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This is interesting. You listen to Janet Yellen
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This is interesting. You listen to Janet Yellen


Mar 24, 2023, 5:53 AM

and think everything is fine in banking. There was a problem, but the Fed stepped in and tossed some emergency money around and everything is fine now. It's over.

The numbers show this problem is systemic and continuing. And I had no clue how many systems/programs were in place to give banks liquidity. This can make the feds balance sheet look insane in a mere few months if this keeps up.

https://finance.yahoo.com
e.yahoo.com/news/banks-still-drawing-fed-164-205201876.html

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Figured out the link and (but according to NPR the problem is banks

2

Mar 24, 2023, 7:08 AM

Holding gov bonds with ridiculously low yields. Instead of passing out money, why can’t they restructure the bonds at a higher rate?

I know handing out sacks of cash is easier but fixing the problem seems to make more sense.)

It said the numbers are still high but going down

That’s progress . . . .


Message was edited by: cu85tiger®


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“Anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that my ignorance is just as good as your knowledge.”
Isaac Asimov


I "think" I've figured out the plan.

2

Mar 24, 2023, 9:31 AM

The problem is debt, in general. With banks it's Treasury bonds. But the same issue is cropping up with mortgages too. It's systemic because inflation is systemic. Banks and financial institutions consider debt an "asset", and it is, NORMALLY. You sell someone a 3% 30yr mortgage at a fixed rate, and with fed lending rates at zero and inflation under 2%, in 30 years you get a nice payday of almost 30% on the debt, as profit. BUT, when inflation climbs to 6%, 8%, whatever, even if the fed holds low rates (insane), that debt "asset" still becomes a liability. The fed raises rates to slow debt issuance, and also to force new debt to be issued at higher rates, so that asset, that has become a liability, can once again become an asset at maturity. THEY HAVE NOT RAISED RATES TO A LEVEL TO DO THAT, and can't.

So you have a cash crunch with banks who had assumed that 3% mortgage or that 2% Treasury bond would pay a profit in time. It won't. No one wants to buy them, and they can only sell them at a loss due to inflation.

So the plan, IMO is simple. This is why I say the fed will keep raising rates, unless inflation numbers go down significantly. The fed, by helping banks, is essentially buying down the losses banks would incur on those low-yield long-term assets to keep the banks solvent. In the meantime, they will keep raising rates to force future debt to be issued at rates that account for inflation, and eventually bring it down in time, with some pain. Now the money the fed is injecting into banks WILL NOT contribute to inflation. It's being used to boost asset values on debt already issued. The LABOR has already been purchased at the low rates, so this money is not going to be "new" to the economy, nor to the banks really. It is just money they thought they had in "assets" that they didn't have, that they have again. No net plus. So that's what is happening as I see it.

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Re: I "think" I've figured out the plan.


Mar 24, 2023, 10:14 AM

What worries me more is the 125 percent US debt to GDP ratio. You can have a lot of debt, but you have to have an economy that can keep up with it.

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help


Mar 24, 2023, 10:15 AM [ in reply to I "think" I've figured out the plan. ]

Tiggity® said:

The problem is debt, in general. With banks it's Treasury bonds. But the same issue is cropping up with mortgages too. It's systemic because inflation is systemic. Banks and financial institutions consider debt an "asset", and it is, NORMALLY. You sell someone a 3% 30yr mortgage at a fixed rate, and with fed lending rates at zero and inflation under 2%, in 30 years you get a nice payday of almost 30% on the debt, as profit. BUT, when inflation climbs to 6%, 8%, whatever, even if the fed holds low rates (insane), that debt "asset" still becomes a liability. The fed raises rates to slow debt issuance, and also to force new debt to be issued at higher rates, so that asset, that has become a liability, can once again become an asset at maturity. THEY HAVE NOT RAISED RATES TO A LEVEL TO DO THAT, and can't.





I follow you on this and get it.


Tiggity® said:



So you have a cash crunch with banks who had assumed that 3% mortgage or that 2% Treasury bond would pay a profit in time. It won't. No one wants to buy them, and they can only sell them at a loss due to inflation.

So the plan, IMO is simple. This is why I say the fed will keep raising rates, unless inflation numbers go down significantly. The fed, by helping banks, is essentially buying down the losses banks would incur on those low-yield long-term assets to keep the banks solvent.





