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A Vicious Cycle In Which Troubled Lenders Need To Fail

A weekend topic starting with the Globe and Mail in Canada. “Jamie Dimon said it was over, but it isn’t. The calm lasted two days. By Wednesday, contagion fear was prevalent again. PacWest Bancorp, a small regional lender based in Los Angeles, closed the week down 43 per cent, and Memphis-based First Horizon Corp. lost 38 per cent after mutually agreeing to scrap its takeover by Toronto-Dominion Bank, citing regulatory hurdles. Over all, the KBW Nasdaq Regional Banking Index lost 8 per cent of its value this week – and is down 30 per cent since Silicon Valley Bank started to wobble in early March. Save for the early days of the pandemic, the last time the index was this low was 2016.”

“Small-and-mid-sized lenders are struggling to adjust to rapid interest-rate hikes, and it’s a theme the U.S. has seen before. More than 1,000 lenders failed during the Savings & Loan crisis in the 1980s and early 90s. There are many parallels to that era, which means investors could use it for guidance. Just like S&Ls, the banks faring the worst today are those that either rely on traditional lending to drive profits or overextended themselves when deposits were cheap. Sometimes both.”

“The expensive rate is problematic for banks because the U.S. yield curve is currently inverted – which means longer-term interest rates are actually lower than short-term rates, which is commonly seen before a recession. Banks usually make money by borrowing at low short-term rates, and then lending that money out for longer periods through products such as mortgages. In late March, Chris McGratty, head of U.S. bank research at Keefe, Bruyette & Woods, summarized the problem in a note to clients: ‘An upside-down funding base is unsustainable.'”

“In normal times, an upside-down funding model wouldn’t be the end of the world. Even if banks report some quarterly losses, they all have much more capital – effectively excess cash – to absorb them than they did during 2008. But in this market, fear outweighs calm and short-sellers that bet against bank stocks are out for blood.”

From Reuters. “The government-brokered purchases of First Republic, Signature and Silicon Valley banks have created a vicious cycle in which troubled lenders need to fail — and get government assistance — before buyers will step up, industry sources say. ‘After what happened with First Republic, banks don’t want to buy any other bank before the FDIC takes over,’ said Mayra Rodríguez Valladares, a financial risk consultant at MRV Associates who trains bankers and regulators. ‘It’s cheaper, the stock price goes down and you don’t have the natural problems in M&A (mergers and acquisitions) negotiations that may not end in a deal.'”

“The phenomenon is stoking fears the current turmoil will accelerate the concentration of the banking sector in the United States around a handful of institutions, reducing competition for consumers and deepening the risk if a giant bank fails. Market participants are watching to see if regulators become more open to consolidation or accelerate takeover approvals, said Jan Bellens, who heads the global banking and capital markets practice at EY, an accounting firm.”

“‘I don’t think we’re at the end of the turmoil yet’ for regional banks, Bellens said. ‘Investors need to be confident that there’s not going to be further accidents or challenges.'”

The Spokesman Review in Washington. “Greg Deckard, CEO of State Bank Northwest said he’s fielded non-stop calls from customers who want to make sure that their deposits are safe. And each time, he tries to assure them to keep their funds local. SVB, which he considered a national bank, catered to venture capitalists by providing loans to start-up companies, including some in Spokane. However, the bank relied almost exclusively on backing those loans by investing in 10-year treasury bonds. ‘Regulators were asleep at the switch,’ Deckard said. ‘As soon as the venture capitalists heard about it, they started calling everybody to get their cash out of there.'”

“First Republic built its business model on catering to affluent customers with low-interest loans and mortgages. ‘There are some commonalities with all three,’ Deckard said. ‘They all had rapid growth in the last three years using exotic business models with a high reliance on uninsured deposits.’ All three banks ‘mismanaged in a rising-interest rate environment and suffered the results,’ he said.”

“‘Generally speaking, when (interest) rates rise, values of investment portfolios go down,’ Deckard said. ‘If you bought it at a low price and rates rise, you are underwater if you had to sell that bond today. That’s exactly what happened with the savings-and-loan crisis,’ he continued. ‘A mismatch between liabilities and assets. It’s banking 101.'”

“Banks don’t need more rules, Deckard said. He just wants the current rules to be evenly applied. Just this past week, Deckard said he received the post-mortem report on the failure of Silicon Valley Bank. Federal Reserve regulators sent notices 31 times to SVB’s board warning them that their assets and liabilities were out of balance. ‘But it never escalated above board attention. No punitive actions were ever taken,’ Deckard said. ‘That infuriates me and everyone else in the industry.'”

