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DJT and SM were not going to let his political adversaries make statements like, "giveaway/gift to his 'evil hedge fund guys'/mortgage banksters. Besides the Collins decision would have taken care of the political optics problem, but disappointingly failed to do so.
It seems that having 100% control over the 2 lynchpins of the US Secondary Mortgage Market that self funds the FHFA will be the status quo until the US Congress decides what to do about the future of the US Secondary Mortgage Market, unless there's anything from the federal courts.
JP Morgan are buying the ATS1 for 1 to 2 cents on the dollar and selling them for 5 cents on the dollar.
I think at 1.85 for $25 of Fannie Mae FNMAS is approximately 7 cents on the dollar.
https://www.bloomberg.com/news/articles/2023-03-20/jpmorgan-bnp-quote-risky-credit-suisse-bonds-at-just-above-zero?leadSource=uverify%20wall
JPMorgan, BNP Quote Risky Credit Suisse Bonds At Just Above Zero
Dealers including BNP, BTIG, Jefferies, GS are making markets
Market participants look at whether bonds may have value
"Risky Credit Suisse Group AG bonds that are set to be written down to zero by regulators were being quoted at prices of a few cents on the dollar on Monday, according to people with knowledge of the matter.
Dealers including JPMorgan Chase & Co. and Morgan Stanley are willing to buy risky Credit Suisse debt known as additional tier 1 bonds, or AT1s, for somewhere around 2 cents on the dollar and sell somewhere around 5 cents as of early afternoon on Monday in New York, according to the people. The Swiss bank said on Sunday that the bonds would be written down to zero as a condition of the rescue of..."
Looks like CFPB case will be heard this Fall:
https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/22-448.html
"Mar 14 2023 Motion to extend the time to file the briefs on the merits granted. The time to file the joint appendix and petitioners' brief on the merits is extended to and including May 8, 2023. The time to file respondents' brief on the merits is extended to and including July 3, 2023."
https://www.cnbc.com/2023/03/20/mortgage-giant-fannie-mae-tackles-climate-risk.html
"Fannie Mae, which backs more than 40% of all residential mortgages, could face much of that risk. The mortgage giant’s chief climate officer, Tim Judge, says mortgage underwriting does not currently account for climate risk. So he is mounting a major effort — really a defense — to figure out the exact climate risk to Fannie Mae’s balance sheet, so that it can ultimately incorporate that risk into mortgage underwriting.
“I think there’s still more that we have to do, and I think we just don’t have the analytics yet to do it,” said Judge.
To help, Judge is hiring climate risk modeling firms, such as First Street Foundation and Jupiter Intelligence, as well as others, to figure out just how to factor climate risk into home values and mortgage underwriting."
"...That’s a lot of the work we have to do. Is it five years away? I’m not sure.”
Last Wednesday's WSJ:
"The Education of Barney Frank
Life is full of irony, but it's hard to think of a richer one than Barney Frank sitting on the board of the failed Signature Bank. The former Congressman who was the scourge of Wall Street, the co-author of the Dodd-Frank Act that was supposed to keep the banking system safe, wasn't able to prevent his bank from becoming one of the first casualties of the latest bank panic.
It's amusing to think of Mr. Frank cashing a check as a bank director, but then even left-wing former Congressmen have to make a living. And in Mr. Frank's case it has been a nice one, with cash compensation of $121,750 and stock awards of $180,182 in 2022 alone. He's been on the board since 2015. Perhaps out of office and late in life, Mr. Frank developed a strange new respect for capitalism.
Mr. Frank once famously said he wanted to "roll the dice" to ramp up lending on Fannie Mae and Freddie Mac before they failed. Signature seems to have done the same as it dove into crypto during the Federal Reserve-fueled financial mania.
In recent interviews, Mr. Frank is blaming crypto for the bank's demise in the wake of the Silicon Valley Bank (SVB) closure on Friday. He told Politico that Signature was in good shape as recently as Friday, but was then hit by "the nervousness and beyond nervousness from SVB and crypto." He said the bank is the "unfortunate victim of the panic that really goes back to FTX," the failed crypto exchange.
Mr. Frank seems to blame regulators for taking a needlessly hard line against Signature because of crypto. "I think that if we'd been allowed to open tomorrow, that we could've continued," Mr. Frank told Bloomberg. "We have a solid loan book, we're the biggest lender in New York City under the low-income housing tax credit."