I understand this, I think. Do you blame the banks for getting caught off guard by the rate increases? Did they get over-leveredged? Seems like they Effed up...



Tiggity® said:

In the meantime, they will keep raising rates to force future debt to be issued at rates that account for inflation, and eventually bring it down in time, with some pain.




Again, I understand this. I guess the big question is: how much pain?


Tiggity® said:

Now the money the fed is injecting into banks WILL NOT contribute to inflation. It's being used to boost asset values on debt already issued. The LABOR has already been purchased at the low rates, so this money is not going to be "new" to the economy, nor to the banks really. It is just money they thought they had in "assets" that they didn't have, that they have again. No net plus. So that's what is happening as I see it.




How will it not contribute to inflation? Do you mean that ULTIMATELY it "evens out", so in the grand scheme of things it won't contribute to inflation, or that it won't contribute to inflation, even in the short-term?



I'm just a dumb grease monkey, but I desperately want to understand this whole system, and most importantly, how to make money off of it. I listen to tons of podcasts and stuff like that, and I *think* I get the gist of it, but then I read your last paragraph and I realize I must be missing something (if, in fact, you are correct).

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Inflation is an interesting thing. It is tied to "money"

1

Mar 24, 2023, 10:55 AM

BUT, it is not tied to ALL money. There is money we all have in our wallets, checking accounts, savings accounts, and tied up in assets as well (stocks, real estate, whatever). NOW, inflation is impacted by real money, and by that I mean money that is exchanged for labor. Your salary. Wages. Selling a house, or stock, etc. THAT is real money. HOWEVER, there is MUCH more money that does not cause inflation. This is money that is not liquid, like the bank assets in question. Stock portfolio values contain this type of ethereal money. Bitcoin, etc. The value is market driven, but that value does not impact inflation until the asset is sold at some value and then that VALUE becomes MONEY. Inflation happens when people get REAL money, they can spend, giving it to others, in exchange for labor/goods.

The money being given to banks (if done properly) brings the value of that asset to the bank back to levels that the bank can use to retain liquidity for issuing real money. It adds VALUE to an asset, an asset that has already been used (mortgage/loan/whatever) to exchange for labor.

This is why stocks are "managed" the way they are. You "invest" real/earned money into the markets. Now over time that asset grows in VALUE, due to market conditions. We like to assume that VALUE is the same thing as MONEY. It isn't. ONLY, when that asset is sold, can real money be recovered. In the example of a bank it puts up 500K in REAL money, for your house, and you buy it. Over 30 years you pay the bank say $850K to pay off the mortgage. That difference, of $350K, is the profit the bank makes, over time, on the mortgage. As such, to the bank, your $500K loan is an ASSET with a VALUE of $350k to the lender. Normally, that 350K covers inflation, appreciation of the house in value, and the bank pockets the added VALUE over time. This is why interest is always paid on the front end of a mortgage and principle is differed to the eld of the mortgage period. Banks want the profit, the interest, up front, BEFORE the maturity of the mortgage, so their profit is realized earlier, hence has more value. But from the issuance of your mortgage until it is satisfied over 30 years, there is NO NEW MONEY created, beyond the initial $500K. There is $350K in new money, accrued over time, but the banks use THAT VALUE to issue more debt assets. This is how the system works. Now banks do not WANT to cash out your loan, they want to reinvest it, using it as collateral to issue a new debt asset, and so forth. And this is the contagion you hear about in the news. In the 2008 example, the banks made loans, for high amounts, giving them tremendous ASSE value of the mortgages, which was then REINVESTED in more and more mortgages, and the ASSETS compounded into the trillions, under the assumption the debt would be serviced per the terms, which didn't happen. This is the basis for the derivatives markets. There's roughly a QUADRILLION DOLLARS in VALUE in the derivatives market. There is NO WAY there's that much real money in existence or ever will be. Banks roll these profits into new debt, creating more and more assets and more and more VALUE. But money, that is spent, remains stable. As does inflation.

