19 Mar Too Big To Fail Two 🏦
tl;dr: In this blog post, I predict a major upheaval in the financial industry within the next 90 days. I discuss the collapse of several banks, including SVB and Signature Bank, and the government’s attempts to stabilize the situation. I believe that hundreds of banks will fail in the coming months, with many more being bought up by larger banks, ultimately leading to consolidation of power. I reference the 2008 financial crisis to support my arguments.
In the next 90 days, the financial industry is facing a significant upheaval. Several banks, including SVB and Signature Bank, have already collapsed and been taken over by the FDIC. The government has been trying to stabilize the situation, but ultimately, it will only delay the inevitable.
The larger banks are consolidating their power by depositing funds with smaller banks like First Republic, which is receiving government-mandated deposits. This consolidation trend has been seen before in the aftermath of the 2008 financial crisis, and it will likely continue as more banks fail.
The recent purchase of Credit Suisse by UBS for 30% of its value is a sign of the industry’s instability. This historic government-brokered deal was aimed at containing a crisis of confidence that threatened to spread across global financial markets. The Swiss National Bank agreed to offer a $100 billion liquidity line to UBS as part of the deal.
The fact that Warren Buffet is reportedly meeting with regional bank owners and investors is alarming. Buffet has a history of stepping in to aid banks in crisis, but his involvement could be a sign of more instability to come.
The banking industry is poorly operated and has a history of needing bailouts. The 2008 financial crisis is a prime example of this. Banks were given TARP funds, even if the larger banks did not need it, to lend out to customers. Instead, most banks used the funds to do stock buybacks and issue bonuses.
History is repeating itself, and there will be another bank run that will accelerate all of these closures and consolidations. The government is avoiding calling this a “bailout” and calling it a “backstop” instead, with funds available to “backstop” depositor withdraws that they are anticipating. But ultimately, the banks need to fail to address the underlying issues.
In my opinion, hundreds of banks will fail in the coming months, with many more being bought up by larger banks. This consolidation will lead to a handful of banks, such as JPMorgan Chase, Bank of America, Wells Fargo, and Citibank, dominating the industry. We cannot keep printing money and injecting it into the poorly run businesses in the country. Inflation will accelerate, people won’t be able to afford what they need, and society will essentially devolve.