Banking Troubles on the Horizon?

Source: Paul Craig Roberts.

I don’t understand the banking system well enough to know whether I should be worried about the recent bank runs. Still, the banking system produces and — presumably — maintains the economy’s medium of exchange. Should widespread bank failures occur they will affect everyone in many unpredictable ways.

The writer explains how the current troubles came to be. His solution — restore the Glass-Steagall and repeal the Dodd-Frank legislation* — is probably correct. Or so it seems to me.

*Revised for clarification, 3:30 p.m.

20 thoughts on “Banking Troubles on the Horizon?

  1. I have been advised that I don’t the difference between economic and tragicomic, though I swear there is a sad relationship that often ends poorly.

    But curtailing freewheeling investments by commercial banks makes sense. You want to take risks, get likeminded investors and start an investment banking operation and leave my money alone.

    Some are blaming the Fed for raising rates to contain inflation.
    My thinking is the corner office in these to regional banks were either unqualified or crooks…possibly both.

    We have been announcing and raising rates for a couple of years now. If a substantial part of the banks assets are dependent upon low rates, then an early shift, with possible financial “haircuts”, should be considered.

    Of course if the billionaires want to keep risking OPM, and they can do so legally, you can bet what the ethical choice will be.
    And since contacts in high places, such as Congress on down (or is it up?), then these bailouts just add to the payoff for economic chicanery.

    PS: it still galls me that Goldman-Sachs was made 100% whole in 2008-9 through a shell game through taxpayers bailing out the monstrous AIG. GS was part of the problem and they were rewarded while others got not only the short end of the stick, but it was delivered to an uncomfortable anatomical place.


    Liked by 2 people

    1. Freewheeling investments by commercial banks is exactly what doomed SVB. They invested heavily in small business and green tech nobody else would touch that became huge unprofitable liabilities as interest rates rose. Hence the moniker woke bank.


    2. RE: “My thinking is the corner office in these to regional banks were either unqualified or crooks…possibly both.”

      It is important to grasp that banks don’t hold depositors’ deposits as money, but in the form of investments. This is the structural condition that can lead qualified, honest bank managers into trouble due to circumstances beyond their control.


      1. I realize that. But the speculative nature of investments is important. It used to that local banks accepted deposits and then lended to finance homes, small businesses, etc. It is more complicated than that today, of course, but Glass Steagall tried to, and did reasonably well, make sure that commercial banks adhere to quality and secure loans.

        Investment banks could invest in a camel dung counter that might return 40% if it’s investors agreed. They were not insured and risk taking was the norm.

        Liked by 1 person

        1. RE: “I realize that. But the speculative nature of investments is important.”

          Everything is speculative. Would you accuse a banker of risky speculation if he held deposits in the form of T-bills or gold?


    1. RE: “It was a loosening of the regulations from Dodd-Frank that was the issue for SVB. A loosening they begged for.”

      Not exactly. The Hill actually points out the same problem Roberts does: “SVB put far more of its depositors’ money into non-liquid investments than large banks that are subject to capital requirements. The bank invested heavily in long-term treasury bonds that lost value when the Federal Reserve hiked interest rates. News of its potential insolvency triggered a bank run that forced regulators to step in.”


      1. I disagree. This statement from the other bank in question ” Signature Bank chairman Scott Shay told the Financial Times that it was “ridiculous and unacceptable” that the company would have to face the same regulations as the “mega ‘too big to fail’ banks.””

        Now that the banks have failed, it proves they should have had the same oversight as the larger financial institutions. If they had been held to the Dodd-Frank Standards, the issue would not have occurred. – IMO

        Liked by 1 person

        1. RE: “If they had been held to the Dodd-Frank Standards, the issue would not have occurred.”

          Why not? What, specifically, do you think would have been different?


          1. One word: OVERSIGHT. Well, if it had been done properly. But loosening hte requirements for deposits to be held to a higher percentage is what it comes down to.


  2. There are three classes to consider, depositors, bond holders and investors.

    Depositors are protected by FDIC up to $250,000.

    Why should investors, bond holders and larger depositors be protected other than by their own caution?

    If you have deposits over $250K, you can afford an accountant to advise you on the safety of a bank.

    Here’s a hint, if a bank is offering much better returns than its competitors. it is less safe.

    The taxpayer should not be protecting people from their own greed.

    Caveat Emptor.

    Liked by 1 person

    1. Taxpayers are not on the hook yet. Bailout money came from the pool that all banks pay into. True, if they go through the $200 billion in the fund, the taxpayer is the backup.

      When banks fail, it is hardly the average customer that is responsible. And $250,000 is peanuts if you are a small company with a few hundred, or even a few dozen, on payroll.

      Banking is complicated, not because it has to be, but because it wants to be. 2008 brought out some of the most abstruse financial investment schemes that did nothing for anyone except the handful that invented them. I recall credit default swaps, a seemingly legitimate reinsurance hedge. From that came “virtual credit default swaps”. That is like 00 on a roulette wheel. And then there is crypto, which may not be involved here as far as we know.

      Capitalists are fine folks until they aren’t. And every so often they bring down economies through shenanigans.
      Part of the system, but they should not be able to drag us all down when schemes turn to crap.


      Liked by 1 person

      1. It’s not really that hard to know when a bank is risky.

        The old adage “If it looks too good to be true, it probably is.” is all that is needed.

        When a bank is offering considerably higher returns on deposits than others, it’s not because they are that clever, it’s because they are taking higher risks.

        Add to that considerable diversion of the banks assets to non-financial matters, like donating almost $75million to BLM, and letting their Chief Risk Officer take 6 months off to plan a Pride event, and you keep uninsured funds there at your own risk.

        SVB was clearly not a serious bank, and if you have more then $250K there, then it is your business the evaluate those risks,

        There should be no public funds used to bail anybody out in excess of those $250K FDIC payments,

        The taxpayer should not be bailing out fools.


        1. It isn’t taxpayer money…yet.
          I don’t know about the donation or the 1/2 year to plan an event. Both on the surface sound ridiculous, which makes me think there is more to it.

          Either way, executive malfeasance and ignoring fiduciary responsibility is at best gross incompetence, but more likely criminal.

          All major companies donate sizable sums every day. Employees are often encouraged to be active in the community, sometimes on company time.

          I don’t think this nebulous “woke” attack gets to the real reason for failure. But it sure feeds the narrative for political hay.

          Liked by 1 person

          1. I don’t claim the Woke activities and donations caused the failure, poor risk management and careless bond laddering were the apparent cause.

            But combined with unrealistic returns, those kinds of activities are flags that a careful business manager should take as a warning that they are placing their funds in unserious hands.


          2. Which is why all the executives were canned in the takeover.

            A successful banker I knew reasonably well complained about the various regulation imposed after 2008. It cost money to comply with regular reporting, etc.

            In retrospect, it cost a lot more not to.

            A lot of people don’t know that the prize pools for PGA tournaments are donated by the sponsor. We are taking, today, of upwards 10 million in some cases. Millionaires getting money from public corporations.

            Of course the amounts are rounding errors for the sponsors like Waste Management. I think FedEx puts up 25 million. Wells Fargo used to support the LPGA, and may still.

            Point being, I agree with you on the mismanagement. Yet major donations are just part of the American culture. Soft enforcement , ignoring or suspension of “onerous regulations” may make sense to many, but the price may be very high.


          3. ” I think FedEx puts up 25 million”

            Well, the winner of he season-long FEDEX CUP gets $15 Million. That does not include the money paid into the tournament they sponsor in Memphis.


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