Folks, it's official. After Janet Yellen received a recommendation from the Federal Reserve and FDIC, a 25 billion dollar bailout has been established for Silicon Valley a bank. I'm going to read as some of these updates here: the U.S Federal Reserve advances can be requested under a new program facility established until at least March 11, 2024. All advances made under the program are made with recourse beyond the pledged collateral to the eligible borrower.

That means anybody who borrows money through this facility needs to pay it back or that bank could go bankrupt. Or let's say, if a bank is acquired, basically an acquiring bank would have to pay off anything they borrow from the FED. It sounds to me like we're using the discount window here to be able to do this. We've got a letter from the FED as well.

Just reading off some of these headlines here: Senior U.S Treasury officials say Janet Yella made the decision after the Silicon Valley Bank received the recommendation from the FDIC and Fed and after Consulting with Biden senior treasury officials say Yellen and other officials continue monitoring to the situation. They've also now taken it looks like a custody of another bank. Signature Bank in New York and Signature Bank in New York has now been seized by Regulators. Take a look at what we have.

Uh, here. let's go on screen here and go through this together. The following statement was released by the Treasury Secretary Federal Reserve board and FDIC chairperson. Today We are taking a decisive action to protect the U.S economy by strengthening public confidence within our banking system.

This step will ensure the U.S banking system continues to perform the vital roles of protecting deposits. All deposits at Silicon Valley Bank are now being insured and protected. In other words, no haircut for any depositor at Silicon Valley Bank This is a move to try to prevent contagium. Now they are saying that no taxpayer fund ending is being used for this sort of bailout.

I Think the idea is the Fed basically turns the printer on for 25 billion dollars and we're going to talk about where that money comes from in just a moment. But anyway, after receiving the recommendations from the boards of the FDIC in the Federal Reserve board and Consulting with the President, Janet Yellen approved essentially the resolution for Silicon Valley Bank that fully protects all depositors. depositors will have access to their money starting on March 13th. No losses are associated with the resolution.

We are also announcing a similar systemic risk exception for Signature Bank which was closed today by the state chartering. Authority All depositors of that institution will be made whole. All depositors will be made whole. This is a, in my opinion, a de facto bailout essentially of Uh or in its set, extension of all of the FDIC limits.

Hey, Max I Need that to be closed to come back and close that? It's all right man. Finally, the Federal Reserve board on Sunday announced it will make available additional financing or sorry funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. That's the discount window, folks. The U.S banking system remains resilient and is on solid foundations in large part due to the reforms that were made after the Financial crisis.

These are Dodd-Frank rules and that these forms these reforms confirmed today. Actions: Uh, that that basically demonstrate our commitment to Dengue System blah blah blah blah. Okay, so uh, what do we have? Well, let's uh, let's basically go through this together here. essentially.

hold on a couple more updates: Senior Treasury Officials: Continue to update steps to ensure Financial systems remain strong. Senior Treasury Officials will work with Congress and Financial Regulators to consider additional support measures as necessary and uh, strengthening the financial system. Okay, so what do we basically have? Well, basically what we have is this is just like Covet Folks. Okay, let me give you the covet example and then we're going to explain this current example.

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Next coupon expires uh for during St Patty's week next week. So uh, take a look at that for the price arises because price goes up over time. Okay, so during the Covet era, what did we have in the Covet era, we basically had, hey, a lot of people might go bankrupt and stop paying their loans. So what did the FED do? I'll give you one example, they said hey, you know what we will backstop all loans made on for people's cars.

Basically so they come out and say I'll just make up a number, They'll say hey, you know what, We're going to give a hundred billion dollars and we'll backstop all car loans or credit card loans or Home Loans or whatever. They basically wanted to create the impression that don't worry Banks you can't lose lose any money by making loans, so keep lending to people. That's because during Covid they thought, well, if we stop lending to people, then basically the economy will completely shut down and we'll have a worse financial crisis than 2008. So what happened today? Well, today, the Federal Reserve opened up a 25 billion dollar facility.

Now based on numbers that I did this morning, it looked like the federal or I should say the Silicon Valley Bank it looked like Silicon Valley Bank was probably going to be upside down by somewhere between 10 to maybe 25 billion dollars. So it looks like as a result of that, the Federal Reserve has opened up a 25 billion dollar facility. Now we don't know exactly what the losses are at Silicon Valley Bank because remember, they had about 211 billion dollars in assets. But when you removed intangibles and Mark to Market losses, there were probably closer to maybe somewhere in the 170 to 190 level of actual assets, but they had debts around 100 95.

That's why they were upside down. So what is this potential 25 billion dollar essential bailout look like? And how do taxpayers not pay for that? Well, first of all, remember the Federal Reserve is quantitatively tightening to the tune of about 90 billion dollars a month. So really, they're taking 90 billion dollars a month out of the system. But what they're doing with this new 25 billion dollar facility is they're essentially opening up the discount window.

The discount window is basically where Banks can go to the bank of New York and say hey look man I Got all these bonds and a lot of them were like commercial mortgage-backed Securities or residential back Securities And on the other hand, I got a lot of people showing up on my bank because everybody's flooding and panicking and they're like yo I need my money and we're like but we can't because all of our assets if we were to sell them now would be selling at a discount because you Fed have raised rates so quickly the fastest rate increases that we see in the last 40 years. The Fed's like, ah, all right, how about this, Come to our window. We'll lend you the 25 billion dollars. Maybe that's 15 for Silicon Valley Bank and 10 for Signature or another.

whatever. that doesn't matter so much, right? But basically the way it works is you walk over to the Federal Reserve and you're like yo yo yo Fat Man I Need to give these people their money. They're freaking out. Fed's like, all right, look technically everybody over 250k uh, doesn't get insured, but we don't want to cause a financial crisis, We just want to kill inflation.

