As the Banks Fall: The Beginning of the End of the Modern Slave System (Part 1)
The bank collapses have begun, so pay attention as the dominos fall
CIBC Chicago - Credit: Cloud atlas, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons
It’s here, folks: the banking crisis that many of us have long written about is starting to make itself visible to the public. And trust me, this is one subject I wish I had been wrong about. While this is an impossibly complex topic that cannot be fully explained in a Substack article, this is just a brief overview to help you see what’s on the horizon.
Forewarned is forearmed.
The last 48 hours have seen one of the US’s largest bank collapses in history when Silicon Valley Bank, the 18th biggest bank in the country (with over $209 billion in assets at the end of 2022), failed to raise enough capital ($2 billion) to cover $1.8 billion in bond sale losses. Ever-rising interest rates certainly did not help the matter. The Federal Deposit Insurance Corporation (FDIC) seized SVB on Friday.
Before we get into the importance of this event, let’s take a quick look at how spectacularly SVB’s stock plummeted. As of the close of business on Thursday, the stock value dropped by nearly 80% its value precisely one month prior or 60% from a day earlier. (First Republic also tanked by 30% and trading was halted for volatility and Signature Bank was down 20%.) Markets all over the globe took a hit after the SBV news emerged.
Screenshot taken from Brave Browser on Saturday, 11 March 2023
SVB has a reputation of being the ultimate Silicon Valley financier of more than 1/2 of all venture-backed tech and health-related companies, which is why everyday people aren't paying it much attention. However, here's a more specific look at SVB's business dealings:
The majority of Silicon Valley startups deposited their cash with SVB.
SVB issued "venture debt and other loans."
Provided "banking and loans to VC (venture capital) firms."
More than 55% of their loans were issued to "VC (venture capital) and private equity firms."
"14% of its loans were mortgages to wealthy individuals and legacy Boston Private clients."
"24% were to various tech and health care companies, including 9% of all loans going to early and growth-stage startups (whose repayments depend on their ability to raise more capital or exit)." (Source for all quotes in this section: Axios)
SVB's collapse triggered a bank run. On Friday, SVB's investors in New York had the police called on them because they were trying to get their money out of the Manhattan branch. (Source) One of those investors was the former Lyft CEO, Dor Levi.
The ripple effect will be horrendous, with hundreds of companies likely unable to make payroll in the next week or two. It's also potentially going to take down 500 Israeli tech firms that recently moved their funds to SVB in protest of their "government's judicial reform legislation." (Source)
It’s only made worse by the fact that the President and CEO of Silicon Valley Bank, Greg Becker, sold off over $3.57 million of his bank stock 2 weeks before the collapse. (Source). And the Chief Administrative Officer of SVB Securities happens/ed to be Joseph Gentile the CFO for the now defunct Lehman Brothers’ Global Investment Bank when it collapsed. Nothing to see here, folks.
But this is not just about wealthy investors and tech people being shit-out-of-luck when it comes to their cash—the unwise ones kept all their eggs in one basket: SVB—it's about what happens next.
Since many banks hold "assets" in the form of other banks' debt, all it takes is for one bank to default on their debt payments to take down several others in a chain reaction. (There’s also the lack of liquidity, the impending derivates crisis, and a chance that the US Government will default on its debt, but we’ll address those at another time.)
As a result, the chances of us seeing several local and regional banks collapse (along with a few larger ones) and bank mergers take place are quite high between now and July.
Why July?
I say July because the Federal Reserve is hell-bent on continuing to raise interest rates, and I don’t suspect many banks can survive more than 1 or 2 more rate hikes (usually quarterly). Understand that the Fed is raising interest rates to kick the hyperinflation can as far into the future as possible in an attempt to "save" the dollar.
(The great irony is that Jerome Powell claims these hikes are necessary because our economy is "roaring," but historically, interest rate increases have always signaled troubled times. The mid-70s and the 80s are relatively clear and recent examples.)
That said, the dollar cannot be saved. It can only be reconstituted or replaced by another currency since history has taught us the inevitability of hyperinflation and the destruction of fiat currencies. This applies both to banks in the US and abroad. Therefore, what happens in the US will affect other countries and vice versa.
So, what does this mean for us? There could very well come a day in the not-so-distant future that we—or some of us—get locked out of our banks, just like world-famous entrepreneur Dor Levi was this past Friday and denied access to our deposits. (Note: Thursday’s SVB bank run saw people attempting to withdraw $42 billion.)
Do we trust the banks with our deposits? Will insurance corporations like the FDIC reimburse us our money if the banks holding our funds collapse down the road? (And what if you have more than $250,000 insured limit?) If they do, how long will it take them? Will it be too late? Will we have reached peak hyperinflation by then, and our money be rendered relatively useless?
These are all legitimate questions for us to ask ourselves.
I'm not a licensed financial advisor, so I can only tell you what I do, and much of that is in my article How to Thrive in Uncertain Times.
Within the next month, I plan to start putting out articles that explain the history of our current global financial system and how our "funny money" fiat currencies actually work, including a detailed look at "money" creation, inflation, deflation, stagflation, hyperinflation, recession, and depression. And these articles will provide everyone with a good baseline of financial literacy in a broader scope (beyond the personal level) so that current and impending events will make more sense.
It may take several articles, but it's essential: every human needs to understand how the greatest control mechanism in the world works. And once you know, you'll see that the truth is enough to incite a global revolution.
Next up: a deep dive on Zelensky (1/2 done as of today), followed by a brief overview of the January 6th tapes, the weaponization of government, and the origins of SARS-CoV-2 virus.
Catch up on related articles you missed:
How to Thrive in Uncertain Times
The US Will Lose Its World Reserve Currency
Central Bank Digital Currencies: The Wet Dream of Aspiring Totalitarians
As the Banks Fall: The Beginning of the End of the Modern Slave System (Part 1)
I’ve divided our funds between two banks, and I’m thinking about adding a third. We pay almost everything via cash-back credit cards, which I pay in full every month. Lately I’ve been paying them off every week or two, just to keep the balances low. We have no other debt, which I think is really important right now. Being “Boomers” we have the advantage of having been raised by parents who grew up during the Great Depression. The frugality they instilled has kept us living a bit below our means, which hopefully will help hen the inevitable crash happens.
Once upon a time there were bank deposit reserve requirements that ranged from 12 to upwards of 15 percent. That was fifty years ago.
Here's the latest from the Federal Register:
Effective March 26, 2020, the [Federal Reserve] Board reduced reserve requirement ratios on all net transaction accounts to zero percent, eliminating reserve requirements for all depository institutions. The annual indexation of the reserve requirement exemption amount and the low reserve tranche for 2023 is required by statute but will not affect depository institutions' reserve requirements, which will remain zero.
https://www.federalregister.gov/documents/2022/12/01/2022-26065/reserve-requirements-of-depository-institutions
Now doesn't that just give you a "warm and fuzzy"? That announcement slipped through with very little fanfare. BTW, SVB had reserves of roughly 3 percent when it went down.