Global Financial Crisis 2.0? Part 3

Chapter 3: More on the Silicon Valley Bank Saga…The FDIC’s $522 Billion shortfall and shady dealings on Wall Street

Right now, the FDIC estimates unrealized bond losses among US banks at roughly $650 Billion.

You know what that number reminds me of? The total amount of subprime losses in the United States back in 2008.

The International Monetary Fund estimates that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans during a 33-month period from January 2007 to September 2009. Heck, the subprime losses just at US banks totaled $551B.

What’s really amusing is: the FDIC’s whole job is to safeguard bank deposits

They’ve even got a dedicated fund to do so, known as the Deposit Insurance Fund (DIF). It’s intended to protect customer deposits in banks throughout the US.

But the numbers don’t jibe. The DIF currently has a balance of just $128 billion — $522 Billion less than the unrealized losses of $650 Billion (and counting) in the banking system.

And the absurdity in this story doesn’t end there.

Get this: on January 18th, SVB’s stock closed at $250.04 per share.

The next day, SVB published its year-end financials, reporting $15 Billion in unrealized losses which effectively made them insolvent.

What do you think the stock price ended at on January 20th, the day after SBV reported its earnings?

$291.44

In other words, …the dolts on Wall Street bid up the stock price by 16%, even AFTER hearing that the bank’s capital was gone.

But wait, there’s more! The stock kept rising, and peaked on February 1st at $348.32 per share.  

Jim Cramer, the same buffoon who said Bear Stearns was “fine” shortly before it collapsed, was touting SVB stock right after it peaked.

And later in February, SVB’s CEO liquidated a bunch of his shares.

In short, this whole thing stinks.

Seems like a lot of people/institutions either dropped the ball, or did something shady.

Like the FDIC. They saw Silicon Valley Bank’s dismal condition well before the bank actually collapsed and took no action. Ditto for the Federal Reserve.

“Smart money” applauded and bid SVB’s stock up, and retail investors got suckered in.

Sound familiar?

It does to me. To me it sounds an awful lot like the subprime mortgage debacle that led to the Global Financial Crisis.

Will we see another such crisis? We’re certainly going to see some turmoil. There’s no two ways about it.

Only time will tell if history repeats, or it just rhymes.