We sympathize with Mr. Frank because the Biden Administration really does want to purge the U.S. banking system of any dealings with crypto companies. It may be that the regulators decided to roll up Signature Bank because of its crypto association. It wouldn't be the first time regulators saw an opening in a crisis to achieve a political goal by other means.
If Mr. Frank is right, he now knows how hundreds of thousands of other people in business feel when regulators panic for political reasons and look for businesses to shut or blame.
As for the failure of Dodd-Frank's regulatory machinery to prevent the latest bank failures, Mr. Frank is taking no blame. He says the reforms made the system sturdier, and he also dismisses claims by Sen. Elizabeth Warren that some modest Trump-era changes in bank rules for mid-sized banks made a difference.
"I don't think that had any effect," Mr. Frank told Bloomberg. "I don't think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion." He ought to know from where he sat on the Signature board.
Mr. Frank is getting a painful education in the difficulty of running a company when politicians don't like the business you're in."
TH: "I did not have a positive reaction to the Layton piece.
I almost stopped reading it when he wrote, “Before conservatorship, [the average guaranty fee] was set by the GSEs themselves at a low level as much for political reasons (in particular to help maintain their lobbying power in Congress…) as economic ones.” That’s utter rubbish. Layton wasn’t at Freddie during the period he was referring to, while I was responsible for setting Fannie’s target guaranty fees through 2004. They were determined by highly sophisticated pricing models that were purely economic. (I discuss a bit of this in my August 2022 post, “Mind the Gap.”) And it gets worse, when he gets into a screed about their portfolio businesses and the “implied guarantee” on their debt, claiming that they “exploit[ed] this free implied guarantee to create a giant, profit-making subsidy for themselves… [that] disproportionately benefitted their management and shareholders rather than homeowners.”
What’s the point of saying this? First, it’s counterproductive to a quick and clean exit from conservatorship, because it reinforces the “flawed business model” notion pushed by the banks. Second, what Layton is claiming about the “retained subsidy” of the portfolio business is taken straight from the talking points of FM Watch in the early 2000s, and is completely made up. Yes, Fannie and Freddie’s debt benefited from an “implied government guaranty” that lowered their cost of borrowing. But that was a deliberate feature of their charters. And a second feature of those charters was they could only use their debt to buy mortgages and MBS whose yields (or prices) ALSO benefited from that same guaranty. There is no way to “retain” a subsidy that’s attached both to the debt you’re issuing and the only asset you’re allowed to buy. No, the role Fannie and Freddie’s portfolios played was to keep the spreads between the rates on mortgages and MBS from getting too high relative to fixed-term debt. Whenever that happened, Fannie and Freddie would issue (relatively cheap) debt, and use the proceeds to buy (relatively expensive) mortgages and MBS, thus keeping spreads in line. That’s economics, not politics, and it was beneficial to homebuyers. The banks didn’t like it because it held down THEIR portfolio spreads, and that’s why they invented the story Layton is parroting here.
To have to read this nonsense from Layton at a time the public is learning that the Federal Reserve has been short-funding its now $2.6 trillion portfolio of agency MBS since its inception in 2009–and is on track to lose over $100 billion this year from doing s0–and also learning about unregulated and unsupervised banks “playing the yield curve” because their Basel III capital standards allow them to do so without penalty, is galling. But, yes, do take uninformed and mis-aimed shots at Fannie and Freddie to distract from what the banks and the Fed are doing.
As for the rest of the paper, it’s great that Layton doesn’t think Fannie and Freddie need to hold 4 percent capital to safely do a credit guaranty business that has a credit loss rate of 4 basis points a year on a normalized basis, and can withstand a stylized repeat of the Great Financial Crisis through absorbing all of the resultant credit losses with only its current guaranty fee income, and not have to touch its capital all. Virtually every other knowledgeable person who has objectively reviewed Fannie and Freddie’s business and the Calabria capital requirement has come to the same conclusion–and their opinions don’t come with all of the baggage Layton attaches to his."
.@SecYellen has apparently pushed the SIBs to recycle some of the deposits they received from @firstrepublic back into FRB for 120 days. The result is that FRB default risk is now being spread to our largest banks.
