Congress LASHES OUT on Bailouts

well we just had a congressman freak out

about the bank bailouts that are

occurring and then of course you've got

people in the Venture Capital space who

are coming to the defense of the

bailouts let's listen first to this

freak out from representative Thomas

Massey Thomas Massey has been pretty

involved in these uh in monitoring and

commenting on these bank bailouts you

should listen to some of the comments he

made because they might Echo some of the

sentiment that or at least what you're

feeling

the last five days simplified he says on

Twitter quote

a group of wealthy speculators got upset

that their money ended up locked into a

10-year obligation at less than a two

percent return so they convinced the

government that it was in everyone's

best interest to help them out of their

Jam at the expense of everyone else

oopsies you know what's actually very

interesting about that is you've

actually got people like the governor of

California who apparently had three to

four of his personal or Winery business

accounts at Silicon Valley Bank the

governor of California was one of the

beneficiaries of the easy lending of

Silicon Valley Bank and what's the

governor of California doing last week

when Silicon Valley Bank was having

trouble pounding the table about talking

to people at the highest level of the

White House in the treasury Department

to help protect you yet he doesn't

disclose that he actually Banks there

and he's really trying to save himself

so maybe representative Thomas Massey is

on to something but it's not just that

see Thomas Massey goes on to say when

the debt limit is increased the treasury

is going to need over half a trillion

dollars to unwind these quote

Extraordinary Measures that have been

implemented for this banking crisis now

remember folks uh look I'm a licensed

financial advisor I run an active ETF

I've got programs linked Down Below on

building your wealth with an expiring

coupon code got a real estate startup I

I do Finance for a living people are

clamoring about this idea about whether

this is a bailout or not let's be clear

today

it is not technically a bailout it is

using money that already exists in a

treasury fund however that fund was

established using Appropriations

Congressional Appropriations which come

from guess what taxpayer money that

means taxpayers are guaranteeing this

bailout so yes technically taxpayers are

bailing out Silicon Valley and uh

wealthier potentially uh entrepreneurs

or businesses who had more than two

hundred fifty thousand dollars in their

accounts and and didn't you know manage

their cash in such a way where they were

properly Diversified remember you could

use the FDIC calculator by Googling FDIC

calculator and you'll be able to do that

make sure you're at the dot gov website

and you can see how easy it is to

actually get up to one and a half

million dollars of FDIC Insurance just

by having various different accounts

whether you're married or you've got

retirement accounts business accounts

whatever sole prop Corp accounts

whatever it's actually really incredible

how much FDIC Insurance you could

actually get if you just try now the

good news is everybody who escaped from

the scot-free I think is now waking up

to that and they got a little wake-up

call and that would be a very smart time

not to rely on the government it would

be a very smart time to diversify your

bank accounts but anyway

uh Tom Massey goes on to say that he

expects we are going to have to come up

with about 500 billion dollars to unwind

these quote extraordinary bailout

measures because he says that what we're

experiencing right now seems to be a

shock to the current system and that if

money is quote printed like it was

printed for covet then unfortunately

it's going to cause more inflation the

reality is had the government not bailed

out Silicon Valley Bank the reality is

he says quote depositors would have only

lost about 20 percent they wouldn't have

needed all of their money right away now

that's an interesting point because a

lot of people are going we needed to do

these bailouts because you know small

businesses weren't able to make payroll

let's be real if you had an 80 percent

uh if you had access to 80 of your money

and you took a 20 haircut you'd have

enough money for payroll but it would it

would let capitalism do its job and

prove that the government is not just an

infinite bailout machine and it's

certainly not just a bailout machine of

of on average wealthier Silicon Valley

based startups now don't get me wrong I

don't want anybody to lose money I'm

just a capitalist at heart and I think

any venture capitalist should be

thanking the government that we have

right now for the bailout because

probably a 10 to 30 percent haircut

would have been what would have happened

so you basically got a stemi check from

the government that's basically what

happened and I'm happy for you don't get

me wrong I'm not resentful I'm not upset

I think though any entrepreneur would

agree that as a capitalist it makes

sense that a depositor should have some

responsibility for determining where

they put their money now the counter

argument there is no that's the

