There is talk that UBS might be interested in buying Credit Suisse along with a whole lot of other drama that we've got to talk about. What's really important to know about: Uh, Credit Suisse Potentially being looked at as an acquisition by UBS is. in my opinion, any private Enterprise would have to get such a massive discount on these Banks because if they don't guess what's going to happen if one company buys a toxic company, the value of the company that's not deemed toxic yet plummets unless they got such a good discount on that deal that they basically made that company near worthless. and then they're getting their leftover clients.

That's the only way that works out. Otherwise, that's how you get contagion. A good bank buys a crappy bank and now the good bank becomes a bad bank. That's the disaster.

Think about Bank of America and Countrywide Bank of America bought Countrywide You know how many lawsuits and crap they had to deal with for years after that because of the toxic bags they bought at Countrywide That was an oopsy-doopsy and that's kind of what we're seeing Now with credit space, it's starting folks. buckle up. But now we have to get serious and talk about bail-ins versus bailouts. What it means for you as a consumer.

Oh boy. buckle up. Let's talk about it. We gotta talk about an 82 billion dollar a bail in for Credit Suisse How this affects Americans And will it be enough to actually stabilize the drama that's going on at Credit Suisse We know that the Swiss National Bank just over the last few days injected over a 54 billion US Dollars about 50 billion francs into Credit Suisse via emergence.

basically an emergency loan. But now there's fear or that a potential bail in will have to occur, which could lead to such losses elsewhere in the economy that potentially we could see other corporate failures or bank failures. Now this is interesting. so we've got to understand what a bail in is and how it is different from a bailout.

First of all, what's happening right now is really just an emergency sort of alarm Bell that the bank is knocking on the door of potential complete collapse When we start talking bail-ins I Want you to kind of think about it like this: Okay, normal operating company bail in. That's like kind of like your your one of your initial red flags and then a big gap and then either failure and bailout or failure and no bailout, right? So bail in is generally first in the row and it's seen as sort of a an alarm Bell of what's potentially to come And so Credit Suisse actually holds special types of bonds that become affected now. I'm going to simplify this. Let me give you the data first.

So the bank currently holds about 82 billion dollars of bail in bonds and tier one notes that are already trading at distressed levels. And so here's how this works in the event that a regulator Beyond this emergency loan, that credit suite's already got okay, you've got to operating. You actually have Swiss of the Swiss National Bank already coming in providing an emergency 54 billion dollar loan to this company The Next Step would be. In the event a regulator steps in to help protect the Credit Suisse depositors, you're instantly going to see bail in a ball, Bail in a bowl.

It's a mouthful. Bonds get written off and bail in senior holding debt would become Equity. So that sounds really fancy, but I'll simplify that. Bail in a Bull bonds.

Bail in a Bull bonds. We're introduced by European and Swiss authorities to make sure that taxpayers wouldn't end up being on the hook for banking failures. And that's a big deal because that's what we're debating in America Everybody's pissed after the failure of Silicon Valley Bank that there's a potential that the the facility that's being used to basically protect the depositors at Silicon Valley Bank is backed by taxpayers. In other words, if the Federal Reserve and treasury lose money, the taxpayers are the one who have to pay for it.

And that is very frustrating because a lot of people see that as sort of the 99 bailing out the rich one percent who have connections in Silicon Valley including the governor himself who banked at Silicon Valley Bank and was begging the White House to bail them out doesn't seem very just, but bail in above. Bail it. That's such a tough one to say. Bail in a bull Bonds we're introduced exactly to try to prevent taxpayers from taking a hit.

So that's a big deal. And what they did is they introduced these fancy acronyms the sort of like shock absorbers and they called them at once. They were introduced after the financial crisis and basically what happens is after a a regulator steps in to protect depositors at Credit Suisse when and if that happens, anybody who owns that debt basically has their debt become worthless. So let's draw that out to make that, uh, even simpler.

it's basically an instant eradication of an obligation to someone else. And it might be easier to see that visually because these bail in a ball bonds are kind of crazy, but they're useful again to protect taxpayers. So think about it like this. Let's say you hold this piece of paper and this is a note.

A note is a fancy way of saying I owe you. That's where these terms came from. Basically like you handed me a note and it said I promise to repay you a promissory note I Promise to repay Anyway, let's say this note is worth one thousand dollars and you have the note and who has the thousand dollars? Credit Suisse got the one thousand dollars. but Credit Suisse has to pay that back to you with interest and so on the side of Credit Suisse This looks like debt on the side of the person who holds the note.