— Bill Ackman (@BillAckman) March 17, 2023
Spreading the risk of financial contagion to achieve a false… https://t.co/fIbqNFgugI
The inefficiency of the set of heterogeneous resource allocation databases we call money is astounding
— Elon Musk (@elonmusk) March 17, 2023
The new think tank was originally funded by Jim Rouse, the developer of the (innovative at the time) planned community concept. He developed Columbia, MD, a planned community between DC and Baltimore on the east coast.
https://www.enterprisecommunity.org/about/how-it-all-started
"Simply put, a large financial intermediary does not need to be capitalized at nearly 70 times38 its worst-case government-defined stress test loss.39
[38] The ERCF at $319 billion divided by the $4.5 billion loss equals 70.9 times. This covers both GSEs.
[39] I have previously written on this topic, concluding that the ERCF is well too high (more than double) what is needed to be consistent with the latest stress test results. See “The Latest GSE Stress Test Results: Showcasing the Need for Regulatory Capital Revision (part 2), August 2022. https://furmancenter.org/thestoop/entry/the-latest-gse-stress-test-results-showcasing-the-need-for-regulatory-capital-revision. "
"The primary reason is that it does not seem to account for the extremely high earnings volatility of the mortgage business43 in contrast to the rather stable electric utility business – which I believe mainly drives the latter’s lower cost of capital rather than just the fact that it is price-regulated. However, as described above, if and when serious planning begins on conservatorship exit, it will be real investors who might purchase the shares of the two companies, which will set the cost of capital via what price they would be willing to pay at that time – and not what policy specialists, whether at the FHFA or elsewhere, say it should be."
"
I see no need for a large G-fee increase at all. Instead, my recommendation for eliminating the policy uncertainty is based on my long-held conclusion that the ERCF is just too high, as strongly validated by its obvious inconsistency with the extremely low loss shown by the official stress test results. Thus, the path forward to resolve the current average G-fee inconsistency versus the ERCF is to revise the capital requirement down significantly by replacing it with an updated CCF. "
Good question. Perhaps he views the situation differently now that he sees everything from outside the McLean HQ of Freddie Mac.
Don Layton does a good job explaining the Implicit Federal Government Guarantee in Footnote 15: "But, at its core, the implied guarantee was based on the fact that the role played by the GSEs was so pivotal to the economy that the government could not take the pain of their failure. While there were subsequent legal requirements for the government to officially disavow any guarantee of GSE debt, in 2008 the implied guarantee was shown to be very real, with the conservatorship and PSPA being operated to make the creditors of the two companies whole (although shareholders were not). Interestingly, the credit rating agencies (e.g., Moody’s, Standard & Poor’s) stated clearly in their credit rating publications of the time that the AAA given to the two GSEs was based on that implied guarantee, just as they do today (in technical language) for other organizations which still enjoy such an implied guarantee (e.g., the Federal Home Loan Bank system)."
Footnote 16 ain't bad either: "Thus, only the government had a strong interest in ensuring the financial strength of the GSEs. Unfortunately, it did not do so prior to conservatorship. During much of conservatorship (specifically 2012 to 2019), strangely, capital was depleted by design. However, beginning in late 2019, capital began to be accumulated and currently stands at $97 billion for the two firms."
Later in the paper: "Thus, to eliminate the current policy inconsistency, which emanates from the switch to the ERCF from CCF, solely by increasing the average G-fee would require it to go from 0.46 percent to about 0.66 percent (or, with the separate 0.10% excise tax that the government adds to G-fees included, from 0.56% to 0.76%)."
Recall that pre 2008 the Net Interest Margin from the Mortgage Portfolios (non MBS Mortgages held by the GSES) was approximately greater than 1%, THUS SUBSIDIZING THE PRE-CONSERVATORSHIP MBS GFEE OF 20 BASIS POINTS.
I like what MC was saying about the dangers of federal agencies using vague statutory language to implement programs and policies that are outside the scope of the federal agencies.
Interesting take from TH today on Eternal Patience question on whether or not SVB fallout will end any likelihood of the end of the conservatorships relatively soon:
"...the Basel III bank capital standards–which former FHFA director Calabria insisted on imposing on Fannie and Freddie–have NO capital consequence at all for taking interest rate risk. The only way to keep banks from doing it is through stress testing, and enhanced supervision. But SVB and Signature were exempted from both.