425 Business in Washington. “April housing data showed year-over-year drops in new listings, pending sales, and closed sales, more active listings, and lower prices overall for the 26-county region NWMLS covers. These results also played out in King and Snohomish counties. On the Eastside of King County, the median price of single-family homes, excluding condos, was almost $1.5 million, down 15.8% from a year ago. The steepest year-over-year drop on the Eastside occurred in the Redmond/Carnation area, down 32.4% to $1.2 million. In Snohomish County, the largest drop in median sales price of single-family homes occurred in the southeast county, down 20.3% to $1 million.”

The Colorado Sun. “When Ashley Knight put in an offer to buy her very first house in March, it was one of four bids. And hers wasn’t the highest.But she got it! Perhaps it was the cooling Denver-area housing market. Or that it has just one bathroom. Most likely, it was her team of real-estate pros who know the Aurora housing market. She became a homeowner last Friday. ‘I didn’t expect to get my first offer to get accepted,” said Knight, who’d been sitting on the sidelines since she began window shopping for houses in 2018. ‘I was very shocked,’ when Realtor Kathy Casey gave her the good news.”

“After a couple years of frenetic home sales in Denver and Colorado, the real estate industry is seeing, well, a little less frenzy. Median sale prices in Denver are still quite high, especially for prospective first-time buyers. But instead of rising in March, median sale prices fell 2.6% in a year to $415,000 for a condo and 5.5% to $599,900 for a house.”

“The half-million-dollar universe, however, isn’t really the price range for first-time buyers who may have jobs with promising salaries but are saddled with student loan debt, rising rent payments and higher interest rates. Renters who jump into home ownership have already made the first step: They’ve decided they’re ready. ‘I was like, ‘All right, I just need to do this by myself.’ I hunkered down. I dedicated myself to my career, got a really good job, a stable job,’ said Knight, who’s 34, and qualified for a federal housing loan with a 3.5% down payment.”

“Arthur Brown, branch manager with Fairway Independent Mortgage Corp. in Greenwood Village, guided Knight through the process of applying for a Federal Housing Administration loan, in which eligible applicants who still have debt and mediocre credit can borrow up to $1.1 million. Knight qualified for a larger home loan but didn’t want to overextend herself since she has a 6.75% interest rate. She’s paying a little more than renting a downtown Denver loft with one bathroom. Her new place has two bedrooms and a garage. She plans to refinance when rates drop. This isn’t her forever home anyway. As her income grows, she plans to move up and rent the townhouse to build her own generational wealth.”

“‘I like to look forward,’ she said. ‘I can refinance next year. That’s where my mind has been like, ‘All right, I’ll pay this now but as soon as I get the moment to refinance, I will.'”

From Forbes. “As of May 8, homeowners who are straining to pay their Federal Housing Administration (FHA) mortgages have another lifeline: the 40-year mortgage modification. The FHA has instituted a new policy allowing financially strapped borrowers to have the term of their mortgage lengthened to 40 years, thereby reducing the monthly payments. The previous term limit for a loan modification was 30 years (360 months).”

“The U.S. Department of Housing and Urban Development (HUD), which oversees the FHA, said it was making this move to give lenders the additional flexibility they need to help borrowers stay in their homes. Ideally the program would reduce a homeowner’s mortgage payments by at least 25%. But HUD acknowledges the effect is blunted as interest rates remain high.”

“‘While rising interest rates may keep the 40-year loan modification from providing significant payment reduction, HUD believes that rising interest rates make the 40-year loan modification more critical in circumstances where the 30-year loan modification does not sufficiently decrease the monthly payment to an amount that the borrower could afford to retain their home,’ HUD’s final ruling reads.”

“‘A 40-year mortgage modification is not a program for which a borrower applies,’ a HUD spokesperson said in an email. She explained that after the servicer evaluates the homeowner’s situation, they might conclude that ‘all other home retention options are insufficient to help the borrower obtain a sustainable monthly mortgage payment.'”

“This type of loan do-over isn’t new. FHA used 40-year loan modifications during Covid to help borrowers affected by the pandemic stay in their homes. And the program was successful. Now policymakers want to make the government’s other efficient home-retention programs permanent too, says Brendan Kelleher, associate director of loan administration at the Mortgage Bankers Association. ‘Many lessons were learned from the Covid-era [measures], which allowed more borrowers to stay in their homes,’ he says. ‘With the high-interest rate environment and a potential rise in unemployment, I think the FHA wants to get ahead of defaults and have more foreclosure prevention programs in its toolkit.'”

