Hey guys, it's Sasha This morning Joe Biden came out and said that your money is safe. Everyone's money sitting in deposit in the U.S Bank is safe. So please don't worry because the money is safe Safe According to Joe Biden your deposits will be there when you need them. Americans can have confidence that the banking system is safe.

All customers who are deposits in Silicon Valley Bank that was taken over on Friday and in Signature Bank that was taken over yesterday will have full access to their deposits from today. Apparently, so was this a bailout? Did the U.S Taxpayer just put up a giant boatload of money to proper banks that don't seem to know what risk management is, banks that don't seem to know what security ladder structures are, and banks that don't understand the reason that hedging exists well. according to Joe Biden the answer is no, there was no bailout at all. No losses will win.

This is an important point. No losses will be borne by the taxpayers. Let me repeat that: no losses will be borne by the taxpayers. Instead, the money will come from from the fees that Banks pay into the deposit.

Insurance Fund So apparently FDIC is going to make every customer whole immediately irrespective of the 250 000 FDIC Insurance limit. And the reason they can do that is because all the banks that didn't take degenerate risks and did not have hugely imbalanced portfolios or incompetent management. Those banks will happily go and hand over all of their money that is required to pay for the banks that screwed up. Now there is a small problem with the statement because remember yesterday Janet Yellen said that there would be no bailout.

She said. Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out and the reforms that have been put in place means that we're not going to do that again before adding, but we are concerned about depositors and focused on trying to meet their needs. And then a few hours later, this statement appeared on the Department of Treasury's website. This is a join statement from the Department, the Federal Reserve and the F DIC And yes, one of the people who is listed here is Janet Yellen And this statement says today we are taking decisive actions to protect the US economy by strengthening public confidence in a banking system, blah blah blah.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve and Consulting with the President Secretary, Yellen approved actions enabling the FDIC to complete this resolution of Silicon Valley Bank Santa Clara California. In a manner that fully protects all depositors, deposits will have access to all of their money starting Monday March 13th. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. We are also announcing a similar systemic risk exemption for Signature Bank New York New York which was closed today by state chartering Authority All the positives of this institution will be made whole.

As with the resolution of Silicon Valley Bank no losses will be borne by the taxpayer. So this statement seems abundantly clear. right? this is not a bailout because no losses will be borne by the taxpayer 100 guaranteed. They repeated the sentence twice, which of course makes it true Shareholders and certain unsecured debt holders will not be protected.

Senior Management has also been removed. So before we get into the Crux of the real issue, if you own shares and Bank stocks this statement and the statement by President Biden this morning confirms that you are officially because the FED has raised interest rates. Every single Bank in the United States carries accrued paper losses on their balance sheet from holding mortgage-backed Securities treasuries another paper that was bought when the rates were at zero. it is pretty much impossible to not have those on your balance sheet.

and now that rates are not at zero, the value of all that stuff has dropped. and with cash equivalents and with available for sale assets, that value gets marked down consistently in the balance sheet even though it usually doesn't flow into the profit and loss statement anyway. Most of these Banks also carry a giant pile of hold to maturity assets, which is where the real problem potentially sits and where the value is not written down in the same same way. Pick any Bank you want.

Let's say Bank of America You know the big one. They have 1.93 trillion dollars of customer deposits as of the end of Q4 and only 230 billion dollars in cash and cash equivalent. You can see that out of the three billion dollars in assets, one billion is out on loan, so that can't just be recalled at will. another 863 billion is in debt.

Securities And if you scroll down, you can see what the breakdown of those Securities is Here is the 867 billion in total in the breakdown: 633 billion now that sits inhaled to maturity debt. So almost all of this stuff is not readily available to sell and there's 235 billion in stuff that you can sell. The good news for Bank of America is that the stuff that they cancel has a fair value that is very close to the amortized cost. Remember Silicon Valley Bank was selling their assets at a huge discount when the bank run started.

The bad news is that no Bank including Bank of America could feasibly survive if over 40 percent of their depositors turned up and wanted to be paid in one day. which is apparently what happened with Silicon Valley Bank. The banks have to keep more cash and be have more liquid assets than they used to before the financial crash. But if 40 percent of Bank of America's customers turned up tomorrow to withdraw all of their cash, Bank of America would also be in deep doo-doo because they also don't have enough cash to go and give it out.

But it is also massively unlikely that 40 of Bank of America's depositors would be withdrawing money in one day because Bank of America has a much broader pool of customers, a whole load of retail customers, big stable businesses, etc, etc whereas Silicon Valley Bank had a bunch of venture capital sharks and the businesses that those sharks invested in. The issue really is that if you are an investor in a bank stock today, The Government Can at any point, Go and show up and tell you that your bank's balance sheet sucks because every bank's balance sheet sucks and this morning President Biden said that if that happens, the shareholders of the bank will get and lose all their money. So yeah, I Personally would not want to be holding stocks of a bank right now where the government can cause your stock to go to zero whenever they feel like it. But I'd address.

Let's go back to that statement from last night because remember how they said that this is not a bailout and then I Read one paragraph and I went completely off tangent, right? Well, that wasn't a coincidence because that paragraph is exactly there to do exactly that. because immediately underneath that paragraph it says finally, the Federal Reserve board on Sunday announced it will make available a dish national funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. And it kind of sounds somewhat innocuous and like General Finance mumbo jumbo talk Until you actually think about what it says because two paragraphs under the bed where they say that no losses will be born by the taxpayer, they go and say that the FED is literally handing out free cash in the form of loans directly to Banks to prop them up. I'm paraphrasing that paragraph.

and yes, the Fed's money is taxpayers money, but you see loans from the FED is not the same thing. not at all in any way whatsoever. Is what happened in 2008 because in 2008, money was pumped into the banks in the form of equity not the same thing and the government went and literally bought toxic assets from those banks that nobody else would touch with the barge pool. Although it has to be said, over time, they managed to actually not lose money on those assets net making a small profit.

