by Karl Denninger, Market Ticker:
Oh but so many climate-related firms are going to fail to make payroll! – Any one of a thousand Internet scolds.
My answer: So what?
Next up – Republic, which apparently had lines out the door (if you believe the Internet) on Saturday. Again: So what?
Folks, bubbles attract stupidity. Stupidity is a constant in the universe; in fact it is likely the only thing that is truly infinite (with all due respect to the late Mr. Einstein.)
TRUTH LIVES on at https://sgtreport.tv/
The so-called “Chief Risk Officer” at SVB had a masters in….. public administration. Anyone care to bet if she passed any form of advanced mathematics — you know, like for example Calculus or Statistics? Do you think she understood exponents and why this graph made clear that concentration of risk and duration was stupid and likely to blow up in everyone’s face — including hers?
How about Bill Ackman and the others on the Internet screaming for a bailout? How about the CFOs of public companies like Roku that stuck several hundred million dollars in said bank? Was it not widespread public knowledge (and available to anyone who took 15 minutes to do research, which you’d think someone would do before putting a hundred million bucks somewhere) that this institution was chock-full of VC-funded startup companies which, historically fail 90% of the time and their debt becomes impaired or even worthless?
Where are the indictments for fiduciary malfeasance among these people?
It takes a literal five minutes with Excel to prove to yourself that if debt is rising faster than GDP no matter the interest rate eventually the interest payments on that debt will exceed all of the economy. This of course is impossible because you cannot use over 100% of anything as its not there, but long before you reach that point you’re going to have trouble putting food on the table, fuel in the vehicle and paychecks are going to bounce. It was for this reason that one of the first sections in my book Leverage, written after the 2008 blowup which I chronicled and laid bare upon the table featured exactly this chart.
The last bit of insanity was just 15 years ago by my math. Did we fix it? No. What was featured in the stupidity of 2008? Allowing banks to run with no reserves. Who did that? Ben Bernanke, who got it into the TARP bill that eventually passed and which I reported on at the time. It accelerated that which was already going to happen because Congress is full of people who think trees grow to the moon, leverage is never bad and exponents are a suggestion.
Oh by the way, your local Realtor thinks so to as does, apparently, the former SVB “risk officer” who, it is clear, didn’t understand exponents — or didn’t care.
The simple reality is that it must always cost to borrow money in real terms. This means the rate of interest must be positive in said real terms, which means across the curve rates must be higher than inflation — again, in real terms, not in “CPI” which has intentional distortions in it such as “Owner’s Equivalent Rent” when you’re not renting a house, you’re buying it. Had said “CPI” actually had home prices in it then it would have shown a doubling in many markets in that section of the economy over the last three years.
In other words housing alone would have resulted in a roughly 10% per year inflation rate, plus all the other increases, which means the Fed Funds rate should have been 300bips or so beyond that all the way back to 2020 — which would put Fed Funds at about 13% for the last three years.
It isn’t of course but if it had been then all those “housing price increases” would not have happened at all. Incidentally even today the Fed Funds rate is below inflation and thus the crazy is still on.
It’s a bit less on however, and now you see what happens when even though they’re still nuts being slightly “less” nuts means that these firms are no longer capable of operating without the wild-eyed crazy; even a slight reduction of the heroin dose caused them to fail.
Never mind the wild-eyed poor choices of executives (who signed off on all of this?) at SVB which the regulators all knew about and ignored. The CEO? A director of the San Francisco Federal Reserve. Why don’t you look up a few of the other “chief” positions and what they used to do. Bring a barf bag. No, really.