“Included in those lessons, Kelleher says, is the importance of keeping the application for assistance as simple as possible. He says that by streamlining the applications and limiting the amount of paperwork and proof of hardship that borrowers must provide, these programs have been more successful in preventing foreclosure. It’s a big improvement on the ‘document-intensive’ Home Affordable Modification Program (HAMP) that emerged after the 2008 housing crisis, he says.”

“His colleague Justin Wiseman, vice president and managing regulatory counsel at the Mortgage Bankers Association, elaborates, noting that with HAMP, ‘homeowners had to jump through many hoops to get approved. If we remove some of the restrictions, including requiring people to prove a reason for financial hardship, we’ll see these loss mitigation programs work much better.'”

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This Post Has 107 Comments

  1. ‘The steepest year-over-year drop on the Eastside occurred in the Redmond/Carnation area, down 32.4% to $1.2 million’

    Good thing everybody put 40% down. Except Ashley:

    ‘The half-million-dollar universe, however, isn’t really the price range for first-time buyers who may have jobs with promising salaries but are saddled with student loan debt, rising rent payments and higher interest rates. Renters who jump into home ownership have already made the first step: They’ve decided they’re ready. ‘I was like, ‘All right, I just need to do this by myself.’ I hunkered down. I dedicated myself to my career, got a really good job, a stable job,’ said Knight, who’s 34, and qualified for a federal housing loan with a 3.5% down payment’

          1. Especially if you from time to time utter the words: “No, we’re not going to do that.”

    2. “The half-million-dollar universe, however, isn’t really the price range for first-time buyers”

      I will never buy a house in the metro Denver Front Range, I’ll continue renting, until it’s time to leave.

      I own my land in Southern Colorado outright, and I’ll never be more than 12 months away from the end date of a financial contract.

      Have fun with that $5,000 a month mortgage payment for the next 360 months of your life.

      1. “Most likely, it was her team of real-estate pros who know the Aurora housing market.”

        Haha, Aurora is where the tallest cotton grows!

        1. Serious question for the blog, because new construction seems like junk — is there a time range where houses were built with respectable materials by actual craftsmen?

        2. You could say that of many ranch homes built in the 50s, 60s and 70s. Alas, people pay so much for the property that lipstick on pig is all they can afford to do to the house.

  2. ‘Included in those lessons, Kelleher says, is the importance of keeping the application for assistance as simple as possible. He says that by streamlining the applications and limiting the amount of paperwork and proof of hardship that borrowers must provide, these programs have been more successful in preventing foreclosure. It’s a big improvement on the ‘document-intensive’ Home Affordable Modification Program (HAMP) that emerged after the 2008 housing crisis’

    We’ve just jumped straight to the HAMP situation. Recall the majority of these FBs failed again, more than once.

    Sound lending!

    1. ‘A 40-year mortgage modification is not a program for which a borrower applies,’ a HUD spokesperson said in an email. She explained that after the servicer evaluates the homeowner’s situation, they might conclude that ‘all other home retention options are insufficient to help the borrower obtain a sustainable monthly mortgage payment’

      Wa happened to my sound lending?

  3. ‘Federal Reserve regulators sent notices 31 times to SVB’s board warning them that their assets and liabilities were out of balance. ‘But it never escalated above board attention. No punitive actions were ever taken’

    Central bankers don’t use the words ‘moral hazard’ Greg. Haven’t for well over a decade. Maybe it doesn’t exist?

  4. ‘I like to look forward,’ she said. ‘I can refinance next year. That’s where my mind has been like, ‘All right, I’ll pay this now but as soon as I get the moment to refinance, I will.’”

    You can’t refinance an upside loan. At 3.5% down, she needs to have at least have about 5% appreciation over the next year to get to 95% LTV when you include closing costs to be able to refi. And that’s assuming banks will be doing 95% LTV refis a year from now. We all know that condo she bought will be underwater by next month. And by next year at least 10%, more likely 20% underwater. So no refi for you. And the assumption that rates will somehow drop in the next year when you have a historically good rate. Idiotic. This isn’t investing. It’s mindless gambling.

    1. That’s what most of these people don’t understand. You need equity to refi. If you don’t have 20% equity, you’ll be paying PMI on top of your mortgage if you can refi at all.

  6. ‘Regulators were asleep at the switch,’ Deckard said. ‘

    As usual, zero consequences for criminal negligence.

    1. ‘As soon as the venture capitalists heard about it, they started calling everybody to get their cash out of there.’

      Odds are they got their own money out first then called their bros!

  7. On the Eastside of King County, the median price of single-family homes, excluding condos, was almost $1.5 million, down 15.8% from a year ago.

