The Biden Economy, which Joe Biden described as “robust” on Monday morning, appears to be collapsing everywhere and everywhere at once. Charles Schwab’s shares plunged more than 20% as a result of Silicon Valley Bank’s collapse, resulting in trading for Charles Schwab being halted. This nightmare has even harmed a few Etsy merchants.
Schwab’s decline was the business’s “greatest intraday decline ever,” despite company executives assuring investors in a press statement that Schwab’s long-standing reputation as a safe harbor in a storm remains intact.
Monday morning, Wall Street froze trading in shares of more than 30 banks as the whole industry suddenly appeared too risky for investors. In pre-market transactions, almost all banking stocks were falling, falling, falling, which MarketWatch described as “panic-like behavior.”
MarketWatch reported that shares of Western Alliance Bancorp WAL, -51.05%, Regions Financial Corp. RF, -5.33%, First Republic Bank FRC, -64.05%, Comerica Inc. CMA, -21.24%, and PacWest Bancorp. PACW, -25.18% plunged 78.2%, 15.6%, 65.5%, 39.4%, and 47.7%, respectively, after being halted at least twice.
According to the New York Post, Signature Bank, a significant financial institution for the Bitcoin business, was shut down on Sunday due to the “same systemic danger” as SVB.
SVB and Signature are, respectively, the second-and third-largest bank failures in U.S. history, with total assets exceeding $300 billion. Depositors will be made whole even if their deposits exceed the $250,000 maximum insured by the FDIC. CNBC reports that the Fed has introduced a new program to protect institutions impacted by the SVB bankruptcy.
Yet, SVB’s investment assets are wiped out completely. When a risk does not pay off, investors lose money. “This is how capitalism works,” Biden stated in his Monday national speech.
In 2008, this was also the case with Lehman Brothers before larger flaws were identified and Washington moved into Bailout All The Things Mode. This new catastrophe might just be beginning.
What went wrong? Simply said, Inflation. In other words: The increased interest rates required to combat Inflation shattered SVB’s bond holdings’ hopes of cheap money. Other areas of the economy dependent on historically low loan rates are the property market and the high-tech industry, notably startup companies.
It would be shocking if there were nothing more that broke. Schwab’s chief financial strategist, Liz Ann Sonders, said on Monday that even while the economy is not in a full-scale recession, there are already signs of deterioration, such as the housing market’s downturn and other sectors plainly in recession.
It has been a hellish morning in the financial industry alone. In the fallout of this are Etsy merchants who haven’t been paid in days. Etsy announced on Sunday that a limited number of merchants had their payments delayed on Friday due to the collapse of SVB, but they anticipate being able to begin processing these payments. Several merchants have been compelled to place their online storefronts in “vacation mode” because they cannot afford to cover shipping costs for items shipped to customers. Hence, it is not just the major players suffering in the Biden economy; things might worsen.
Due in great part to the Fed’s delayed and cautious rate rises, inflation persists at a persistently high level. Historically there was a fully calculated abysmal inflation rate in 1981 and a favorable Federal funds rate in 1995. Something has to give.
Yet, Goldman Sachs analysts told investors on Sunday that they no longer expect the FOMC to deliver a rate rise at its March 22 meeting since the road beyond March remains uncertain. If the issues in the banking sector undermine consumer and investor confidence, the Federal Reserve will do what it usually does in such a situation: print money!
Nevertheless, cheap money during inflation just adds gasoline to the fire. But the Democrats are in denial, Biden remarked on Monday that they had made significant economic progress over the previous two years. The GOP Twitter account responded that when Biden began office, inflation was 1.4%, gas was $2.39/gallon, inflation was 6.4%, and gasoline costs $3.47 per gallon.
And that was before the enormous costs of three years spent shutting down and re-regulating the economy while printing billions in fiat currency began to accrue.