As Yellen, Brainard, Rouse (and I’m sure Bernstein) know, interest rate risk at banks is now a BIG systemic problem. There is a chart from the FDIC showing up in the financial press that gives unrealized losses on investment securities at FDIC-insured institutions. Those losses rose from nothing at the end of 2021 to $700 billion on September 30, 2022, as short-term interest rates rose throughout the year. And that’s just the securities; it doesn’t include long-term fixed rate whole (i.e., unsecuritized) mortgages.
We don’t know how many banks did what SVB and Signature did–but the bank regulators (and the senior members of the Biden economic team) do. And very few banks hedge their interest risk. Nor does the Federal Reserve. As I noted in a comment yesterday; it was short-funding all of the $2.6 trillion in agency MBS it acquired since 2009, and while it made over $100 billion (turned over to Treasury) in 2021 when short-term interest rates were essentially zero, it started losing money on its securities portfolio last year after it began to hike the federal funds rate, and it’s on track to LOSE $100 billion this year. That gives you some idea of the problems the banking system might be facing.
How does all this relate to Fannie and Freddie? They’re in conservatorship–and grossly overcapitalized and over-regulated–because that’s what the banks wanted. Banks and their supporters used fictions about the companies’ operations and risks to convince policymakers (and, through a compliant media, the general public) that Fannie and Freddie needed at least 4 per cent capital to do their (very low-risk) credit guaranty business safely, and that they should remain in conservatorship until they accumulate that amount of capital through retained earnings, which likely will take another 20 years.
Banks have profited handsomely from the constraints imposed by Treasury and FHFA on Fannie and Freddie’s business since 2008. As I noted in my current post, “At December 31, 2007, banks held $2.29 trillion in single-family whole loans and MBS, or 23 percent of outstanding single-family mortgage debt, on their balance sheets. At June 30, 2022 (the latest date for which full data are available), banks held more than double that amount—$4.65 trillion, for a 36 percent market share.”
I’ve raised the issue numerous times of the systemic risk involved in shifting that large an amount of mortgages from contractual investors–mutual funds, pension funds and insurance companies, which can manage the interest rate and options risk of MBS–to commercial banks who can (or do) not. But that’s only been a theoretical concern, until last Friday.
I have little doubt that the Biden economic team now realizes that the credit risk-taking frenzy that nearly collapsed the world financial system in 2008 may have been replicated over the past several years of zero short-term interest rates by an interest rate risk-taking frenzy, led by commercial banks. And after they contain the damages from this risk (assuming that they do), does it not make perfect sense for them to then move to fix one of the main contributors to the interest rate risk-taking frenzy–having allowed the banks to cripple Fannie and Freddie by making false claims about their operations and risks, and tying them up in conservatorship for another 20 years, so that mortgages that otherwise would have been safely funded by contractual buyers of MBS instead go into short-funded bank portfolios?
Quite contrary to your reaction, then, I think the SVB and Signature bank failures, and the associated awareness of the risks that have been building up in the banking system over the past several years, make action on getting Fannie and Freddie out of conservatorship more likely during the remaining months of the president’s term, by raising the profile of the companies (and the roles they could be playing in mortgage finance), undermining the credibility of the Financial Establishment and the banks (who’ve been telling fictitious, and we now know dangerous, stories about Fannie and Freddie since the 2008 crisis), and giving the Biden economic team more incentive, and courage, to stand up to the leaders of the Financial Establishment and take them, and this issue, on."
"Following a chorus of complaints from the mortgage industry, the Federal Housing Finance Agency (FHFA) on Wednesday announced that it would delay the implementation of a new and controversial upfront fee on Fannie Mae and Freddie Mac borrowers with higher debt-to-income ratios.
The upfront pricing fee on DTI ratios of 40% or more – part of a larger series of changes to the Enterprises’ pricing grids – was slated to go into effect on May 1, 2023.
“FHFA has decided to delay the effective date of the DTI ratio-based fee by three months to August 1, 2023, to ensure a level playing field for all lenders to have sufficient time to deploy the fee,” FHFA Director Sandra Thompson said in a statement Wednesday. “In addition, lenders will not be subject to post-purchase price adjustments related to this DTI ratio-based fee for loans acquired by the Enterprises between August 1, 2023, and December 31, 2023.”"
https://www.housingwire.com/articles/fhfa-delays-implementation-of-llpa-dti-fee/
They're insolvent... assets worth less than liabilities.