    Is that a lot?

  8. Most likely, it was her team of real-estate pros who know the Aurora housing market.

    Never buy into a bursting housing bubble, said no realtor ever.

  9. “Arthur Brown, branch manager with Fairway Independent Mortgage Corp. in Greenwood Village, guided Knight through the process of applying for a Federal Housing Administration loan, in which eligible applicants who still have debt and mediocre credit can borrow up to $1.1 million.

    WTF

    1. “…in which eligible applicants who still have debt and mediocre credit can borrow up to $1.1 million.“

      Sure, with Biden’s plan for good creditors to subsidize bad ones.

      1. “….good creditors to subsidize bad ones…”

        A chicken in every pot, and everyone a millionaire.

        Just don’t forget to vote for me.

    2. can borrow up to $1.1 million

      About $7000 a month, not including taxes, insurance, maintenance and FHA fees (mortgage insurance)

      1. I was at an open house last weekend and a realtor casually mentioned some people pay around $7,000 per month, depending on their down payment. That, I guess, assumes an income of approximately $20,000 per month.

        1. I make $20K/mo but a mortgage payment of $7K going into a recession would cause some sleepless nights.

        2. I grossed about $11k/month toward the end of my career, and I would never pay more than $80/sq-ft. There’s always a new environmentally friendly heat pump or 30-yr composite roof replacement that pops-up when you least expect it.

  10. She plans to refinance when rates drop. This isn’t her forever home anyway. As her income grows, she plans to move up and rent the townhouse to build her own generational wealth.”

    LMAO. The delusion is strong in this one. Good luck refinancing when your shack valuation is going to plummet while lending belatedly tightens up. If this ginch plans on selling “her” shack, she’ll need to bring tens of thousands of dollars to the table once Housing Bubble 2.0 implodes.

    “Now youse can’t leave.”

    3. “Good luck refinancing”

      At the large (500+ employees) contractor I worked for a few years ago, there is a common element of competitive consumption, most of which is financed by cash out refis.

      The big @ss truck, the RV, the boat, all on top of the house they overpaid for.

      I worked with one guy in his 50’s who told me that *after* he buys his “forever truck” he was going to start investing for retirement.

      Start. In his 50’s.

      1. “…most of which is financed by cash out refis.”

        That’s how the California economy functions.

      2. Lol. “forever truck.” Yes, your Brokeback Mountain trim Ram 3500 is going to definitely last *forever*

    1. that’s $50+k a year and the house will be paid off in 5-6 years, a doable proposition, for a young couple, but they will spend it on vacations. or Invested the surplus cash into two more properties which they rent on Airbnb.

  13. “I dedicated myself to my career, got a really good job, a stable job,’ said Knight, who’s 34, and qualified for a federal housing loan with a 3.5% down payment.”

    Methinks you are already underwater.

  14. Quick question for you california residents. A co-worker of mine is fleeing Illinois (which everyone eventually does, because IL is becoming a third-world sewer) but he is moving to, of all places, Temecula CA with his wife and two kids. He said the weather is great, the topography is better than flat Chicago (Chicago is easily as flat as Florida) the schools are good, the rents are no more expensive than Chicago, and it’s not Illinois. I looked on Google maps and yeah, the scenery is much nicer, but other than that, it’s virtually indistinguishable from any other post-2000 subdivision suburb. Are these people making a mistake moving there just to flee Illinois? Or is there really something desirable about Temecula (other than the weather) that makes it superior to living in a nice upper-middle class Chicago suburb? Thanks

    1. From a search on the terms State of Illinois debt rating (2/23/2023):

      “S&P Global Ratings announced Thursday that it had raised Illinois’ long-term credit rating to A-, up from BBB+, marking the seventh upgrade the state has received from a major rating agency in less than two years.

      Before the recent string of upgrades, all three major rating agencies – including Moody’s Investors Service and Fitch Ratings – had rated Illinois’ bonds at one notch above “junk” status, the point at which large institutional investors will no longer purchase them.”

      2. The bond rating fiasco was because a Democrat legislature got into a pissing match with a Republican governor and the Democrats decided it was better to burn the state down financially rather than accept even one iota of conservative budget requests. And burn it down they did.

      3. Temecula is cool. SoCal wine country. Lots of cool properties in the hills on large lots, easy to get acreage if you want it.

        Traffic on 15 is awful and gets hot, hot, HOT in the summer.

    2. “…Or is there really something desirable about Temecula…”

      Been there many times.

      1) You just gotta’ check out the balloon rides.. That’s a huge plus.

      2) Also, [to be fair] some good wineries.

