La Silicon Valley Bank went bankrupt in less than two days. SVB’s assets are approximately $209 billion.
On March 9, the bank announced that it had entered into an unsuccessful stock transaction and would issue an additional $2.25 billion in stock to offset the losses. Advisory agencies have recommended depositors withdraw their funds from bank accounts, which has caused a sharp drop in liquidity. On the morning of March 10, the outflow of capital accelerated so much that the regulator was forced to declare bankruptcy of a financial institution, although such announcements are usually made after the evening trading close.
But what happened to SVB? Is this an isolated incident or a sign that more financial crashes are on the way? I propose below an article by Andrew Zhok, which answers the question, very effectively:
Silicon Valley Bank went bankrupt, and it’s not an accidental episode
Silicon Valley Bank has gone bankrupt. If it were an accidental episode of mismanagement it could be a secondary fact.
However, as reported by many analysts, this failure critically depends on the Fed’s monetary policy tightening to respond to (exogenous) inflation.
US inflation is not so much due to the increase in raw material costs (as is the case in Europe), but to a general worldwide process of selling assets in dollars (a reduced demand for dollars corresponds to a lower value of the currency, which translates into inflation).
This process has obvious geopolitical reasons and it makes explicit the reduction of American hegemony to its post-1945 “natural” limits: dollar assets are sold by those countries which, following the war in Ukraine, have perceived the opportunity to get rid of the onerous American guardianship.
An extremely important step in the same direction can be seen in the strategy of normalization of relations, promoted by Chinese mediation, between Iran and Saudi Arabia (ie between the major Shiite government and the major Sunni government). The diplomatic success expresses China’s new role in the vast Islamic world.
Everything suggests that this movement is simply in its infancy.
Recall that the role of the dollar as a safe haven currency was also the main reason for reassurance for the US regarding the trajectory of its public debt. Indeed, the USA has reached its maximum debt in history (125% of GDP) with a deficit/GDP ratio of almost 16%. As long as the dollar is a safe-haven currency, US treasuries have guaranteed buyers, but the less dominant this role is, the easier it is for bond purchases to shrink.
The problem on the horizon is not, of course, a possible “default” of American debt, but a “restrictive” operation on domestic spending (given for certain) and operations for the disposal and liquidation of foreign assets. Basically, having reached this point, in order not to contradict its traditional policy, the USA could end up fueling a major economic contraction, which for the areas of the world most closely linked to the USA takes the form of a strong recessionary pressure.
As we have already seen in the 2008 crisis, the crunches of the American empire can easily end up unloading without mediation on the European “allies” (it would be better to call them “shock absorbers”).
Source: Andrew Zhok
Silicon Valley has failed to attract cash, and now the bank’s parent company is negotiating the sale of its business. But there aren’t even people who want it.
Everything is just beginning and it is quite possible that now they will still be able to prevent the collapse of the financial system. But .. how many of these “Silicon Valleys” are now waiting in the wings?
The Federal Reserve stumbled by not clamping down on inflation early, and is now heading for economic disaster, Ken Langon said in an interview with Fox Business Wednesday. “Now the situation is out of control,” he said. “Honestly, I don’t know how the severe financial crisis we are in now can be prevented “.
I would add to what Zhok says in the article that there is also a risk that the hawks constantly acting in the US administration might decide to escalate the ongoing war in Ukraine in order to sweep the dust under the carpet in some way.
VPNews
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“The FDIC noted that SVIB had $175B in deposits as of Dec. 31, note that approximately $151.5B of that is uninsured, meaning investors get exactly ZERO back. They receive a COUPON that can be redeemed what is left after the closure, and the government recovers the money.
For the collapse of Lehman Brothers in 2008, it was 1/2 cent on the dollar paid ten years later.”
The public still does not understand what is happening. But some points are already worried:
- the next four largest US banks by assets lost $52.4 billion in market value in one day. Investors began selling shares in JPMorgan Chase, Bank of America, Citigroup and Wells Fargo on Thursday, March 9, amid concerns over their bond portfolios, reports the Financial Times.
- The US petrol dollar is about to collapse. Joe ran out of US strategic oil reserves, now the US has 2 wars. One in the East with Russia and a latent one with China due to Taiwan. The United States is in serious trouble and we Europeans could follow it, given our political class.
- In another similar case, in 2008, President Obama halted the so-called global economic crisis with ‘helicopter money’, that is, by printing money in spades through the Fed. But in 2008 there was no such inflation, the discount rate was 10 times lower, and the US national debt was 2 times lower. And that means that now servicing the US national debt costs 20 times as much and amounts to at least $800 billion a year, and all US debt costs at least $4 trillion a year.
- The case could die out otherwise: Silicon Valley banks are heavily dependent on the technology industry and the American media argue that only this part of the economy is prone to the crisis, and the probability of infection of the entire banking sector a la 2008, actually it is low, as the big banks now have sufficient capital to avoid such a situation. Moreover, in 2008, the crisis began not only in the United States, but also in England with the bankruptcy of Northern Rock Bank, after which New York State Senator Hillary Clinton decided to settle scores with Leman Brother.
- So what will the Fed do now, continue to print money like crazy? Next week will be historic if this snowball starts rolling…
- There could be more bank failures. Miles accounts of companies and citizens were frozen after too many people tried to withdraw money. All their payments and operating funds simply disappeared. Their cash flow just vanished.
- Let’s say that it will depend a lot on how investors behave and whether further panic will be created. Unexplored seas open up…