Where is this excess profit coming from?
Nice clarification Clarence, thanks! If the massive interest rate risk sitting in plain sight on the nations banks because a massive short term problem (it just took down SVB and Signature) the FDIC Incidental Clause will be required reading for Shareholders in effected US banks.
Interestingly, Basel III does NOT include interest rate risk in calculating capital standards and there's at least $620B in unrealized Losses sitting on the US banks financial statements as of 12/31/22.
Mary Millers name and emails were on several Exhibits in the Lamberth trial.
From yesterdays deleted ihub message, which comes from yesterdays WSJ:
"Both Signature Bank and Silicon Valley Bank, which failed and was taken over by regulators Friday, have close ties to policy makers.
Mary Miller, a former Treasury official under former President Barack Obama, has been on SVB's board since 2015. "Her investment and regulatory knowledge as well as cultural alignment will enable Mary to add unique perspective and insight," the board's chairman at the time said in the announcement of her appointment.
Ms. Miller couldn't be reached for comment.
The bank's president and chief executive officer, Greg Becker, was on the board of directors at the Federal Reserve Bank of San Francisco until Friday, and was one of its three finance executives.
All seven of Silicon Valley Bank's registered lobbyists last year previously held government positions, according to public records. Signature Bank didn't employ registered lobbyists last year, the records show.
During the lobbying push ahead of the 2018 legislation, Signature Bank retained former Sen. Al D'Amato (R., N.Y.) and his firm, records show."
From another article yesterday in the WSJ:
"Mr. Frank once famously said he wanted to "roll the dice" to ramp up lending on Fannie Mae and Freddie Mac before they failed."
But we're in never ending conservatorships where the federal government on August 17, 2012, took all our profits into perpetuity and today takes those profits with something called a 'liquidation preference'.
So are we in conservatorships or receiverships or is it an 'administrative bankruptcy'.?
If SVB gets auctioned off and it's sale price exceeds all outstanding liabilities less administrative costs will SVB Shareholders receive the excess or will the federal government transfer those funds to the FDIC and/or the US Treasury?
HeeeeHeeee! Depending on how things go there might be many more 'bankrupt' financial intermediaries to apply your reorg man skills to.
So, is SVB in a conservatorship or receivership or something else?
Nice one, Guido!
There's a reason that the federal government is concerned about Fannie Mae and Freddie Mac MBS, not only is it the backbone of the US Secondary Mortgage Market, the federal reserve utilizes Fannie Mae and Freddie Mac MBS in an attempt to control or influence the long end of the yield curve.
For the federal reserve, it is important that they have a perceived fairly effective tool to manage the long end of the yield curve.
For these reasons having a well capitalized and regulated Fannie Mae and Freddie Mac is compatible with preserving the integrity of the US Secondary Mortgage Market.
now is F and F TBTFail - yes - but "man can not live on implicit food alone"
Thanks, that's right, so $7.2T of the total outstanding MBS of $12.2T MBS outstanding:
https://www.sifma.org/resources/research/us-mortgage-backed-securities-statistics/
F and F have guaranteed about 60% of outstanding MBS, does that sound right?
The current National Debt is approximately $31.6T, so up to $7.2T in additional US Debt added to the liability side of the federal balance sheet still seems significant.
Is Ginnie Mae MBS included on the federal balance sheet?
Basically, I'm criticizing the 'Emperor' (aka Uncle Suggy) for maintaining the fallacy since 1968 and again in 1972, that Fannie Mae and Freddie Mac MBS are NOT guaranteed by the federal government.
They want their cake and eat it too.
It will likely NEVER happen simply because to do so would require adding up to $7.2T+ in liabilities to the National Debt.
More federal government bs accounting is how the US government accounts for the Social Security system as well.
https://www.usdebtclock.org/
"Our economy will not function effectively without our community and regional banking system. Therefore, the
@FDICgov
needs to explicitly guarantee all deposits now. Hours matter.
We also need a modern version of our deposit insurance regime, but that will take some time, and that’s ok as long as all deposits are guaranteed in the interim.
Regional bank stocks are an incredible bargain now as long as the gov’t does the right thing, and I am confident it will.
This means that one of the great trades would be to buy regional bank stocks or ETFs here. And the massive decline in rates makes this an even better investment now.
