’ll take a look back at the quintessential bank failure of the 20th century.

  Where to begin…

  Epic Bank Failure

  In 1820, Salomon Mayer von Rothschild (1774-1855) established his business, S M von Rothschild, Vienna.  Vienna was the capital of the Austrian Empire at the time.

  When S M von Rothschild died in 1855, his son Anselm von Rothchild (1803-1874) founded Credit-Anstalt as K. k. priv. Österreichische Credit-Anstalt für Handel und Gewerbe.  This Rothchild bank became the largest bank in Eastern Europe before World War II.

  Credit-Anstalt held assets and took deposits from all over Europe.  Then, in 1931, it failed at the worst possible time.

  The bank’s failure was a direct result of the United States’ Smoot-Hawley Tariff Act, which raised tariffs on over 20,000 imported goods.  The act crippled Europe’s economy and led investors to redeem all the capital they’d lent to the bank.

  The failure of Credit-Anstalt caused Austria to abandon the gold standard, which set off a series of economic dominoes.  Germany left gold.  Then Great Britain.  And finally, in 1933, so did America.

  The failure of Credit-Anstalt is what really kicked off the Great Depression.  The real story, of course, is not Credit-Anstalt’s collapse.  It’s what let up to its collapse.

  Today, with the Federal Reserve having first compelled banks to stretch for yield in long dated maturities, before then hiking short-term interest rates, banks are being put to an extraordinary test.  Without question, there will be more SVBs in the coming weeks.

  What’s more, a series of bank bailouts and consolidations could be the perfect setup for a very destructive Credit-Anstalt situation.  The BTFP bailout of SVB – and Gavin Newsom – offers a pathway to a mega crisis.

  Here’s why…

  Forced Mergers

  When the Austro-Hungarian Empire collapsed at the end of World War I, Credit-Anstalt continued to offer commercial, investment and savings to customers in both the former empire states as well as Amsterdam, Berlin, Bucharest, Paris, and Sofia.  Its shares were traded on eleven exchanges, including New York.

  Credit-Anstalt became the largest bank in Austria through a series of forced mergers to bailout other Austrian banks that had failed.  These forced mergers may have been expedient.  But they were not intelligent.  That is, they did not always pencil out.

  Moreover, it resulted in the creation of a bank that was larger than the rest of Austria’s banks put together.  It also concentrated the accumulated losses of Austrian industry in a single super bank.

  Over time, Credit-Anstalt’s balance sheet eclipsed the size of the government’s expenditures.  Approximately, 70 percent of Austria’s corporations did business with it.

  In 1925, Credit-Anstalt’s equity was only 15 percent of what it had been in 1914 (at the onset of WWI) and its debt-to-equity ratio rose from 3.64 in 1913 to 5.68 at the end of 1924.  By the end of 1930 it had ballooned to 9.44.

  Part of the increase in the size of the bank came from loans which Credit-Anstalt made to businesses of the former Austro-Hungarian Empire.  To make these loans, Credit-Anstalt borrowed money, primarily from Great Britain and the United States.

  However, the loans from Great Britain and the United States were only on a short-term basis.  Any failure to renew these loans would lead to the demise of the bank.  The effect of the Smoot-Hawley Tariff Act essentially toppled the credit pyramid.

  On May 11, 1931, the bank announced that it had lost more than half of its capital.  This was a criterion under Austrian law by which a bank was declared failed.  The announcement of losses led to a panic and bank runs on Austrian banks.

  Occupy Wall Street Redux

  The crisis that started in Austria and extended to the European continent, continued to Great Britain.  The island nation went off the Gold Standard on September 21, 1931, after its gold reserves shrank from £200 million to £5 million.

  Twenty-five countries soon followed in Britain’s footsteps, depreciating their currency against the U.S. dollar or leaving the gold standard.  By the end of 1931, the Depression (with a capital D) was global.

  FDR took the U.S. off the Gold Standard in April 1933, confiscated the gold of U.S. citizens, and devalued the dollar.  By this, workers, savers, and taxpayers got a raw deal.  They always do.

  For example, during the 2008-09 great financial crisis and bank bailouts, workers, savers, and taxpayers also got a raw deal.  They lost their jobs.  They lost their houses.  They lost their life savings.  Yet the big bankers still got their big bonuses.

  

  If you recall, these bailouts triggered major social discord where the 99 percent took to the streets to Occupy Wall Street.  The current bailout of SVB depositors – above and beyond FDIC limits – is resurfacing these same strifes.

  California Governor Gavin Newsom’s wineries got a bailout.  Billionaire businessman Mark Cuban’s drug company got a bailout.  Many other Silicon Valley rich elites got a bailout.

  Therefore, shouldn’t students get a bailout of their student loans?  Shouldn’t mortgage and credit card debt be cancelled?  Shouldn’t RIFed Googlers get a bailout so they can keep making big bucks sitting in padded hypnotic meditation chambers?

  These questions are absurd.  But so are the bailouts of SVB’s big depositors and the further consolidation of the banking industry.  What if, like Credit-Anstalt, JPMorgan Chase or Bank of America were to fail?

  These are the grim opportunities that bank bailouts and bank consolidations make available.

  After decades of prolificacy, followed by decades of ambivalence and apathy, America’s headed for complete financial, economic, and societal catastrophe.  You can see it.  You can hear it.  You can feel it.  You can taste it.  You can smell it.

  First stop: Occupy Wall Street Redux.

  In closing, owning physical gold and silver has never been more critical.

  *  *  *

  When things get bad the global elites always channel the discontent of the masses into a great cause.  Is Washington secretly provoking China to attack Taiwan?  Are your finances prepared for such madness?  Answers to these important questions can be found in a unique Special Report.  It’s called, “War in the Strait of Taiwan?  How to Exploit the Trend of Escalating Conflict.”  You can access a copy for less than a penny.

  Tyler Durden
  Sun, 03/19/2023 – 15:30

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