It looks like an asset and so what? European Regulators say And this is different from from what we have, uh, have seen in most banks in America What European Regulators say is, look if we come in to protect depositors at Credit Suisse the first people we want to lose money are the people who hold these notes right here these Ious. So what we're going to say is, before the taxpayers pay a dime to help Credit Suisse What we're going to do is we are going to delete the existence of these notes. That means these people, these bondholders lose their asset. But Credit Suisse loses that debt.

Now that's actually critically important because banks operate with certain statutory minimum capital reserve require requirements. It's basically like saying, hey, if the bank has a hundred dollars in deposits, they need to keep about ten dollars in the bank and they can go play with ninety dollars. That's about a ten percent capital reserve ratio, right? There are ratios like this that also apply to how much debt a bank is allowed to have. So if a bail inable bond can be eradicated, it serves as an early warning sign that the bank is potentially failing.

and it helps mitigate some of the pain potentially and maybe even prevent failure by eliminating that debt. The bank had at least some of the debt. That bank had. potentially up to 82 billion dollars of such debt.

Now what's neat about this is again a it protects a taxpayer. but B it potentially prevents the entire Bank from actually failing. The problem is. or I guess maybe the the early problems that we're seeing now is people who hold those notes.

They're like, oh crap. I might lose my entire note. Uh, so in other words, let's say you held this note On this side. Let's say you held this thousand dollar asset and you had an IOU what would you want to be doing without right now with all this news circulating about Credit Suisse if you held that piece of paper, you might be like, man, this is becoming a toxic asset.

It might go to zero. Well, if something has a risk of going to zero, what do people usually do? They sell it and that lowers the price of those assets right now. Credit Suisse Bail in a Bull Debt is trading at just 66 cents on the dollar and that's a sign that people actually think this bank has a real chance of going bankrupt. Now this is all divided into multiple different tranches.

You've got about 35 billion dollars of CET ones that would be at risk. First, 16 billion dollars of At1 debt. afterwards. then you'd have about 59.8 billion dollars of francs that are bail in a bowl senior holding debt that converts to equity.

Uh, or some some of the debt would convert to equity. Not necessarily all of this. That potentially means even more downward pressure in English means more downward pressure potentially on the stock because if more people have their debt turned into equity which not all of them are, some of those bonds are just deleted and they disappear. The people take a full loss on them.

Some senior debt just gets converted into Equity which is basically a stock. The share. and now you have a share. And people might say, well, I don't want these shares.

Dump them. Well now you drive the price of Credit Suisse stock even lower. And when you drive these uh bonds to zero or Credit Suisse stock down, what ends up happening? Other: Banks stop trading with you and that's exactly what just happened with Credit Suisse Other banks have stopped wanting to do business with Credit Suisse because they don't trust Credit Suisse anymore. They think if Credit Suisse goes down, then they're not going to get their obligations repaid.

Consider: every time a bank does business with another bank, there's something called counterparty risk. It's just a fancy way of saying look, if I lend somebody something overnight, well what if they go bankrupt overnight I might not get that money back? That's counterparty risk. Or what if I deposit my money at a small Regional Bank and I deposit more than the FDIC limits? Well, if that bank goes bankrupt, my counter party risk is not being able to get my deposits back, right? That's a simple way of explaining what counterparty risk is. Obviously, there are many complicated examples.

The issues here with Credit Suisse are that this bailing event could end up having a massive ripple effect where because all of these Banks owe each other money, you could end up seeing more defaults and potentially hedge funds or other Banks and those end up having a cascading effect leading to potentially more bail-ins and then more collapses and then more potential bailouts. More runs on the bank, more fear, and ultimately more money printing from the Federal Reserve. To try to stem the fear that's occurring, we print more money and we expand the money supply. Eventually, we're likely to create more inflation.

So the bail in issue that's being talked about for Credit Suisse and the potential collapse of Credit Suisse could create the contagion that everyone fears now. I Want to be very clear? this is the next level fear point. From the by the FED Pivot facility that's not actually what it's called, that's what we nickname it. but I want you to kind of line this up for a moment.