This is not without real risk, but it does offer very attractive asymmetry. I would be surprised if Warren isn’t putting capital to work in his favorite regional banks now.
Unfortunately, I won’t be able to participate as we decided that we wouldn’t invest long or short in banks as I want to continue to be part of this conversation and be able to share my views without the typical accusations against investors who share their views while having a trade on."
Our economy will not function effectively without our community and regional banking system. Therefore, the @FDICgov needs to explicitly guarantee all deposits now. Hours matter.
— Bill Ackman (@BillAckman) March 13, 2023
We also need a modern version of our deposit insurance regime, but that will take some time, and…
By not EXPLICITLY guaranteeing Fannie Mae and Freddie Mac MBS, the federal government keeps up to $13T+ off the liabilities side of the federal balance sheet.
How much longer do we have people believe in this?
Everyone seems to believe it, that the federal government has to cover agency MBS and TBTF deposits (and apparently not TBTF banks like SVB).
I heard that the Emperor wears no clothes, is that true! HeeeeHeeee !
https://www.bloomberg.com/news/articles/2023-03-13/federal-home-loan-banks-to-raise-64-billion-in-notes-offering
"The US system of Federal Home Loan Banks, a key source of cash for regional banks, is seeking to raise about $64 billion through the sale of short-term notes, according to people with knowledge of the matter.
The offering comes amid a banking crisis that has toppled three lenders in less than a week. The FHLB system of 11 regional banks is a Depression-era backstop that private banks can use for short-term funding without the stigma of taking money from the Federal Reserve. It’s widely seen as a safety net and has been called the “lender of next-to-last resort” — a play on the nickname for the Fed’s famed.."
Yesterday, Janet Yellen said, "We're not going to be doing the bailout thing again", JB just said TWICE this morning, "No risk to US taxpayers".
JB said that the 'evil' Wall Street and banks will pay for the SVB depositors via a special assessment to all banks in the approximately $100B FDIC fund.
Left unsaid is that all American Families that buy CD's and other short and long term savings vehicles WILL PAY since the banks will ultimately need to cover the costs of increased FDIC insurance that they will simply pass through to depositors at reduced interest rates on American Families savings.
When institutional investors shell out (especially banks) the $13T+ to buy Fannie Mae and Freddie Mac MBS, they do so knowing that Uncle Suggy implicitly guarantees the timely repayment of their principal.
That's why few investors are interested in PLMBS, NO IMPLICIT GOVERNMENT GUARANTEE!
The byproduct of this arrangement is that hard working American Families get access to the 30 yr PREPAYABLE AT ANY TIME FRM, AT SOME OF THE LOWEST INTEREST RATES.
Look at a typical US Bank Balance sheet. It consists of about 24% of federal agency debt and MBS (SVB had 57%).
This imbedded importance of Fannie Mae and Freddie Mac MBS as one of the backbones of the US Banking System means that it is extraordinary likely that the US government will make sure these investors don't lose their principal in F and F MBS.
BA, FDIC needs to explicitly guarantee all bank deposits: "Therefore, the @FDICgov needs to explicitly guarantee all deposits now. Hours matter.
We also need a modern version of our deposit insurance regime, but that will take some time, and… "
https://www.streetinsider.com/dr/news.php?id=21362257&gfv=1
The $13T+ in Fannie Mae and Freddie Mac MBS sitting on all the US Banks as assets are viewed by the federal bank regulators as integral to safety and soundness since they will be repaid guaranteed implicitly by the federal government.
This likely means Fannie Mae and Freddie Mac will not be fully released until they have rock solid capital on their books and that could take quite a bit of time if the LP sweeps continue.
“I don’t think that you can understate the danger that the American banking system is in,” veteran bank analyst Dick Bove, told CNBC’s “Squawk Box Asia” on Monday.
Bove pointed out the U.S. banking system is at risk for two reasons.
“Number one, the depositors have lost faith in American banks: Forget the people who may or may not have been taking money out of SVB. Deposits in American banks have dropped 6% in the last 12 months,” he noted.
“The second group that has lost faith in the American banking system are investors,” he added. “The investors have lost faith because the American banks have a whole bunch of accounting tricks that they can play, to show earnings when earnings don’t exist, to show capital when capital doesn’t exist.”