      3) Still thinking about a 3rd….. I’ll have to get back to you.

    3. Decent wineries, but the traffic is awful, which one wouldn’t expect when you’re sort of in the middle of nowhere. And it’s far from the beach so the summer is very hot- which is why the grapes grow well there (like Napa).

      2. Traffic is awful in Chicago too. Our busiest expressway (I-90/94) just started a three year construction project. There’s only two lanes instead of five now. It takes 2 hours in the morning to travel 14 miles from the airport to downtown. The other two major highways are basically shooting galleries where certain demographics shoot at each other in moving vehicle. For real, look it up, it’s completely insane the number of expressway shootings we had in 2021 and 2022. It’s gotten a little better now. But the expressways murders/shootings aren’t included in Chicago’s murder/shooting totals because the express ways are Illinois state jurisdiction, not Chicago jurisdiction, so it kind of jukes the stats a little bit lower for how insane violent the south and west sides of Chicago are.

    4. that makes it superior

      Well, I guess Disneyland is a day trip from there, but otherwise, no, I can’t think of anything else other than it doesn’t snow. Good schools? I seriously doubt it.

      Commuting to a job from there is nightmarish unless you leave home before the sun rises. I knew people who commuted from Temecula to jobs in San Diego. The only way to avoid traffic on I-15 was to leave at 5AM.

      1. The guy told me San Diego at first and then I said, where? and he said Temecula. His position can be fully remote even though he chooses to come into the office on occasion here in the suburbs of Chicago.

        2. “…that makes it superior to living in a nice upper-middle class Chicago suburb?”

          I survived two winters in Chicago, and would take tract home living in Temecula the rest of my life over living in a large home in a nice upper-middle class Chicago suburb.

          1. Fair enough. The cold doesn’t bother me so much any more, even though I’ve lived here into middle age, because I’ve learned to embrace the cold and do winter activities. I just met a guy tonight who recently fled IL, his native state, for 80 acres of forested land outside of Wausau WI. Hunts deer, brought venison sausage to the party, he fishes year round, snow mobiles, watches a lot of Packers.

        3. ‘it’s hot and far from the beach’

          What percentage of California does that apply to?

          1. I live 5 minutes from the beach and only visit once a month. Doesn’t take long to take it for granted. If on a budget, you can do a lot worse than Temecula. 2 hours to LA 90 mins to San Diego, 45 mins to the beach, and an hour to the mountains. Not many places in the country give you that many options without getting on planes.

    6. Self-contained life in the Temecula community might not be bad. With a San Diego commute thrown in, fuggetaboutit.

    7. Fallbrook and Temecula are where people move when they can’t afford San Diego and commute in.

      1. Vaguely recall a Fallbrook and KKK association. Granted my time in San Diego goes back to 1989.

        1. I vividly remember the Hale-Bopp Heaven’s Gate mass suicide and had a college crew mate who lived not too far away.

      2. This co-worker is going to work remotely so no commuting. But I just don’t understand why they would move from a blue area in a terrible blue state to a red area in an even worse blue state. Especially some seemingly random area in CA. Maybe they don’t follow politics so they have no idea. Everyone I am friends with who leaves IL either goes to WI, IN, MO, TN, KY, TX, FL or AZ. The only other person I know who fled IL for CA moved to Los Angeles and got a job in the entertainment industry. So far this year I’ve had friends/co-workers leave for TX, AZ and FL, and some other co-workers/extended family left last year for KY and WI.

        1. Hey Debt Serf, I still live in SoCal, primarily because I’m a weather whore. So I can probably answer your questions better than anyone else here:

          “But I just don’t understand why they would move from a blue area in a terrible blue state to a red area in an even worse blue state.”

          I would argue that SoCal is “less worse” than Chicago, and Illinois. The counties here have a lot of power. Riverside is a mix of red and blue. Orange County (right next to Riverside) is mostly red. San Diego is also mixed. None of those 3 counties (temecula is in riverside, near all of them) are the Marxist shitholes that LA and SF/norcal are.

          “Especially some seemingly random area in CA.”

          Temecula and Lake Elsinore (a bit north of it) are places where LA/SD people who like Cali but are fed up with commie policies move to. Yes it is hot, but it’s way more affordable than Santa Monica, La Jolla, Beverly Hills, Manhattan Beach, etc. I can imagine that living in Temecula would be about as expensive with all costs considered as Illinois. And if that is the case, I think it’s a good move. Same price for better weather and “less bad/less marxist/less radical left winged psychopath” governance makes sense to me.

          Many from Illinois and Chicago emigrate to Arizona/Phoenix. Just think of Temecula as sort of like that but a bit more expensive and way closer to the ocean and fun coastal activities.

