the fed pushes things til they break, again

[moonshinegnomie]

some people were warning that the fed rates hikes were to much and the fed wa risking something breaking.

well they broke the regional banks.
If you look at teh fed predictions to reality you can see just how bad they were. they waitied to long to start hiking. then they predicted inflation would disappear quickly. then the panicked and went crazy with hike rather than seeking the effect the past hikes would have.


Once again the fed screwed up.

[roamer65]

1. I definitely wanted caution.

Now I want Powell’s head on a platter for gross incompetence.

Fucking Dump appointee.

[Casady1]

2. I'm in high tech

and one of my former company's was a SVB customer. I don't think my current startup is.
Powell is beyond incompetent. Startups are the key to our IP dominance and this yo-yo had no patience. First he destroyed the housing market. Every person who bid on houses when rates were 2.5% are now underwater.

[Fiendish Thingy]

7. Homeowners who are underwater have themselves partially to blame

If you buy a home at peak market value with mortgage rates at historic lows, especially with a variable rate mortgage, you have to expect that rates will rise during the 30 year term of your mortgage, and values could certainly drop because of it, at least in the short term.

It’s called due diligence.

Buying a home during the economic downturn caused by a pandemic should have raised some red flags. Listings down, demand/competition for those few listings was high; low mortgage rates meant buyers could qualify to overpay for a home that may have been 20-30% cheaper just a year before the pandemic.

If a home buyer’s due diligence is clouded by FOMO, they only have themselves to blame.

[Casady1]

15. yes they did bid them up

but that is because the rates got too low and everyone who refinanced meant that they were on the sidelines for the foreseeable future and inventory declined. He adversely affected a traditionally strong market.

[Fiendish Thingy]

17. Powell did the right thing

If the housing market hadn’t cooled (since the rest of the economy is going full steam ahead), we’d have double digit inflation by now.

[Casady1]

19. He was late to react

in the first place.

[Fiendish Thingy]

24. Yes, his delay was his primary error

Not the decision to hike until reaching the typical range of 5-7%.

[dsc]

9. I closed on 27 June last year

but my house is actually worth a bit more than when I closed. I paid 192,000 and it is now worth a bit over 200,000. My rate is 5.5% which, while not 2.5% is not that bad. (I would have had a 3.5% rate had I been able to lock it in, in Jan).

[Fiendish Thingy]

18. My first mortgage, in 1985, was 9%

I remember how excited we were in the early 90’s when we refinanced the mortgage on our second home at 6%.

Unusually low rates spike housing prices.

For my kid’s sake, I’m glad Powell is boosting rates. It will eventually bring housing prices down into a range they can afford.

[Igel]

21. Okay, start-ups.

Let's say I have $20 million. (I don't.)

Let's say inflation's 9%.

You need to have 9% rate of return to me per year for my ROI to be 0%.

Businesses raise prices to cover inflation until the market resists. Then either sales drop off (and they're in the red) or they eat the increase in costs (and are in the red).

The "malaise" from the late '70s, the economic turmoil that helped Hitler, the destruction of much of the Venezuelan economy--inflation.

Notice that the current administration's non-bailout of the banking market (they focus entirely on a couple of banks but this is everybody *but* those couple of banks) consists of loaning federal assets to banks & S&Ls for up to one year to cover shortfalls. (And do we think that if this continues for 366 days it won't be extended?)

Note that this is entirely unlike the last bail out, which consisted of loaning federal assets to banks & S&Ls to cover shortfalls. (Yes, they're the same words in the same order with the same meaning. The "bail out" consisted of loans and, in the end, turned a small profit, with both the repayment of the loans counted as revenue and the interest counted as revenues, which seriously helped reduce the reported annual deficit for a few years--the loans were counted as expenses and so repayment was new revenue ... hardly GAAP.)