regulator's responsibility and when the

hell does any capitalist say The

Regulators are supposed to protect me

really if your business fails was it the

regulator's fault if you made a bad

decision and you lost a big customer or

client was it the right regulator's

fault you know if you crash your car was

it the DMV's fault if you uh you know a

drink can drive because you bought

alcohol at a liquor store and then you

go drive and crash your car was it the

liquor store's fault was it was it the

regulator's alcohol board fault no it

was your fault uh so so that's that's

just the reality of a capitalistic

environment and so I think Thomas Massey

is really echoing that sentiment here uh

that and he actually goes as far as

saying look half of venture capital

backed companies fail

so like it's not like businesses don't

go out of business like that's a normal

course of business this business is

going to business but also somehow

Venture Capital firms managed to achieve

greater than 10 annual returns or at

least that's common says Thomas Massey

and so the notion that several of these

companies at Silicon Valley Bank taking

a 10 haircut would have caused an

apocalyptic disruption of innovation

it's straight up he says this

is Thomas Massey representative I

actually think he he makes a really good

point

uh so uh he and as somebody ended up

replying to Thomas Massey and says we

bailed out a bunch of professional

speculators and he replies to that and

says precisely now I want to give you

the counter argument because I don't

just want to give you one side of the

argument here but I want to respond to

one of the comments here miss Mary says

bartenders can be held liable well but

that's also different right that's

different from somebody walking into a

store who's not drunk and buying alcohol

what happens is when you're alkalized

your ability to make a decision plummets

and if you're wasted inside of a bar it

is incumbent upon Society to protect

somebody in my opinion who's incapable

of actually protecting themselves if

somebody's you know a 0.2 blasted drunk

they're not capable of protecting

themselves they're not an asset anymore

to society they're a liability right and

so yes Regulators have made that

incumbent upon those around them but I

don't think that companies who create

failures

you know based on their own business

decisions are at the liberty of begging

for the 99 of Americans who pay their

taxes and work hard to bail them out

that's just that's just my take again

I've got nothing against startups I have

a startup you know I'm just I'm just a

more of a capitalist uh and probably

lean more libertarian than suggesting we

should just we should basically say FDIC

Insurance 250. nah it's actually

unlimited yeah I think that sets a very

very bad standards it encourages Risk by

shareholders and Executives and even

though they might lose everything if

they could tell their customers hey

you're basically unlimited uh

unlimitedly protected by the government

why not take the risk you have a greater

chance of getting greater shareholder

returns

anyway uh in a financial times interview

you had sort of another response this is

Ken Griffin CEO of Citadel he says quote

the U.S economy is supposed to be a

capitalistic system and that's breaking

down before our eyes we are becoming

more socialist every time the government

intervenes or at least the type of crony

capitalism yeah like what you're seeing

with Gavin Newsom I mean think about it

uh FDA the the release that you got was

that if FDIC took any kind of loss then

what would happen is other member banks

would just have to pay higher FDIC fees

well what the hell is that that's called

socialism oh one person lost money no

problem we'll save them and we'll make

everybody pay more because of the

failures of you know a bank that was too

aggressive

you know that's that's as uh Ken Griffin

puts it privatizing gains but

socializing losses he says there's been

a lot of loss of financial discipline

with the government bailing out

depositors in full Regulators have

created a great moral hazard there is no

incentive for depositors to remotely

think about risks or due diligence when

trying to stay within the 250k limits

there's also no incentive for banks to

risk manage as the government will

always backstop losses moral hazard

obviously is a term used sort of like

insurance people act more Reckless when

they know the liability is shifted away

from them counterparty risk is

essentially now no longer an issue

there's no such thing as counterparty

risk anymore if the government will just

bail out everything remember the cefo of

Lehman or of Silicon Valley Bank worked

at Lehman Brothers so the people who say

oh but the executives are going to get

fired and lose their jobs and they won't

be able to get a job anymore dude this

the the person who worked at Lehman

Brothers became the CFO of Silicon

Valley Bank the idea that moral hazard

will be limited because Executives will

get you know fired is and you

could see it in the fact that the guy

who worked at Lehman Brothers ended up

working as a CF the Chief Financial

Officer at Silicon Valley Bank it's

insane

now the fed's launching a probe into