          “Maybe they don’t follow politics so they have no idea. Everyone I am friends with who leaves IL either goes to WI, IN, MO, TN, KY, TX, FL or AZ.”

          So again, let me try to address this. A lot of people who live in the places I mentioned above are not conservative/libertarian/maga/trump/anti-establishment. They are more akin to Clinton/JFK Democrats and don’t mind higher taxes and more government, but are not down with full on Maoism.

          Hope this comment helps. What I’ve said above applies to quite a few people I’ve known who have moved to Temecula and Lake Elsinore. Also those places I’m told are way better for raising kids versus the decay of the inner/commie cities.

          1. are the Marxist shitholes that LA and SF/norcal are

            Have you been to Riverside lately? I was there last month. Have you been to Downtown San Diego? Homeless everywhere.

          2. So I can probably answer your questions better than anyone else here

            I highly doubt that.

          3. Homeless everywhere.

            Pretty much the hallmark of most major American cities these days. I suspect the real number is much higher than the official number (~600,000). I wouldn’t be surprised if it’s well over a million. And you don’t need good weather to have homeless. Dumver is chock full of them.

          4. Thank you for the info. I personally want to move to southern Wisconsin, preferably to a house on a decent sized low traffic lake with good fishing. But every airb&B land baron and upper middle class milwaukee/madison/chicago household thought the same thing, and the lakehouse market here is out of control.

  15. THE EPOCH TIMES
    By Elizabeth Dowell

    Baio recently listed his southern California five-bedroom, 4.5-bath mansion in the Woodland Hills neighborhood for $3.85 million. The actor paid $1.85 million for the home in 2010, according to Realtor.com

    Actor Scott Baio Leaving California After 45 Years: ‘It’s Not a Safe Place Anymore’

    BREITBART
    SIMON KENT5
    May 2023

    Scott Baio has had enough of California. The actor is so sick of its left-wing politics, and the crime, the homelessness, the lawlessness, and the grim future it holds, after 45 years he is taking his family with him and leaving.

    “The most recent survey conducted by the Los Angeles Homeless Services Authority found approximately 69,000 people experiencing homelessness in L.A. County and 41,000 in the city in 2022.”

    https://www.breitbart.com/entertainment/2023/05/05/actor-scott-baio-leaving-california-after-45-years-its-not-a-safe-place-anymore/

    1. Escape from LA

      Last American out, leave the lights on for the third world migrants

      1. Lately there has been some yammering about Disney moving their Florida resort to another state, which is an absurd speculation as by some estimates it would cost $15-20 billion to replicate it from scratch.

        Disneyland, on the other hand, is much smaller and would cost much less to relocate. That of course, won’t be happening anytime soon, but if the level of Calianarchy continues to rise, and throw in regular, rolling blackouts, which would paralyze the Disneyland resort, then who knows? I’m sure the city of Anaheim will bend over backwards to keep Disneyland from shutting down, but if SoCal Edison can’t provide power …

    1. This story has been completely blacked out by the MSM, even though the implications are enormous if the Fed just threw a $32B lifeline (which won’t be nearly enough) to the floundering regional banks.

  20. “Jamie Dimon said it was over, but it isn’t. The calm lasted two days. By Wednesday, contagion fear was prevalent again.”

    Why would he say this?

    1. He truly believed it.

    2. He thought it might quell the panic, even though he knows better than to believe it.

    3. He was asked to make positive statements about the soundness of the banking system as part of his side of the First Republic bailout deal.

    4. Some other reason I can’t imagine.

    ‘Tis a puzzlement!

    1. So long as Uncle Sam keeps intervening to support housing prices on a permanently high plateau, they have no reason to worry.

  22. “The government-brokered purchases of First Republic, Signature and Silicon Valley banks have created a vicious cycle in which troubled lenders need to fail — and get government assistance — before buyers will step up, industry sources say. ‘After what happened with First Republic, banks don’t want to buy any other bank before the FDIC takes over,’…”

    Why buy now when you can nogotiate a bailout deal after it collapses to zero? No banker wants to catch a falling knife.

    1. Warren Buffett says letting Silicon Valley Bank customers go under would’ve been ‘catastrophic’
      Published Sat, May 6 2023 12:27 PM EDT
      Updated 5 Hours Ago
      Hugh Son

      – Berkshire Hathaway CEO Warren Buffett said Saturday that regulators avoided a financial disaster by making sure that Silicon Valley Bank customers didn’t lose money in the firm’s collapse.