[dutch777]

3. A lot of blame to go around. The Fed was late and underestimated inflation and results of its...

...own actions. But any bank that breaks when the Fed rate goes up a couple of points (when that was long overdue and hardly a surprise) had made its own bad bets. The economy and businesses are not steady state affairs and shouldn't be. Unless you want zombie companies that simply live on low interest rates and little cash flow and neither innovate nor modernize, the "natural selection" process in business should weed out the weak, stupid and lazy and provide opportunity for the next new idea. If we don't, the Chinese and others that support innovation and have no problem eating our lunch will continue to get stronger and we'll fall further behind. Do folks get hurt in the process of capitalism? Yes they do and yet we will continue to prosper if we don't try and buffer market forces that in fact strengthen the system overall.

[moonshinegnomie]

4. its for than a couple of points

its almost 5 points. from zero to 4.75 in just about a year. plus a massively inverted yield curve (short term rates much higher than long term rates) can really kill a bank especially when thre is a lot of uncertainty about future rates

[Fiendish Thingy]

6. There isn't uncertainty about future rates

Powell announced his target rate of 5.1% (at the bottom of the Fed’s historical average of 5-7%) over a year ago.

He waited too long to start hiking, so his hikes had to be larger and more frequent.

Now that the economy is still running hot, adding hundreds of thousands of jobs per month, and with inflation ticking up again after months of decline, Powell has said he may have to go above 5.1%- that’s the only uncertainty. The rapid run up in rates over the past year was telegraphed way in advance, and although it pissed off some powerful folks in the market, it should have surprised no one after the first couple of hikes affirmed the Fed’s intentions.

[moonshinegnomie]

10. originally (back in jan 2002) the terminal rate was forecast at 4.4%

https://fred.stlouisfed.org/series/FEDTARMD

in september it was 4.6%

[Fiendish Thingy]

12. The average has been 5-7%

You’ve got to go back more than just 20 years, especially with over a decade of historically low rates after the 2008 GFC.

[Fiendish Thingy]

5. The Fed did not screw up

It was the weakening of Dodd-Frank in 2018, by a bipartisan group of reps and senators who overcame the filibuster to pass the bill and send it to Trump. Regulators were breathing down SVB’s neck re: capital liquidity until the bill weakening Dodd-Frank passed.

SVB was not a “regional bank” (although focused on Silicon Valley, they had operations elsewhere, including in Canada); SVB specialized in quickly raising and disbursing large amounts of venture capital for tech start up companies.

SVB was not like George Bailey’s savings & loan.

Powell has telegraphed the Fed’s intentions for aggressive rate hikes for over a year- SVB just made really bad choices with that information, considering their business model.

The other bank to fail, Signature, was focused on the crypto market- ‘nuff said.

Peter Thiel and other libertarian tech billionaires are trying to break things to show just how bad government is- don’t fall for their high stakes gaslighting.

[mathematic]

8. Wrong. SVB was not an investment bank. They took savings and made loans.

Their assets were weighted towards safe, liquid, government bonds. Their assets perform well during a financial crisis (like friday & today). It's not clear at all that the highest regulatory scrutiny would have caught SVB's problems.

[Fiendish Thingy]

11. They had approximately $164 billion in assets

Yet failed because they could not raise $1.6 billion.

They were a high risk, high stakes bank that aggressively lobbied congress to reduce government oversight on them specifically.

[mathematic]

13. Nice goalpost move. Still wrong.

You're going to keep reframing this until it fits inside a political narrative you like. Ok. Whatever. Some people are actually interested in what happened.

[Fiendish Thingy]

14. The decision to go all in on bonds led to SVB's downfall

When Thiel sparked a run on the bank, they had to sell $billions of bonds at a loss, and still couldn’t raise the $1.6 billion.

Poor management enabled by reduced government oversight was a major factor in the failure.

My statement still stands- SVB was in no way like George Bailey’s savings & loan. They were a high risk, high stakes business.

[Igel]

22. Thiel read the 4th quarter reports.

Public information, unless the scant reports are 180 degrees out of phase.

Yes, it was reduced government oversight.

From what I see--perhaps not complete info, perhaps misinfo--somebody yelled fire in a theater. That was, actually, on fire. The bank was $19 billion or more underwater. Somebody spotted the asteroid first and said, "Look up!". And I read a lot saying that the proper response was not "Don't look up" but "Say, isn't the ground *fascinating*". He protected himself and those he had an obligation to. (And where were the others? Like maybe those who knew the FDIC insurance limits? Or perhaps, regulators? Let's evaluate the latter group's performance, shall we, if only because the first Gang of Fool's number is legion?)