This is why we have "wealth" inequality as well. And why the "rich" pay little to no taxes. The federal government taxes REAL money as it has tangible, and more stable value, as real money is tied to labor, which is a finite resource. If they taxed assets, they're collecting revenue from the ether, from perceptions of VALUE and not real money. So the rich amass VALUE in stock assets, companies, investments, whatever over time, but are only taxed on INCOME, which they have little. And the rich, just like banks and the stock markets, prefer NOT to sell their ASSETS, but instead reinvest them, to keep the system going. This is why I've said Elon Musk could never get his hands on his stock portfolio value. He just could never do it. And banks are the same. Depending on how leveraged they are, and in what assets, they can never LIQUIDATE the total value of their assets. On a good day. On a bad day, that asset loses value (to inflation), and then the bank has a liquidity problem as that future revenue projection fizzles into a loss.

This probably makes no sense, but it is how things "work" in the US and most of the western world these days. When I keep saying a dollar is only worth the amount of labor one is willing to exchange for it, that is the very basis of any economy and monetary system. From this base, all the "wealth" amasses. When someone is not willing to work the same amount for that dollar, the value of that dollar to labor declines. And this is inflation, and it is what everything ELSE is based on. Assets, asset values, debt, lending, mortgages, stocks, etc. When people are suddenly not willing to work for the same dollar, and demand more, due to a loss in labor supply, or a massive increase in demand, or both, when that happens, and inflation sets in, EVERYTHING leveraged against the value of that dollar (to labor) is impacted, right up the line. Economic progress and expansion happens from the bottom up. Economic contraction and collapse, happens from the top down, for this reason.

I would recommend everyone read the first chapter of Das Kapital by Karl Mark. One of the biggest arguments against capitalism is what we regularly face in the finance industries. Marx understood this two centuries ago. He is absolutely correct in understanding how capitalism works, and the dangers of it, if not controlled. Likewise, he then goes off on a tangent into the idea of communism, which has a completely different set of dangers Marx does not address. BUT since the beginning of recorded history, and still today, "MONEY" is an arbitrary unit of labor. Plain and simple. Upon that is built nations, countries, militaries, etc. And more importantly, if managed properly, money is the world's greatest motivator of people, to expand labor capacity to the maximum possible. It is a carrot on a stick that can make a rabbit, or worker, run faster, and work harder. Likewise, if that worker does not trust the value of that dollar, or gold, or diamond, or whatever, the amount of labor people are willing to expend for it shrinks, as does the VALUE of everything leveraged on that labor.

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The BFTP facility is definitely causing asset inflation

1

Mar 24, 2023, 11:56 AM

The Fed is backstopping toxic assets in case they're needed for liquidity. They're artificially raising the values of the assets in doing so (a, by keeping them off the market and b, by paying banks more than they're worth for them). That's an inflationary practice, just like the Fed buying $120B in bonds per month for like 20 months was inflationary.

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SO, Mr. Dawghater, what's our "play"?


Mar 24, 2023, 12:28 PM

6 months ago, I took my retirement out of TRowe Price Target Date 2045 and put it in their Stable Value Fund. Sitting out has lost money, but not as bad as it would have been...

As far as other money, it's either in cash or in Employee Stock Purchase Program, waiting on my duration to where I can do something with it.


Where's the smart money going, Mr. Dawghater? Diesel fuel and a pre-1980 EMP proof truck? put the rest in salt, sugar, rice, and bullets? Sit in cash for the next 12 months and then re-assess?

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S??? ????? ???? ??? ??????? ?????? ???? ??? ??????,
S??? ????? ?? ?? ???????? ???? ? ??????? ??? ????? ?????..


IMO - smart money is and has been short

1

Mar 24, 2023, 12:03 AM

and/or doing what you're doing. when the Fed panics, get long.

any changes / plays now, outside of maybe some commodities or swaps, would need to be watched like a hawk.

I'm 80% cash right now, 20% options strategy w/ finance guy. High volatility is prime trading times if you have the time and wherewithal to do it...which I have neither.

liquor, fuel, bud, food and lead never hurt tho amirite?

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if my balls were big enough, I would've been short here

1

Mar 24, 2023, 1:05 PM

https://www.tigernet.com/clemson-forum/message/bad-sign-30252605


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i tried to "big brain" the post above this, but it


Mar 24, 2023, 1:26 PM

got placed on the wrong post. Oh well. Enjoy your stupid flair or whatever they're called.

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S??? ????? ?? ?? ???????? ???? ? ??????? ??? ????? ?????..


Re: IMO - smart money is and has been short


Mar 24, 2023, 10:23 PM [ in reply to IMO - smart money is and has been short ]

Man, been defensive and cash for about 2 years. Made a Bourbon trade the other day. Can't say what because of my job (ain't risking that even under a handle). Wasn't a really large position, and I understood the risk. We'll see how it goes.