exactly what happened with Silicon

Valley bang uh and uh you know this was

an interesting one even though an

individual who left in April was paid

two million dollars for her work uh four

months of 2022 with a an average four to

sixty thousand dollar severance package

anyway it basically there's some

arguments that massive amounts of money

were being spent on uh salaries and

bonuses and severances for people before

the collapse

but then you have people like David

sacks who's a VC guy in rocana trying to

basically share what they call the full

picture and what they say is that this

banking crisis originated in Washington

that it's Washington's fault because

they raise rates so rapidly dude how

clearly did the FED Telegraph that they

were raising rates to say oh well the

banks are just failing because you all

raised rates so rapidly what do you mean

literally for the last two years

they've been talking about liftoff and

raising rates and for the last year

they've been doing nothing but saying

higher for longer higher for longer and

Silicon Valley Bank got rid of all of

their Hedges of increasing interest

rates come on David sacks be real tell

the world about all of the VCS that you

were invested in that would have lost a

crap load of money and potentially gone

bankrupt at Silicon Valley Bank I don't

think there's any way you could say

you're not biased in the situation now

that doesn't mean you can't have a

reasonable argument just because you're

biased doesn't mean you can't have a

reasonable argument sometimes I'm biased

sometimes I have a horse in the race and

and maybe I'm biased right that's fine I

think everybody has advice but I think

it's very important to acknowledge that

this is not capitalism David Sachs this

was a bailout uh a buy taxpayers of

private institutions as Ken Griffin says

we socialize losses here now there might

not end up being any losses that's

possible and in that case we wouldn't

socialize any losses because losses

would be zero In fairness that is

possible it's really just the FED coming

in turning on the money printer and

holding a bag which may prove not to be

bag in the future especially if

inflation goes away

now you do have people like David sacks

and rocana also criticizing the

weakening of the Dodd-Frank protections

for systemically important banks that we

had in 2018 but Democrats voted for that

as well it was Donald Trump a

republican-controlled Congress and

Democrats together who voted for this

the only people who didn't vote for this

deregulation in in 2018 the banking

deregulation Bill were basically

Progressive Democrats that's it so you

got a super majority of people who voted

for this deregulation so yes I think

deregulation has something to do with

this but that you know just because you

know two rights don't make it wrong just

because you made the mistake of

deregulating doesn't mean you know now

all of a sudden we should bail

everything out to 100 a little bit of a

haircut is healthy David sacks obviously

Echoes what Bill Ackman say that well

the run on the banks would have been a

lot worse had we not come out to to bail

these individuals out maybe that's

entirely possible uh that you know the

banking runs would have been a lot worse

although I think the banking runs are

still to some degree just beginning and

that's another possible dangerous that

the banking guns could actually continue

to get worse I think what you've really

done is you've sent I really think that

Venture Capital people and startups are

smart people I think there are a lot of

smart people and I think the smart

people who just had their ass saved at

Silicon Valley Bank or signature or some

of these other banks are going

well I'm not gonna make that mistake

again I'm going to diversify my Banks I

think that's very reasonable and I think

that's going to happen so I think the

banking run is going to continue albeit

at a slower less Panic Pace but I think

that the true damage of that is still

yet to be seen

and that's why all eyes are on the FED

for what they're going to do with hiking

rates anyway Silicon Valley Bank was

known for providing what was known as a

white glove red carpet treatment of

Silicon Valley Executives including

providing not only basically credit

lines to cash list companies or

companies without any cash flow with

little questions asked other than the

fact that you were a startup but they

also provided White Glove services for

some of these folks including mortgages

for founders of startups basically

giving them whatever financing and terms

they want just to promise to be a a

member of the bank

see that's not risk management folks

that's nonsense anyway Regulators are

attempting another auction of Silicon

Valley Bank after failing to find a

buyer of the weekend Banks and private

Equity Funds are circling and startups

are scrambling to find a new home for

their cash during the chaos companies

with accounts elsewhere transferred

their funds While others struggled with

red tape and frantically opened new

accounts fantax like Brax apparently

experienced a surge in activities with

the company uh opening over 3 000 new

accounts wow big Banks obviously like B

of A City JP Morgan is seeing massive