      – The FDIC protected SVB customers in the process by invoking the systemic risk exception during the March tumult, which allowed the regulator to make all depositors whole.

      – “It would’ve been catastrophic” if regulators hadn’t done that, Buffet said during his annual shareholder meeting.
      …
      https://www.cnbc.com/2023/05/06/warren-buffett-says-letting-silicon-valley-bank-customers-go-under-wouldve-been-catastrophic.html

  23. “The U.S. Department of Housing and Urban Development (HUD), which oversees the FHA, said it was making this move to give lenders the additional flexibility they need to help borrowers stay in their homes. Ideally the program would reduce a homeowner’s mortgage payments by at least 25%. But HUD acknowledges the effect is blunted as interest rates remain high.”

    Does HUD acknowledge its complicity in keeping inventories low and housing prices high for would-be homeowners.

    1. The Financial Times
      Berkshire Hathaway Inc
      Warren Buffett’s Berkshire Hathaway dumps billions of dollars of US stocks
      Cash pile rises by $2bn to $130.6bn as sprawling conglomerate finds little to spend on
      Shareholders gather at Berkshire Hathaway’s annual conference in Omaha, Nebraska
      Eric Platt in Omaha 42 minutes ago

      Warren Buffett’s Berkshire Hathaway sold billions of dollars worth of stock and invested little money in the US equity market in the first three months of the year, a signal the famed investor saw little appeal in a volatile market.

      Berkshire disclosed on Saturday that it had sold shares worth $13.3bn in the first quarter and bought stocks for a fraction of that figure. Instead, it put $4.4bn towards repurchasing its own stock, as well as $2.9bn on the shares of other publicly traded businesses.

      The figures underscore the struggle Berkshire faces in putting its mountain of cash to work at a time when Buffett and his longtime right-hand man Charlie Munger regard valuations as unappetising. The company’s cash pile has risen by $2bn since the start of this year to $130.6bn, its highest level since the end of 2021.
      …

      1. And what a coinky-dink that Omaha, NE is the epicenter of The Franklin Scandal.

    1. Gold-plated pensions matter not when you are filling the pockets of Democrat donors with $ from their Politically Correct BS Green Climate Change investments.

      “SVB and Lander are both proponents of Environmental, Social, and Governance investing which seeks to make investments in companies that support progressive political causes — and not exclusively focus on investor return”

      “In January 2022, the bank promised “at least $5 billion” in financing for sustainability efforts by 2027.”

      1. “In January 2022, the bank promised “at least $5 billion” in financing for sustainability efforts by 2027.”

        I guess those guys are going to have to secure their financing elsewhere, especially since a lot more banks will be going belly up.

  26. FORBES DIGITAL ASSETS
    ‘Worse Than 2008’—Bitcoin And Crypto Now Braced For $540 Billion Crisis, Ethereum Cofounder Warns After Price Boom
    Billy Bambrough
    Senior Contributor
    I write about how bitcoin, crypto and blockchain can change the world.
    May 6, 2023, 08:15am EDT

    Bitcoin, ethereum and cryptocurrencies have been catapulted back into the limelight this year by the U.S. regional banking crisis that could be just getting started.

    The bitcoin price has almost doubled since falling to lows of around $15,000 per bitcoin late last year, with ethereum, the second-largest cryptocurrency, climbing along with it—despite cofounder Vitalik Buterin issuing a serious bull run warning.

    Now, another ethereum cofounder, Charles Hoskinson, who went on to create ethereum rival cardano, has warned the banking crisis is going to be worse than the 2008 global financial crisis that led to the creation of bitcoin.
    …

    1. The Financial Times
      US
      Local stress: The US regional banks under pressure
      The FT looks at the mid-sized lenders that have suffered since the collapse of Silicon Valley Bank
      Stephen Gandel and Brooke Masters in New York, Patrick Mathurin and Alan Smith in London 13 hours ago

      The sudden collapse of Silicon Valley Bank and the subsequent failures of Signature and First Republic have focused attention on the US regional banking sector, as investors and policymakers looked for other lenders that might share the same vulnerabilities. The KBW regional banks index has dropped nearly 30 per cent since early March.

      US Federal Reserve Chairman Jay Powell said this week that he believed that Monday’s sale of First Republic’s loans and assets to JPMorgan Chase was “an important step toward drawing a line under that period of severe stress”, adding that the deposit outflows that followed SVB’s demise “have really stabilised now”. But the share prices of some institutions remain profoundly depressed.

      The term regional bank covers a diffuse and diverse group of institutions. They sit in the middle to upper tier of a US banking sector that includes 5,000 lenders and ranges from JPMorgan, with $3.7tn in assets, to tiny one-branch community banks.

