Nearly half the money — $143 billion — went to holding companies for the two major banks that failed over the past week, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets.
Amending my comment in the spirit of not trying to get into a slap fight with other leftists. My apologies. See my responses below for my explanation of thoughts. I also have screenshotted what I originally commented, in case anyone wishes to see it.
$45B wasn't conjured out of thin air to cover deposits. It came from the ~$100B Deposit Insurance Fund administered by the FDIC.
This new program of swapping long term securities with low interest rates with ones at higher rates is a different story. That's coming out of thin air.
No, that's not accounting fiction. The DIF exists and it's assets were valued at ~$100B last week.
Whether or not the FDIC ceiling should have been raised is again a different question, and one in which I lean toward "No":
I’ve been going back and forth on this. I’m starting to lean towards that they shouldn’t have insured depositors and should have guaranteed payroll up to a certain amount instead. These companies put all of their eggs into one basket because it paid a higher return, which means higher risk. Not only the bank, but many of their customers have fought against regulation or stayed quiet while the banking industry and SVB pushed to be exempted from regulation. If they want their cash fully insured, then depositories should, at the very least, be regulated like public utilities.
https://hexbear.net/post/256772/comment/3313649
The definition of a bailout is the government stepping in to save a company from collapse. That did not happen for any of the three banks. Their shareholder equity and the creditors claims have been wiped out. Whether or not insuring deposits counts as bailing out depositors is up for debate, I can see that going both ways. The other banks that are getting to participate in this security swap program are getting bailed out.
Why are you saying they’re being drawn from one place and not the other when it does not matter?
Because it does matter. The DIF is funded by premiums assessed to banks by the FDIC. The FDIC is separate from the Fed and doesn't have money printer capabilities the same way the Fed or Treasury do with this new securities swap program.
If capitalists wanted to cover their counterparty risk a mechanism exists for that, which we all became familiar with after 2008: credit-default swaps.
Credit-default swaps are for bonds, not bank deposits. They could have used CDARS or ICS up to a certain amount to have their deposits fully insured, which again goes back to the point in my quote that they put all their eggs into one basket in return for higher interest rates on their deposits.
There is no compelling argument against calling this a bailout
This new program of swapping long term securities with low interest rates with ones at higher rates is a different story. That’s coming out of thin air.
If you still have any patience for this conversation, what do you mean by this? Are you talking about the expanded discount window, or is there something in addition to it that developed after the BTFP was set in place through the something or other systemic exception?
I'm talking about both, but the BTFP is more egregious in my opinion than the changes to the discount window. This discount window serves a purpose that I can at least understand in terms of providing short term liquidity. Allowing the banks to basically dump their bonds with the BTFP for a year is a way to keep their profits high instead of letting them rightfully take a bath on their poor asset management. They say it's about liquidity, but I suspect that it's much more about actual solvency, in how SVB "technically" had a liquidity problem, in that their assets weren't capable of generating enough revenue to cover deposits, and that is because if their assets would have been marked to market, they would have also been (and did end up being) insolvent.
What is more egregious is that they are allowing collateral in both the discount window and the BTFP to be valued at par (the face value of the bonds) instead of marked to market, meaning that collateral will be worth less and less as the Fed continues doing the Volker summoning ritual to kill labor gains. The discount window has been around for a long time, but valuing collateral at par is new.
Sure, the only way Marx was able to be as insightful as he was, was because he totally immersed himself in all the economic data and theory available to him at the time. Things that could easily be called insignificant pedantic arguments, following your argument.
If we refuse to do the same and just stick our heads in the sand about these things, then we have no hope of changing the society we live in.
And about the old understandings part. While many things in Marx are still relevant, they are at best incomplete.
He also incorporated other ideas from the sciences of his time which many Marxists have categorically refused to do since Marxism became a primarily academic project, at least in the west.
Now to be fair, this has been changing, especially since 2008. But most people stick to old theory which, while it can still be insightful, is not up to the task of bringing about revolution as it currently stands.
Well yeah that was my point, I disagree. It's not so much about the policy itself that is insightful but what it can tell us about the system as a whole.
For example, this round of propping up the financial sector is turning out quite different than the last. Whether it ends up becoming a new thing to supplant neoliberalism or just a modification of it is yet to be seen.