So think about it this way. so you have a normal operating bank and you have a normal operating Bank. When there are problems in America, we now have uh, the uh by the FED Pivot facility. It's like the bank term funding program or whatever is what it's actually called.

We think this could potentially inject up to two trillion dollars of liquidity into the banking system via the Fed leveraging Up their 125 billion dollar facility. Uh, that's almost a 20 to 1 Leverage Uh. In the Uh in Switzerland you have the Swiss National Bank that's come in with basically a 50 billion dollar direct loan to Credit Suisse. So it shows you some of the differences here, right? We make a program and we say Hey you could borrow from this program.

Uh, in Europe The Swiss National Bank is basically saying we'll just give you a loan directly. Okay, that is is sort of your first level defense for bank failures. The next level if we draw this out would in Europe basically be a bailout. Uh, sorry, a bail in.

Rather like we've talked about here. a bail in. then we potentially have an acquisition which could be an idea on the left side as well. and then you potentially just have failure along with potentially bail out.

So put that in. So this is kind of your order of operations for these banking failures. It's worth noting that right now Deutsche Bank is looking into potentially acquiring parts of Credit Suisse There's talk that Deutsche Bank is looking at segments like the Wealth Management Division to potentially get the clients who actually still have their wealth whatever's left of it managed by Uh by Credit Suisse. But keep in mind, a lot of these banks have many, many, different departments and divisions.

Uh, they have generally an investment banking division where they can do trading. They can have an IPO division they could have. like I mentioned these wealth divisions where people are like hey, I got 10 million dollars, help me invest it or or whatever it might be and then they get fancy White Glove Service for mortgages, airplane loans, blah blah blah. you know that's that's kind of like the the Fancy Banks Want to do everything that they can in their power to maintain their fancy clients because their fancy clients is where they make lot of money right? So they'll do whatever they can to take care of those fancy clients.

And usually those fancy clients are a little less of a risk than obviously a startup because these people have already made their money. That's where for example Silicon Valley Bank went wrong right? because Silicon Valley Bank was only pretty much lending people. Well, I suppose they were also letting many people that were quite wealthy, but they were pretty regularly lending money to uh, individual startups that had no cash flows. I mean I was looking on Twitter and I saw a one VC was talking about how hey, if we uh like we will write 100 to 500 checks for businesses that have anywhere between twenty thousand to fifty thousand dollars in revenue and I'm like twenty to fifty thousand dollars in Revenue that's so low Like how that that business is massively negative cash flow.

and apparently those types of businesses are still actually getting investments in this environment. It's insane. So if VCS are doing that, imagine what some of the banks were doing. Uh, especially like a Phil uh, Silicon Valley Bank It's crazy.

but this gives you an idea of what a bail in looks like. And really, the more you hear about this potential bail in over here, what does it mean? It's more of a red flag that things are basically getting worse. Uh, for the banking system, it's kind of like saying hey, uh, we our credit default swaps are trading at a massive premium because we're probably going to go bankrupt. Uh, credit default swaps are just basically an insurance.

Uh, we used to use these a lot in 2008. Cdos collateralize debt obligations, credit default swaps, their derivatives. They're like fancy option contracts. Uh, you know, off Market basically.

uh, well. I mean there's a market for them as well, but it's it's not sort of in the markets that we generally play in as retail investors, more of the institutional markets. and uh, and when the premium for these goes through the roof like 3 000 basis points up somewhere around 30 to 300 x which is what we've just seen over at Credit Suisse Oh, it's a sign. The Market's thinking okay y'all y'all are knocking on the door bankruptcy And it's scary because it's not just Credit Suisse but I Was talking to course members yesterday in our course member livestream and we were looking at the credit default swaps.

Uh, the pricing for them for Deutsche Bank Uh, you know, Deutsche Bank has been struggling for this last decade through scandals and Credit Suisse isn't an angel either. Okay, Credit Suisse lend money to businesses that failed like Arcados Capital Management They're also, by the way, being sued for claims of fraud in 2018 about purposely trying to basically destroy an investment vehicle so that the bank could profit. Uh, this all had to do with Uh, claims of losses of around 1.8 billion dollars around February of 2018. through these notes called XIV notes.

Those were notes that basically, uh, went up when stocks were calm and went down when stocks were volatile. So it was sort of like an inverse volatility play. Uh, and Credit Suisse is being sued over potentially rigging that investing instrument. So Credit Suisse is by no means an angel, but neither is uh Deutsche Bank and their credit default swaps are flying to the Moon as well.

