Fed rates are causing problems. Which is what they were meant to do.
To tame inflation, the Fed only has one tool in the toolbox...............rates. The idea is to slow economic activity by reducing liquidity. The Fed can do nothing but slow demand........demand for money, which translates to reducing demand for goods and services.
The results are in, or at least starting to come in. IT'S WORKING. SVB is the tip of the iceberg. Most banks have done like they were supposed to...........put excess demand deposit cash into Treasuries.........but they put that money into long Treasuries, rather than shorter term Treasuries, which have started to yield what they're yielding today. In simple words..........the banks are underwater in their long investments. In some respects, this is on the banks......but not wholly.
If there's a flight of demand deposits to better yields(T Bills, etc), the bank loses its asset base...........which forces the bank to liquidate their long term Treasuries at a loss, to cover these demand deposits(a demand deposit is, let's say, a checking account......which the holder can close out, to put that money in a higher yield instrument.) People are withdrawing funds from their accounts in order to place that money in higher yield Treasuries........leaving the bank short. And, eroding the Interest Margin in order to attempt to keep those deposits in the bank(offering higher interest rates on deposits)
When people demand their money, the bank has to sell long term Treasuries, at a loss, to cover those withdrawals. There has to be available cash to cover the withdrawals.
So, it boils down to the dumbass factor. Some moron reads his feed on whatever social media crap he subscribes to, hears that there's a run on the banks, and gets his happy ass on down to the bank to withdraw his paltry funds. The bank has to cover Mr. Moron, so sells another tranche of long term securities..........further eroding liquidity. (If these securities had been held to term, the realized loss would have been less)
IMHO, the banks will not fail. Simply............you have to have somewhere to keep your money. Hiding it under the mattress doesn't work. The bank gives you liquidity..........the ability to easily move your money where you choose...........make payroll, pay your bills, continue to fund your business. The bank is your source of credit(you do NOT want to borrow from the BDC companies in my portfolio.......what are called "hard loans")
You want to call blame....... Don't blame the bank, it mostly did what it was supposed to do (place cash in no risk Treasuries), albeit, the fact that they didn't hedge those long term bets.
The blame rests on easy money. Near 0 interest rates for almost 15+ish years IIRC. The sudden conversion to higher rates is a shock. Money will become more expensive, but the world will keep on spinning around the Sun. One might say that YOUR addiction to easy credit is the culprit. There's two sides to every issue. Nobody, and I mean NOBODY, has hedged their positions.
Warren Buffett is famous for his saying..........."Never bet against America" or something of that nature. It's an axiom.