The cause is also interesting, the end of QE and the rate hikes which were intentional. Not sure how much I believe it was to curb inflation but how they explain their actions can be insightful in its own way.
This also triggered a series of sovereign debt crises in the third world, like Sri Lanka and others.
But anyway my point is that what might seem like useless information in isolation can be very useful when looking at the system as a whole due to the integrated nature of the world financial system.
deleted by creator
Amending my comment in the spirit of not trying to get into a slap fight with other leftists. My apologies. See my responses below for my explanation of thoughts. I also have screenshotted what I originally commented, in case anyone wishes to see it.
deleted by creator
$45B wasn't conjured out of thin air to cover deposits. It came from the ~$100B Deposit Insurance Fund administered by the FDIC.
This new program of swapping long term securities with low interest rates with ones at higher rates is a different story. That's coming out of thin air.
deleted by creator
No, that's not accounting fiction. The DIF exists and it's assets were valued at ~$100B last week.
Whether or not the FDIC ceiling should have been raised is again a different question, and one in which I lean toward "No":
https://hexbear.net/post/256772/comment/3313649
The definition of a bailout is the government stepping in to save a company from collapse. That did not happen for any of the three banks. Their shareholder equity and the creditors claims have been wiped out. Whether or not insuring deposits counts as bailing out depositors is up for debate, I can see that going both ways. The other banks that are getting to participate in this security swap program are getting bailed out.
deleted by creator
Because it does matter. The DIF is funded by premiums assessed to banks by the FDIC. The FDIC is separate from the Fed and doesn't have money printer capabilities the same way the Fed or Treasury do with this new securities swap program.
Credit-default swaps are for bonds, not bank deposits. They could have used CDARS or ICS up to a certain amount to have their deposits fully insured, which again goes back to the point in my quote that they put all their eggs into one basket in return for higher interest rates on their deposits.
What's SVB's current stock price?
deleted by creator
deleted by creator
If you still have any patience for this conversation, what do you mean by this? Are you talking about the expanded discount window, or is there something in addition to it that developed after the BTFP was set in place through the something or other systemic exception?
I'm talking about both, but the BTFP is more egregious in my opinion than the changes to the discount window. This discount window serves a purpose that I can at least understand in terms of providing short term liquidity. Allowing the banks to basically dump their bonds with the BTFP for a year is a way to keep their profits high instead of letting them rightfully take a bath on their poor asset management. They say it's about liquidity, but I suspect that it's much more about actual solvency, in how SVB "technically" had a liquidity problem, in that their assets weren't capable of generating enough revenue to cover deposits, and that is because if their assets would have been marked to market, they would have also been (and did end up being) insolvent.
What is more egregious is that they are allowing collateral in both the discount window and the BTFP to be valued at par (the face value of the bonds) instead of marked to market, meaning that collateral will be worth less and less as the Fed continues doing the Volker summoning ritual to kill labor gains. The discount window has been around for a long time, but valuing collateral at par is new.
Nah dude, it's ineffectual cus it refuses to engage with material reality and clings to 19th/20th century understandings of the world as gospel.
deleted by creator
Sure, the only way Marx was able to be as insightful as he was, was because he totally immersed himself in all the economic data and theory available to him at the time. Things that could easily be called insignificant pedantic arguments, following your argument. If we refuse to do the same and just stick our heads in the sand about these things, then we have no hope of changing the society we live in.
And about the old understandings part. While many things in Marx are still relevant, they are at best incomplete. He also incorporated other ideas from the sciences of his time which many Marxists have categorically refused to do since Marxism became a primarily academic project, at least in the west. Now to be fair, this has been changing, especially since 2008. But most people stick to old theory which, while it can still be insightful, is not up to the task of bringing about revolution as it currently stands.
deleted by creator
Well yeah that was my point, I disagree. It's not so much about the policy itself that is insightful but what it can tell us about the system as a whole.
For example, this round of propping up the financial sector is turning out quite different than the last. Whether it ends up becoming a new thing to supplant neoliberalism or just a modification of it is yet to be seen. The cause is also interesting, the end of QE and the rate hikes which were intentional. Not sure how much I believe it was to curb inflation but how they explain their actions can be insightful in its own way. This also triggered a series of sovereign debt crises in the third world, like Sri Lanka and others.
But anyway my point is that what might seem like useless information in isolation can be very useful when looking at the system as a whole due to the integrated nature of the world financial system.