They are priced just about as high as they were priced back in October, so it's not as ridiculously Extreme as Credit Suisse. But in October, people were fearful that Deutsche Bank was going to be one of the first legs to fall. Now they didn't end up being one of the first likes to follow. Instead, we got Silver Day Signature Silicon Valley Bank Now fear over Credit Suisse But this contagion could really keep going.

This is leading Biden to demand more punishment for these sorts of. Executives Uh in Congress I Doubt he's going to get anything done though. Listen to Fox they're even talking about it. Plummeted yesterday with First Republic Closing 33 percent down.

You can see there it dragged the other regionals with it. Now for some context: The Regionals are under pressure as they have similar risk profiles to Svb. That's problematic as small businesses and communities across the country depend on them. With comparisons to 2008 looming, we asked Americans how they're feeling.

It is a little scary to know that these smaller banks that aren't all that small could have a trickle effect and affect the entire economy. If banks feel like they have an insurance policy, then there's really no incentive for them to clean up their practices. We got to pay the taxes the prop to prop up these companies together and we saw it's going to fill. Let it fill.

So you're really hearing that fear of contagion and kneeling practice? That fear could end up being just as dangerous as an actual liquidity problem. Back to you, thank you Kelly Yeah, you know what the one individual said about you know, let the banks fail is actually a very capitalistic point of view. It's like, why, why should ordinary Americans have to bail out? Uh, these these uh, you know, a bank like Silicon Valley bank Now of course you get all of the stories about like oh, you know I'm a small business owner or whatever I got my money at Silicon Valley Bank I've got 12 employees I'm gonna have to lay them off or whatever these are the stories you hear right? Uh, if I can't get my money out of Silicon Valley Bank people wouldn't have lost 100 of their deposits at Silicon Valley Bank their assets would have been liquidated and what? Maybe it would have been a 20 to 30 haircut. Some say maybe even as little as 10.

Although I doubt that because there would have been a fire sale in the bond market which would allowed yields to rise. then Financial conditions would have tightened, which is exactly what the uh Federal Reserve wants. Uh, to limit inflation? But no. instead we've basically de facto guaranteed, uh, nearly all deposits at relatively larger Banks So there's no such thing as FDIC insurance anymore.

It's just you're fully insured if you're at one of the big crony Banks which look I mean you can't blame anybody for going to a big bank right now because that's basically what America is telling you. you're safe with the big boys, not with the little guys. But anyway, yeah, Biden is uh, Biden had a few quotes suggesting I'm firmly committed to accountability for those responsible for this mess and no one is above the law and strengthening accountability is an important deterrent to prevent mismanagement in the future. Congress Must act to impose tougher penalties for senior Bank Executives whose mismanagement contributed to these institutions failing.

Well, what he's basically talking about is: why could somebody who helped lead to the bankruptcy of Lehman Brothers end up working at Silicon Valley Bank and basically needing a bailout after having failed 15 years ago. Why are they still in this industry? He's not wrong. Nothing's going to change though. It's just the way the game is played.

It's it's ridiculous. It's kind of like you see startup Founders fail and then they still raise hundreds of millions of dollars for random startups that are terrible ideas not to mention any names we work in. Florida. But anyway, when Banks fail, do the mismanagement and excessive risk-taking It should be easier for Regulators to claw back compensation from Executives impose civil penalties and ban Executives from working in the banking industry again.

so says Biden. That's fantastic, but it's going to take uh, it's going to take some work from Congress to actually do something like that anyway. Uh, of the over 300 billion dollars of emergency funding that has now flown from the Federal Reserve to Banks, it looks like about 240 billion dollars of that ended up flowing through. Uh, the San Francisco division of the Federal Reserve 55 billion going through New York That 55 billion is probably all a signature bank.

the 240s probably First Republic We're thinking First Republic at about 109 billion and then the rest Silicon Valley Bank So somewhere around, uh, 88 billion likely to Silicon Valley bank. So that gives you a little bit of insight into what's going on with Credit Suisse Bail-ins Remember folks, the coupon link down below for the amazing programs I'm building around the perspective that you get from me. You get it basically my brain on a platter on real estate stocks, entrepreneurship, hustling whatever link down below. I Think all of them are individually fantastic courses, so see what works for you.