Cryptocurrency: BANK RUN PANIC Spreads Around Globe, Crypto and Gold Demand Skyrockets, FDIC Coverup

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Yes, The Latest Bank Bailout Is Really A Bailout, And You Are Paying For It

https://mises.org/wire/yes-latest-bank-bailout-really-bailout-and-you-are-paying-it
Ryan McMaken, The Mises Institute

https://twitter.com/BillAckman/status/1634028534107602944
https:/twitter.com/BillAckman/status/1634564398919368704
https:/www.usbank.com/financialiq/improve-your-operations/investments-and-controls/protecting-cash-balances.html
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm
http://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/
https://www.federalreserve.gov/monetarypolicy/files/bank-term-funding-program-faqs.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20230312a1.pdf
https://mises.org/wire/why-fed-bankrupt-and-why-means-more-inflation
https://mises.org/wire/dont-call-it-capitalism-feds-8-trillion-hoard-financial-assets
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm
https://twitter.com/profstonge/status/1635272942660784133
https://www.barrons.com/articles/svb-fdic-news-what-to-know-10bd0471
https:/fred.stlouisfed.org/series/DPSACBW027SBOG
https://www.statista.com/chart/29478/share-of-fdic-protected-deposits-at-selected-banks/

Silicon Valley Bank (SVB) failed on Friday and was shut down by
regulators. It was the second-largest failure in US history and the
first since the global financial crisis. Almost immediately, the calls
for bailouts started to come in.

In fact, on March 9, even before SVB failed, billionaire investor Bill
Ackman took to Twitter to insist a federal “bailout should be
considered” if the private sector could not save the bank. Hours after
SVB officially failed, Ackman was still at it, and in a 646-word
panicky screed, he demanded that the federal government “guarantee SVB
deposits” and essentially backstop the entire banking industry to keep
failing, inefficient, and poorly managed banks afloat.

Now, many readers might be saying to themselves, “I thought bank
deposits were insured!” That, of course, is correct, but deposits are
only legislatively insured up to $250,000 by the Federal Deposit
Insurance Corporation (FDIC). Given that most normal people keep less
than this in their bank accounts, that means the majority of bank
users are not going to lose any of their money should their banks
fail. Moreover, it is extremely easy to acquire deposit insurance on
much more than $250,000 by simply keeping money at more than one bank.
That $250,000 limit applies to the deposits at each bank where a
depositor keeps funds. For customers with high liquidity needs, the
financial sector offers tools for dealing with the risk of exceeding
FDIC limits.

In an illustration of the laziness and arrogance that so characterizes
our modern financial class, however, many of the wealthiest depositors
at Silicon Valley Bank couldn’t be bothered with managing their
deposits, and they essentially ignored the deposit-insurance rules
that even a ten-year-old understands when opening his first bank
account.

As a result, many venture capitalists and other wealthy SVB customers
stand to lose a lot of money. At least, they stood to lose a lot of
money before Sunday evening, when the Federal Reserve announced its
new “Bank Term Funding Program” (BTFP), which promises to flood the
banking system with new money and shore up the personal finances of
wealthy depositors.

This is part of a two-pronged effort to both make banks appear more
financially sound, and to greatly expand FDIC payouts to depositors
who have their funds in these banks.

The official propaganda coming out of the administration, and from the
usual Fed fanboys, is that none of this is a bailout. That’s a lie.

The new steps being taken by the Fed and by the Treasury Department's
FDIC are indeed ultimately bailouts for billionaires and other wealthy
depositors. Moreover, this new program will require at least a partial
return of quantitative easing. There’s no way to guarantee such huge
sums of money without having to fall back on inflationary monetary
policy yet again. This also means price inflation won’t be going away.
Here is why.
Propping Up Asset Prices with New Money

The first prong of the bailout plan is to use extremely low-cost loans
to shovel more money at banks in order to make them look more
financially sound. The idea here is to head off depositor panics over
uninsured deposits before they start.  The  first indication that this
scheme is a bailout comes from the text of the press release on the
creation of the BTFP. It states that the new program will be

    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 [MBS], 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.