He went on to say that accounting practices for the banking industry are “totally unacceptable,” and that banks are using “accounting gimmickry to avoid indicating what the true equity is in these banks.”
https://www.cnbc.com/2023/03/13/bill-ackman-says-us-did-right-thing-in-protecting-svb-depositors.html
“The government is now on its back feet. And the government is trying to do whatever it can to stop what could be a major, major negative thrust,” Bove said.
Senator Mark Warner just won reelection about a year or two ago, we are stuck with him and Sherrod Brown and Elizabeth Warren for awhile.
As I recall it was a pretty lopsided win for Warner.
Although the R's just won the Governor and Senate at the state level in Virginia and Senator Manchin next door in WV took note and that probably explains a lot of his disagreements with the current administration.
One thing seems clear for Fannie Mae and Freddie Mac Shareholders, Senator Mark Warner despises Fannie Mae and Freddie Mac Shareholders.
It ought to be interesting to watch. It seems like the "Emergency Lending Facility", where all the banks can loan at par, EVEN THOUGH PAR is well ABOVE fair market value (because the MBS or UST bond coupons are way below current market interest rates), it just seems like a bailout for US banks by the federal reserve, FDIC, and UST.
Is the US government picking winners and losers here? SVB and Signature Bank in NY go into receivership and all the other US banks with approximately $620B in unrealized Losses (and counting as interest rates continue rising) now get to borrow against their underwater MBS and UST bonds at the pretend PAR value.
How much blame goes to lax regulation of banks interest rate risk policy? What do you think?
Makes no sense at all to keep Fannie Mae and Freddie Mac Shareholders locked up in conservatorship prison for 14+ years.
Just absolutely crazy!
Once AGAIN Fannie Mae and Freddie Mac MBS become the lynchpin vehicles ($13T+ outstanding) by which the US and World Economy are saved from disaster by banks and regulators whom this time, couldn't manage interest rate risk.
The Shareholders reward? The federal government taking all our profits into perpetuity.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm
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Press Release
March 12, 2023
Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors
For release at 6:15 p.m. EDT
Share
To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.
The Federal Reserve is prepared to address any liquidity pressures that may arise.
The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.
With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.
After receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank and Signature Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.
The Board is carefully monitoring developments in financial markets. The capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient.
Depository institutions may obtain liquidity against a wide range of collateral through the discount window, which remains open and available. In addition, the discount window will apply the same margins used for the securities eligible for the BTFP, further increasing lendable value at the window.
The Board is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate.
For media inquiries, please email media@frb.gov or call 202-452-2955.
Without the implicit federal government guarantee on Fannie Mae and Freddie Mac MBS investors will lose confidence during market panics and it's that implicit federal government GUARANTEE of the timely repayment of principal on Fannie Mae and Freddie Mac securities that provided the ready, willing, and able buyers in 2008 and 2020.
Fannie Mae and Freddie Mac helped avoid a prolonged real estate market crash and world economic downturn and in return the Shareholders got the August 17, 2012, Net Worth Swipe.
Do you think think Wall Street will come running back to invest in a "reipo"?
Hardly ANY credit risk (the problem in 2008), tons of interest rate risk. Is this a ticking time bomb? From the FDIC chairman:
"The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at year end 2022."
In other words, the US banking system as of end of 4Q22 had $620B in UNREALIZED LOSSES.
Those losses are unrealized because of the accounting treatment, but will easily become realized losses if there is a depositor run on the banks.
Btw, those unrealized Losses could easily crest above $1T, depending on how high and how long Jerome and the federal reserve board ratchet up interest rates to fight off inflation.
How high will the unemployment rate have to go?
https://www.fdic.gov/news/speeches/2023/spmar0623.html#:~:text=The%20total%20of%20these%20unrealized,%24620%20billion%20at%20yearend%202022.
Hardly ANY credit risk (the problem in 2008), tons of interest rate risk. Is this a ticking time bomb? From the FDIC chairman:
"The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at year end 2022."
In other words, the US banking system as of end of 4Q22 had $620B in UNREALIZED LOSSES.
Those losses are unrealized because of the accounting treatment, but will easily become realized losses if there is a depositor run on the banks.
https://fortune.com/2023/03/12/silicon-valley-bank-failure-there-will-be-more-says-former-fdic-chair-william-isaac/
“There’s no doubt in my mind," said Isaac. "Seems to me to be a lot like the 1980s.”