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Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

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Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#991

Post by hellojesus »

JPKab wrote: post #962
hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

Yellen is an incompetent ideologue. I studied applied economics in university, and the first code I wrote for a real application were inflation simulations. When she and the Fed made the claim a few years ago that "inflation was transitory" I ended up calling several of my smartest classmates. It was a nice excuse to reconnect, and universally all of us were asking what she was smoking. It wasn't just us. Larry Summe…

> But the banks believed her, and continued in 2021 to buy these securities as if interest rates were going to be going low again in the near future.

The banks most certainly didn't believe her. The banks rightfully took it as a signal that the US gov would step in to cut losses if banks continued to loan. The Fed wanted banks to continue to loan so they didn't grind the overall economy to a halt instantly and send us into stagflation.

But everyone knew it would happen. The Fed knew they were playing a losing strategy. And they still know it. But they refuse to play the strategy that would win the inflation game because it would bankrupt the country.

The only way out now is through severe tax hikes + gov spending cuts OR war with China in the hope to reset debt at its conclusion. The political elite seem to be signaling the latter.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#992

Post by hellojesus »

svnt wrote: post #780
hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy. You are almost certainly misreading that signal. Probably since Friday they have assessed that the depositors can be covered once the assets can be liquidated, and that they may even be able to make money doing it. If they can’t, they can assess the rest of the losses to the system, a…

> Probably since Friday they have assessed that the depositors can be covered once the assets can be liquidated, and that they may even be able to make money doing it.

The same assets that are yielding There is certainly a cost here. The insolvency of the paper is the entire reason the bank failed in the first place.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#993

Post by neovialogistics »

JPKab wrote: post #962
hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

Yellen is an incompetent ideologue. I studied applied economics in university, and the first code I wrote for a real application were inflation simulations. When she and the Fed made the claim a few years ago that "inflation was transitory" I ended up calling several of my smartest classmates. It was a nice excuse to reconnect, and universally all of us were asking what she was smoking. It wasn't just us. Larry Summe…

Have you considered the hypothesis that she is competent and was lying and/or bullshitting?

Hypothetically, if I ran a government that was engaged in geopolitical competition, I wouldn't want people to tell the truth to my detriment when alternatives could be gotten away with.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#994

Post by bruiseralmighty »

hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

> Yellen has just broadcast that FDIC insurance is essentially unlimited

Although I agree with the Treasury's actions here so far, this is a potential issue. They should instantiate more stringent rules for banks that who cater to business accounts and then raise the cap for insurance on those accounts to a number that makes sense for small businesses across the country.

Too many CEOs and CFOs were allowing their business checking accounts to sit in dangerously uninsured positions. Headliner being Roku with nearly a half a billion dollars sitting in a single checking account with SVB. But plenty of smaller businesses leave ten million plus dollars in their accounts as a course of business as well.

The actual amount those accounts can be insured for needs to be formalized and it should probably be higher than the standard quarter million for consumer accounts as this is way too low for business larger than a half dozen employees.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#995

Post by JPKab »

neovialogistics wrote: post #993
JPKab wrote: post #962

Earlier quoted context omitted.

Yellen is an incompetent ideologue. I studied applied economics in university, and the first code I wrote for a real application were inflation simulations. When she and the Fed made the claim a few years ago that "inflation was transitory" I ended up calling several of my smartest classmates. It was a nice excuse to reconnect, and universally all of us were asking what she was smoking. It wasn't just us. Larry Summe…

Have you considered the hypothesis that she is competent and was lying and/or bullshitting? Hypothetically, if I ran a government that was engaged in geopolitical competition, I wouldn't want people to tell the truth to my detriment when alternatives could be gotten away with.

It's too depressing for me to take that hypothesis.

It's far easier for me to believe that Yellen is a deeply intelligent and talented economist who lacked the ability to protect her cognitive processes from optimism bias. People think that when you say incompetent you are saying they aren't intelligent enough for the job. I think she was temperamentally unfit. I want people in the Federal reserve that don't care at all if they get invited to cocktail parties or get job offers. I want them to be people who don't mind being hated by everyone.

I want Paul fucking Volcker level of tolerance to everybody hating you.

All that being said, the thing that undermines my desire to not believe your theory is that she made the terrible mistake of going straight to work for the Biden administration from the Fed. Even if this was done for noble reasons it just makes the Federal Reserve look partisan which is a really bad place for it to be.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#996

Post by fwlr »

sanderjd wrote: post #754
fwlr wrote: post #238

A lot of people are asking “how is this not a bailout?” right now. I would caution against dismissing them, it’s a legitimate question. Pointing to the “Taxpayers will not pick up the bill” line counts as dismissive: this is a press release, and it’s from the government, that’s two strong reasons for some skepticism. So, in earnest, how is it not a bailout? Feel free to offer your answer! Mine is: “Banks are required…

My answer: It is a bailout. And that's ok, if it was the best of bad options. Must we play the silly semantic game? By your explanation, all the bailouts during the '08 financial crisis also weren't bailouts. But they were.

I don’t like semantic games either. I always do my best to resolve a word to mean “the thing people care about when they use this word”. In the case of “bailout” it seems to me that what people care about is whether it will cost taxpayers.

In the case of SVB, it seems that their assets will cover their deposits, and FDIC has an insurance fund that gives them the liquid capital to cover deposits immediately while waiting for assets to sell. So no cost to taxpayers - not even in the form of “higher deposit insurance costs to banks being passed on to bank customers, who are taxpayers”.

(It’s possible to play semantic games until we formulate a picture that does show taxpayers will pay, e.g. “the FDIC’s deposit insurance fund is made up of payments made by banks, and banks would have passed on the cost of those payments to customers in the form of not offering as much interest on deposits as they otherwise would have offered, so the funds used to make the bridge are a bailout the taxpayer has already paid for”. Money is infinitely fungible, you can always tell a story where taxpayers paid the bill. But we said we weren’t going to play semantic games.)

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#997

Post by DubiousPusher »

DubiousPusher wrote: post #341

If this represented a systemic risk, I will eat my hat. This reeks of influence peddling, particularly given the significant growth in lobbying over the past two decades by the very kinds of people invested here.

Hat now partially digested.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#1000

Post by mlyle »

tick_tock_tick wrote: post #499
hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

> At the same time, this is yet another example of changing the rules in the middle of the game Every time the FDIC has stepped in like this they have made all depositors whole. This is not new behavior.

> Every time the FDIC has stepped in like this they have made all depositors whole.

This is a false assertion. Usually depositors end up losing some of their money above the insurance limits-- only not doing so if the amount of remaining assets proves sufficient to pay the liabilities.

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