The key phrase is “These assets will be valued at par.” That’s
important because these banks are facing huge unrealized losses, many
stemming from losses on assets whose market prices plummeted as
interest rates rose. Part of the reason these banks are in trouble is
because their assets are no longer worth anywhere near par value in
the marketplace:

Yet, the Fed has decided to simply declare that banks' assets sit at
par value and thus far more valuable than is really the case. It will
let banks use these assets as collateral at the imaginary (higher)
prices.

Moreover, the terms of the BTFP loans reiterate how these are loans
designed to hand money to banks for little in return. According to the
Fed, “there are no fees associated with the Programs” and there is no
penalty for prepayment. Foreign banks are also eligible, by the way.
And, of course, “the Department of the Treasury . . . [will] provide
$25 billion as credit protection.” If history is any guide, we can
expect that Treasury backstop to get a lot bigger. If and when some of
these banks default on the loans, the collateral won’t come close to
covering the value of the loans. The banks are essentially getting
free money.

Where will the money to provide these loans come from? It will be
printed, of course. The Fed is already bankrupt and has no extra money
lying around. The Fed can’t just start selling off its $8.5 trillion
hoard of Treasurys and MBS to get cash. That would drive down the
prices of those assets even further, and this would make balance
sheets at banks—who also own Treasurys and MBS—even worse. So, new
loans and guarantees will have to come from new money. Another phrase
for that is "monetary inflation."
The FDIC Will Need a Bailout

The second prong of the bailout is the FDIC's promise to cover all
depositors at troubled banks, rather than just those with deposits up
to the usual limit.

The not-a-bailout narrative claims that the new promised expansion of
insurance will all be funded by FDIC fees and imposes no costs on
taxpayers. "The banks will pay for it," we are told.

That’s not how it will actually work. In this three-minute video,
Peter St. Onge explains the real problem:

    Is the FDIC bailout a bailout? pic.twitter.com/MHuEsEe3Z1
    — Peter St Onge, Ph.D. (@profstonge) March 13, 2023

St. Onge notes that the FDIC fund available for backstopping deposits
is less than $130 billion. Yet deposits in US banks total
approximately $22 trillion. The FDIC fund is equal to about 0.6
percent of all the deposits. And it appears that even at the banks
with the highest proportion of FDIC-covered accounts, only 42 percent
of deposits are covered by insurance. So, clearly, extending FDIC
coverage to all deposits means the FDIC will have nowhere near the
funds it needs to cover potential depositor losses. The FDIC was never
intended to insure rich people with deposits well in excess of FDIC
insurance maximums. Yet that is exactly what is now happening.

When the FDIC runs out of money, what happens? The FDIC runs to the US
Treasury to get a bailout. Where does the money to bail out the FDIC
come from? It comes either from current tax revenues or from borrowed
money. Either way, the taxpayers are on the hook. Moreover, if the Fed
intervenes to buy up some of that new government debt—to keep federal
interest obligations low, of course—then taxpayers will also pay via
the inflation tax.

When we consider all this, we can see how the grift works: the Fed or
the Treasury Department creates a “fund” and claims that it will be
financed by fees and other nontax revenue sources. Thus, when the FDIC
or the Fed rush to bail out banks, the politicians can claim the
taxpayers will pay nothing. That is only true if the programs
themselves receive no backstopping from the Treasury or from monetary
inflation. But if we’ve learned anything since 2008, it’s that these
programs all enjoy implicit guarantees of taxpayer backing, and that
any “caps” on these amounts can be increased at any time.
Expect More Price Inflation

In any case, the ordinary taxpayer will certainly feel the pain in
terms of ongoing price inflation. Current bailout efforts are
inflationary and are thoroughly opposed to the Federal Reserve’s
recent attempts at “quantitative tightening.” The whole point of the
bailouts, after all, is to loosen financial conditions for banks. So
the Fed will almost certainly be backing off whatever it had planned
in terms of raising the target interest rate and reducing its
portfolio at the next Federal Open Market Committee meeting. Now the
Fed will be looking at whatever strategy it can find to increase the
flow of dollars to banks, and that will mean more money creation, even
if the Fed’s official position remains ostensibly hawkish. Put another
way, get ready for more entrenched price inflation. But don’t forget
that the primary focus of all of this is to bail out wealthy
depositors and bankers. On top of it all, there’s no guarantee that it
will even work. There’s a reason the financial technocrats are in
panic mode. They don’t know what will happen next.