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It doesn't cause inflation until money enters a pocket

1

Mar 24, 2023, 1:34 PM [ in reply to The BFTP facility is definitely causing asset inflation ]

This is the conceptual problem most people have with money. Why people think Elon Musk "has" $200 billion or whatever. He doesn't. He has a stock portfolio valued at that. Watch him try to sell it. He sold maybe $10 billion to help buy Twitter and that cost him $100 billion in Tesla stock VALUE. Even banks have this problem. They buy 2.5% treasury bonds, or stocks, or issue loans at whatever rate, and they ASSUME they have X dollars. They don't, they have an asset CURRENTLY VALUED at that.

We will see, but trends seem to be going a bad direction for the federal reserve and consequently for banks. The BIGGEST thing the Fed does NOT want to see, is happening. Increased wages. That is a natural economic response to inflation, and it's specifically the response the fed tries to subdue with higher interest rates to keep inflation from perpetuating. Furthermore, the liquidity problems banks have is exacerbated when their depositors need to withdraw higher and higher amounts to make payroll. So increases in spending, hiring, and wages especially, increases liquidity needed by banks, and with their portfolio of low yield assets, that's not going to help matters. Increases in wages allows companies to charge more, and those companies then make more, then pay more, then their employees can buy more, and it's a cycle.

https://www.marketwatch.com/story/u-s-economy-speeds-up-in-march-s-p-surveys-show-but-so-does-inflation-a983ff82

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I'm of the opinion that this increases


Mar 24, 2023, 2:46 PM

the velocity of capital. By providing liquidity, you decrease risks for banks. More risk = more lending = more investment = more spend = more growth = more dudes pouring concrete for some hoity toity mixed use development in Greenville (as an example) / more dudes installing robots for dawghater23's customers. That's the velocity cycle I'm alluding to. Eventually circulating these monies through the banks will reverberate to Main Street (albeit, pennies on the dollar) as firms lend on the banks to fuel growth. This is what has been happening for the past 3 years.

I get the whole valuations piece you're alluding to. But now, take that same train of thought to a bank, right. Banks are required to have (unfortunately, lol, now 0% OH?...need to find this again) a % of assets OH relative to what they're lending out. And by definition (per Dodd-Frank regs as well), USTs are the most liquid investment on the planet. The Fed is artificially augmenting these underwater balance sheets with basically a mattress of fake bond valuations and this will give banks more apetite for risk, IMO.

A more obvious scenario, banks may need to be able to access capital should they need it in a bank run (SVB). They can use the underwater bonds as collateral, get the $ from the Fed, all is good. That's like saying no matter what, Elon gets his $200B despite Tesla trading to 0 next week. But...let's leave out the bank run scenario, b/c if there was a bank run at scale, the whole system crashes anyways.

I agree with you on wage inflation. They've come out and said so. However, if you're increasing the velocity of capital, you're inherently going to create more opportunities for labor, which in turn will increase the likelihood of wage inflation. This is why they were tightening and raising rates to begin with...do you agree?

In my view, what they REALLY don't want to happen is for the bond market to crater. Which is happening right now. The BFTP facility in particular kills 2 birds with one stone, to a degree, by absorbing the bonds and artificially inflating bank balance sheets.

Now - what's going on in Europe is completely ######. The CS AT1 bondholders just got the shaft. All eyes should be on Deutsche Bank going into the weekend, and to see what the ECB and Fed are going to do to react.

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Re: Figured out the link and (but according to NPR the problem is banks

1

Mar 24, 2023, 9:50 AM [ in reply to Figured out the link and (but according to NPR the problem is banks ]

I think the problem with SVB was some of that and also a book of loans that wasn't diversified and heavily focused on the tech industry. When SVB went into receivership, this caused panic with other regional banks.

Not sure if the Fed is actually doing this yet, but I've heard the idea being floated that some of the treasuries could be bought at par. Which would essentially be a restructuring of debt. The problem is the further a bond is from maturity the greater its sensitivity to interest rate movements. Probably over simplifying, but it seems like there should have been a better eye on bond duration with these banks, especially in such a low rate environment for so long.

