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Perp Returns to the Scene of the Crime 3/17/23

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2 hours ago, Jimbo said:


The equation that applies to the regional banks right now is:

Inflation + Duration Risk Mismatch = Chapter 11.


In other words: Maturity transformation, the core of the business model of smaller banks, doesn‘t work when rates rise too fast too much.

And now imagine what this will mean for European banks where we had sub-zero interest rates for years… Bankmageddon.

Sure the plan of FED and ECB will be to force mergers and takeovers. But will it work? Not sure. So much turmoil, so much hassle, so much unintended consequences…

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So now its all about plugging the regional bank solvency GAP ASAP!!!!!!!!!

(Never mind if the FHLB had had the good sense to withdraw its billions in deposits form the regionals in March 2022 the banks would have been forced to sell their treasury portfolios and MBS to pay out the FHLB..... and not lost a cent on them....so no need for a bail out.......but that is a story for another time)

So what is the golden calf...

Uncle Warrens $150 Billion honey pot!!!!!!!!!!!

Im sure uncle Warren is mumbling "Prefs and warrants prefs and warrants" in his sleep.

Indeed warrants should be renamed warrens in his honour.

However the prefs will still have the OXY conundrum .... ie. the high probability that the the prefs interest and capital gets inflated away by more FED printing.

Unless the prefs get issued at a floating rate linked to the CPI!!!!

(this is my suggestion to Uncle Warren.....and I dont even charge him a fat bankers fee for it). 

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3 hours ago, Jimbo said:


So the FED stoped printing in March 2022.

And now....only in March 2023 do the depositors and shareholders of the banks realize the consequences of that small and simple action.

A full 12 months later.

There is no lag. The effects are immediate. I've been writing about the unrecognized losses on bank balance sheets for a year, if not more. What lags is recognition, because policymakers and Wall Street keep pretending that there's no problem. Anyone who had paid attention knew goddamn well that there was a problem. I repeatedly wrote that there were dead bodies that would soon float to the surface. 

The idea that monetary policy works with varying lags, is central banker/economist/Wall Street bullshit designed to keep the sheep in line, and to hide the fact that they don't know WTF they are doing. 

Again, only the recognition lags. The problems start as soon as the policy changes. 



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