Banks Are in More Trouble Than We Thought

10 Sep

Banks Are in More Trouble Than We Thought

It’s bad.  Very bad.  When it hits the fan, gold will be there, as it always has!

We know what happened to a handful of big banks earlier this year.  Banks like Signature and Silicon Valley suddenly were forced to realize their unrealized losses.  And that was the end of the road for them.

As you know the value of bonds goes down when interest rates go up, so those banks with their reserves all parked in bonds suddenly found themselves in deep trouble as the Federal Reserve raised interest rates.

But the rest of the banking industry is just fine, right?

Wrong.  Double wrong!

Here’s a link to a Wall Street on Parade article that pulls the curtain bank on the banking industry.  It reports that at the end of the first quarter, banks were sitting on more than a half trillion dollars in unrealized losses!

That’s deep kimchi!

The academic study the story draws on describes the banks shamelessly gambling on being bailed out by us:

Banks with the most fragile funding… sold or reduced their hedges during the monetary tightening. This allowed them to record accounting profits but exposed them to further rate increases. These actions are reminiscent of classic gambling for resurrection: if interest rates had decreased, equity would have reaped the profits, but if rates increased, then debtors and the FDIC would absorb the losses.

Only 6 percent of the total bank assets were protected from rising rates with interest rate swaps.  At the end of the first quarter, March 31, 2023, the banks had unrealized securities losses of $515.5 billion.  And the Fed has raised rates two times since then!

Wall Street on Parade:

The use of the phrase “classic gambling” to describe 75 percent of the U.S. banking system by highly credentialed academics might be something that the U.S. Senate Banking Committee might want to hold a hearing about with some sense of urgency.

Not to put too fine a point on it, but this is the year in which banking regulators were left scratching their heads at the dizzying speed at which multiple banks collapsed. In the span of seven weeks this spring, running from March 10 to May 1, the second, third, and fourth largest bank failures in U.S. history occurred. In order of size, those were: First Republic Bank (May 1), Silicon Valley Bank (March 10) and Signature Bank (March 12). The largest bank failure in U.S. history, Washington Mutual, occurred in 2008 during the financial crisis.

With all due respect, we don’t think the suggested Senate Banking Committee hearings are worth the bother.  For two reasons.  First, it is too late to fix anything.  The cows are already out of the barn.  And secondly, the Senate will inevitably make the taxpayers fork out to paper this over.

The other day Bill Bonner summed up our present predicament this way: “Oblivious to the rising tide of debt, deficits and defaults, mankind stumbles toward disaster…”

If you are still trusting the government and its institutions, the Fed, the FDIC, Congress to look out for your welfare, you are putting your trust in the wrong place.

Gold and silver are not dependent on trust some unknown party.  Unlike banks, securities, bonds, and paper money, they have no counterparty risk.  That means that there is no risk that some party to the transaction will fail to perform and leave you with the loss.

In times of trouble, it is imperative that you protect yourself, your family, and your money with gold and silver.  We’re Republic Monetary Exchange.  We’re here to help.