Now the idea here is that the public will be reassured assured by these statements coming out over the weekend from the Fed. and this will stop the bank runs because if there is a bank run, the Fed will literally have to hand over cash for all the banks to fund it. It says so in the release last night in that paragraph. so I Guess this approach should work in theory because who wants to go and queue outside the bank to take out the cash? And what the do you even do with all that cash after you pull it out, Especially if you're a business.

What are you gonna do? And if no bank is safe, what are you gonna? Are you gonna keep it under your mattress? specifically? What is the advice here from the fear: Monger crowd on Twitter that say that you should head on to your bank and take it all out and then what When this all blows over? Are you going to have to make 200 daily trips to the bank to put it all back into the account without triggering those daily deposit limits? Anyway, the main problem really is that this whole strategy is based on three things working. One, the bank run that all the dimwits were actively promoting over the weekend needs to Not happen. Two, the FDIC will have to make up the difference between the value of sold assets and the deposit funds for any money that does flow out of the banks. and three, interest rates can't keep climbing because that just exacerbates the problem.

The second point is somewhat dangerous because if a person goes to a bank bank a withdraws their money, that bank will then be busy selling assets at a loss and the FDIC will then have to plug the Gap. That's kind of what they're saying when the person goes and takes some money, deposits it into a different bank, say Bank B That bank will then be busy buying high yield bonds and mortgage-backed securities to improve their balance sheet position. This will not net off as far as the FDIC concerned. the initial withdrawal, presumably at the moment everything is going to be in short term available for sale assets when those movements happen.

So it's not a zero-sum game, and the hysteria whipped up around Silicon Valley means that there will definitely be some migration from the small Banks to the big banks in terms of balances and the Nets Some of that migration will need FDIC to fund the gap between selling assets that have losses on them and the deposits that are being withdrawn. and if the ASE does not have have that much cash on hand according to Fdic's own Q4 report and realized losses and have the AC insured banks have ballooned in 2022 because of the interest rate hikes and they're sitting at somewhere around 700 billion dollar Mark And remember that a lot of the assets that these Banks hold a lot of the helter maturity assets, for example, do not have those unrealized losses reported in the same way as other asset classes. Now, the deposit Insurance Fund only had 125 billion dollars in it as of the end of the quarter, so the fact is, if did hit the fan, then the FDIC does not have anything close to the amount required to make up the Gap. By the way, do you want to see something funny? The FDIC has that 125 billion dollars which exists to proper Banks when they up because they have invested money in low-yield bonds that accrue and realized losses.

Here is the table of the FDIC Insurance Fund balance and right here you can see that for the last 10 quarters in a row, the FDIC have also had unrealized gains on their own available for sale Securities You couldn't make this up one billion in just the last quarter in this data. Pretty funny right now you can see at the top here the fund gets two billion dollars a quarter from all the participating Banks And then after they lose half of it because they invested in shared bonds themselves, the fund has been growing at one billion dollars a quarter and in that statement last night Janet Yella and Jordan Powell said any losses to the deposit Insurance Fund to support uninsured depositors will be recovered by special assessment on banks. So let me get this straight. then when the FDIC goes and takes over all these Banks they have two options they can sell the Securities they lost to immediately pay for any Gap and deposits where there is a bank run and if they do that then they need to use the fund to make up the difference.

But remember, any money that is being used from the fund will then have to be plugged back by the others. And if the banking sector does have a genuine problem here because Bank runs, continue, that difference is going to be a lot bigger than the 125 billion dollars they have saved up. The worst case is hundreds of billions of dollars worth. So are they saying that the banks that are currently paying in total 2 billion dollars per quarter will magic a few hundred billion, maybe a trillion or a few trillion dollars out of thin air? And all this while the banking sector is getting crushed.

Where are they going to get the money from that? I Somehow doubt it and I have a feeling that the big banks are going to be very busy suing the US government and I think that they will win because in common parlance, this approach is called theft. But in reality this of course is not going to happen because there is a money printer because the Gap will just be made up from the loans from the FED. But remember, loans are not a bailout. Do not make this mistake because they are loans even though they serve exactly the same point and exist for exactly the same reason.

I Guess calling it a bailout would maybe scare people, maybe cause Panic widespread contagion, which is precisely why that word is not used. But make no mistake about it, this is a complete banking bailout in all but name. The next question is what comes next, because as of right now, the 250 000 FDIC limit has become defunct. It is irrelevant because now the President, the Chairman of the Fed, and the Treasury Secretary have all said in the last few hours that that limit no longer applies.

basically. so I guess that might have to become actual law. Maybe for it to you know be the truth, but I can't see a lot of the big Banks getting very angry. If the FDIC levies increases on the back of this episode, which they will have to do because they're saying any drop in their balance will have to be funded by increased levies, then those banks will have to pay back the FED loans to restore the FDIC balanced.

We will effectively have a situation where the big banks that did not up that actually did do the right thing are essentially paying for the small banks that did. And while communism is all cool and fun and Theory maybe I am not sure this is the sort of thing that Americans really want because the consequences of going down that path will be somewhat severe for the banking industry. More interestingly though, it also means that the rate hike that everyone was certain 100 going to happen next week May now not happen at all and tomorrow we have inflation data coming in. Hopefully the data is good because if it isn't your Empower is going to be really stuck between a rock and a hard place.

But that's a whole other topic that I think I'll cover later. If you like this video, please don't forget to smash the like button for the YouTube algorithm. Thank you so much for watching and as always I'll see you guys later Foreign.