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There will be a significant run on smaller banks with

1

Mar 24, 2023, 8:16 AM

depositors running to the “too big to fail” banks. How many, how much…will depend on the panic level.

OTOH, great time to be broke!

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There will be a significant run on smaller banks with


Mar 24, 2023, 8:17 AM

depositors running to the “too big to fail” banks. How many, how much…will depend on the panic level.

OTOH, great time to be broke!

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bank problems are transitory***

2

Mar 24, 2023, 8:17 AM



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I don't want to listen to anybody Yellen.

3

Mar 24, 2023, 8:26 AM

I'd rather have my spirited discussions in a polite and intelligent manner.

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Janet Talkin didn’t have the background for the job.***

1

Mar 24, 2023, 9:16 AM



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I know most don't have 2 hours to watch this.....

7

Mar 24, 2023, 8:43 AM

But this Frontline episode is VERY good

https://www.youtube.com/watch?v=EpMLAQbSYAw&ab_channel=FRONTLINEPBS%7COfficial

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thanks. Will watch.***


Mar 24, 2023, 10:17 AM



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Watched it when it came on the other night.


Mar 24, 2023, 10:32 AM [ in reply to I know most don't have 2 hours to watch this..... ]

Thought it was great. And also anger inducing.

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To this day, no one knows what the fed did in 2008-2011 to


Mar 24, 2023, 2:11 PM [ in reply to I know most don't have 2 hours to watch this..... ]

"fix" the housing crisis. Congress demanded accountability, and got it, half-way. Here's the report on exactly what the United States Federal reserve did. It's a long read, and purposefully complicated.

https://www.gao.gov/assets/gao-11-696.pdf

That was the point. Once upon a time there was a guy named Ken Lay. he ran an energy conglomerate called Enron. It was a Wall Street darling. Extremely profitable, and massive, the company was king of Wall Street at one time. One day that all came crashing down when accounting gimmicks were uncovered. Lay, and his accountants, were arrested. The company was disbanded. What they did was illegal under SEC filing rules as well. They essentially took losses from wherever they could find them in the company, then farmed those losses off to shell companies. In doing this, Enron looked extremely green and profitable in official SEC filings, and therefore became a Wall Street darling. But while people were throwing money at Enron and investing, they had no clue the company actually had several money hemorrhaging divisions, and was in reality not profitable at all. But the accounting paperwork showed a great company, high profits, and robust growth. But hidden in these unknown shell companies, were billions in debt that was actually Enron debt, but was removed from their books. Study the Enron debacle and you will understand EXACTLY what the Federal Reserve did to fix the housing crisis. It is all there in the report I linked. It is all illegal under SEC rules, and rules every American corporation is required to follow. This is why it literally took an Act of Congress to document what they did.

The federal reserve basically took the toxic assets (mortgages) off the books of those companies "too big to fail". They then farmed those losses, and toxic assets, off to 3 shell companies, called Maiden Lane I, II, and III. THIS act prevented the collapse of the FORMER toxic debt holders. All of this is fine. Highly illegal, but ok whatever. The amount farmed off to shell companies, these three, was in the trillions. The fed then backed these toxic assets on their ledger for a period of time. HOWEVER, the catch is what happened next? No one knows. The fed said they were repaid ALL of the losses they took on from these companies. The trillions that would have sunk those too big to fail, was essentially paid off in two years by those too big to fail? There is no specific accounting on the outflows from these companies to the fed for repayment. It was deemed repaid, and we carried on. Some were leveraged so severely in toxic debt there is NO WAY they could repay the losses, but they did. So yeah, we know what the fed did, but we still, to this day, have no accounting of how it was ultimately resolved. And this is why QE continued in perpetuity, because it wasn't resolved.

So knowing this, ffwd to today, and here we are. Stuck with high inflation, a debt level that can not be serviced with that inflation, and a federal reserve once again taking on debt. This is a different ballgame though. A much broader problem, that can not be resolved the same way they "resolved" the housing crisis.

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watched this live this morning

1

Mar 24, 2023, 12:21 PM

while getting the toddler ready for daycare. couldn't believe he said it on live mainstream TV.

https://twitter.com/tomselliott/status/1639252704324362241?s=20

Janet's calling an emergency FSOC meeting...(Deutsche related, I'd presume)

https://www.bloomberg.com/news/articles/2023-03-24/yellen-calls-friday-fsoc-meeting-after-banking-sector-turmoil




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