      A Financial Times analysis considered publicly traded banks with $40bn to $400bn in assets and highlighted those that have seen the largest fall in total shareholder return since March 8, the day SVB really began to wobble. We then gathered data that illuminates each institution’s perceived strength, size and business model.

      Although some banks have issued updated figures, the chart used numbers from March 31, the last reporting date, in order to provide consistency on specific issues that have been cited as potential causes of financial stress.

      Rapid deposit outflows, particularly from accounts too large to be covered by the government insurance scheme, were the main reason the Federal Deposit Insurance Corporation shut down SVB, Signature and First Republic.

      SVB’s problems were exacerbated by large unrealised losses on securities holdings that suddenly crystallised when it needed cash to meet deposit outflows. Commercial real estate and lending to that sector is highly vulnerable to rapidly rising interest rates.
      …

    1. Federal Reserve chair Jerome Powell
      Banking

      Trading halted in shares of two more US lenders as fears of banking crisis mount

      Regulators step in after PacWest and Western Alliance shares plunge as investors fear repeat of First Republic, SVB and Signature failures

      US banks are failing, and the authorities seem unlikely to intervene

      Dominic Rushe, Julia Kollewe and Lois Beckett in Los Angeles
      Thu 4 May 2023 17.23 EDT
      First published on Thu 4 May 2023 05.55 EDT

      Trading in the shares of two more regional US lenders was temporarily suspended on Thursday amid a widening crisis for the country’s mid-sized banks.

      Regulators stepped in to halt trading in the Los Angeles-based PacWest and Arizona’s Western Alliance following dramatic drops in their share prices.

      It came after another mid-sized bank, First Republic, was sold to JP Morgan earlier this week. Depositors had pulled $100bn from First Republic, fearing their money was no longer safe.

      PacWest had sought to calm markets on Wednesday and said it was in talks with several potential investors after its shares fell by as much as 60%. But the sell-off continued on Thursday and affected other regional banks.

      Shares in PacWest fell 50% on Thursday after Bloomberg News reported that the lender was considering strategic options, including a sale or a fundraising round.

      The bank sought to reassure investors by saying it had not experienced unusual deposit flows. “Recently, the company has been approached by several potential partners and investors – discussions are ongoing,” it added.

      Western Alliance’s share price plummeted 45% after the Financial Times reported it was exploring strategic options, including a potential sale, which the bank strongly denied. It called the story “absolutely false” and said it had not experienced unusual deposit flows after the sale of First Republic. Its shares ended Thursday down 38%.
      …
      https://www.theguardian.com/business/2023/may/04/shares-in-california-lender-pacwest-plummet-amid-fears-of-new-us-banking-crisis

    2. With the failure of three regional banks since March, and another one teetering on the brink, will America soon see a cascade of bank failures?

      Bloomberg reported Wednesday that San Francisco-based PacWest Bancorp is mulling a sale.

      Last week, First Republic Bank became the third bank to collapse, the second-largest bank failure in U.S. history after Washington Mutual, which collapsed in 2008 amid the financial crisis.

      After the demise of Silicon Valley Bank and Signature Bank in March, a study on the fragility of the U.S. banking system found that 186 more banks are at risk of failure even if only half of their uninsured depositors (uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run) decide to withdraw their funds.

      Uninsured deposits are customer deposits greater than the $250,000 FDIC deposit insurance limit.

      Why are regional banks failing?

      Regional banks are failing because the Federal Reserve’s aggressive interest rate hikes to tamp down inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities.

      Most bonds pay a fixed interest rate that becomes attractive when interest rates fall, driving up demand and the price of the bond. On the other hand, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, thus driving down its price.

      Many banks increased their holdings of bonds during the pandemic, when deposits were plentiful but loan demand and yields were weak. For many banks, these unrealized losses will stay on paper. But others may face actual losses if they have to sell securities for liquidity or other reasons, according to the Federal Reserve Bank of St. Louis.

      “The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” economists wrote in a recent paper published on the Social Science Research Network

      Of course, this scenario would play out only if the government did nothing.

      “So, our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization,” the economists wrote.
      …
      Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

      This article originally appeared on USA TODAY: US banking crisis: Close to 190 banks could collapse, according to study
      …
      https://www.msn.com/en-us/money/markets/us-banking-crisis-close-to-190-banks-could-collapse-according-to-study/ar-AA18OzZ9

      1. “Of course, this scenario would play out only if the government did nothing.”

        Really?

        It sure does appear the government has been actively involved in each bailout incident so far, yet they keep coming…

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