I think "Simon Black" has cut to the quick. If treasuries have lost half their value, or so, everything is now fully at risk. Also, what about all those 2%-5% fixed rate Mortgage Backed securities? If an institution lent their own money financing purchases and refis, they're now in deep isht. If the passed those on to institutional investors or "secured" funds via Treasuries, those are just are dead-assets walking. And now real prices are beginning to topple in many markets, lighting a fuse which will further pile up loses on "safe" bonds!
Decomposed's asymptotic chart, showing 2024-25 as TEOTWAWKI might be a lagging indicator! De, would you link that again? Running out of time to build yourself an ark AND SUPPLY IT...maybe?
http://www.thedailybell.com/all-articles/news-analysis/if-svb-is-insolvent-so-is-everyone-else/
EXCERPTS:
If SVB is insolvent, so is everyone else
By Simon Black - March 13, 2023
Via Sovereign Research
On Sunday afternoon, September 14, 2008, hundreds of employees of the financial giant Lehman Brothers walked into the bank’s headquarters at 745 Seventh Avenue in New York City to clear out their offices and desks.
Lehman was hours away from declaring bankruptcy. And its collapse the next day triggered the worst economic and financial devastation since the Great Depression.
The S&P 500 fell by roughly 50%. Unemployment soared. And more than 100 other banks failed over the subsequent 12 months. It was a total disaster.
These bank, it turned out, had been using their depositors’ money to buy up special mortgage bonds. But these bonds were so risky that they eventually became known as “toxic securities” or “toxic assets”.
... (see article)
Now here we go again.
Fifteen years later… after countless investigations, hearings, “stress test” rules, and new banking regulations to prevent another financial meltdown, we have just witnessed two large banks collapse in the United States of America– Signature Bank, and Silicon Valley Bank (SVB).
Now, banks do fail from time to time. But these circumstances are eerily similar to 2008… though the reality is much worse. I’ll explain:
1) US government bonds are the new “toxic security”
Silicon Valley Bank was no Lehman Brothers. Whereas Lehman bet almost ALL of its balance sheet on those risky mortgage bonds, SVB actually had a surprisingly conservative balance sheet.
According to the bank’s annual financial statements from December 31 of last year, SVB had $173 billion in customer deposits, yet “only” $74 billion in loans.
I know this sounds ridiculous, but banks typically loan out MOST of their depositors’ money. Wells Fargo, for example, recently reported $1.38 trillion in deposits. $955 billion of that is loaned out.
That means Wells Fargo has made loans with nearly 70% of its customer’s money, while SVB had a more conservative “loan-to-deposit ratio” of roughly 42%.
Point is, SVB did not fail because they were making a bunch of high-risk NINJA loans. Far from it.
SVB failed because they parked the majority of their depositors’ money ($119.9 billion) in US GOVERNMENT BONDS.
This is the really extraordinary part of this drama.
US government bonds are supposed to be the safest, most ‘risk free’ asset in the world. But that’s totally untrue, because even government bonds can lose value. And that’s exactly what happened.
Most of SVB’s portfolio was in long-term government bonds, like 10-year Treasury notes. And these have been extremely volatile.
In March 2020, for example, interest rates were so low that the Treasury Department sold some 10-year Treasury notes at yields as low as 0.08%.
But interest rates have increased so much since then; last week the 10-year Treasury yield was more than 4%. And this is an enormous difference.
If you’re not terribly familiar with the bond market, one of the most important things to understand is that bonds lose value as interest rates rise. And this is what happened to Silicon Valley Bank.
SVB loaded up on long-term government bonds when interest rates were much lower; the average weighted yield in their bond portfolio, in fact, was just 1.78%.
But interest rates have been rising rapidly. The same bonds that SVB bought 2-3 years ago at 1.78% now yield between 3.5% and 5%… meaning that SVB was sitting on steep losses.
They didn’t hide this fact.
Their 2022 annual report, published on January 19th of this year, showed about $15 billion in ‘unrealized losses’ on their government bonds. (I’ll come back to this.)
By comparison, SVB only had about $16 billion in total capital… so $15 billion in unrealized losses was enough to essentially wipe them out.
Again– these losses didn’t come from some mountain of crazy NINJA loans. SVB failed because they lost billions from US government bonds… which are the new toxic securities.
2) If SVB is insolvent, so is everyone else… including the Fed.
This is where the real fun starts. Because if SVB failed due to losses in its portfolio of government bonds, then pretty much every other institution is at risk too.
Our old favorite Wells Fargo, for example, recently reported $50 billion in unrealized losses on its bond portfolio. That’s a HUGE chunk of the bank’s capital, and it doesn’t include potential derivative losses either.
Anyone who has purchased long-term government bonds– banks, brokerages, large corporations, state and local governments, foreign institutions– are all sitting on enormous losses right now.
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