So how about this? We'll just say instead of saying we're bailing out shareholders or the company, we'll close Silicon Valley Bank But what we'll do is we'll create this fund and we'll say look, we got 25 billion dollars here. We will give you that 25 billion dollars. So what we will give that to you, it's a Silicon Valley Bank You take the 25. in return, what we want is we want 25 billion dollars of assets.

So basically 25 billion dollars of potentially the uh, Cmbs or the residential mortgage-backed Securities basically the Rmbs. So generally we drop the r. We want that to come to the Fed So in other words, in the eyes of the Fed, the Fed's like look, we're going to be here for a while. We'll just hold your 25 billion dollars of toxic assets because eventually they'll be worth 25 billion.

Even if that takes 10 20 years, eventually it'll be worth 25. Bill We'll take your 25 of of assets. We'll give you the 25 billion. of cash so you can cover your depositors so everybody's made hold.

Nobody Gets a Haircut which is great Nobody Gets a Haircut Even though technically, that does create moral hazard and that's bad, right? I Went into the Twitter spaces with Mario and all of them I was fortunate enough to speak with them. It was fantastic. But this creates moral hazard because now it says that a bank that's funky like Silicon Valley Bank that's not mitigating Risk by actually hedging for interest rate increases. It basically says hey, you know what you keep doing your risky lending And one of the things that we all agreed on in the space is something that I brought up that depositors do benefit from Risky lending because if it weren't for risky lending, startups wouldn't be getting the lines of credit that from anywhere because they don't get the lines of credit from JP Morgan or Bank of America or other Banks but they can get them from Silicon Valley Bank because that's the startuping.

So you have looser lending which benefits depositors, right? So the depositors ultimately win-win big here because the depositors get risky lending. You set a precedent that Banks can go ahead and engage in Risky lending. and guess who's always going to be there to bail you out the FED even if it's not even a systemically important bank. Now, all of a sudden the FED is panicking, the FED is blinking, the FED is like, oh, God This is actually really bad.

So let's create the bailout. We'll create the bailout. And what are we going to do with the bailout? We're going to back stop everything by 25 build. Now if somebody comes in and buys Svb the bank, well, what happens? They still have to pay back the 25 bill.

That's what the Fed's really doing here now. Senior: U.S Treasury Officials in Time may look back and assess whether Uh changes are needed to be made for deposit requirements on FDIC Uh, Yep, that makes a lot of sense. Okay, so that's another way of basically saying hey, like maybe we need to charge Banks more for FDIC Maybe we need to increase the limits on FDIC So that way we can prevent this from happening and we probably also need to look into regulation to prevent this from happening again in the future because this is a disaster and created a substantial Panic Notice how the FED is so panicked. They actually did this right before.

uh, the right is right within minutes after Futures uh started opening up and before the Asian market opened. So really, the FED here is trying to say like hey, whoa whoa whoa hey yeah, we need to be careful here. We're going to create this call form that we need right now. and ultimately, yep, we're here bailing out markets now.

Uh, what else are we seeing? Well Nick tease obviously tweeted about this Nick T's obviously always tweeting about this. they're saying. You know? Some of the comments are like hey, who's funding this hey Max I'm gonna be done about two minutes Okay, uh, who's funding this? It's really the FED They just create the 25 billion dollars out of thin air and then after they create the 25 billion dollars out of thin air, they just take the IOU So it kind of looks like they took 25 billion dollars. But the reality is, it is somewhat inflationary, right? Uh, they could let the bank fail completely, which the bank is failing.

Don't get me wrong, those shareholders are screwed. But they could let the bank fail, liquidate the assets, and if only 70 cents on the dollar come out, well, then depositors do get screwed. Uh, that leads to job loss. and and then you kill inflation.

You know What this actually tells me though is, wait a minute. We don't need a bank failure to kill inflation. It sounds to me like the FED is convinced that inflation is actually under control. Look, we actually don't think we have a wage price spiral.

This is a tell to me that the Fed's new lending facility. Uh, not only helps Silicon Valley Bank Sure, nobody has any losses or Signature Bank but also that facility will be available to other Banks Do I Think 25 billion is going to be enough? Potentially Not that 25 billion could keep going. Heads up that 25 billion dollar set of pain could get worse. So in other words, we could still see people go.

You know what? Too close for comfort? I'm getting out of the small Regional Banks Or maybe even potentially Credit Unions they move to larger Banks What happens You end up with more Bank runs. 25 billion is going to be a drop on the bucket if we end up getting more Bank runs. Uh, Talk about how this is a regulatory failure. Remember how regulation was loosened back in 2018 to where some of these Banks were not required to go through stress tests again.

Signature Bank in New York is now closed down. Fed is backstopping all Silicon Valley Bank depositors. So that's Roku Uh, you know any of the small businesses and startups? Venture Capital wins here. Pretty big announcement here from the Federal Reserve This is a new emergency funding program.

It's basically a bailout in Disguise is what it is. Uninsured depositors get made whole. Uh, let's see here. this is an alternative way way of getting liquidity.

An interesting way, it's not a bailout for Equity owners. it's protecting the uninsured depositors fine. Yep, Okay, great. and there's going to be a little bit of a premium as we, uh, saw on the pro.

Actually, we didn't see that impressively. CR Sat on the notes. Here Uh, 10 basis point premium for borrowing from this facility. Okay, not a big deal, but basically J Powell has done it.

He's coming back in uh, too long didn't read Silicon Valley Bank Depositors will have access to all their money and the Fed's going to create additional deposit or funding or make sure that's available as necessary. So there you have it. Check out the programs I'm building you wrote down below and we'll see you next one. Thanks so much! Goodbye, All right, I'm done.

Mr Max That was a.