Gold medal winner: California's bank regulators. SVB was a state bank and state regulators had primary jurisdiction.

Silver medal winner: Federal Reserve regulators. At $220 billion in assets, it fell in the revised law from 2018 that said a bank with assets =< $50 billion needed no capital liquidity/stress test, but one from $50 billion to $250 billion was subject to a stress test if the Fed required it.

Both groups of regulators are pleased that people only notice the bronze medal winner.

Bronze medal winner: The bipartisan law passed by the 2018 Congress. (And while it irks me to call that law "bipartisan", by 2022 standards it's not just bipartisan but *very* bipartisan. Sic semper polarizatio semper crescens. Yeah, not a Latin word, that "polarizatio". But hey, "Malus" *must* be a Latin name, ends in -us ... )

[Shanti Shanti Shanti]

16. Uh TWENTY banks are being hit by this crisis, do depositors now make a run to get their money out?

Fed just announced another rate increase in next meeting in March

[brooklynite]

23. Perhaps take it up with the guy who nominated the Fed Chair?

President Biden Nominates Jerome Powell to Serve as Chair of the Federal Reserve, Dr. Lael Brainard to Serve as Vice Chair

Today, President Biden announced his intent to nominate Jerome Powell for a second term as Chair of the Board of Governors of the Federal Reserve System and to nominate Dr. Lael Brainard to serve as Vice Chair of the Board of Governors of the Federal Reserve System.

While our country still faces challenges as we emerge from the pandemic, we have made enormous progress in bringing our economy back to life and getting Americans back to work. Since the President took office, the economy has created over 5.6 million jobs, unemployment has fallen to 4.6% – two years faster than projected – and the pace of our economy’s growth outstrips the rest of the developed world.

That outcome is a testament to the success of the President’s economic agenda, and it is a testament to decisive action by Chair Powell and the Federal Reserve to cushion the impact of the pandemic and get America’s economy back on track. Chair Powell has provided steady leadership during an unprecedently challenging period, including the biggest economic downturn in modern history and attacks on the independence of the Federal Reserve.

During that time, Lael Brainard – one of our country’s leading macroeconomists – has played a key leadership role at the Federal Reserve, working with Powell to help power our country’s robust economic recovery.

Powell and Brainard share the Administration’s focus on ensuring that economic growth broadly benefits all workers. That’s why they oversaw a landmark re-evaluation of the Federal Reserve’s objectives to refocus its mission on the needs of workers of all backgrounds. And they’ve advanced key priorities that the President shares, like addressing the financial risks posed by climate change, and staying ahead of emerging risks to our financial system.

America needs steady, independent, and effective leadership at the Federal Reserve so it can advance its dual goals of keeping inflation low and prices stable, as well as creating a strong labor market that broadly benefits workers with better jobs and higher wages. President Biden has full confidence in Powell and Brainard’s experience, judgment, and integrity to continue delivering on those mandates and to help build our economy back better for working families.

President Biden still has three vacant seats on the Federal Reserve Board of Governors to fill, including the important position of Vice Chair for Supervision. The President intends to make those appointments beginning in early December, and is committed to improving the diversity in the Board’s composition.

Statement from President Biden

“While there’s still more to be done, we’ve made remarkable progress over the last 10 months in getting Americans back to work and getting our economy moving again. That success is a testament to the economic agenda I’ve pursued and to the decisive action that the Federal Reserve has taken under Chair Powell and Dr. Brainard to help steer us through the worst downturn in modern American history and put us on the path to recovery. As I’ve said before, we can’t just return to where we were before the pandemic, we need to build our economy back better, and I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before. Together, they also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system. Fundamentally, if we want to continue to build on the economic success of this year we need stability and independence at the Federal Reserve – and I have full confidence after their trial by fire over the last 20 months that Chair Powell and Dr. Brainard will provide the strong leadership our country needs.”