inflows uh these are called the gray

carpet treatment Banks instead of a red

carpet treatment Bank

now this is true they have less

customized Services right it's one of

the reasons I've taken some of my money

and had it at some of the smaller Banks

because you you do have better uh

funding and easier credit lines you know

I was able to get a a rental uh rental

property home equity line of credit

relock uh and a 90 home equity line of

credit from a small Credit Union I could

have never in my dreams gotten that from

a big four bank but I kept my exposure

to those accounts to less than 250k or

500k as married individual right so like

you can play the game you could use the

riskier lending but at least include

some risk mitigation procedures

so worth noting obviously all of this

comes on the heels of Greg Becker

selling 3.6 million dollars worth in

share worth of shares the SEC is now

investigating this but on top of that

you have TS Lombard which has a really

interesting piece about how really this

banking crisis could really just be the

beginning of uh of of of really uh a

greater recessionary disaster and I

think this piece is really interesting

to look at how the asset cycle ends but

before we talk about how the asset cycle

ends I have to thank you for being here

really appreciate the fact that you're

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uh it's a win-win I think

all right so what does TS longboard to

say us so basically they have this

article here they have this piece and

they're they're bearish right they're

Bears so they have this piece where they

talk about Bank assets will consequently

migrate back to where yield is highest

and uh liquidity is frictionless so in

other words uh that right now what

you're experiencing is there are two

types of Cycles there's a credit cycle

and there's an asset cycle see they say

that ever since the GSE ended the U.S

economy has driven been driven by an

asset cycle rather than a credit cycle

in other words this is money printing

this here is borrowing and so you have

shifted vulnerabilities from liabilities

to assets when you have a debt cycle you

have too much debt you have a liability

crisis when you have an asset cycle you

have too much cash so what do you do

with that cash you park it into assets

but if those assets like treasury bills

lose values or lose their value then you

get screwed right

so the shift uh with is it basically is

create some unique intra a unique

distortions should I say uh and uh with

the biggest Distortion you have is you

have this massive flow of capital to

tech companies however now we're finally

starting to see a little bit of a U-turn

in Tech and T.S Lombard says that U-turn

in Tech is basically and potentially the

beginning of the real recession that

we're walking into they say here look at

this section this this paragraph right

here money like water flows in the

direction of least resistance this was

true for the Housing Industry pre-2008

and for Tech in the current cycle like

housing Tech was distorted by a

seemingly unlimited flow of cheap

capital and credit just when Limitless

cheap or limitlessly cheap turned into

limited and expensive that is money as

it always happens Tech revenues began to

weaken so in other words at the same

time as interest rates started going up

and we turned the money printer off Tech

Revenue started going down now there

could be a causation correlation

argument here but anyway the outsize

tech expansion in the past few years and

its current crunch is particularly

evident in employment after leading the

economy and hiring tech leads the

reduction in head count Looking Back to

December of 2019 as a base of comparison

Tech employment is up 15 versus four

percent for the employment of the area

excluding Tech retail and Health

Services and Leisure and Hospitality in

other words employment at Tech up 15

everything else only up four percent

however Tech is now down while you're

still seeing increases in retail so what

else does TS longboard say us about this

well what do they say they tell us that

asset slash liability matches have gone

awry because deposit outflows have

broken the the traditional model that

we're used to with and this is

reminiscent of what happened with

collateralized debt obligations back in

2008 mortgage defaults skyrocketed

through lower tranche firewalls that

were suggested or that model suggested

could not happen in other words we

relied on these fancy models in 2008

that suggested things can't be that bad

yet what are we dealing with today well

we're dealing with these models that

suggest oh don't worry we could spend

through the recession the recession

won't actually be that bad well that

really remains to be seen and TS Lombard

really thinks that a recession is ahead

of us they say In Sum a recession is

inevitable Silicon Valley Bank and the

knock-on impact on Bank credit activity

brings forward the timing and keep an

eye on Tech the flow of economic data in

the coming few days CPI today which we

already had that was yesterday because

this report was from yesterday uh we'll

have uh or actually CPI was now two days

ago anyway we'll have the fomc pike

hiking by 25 BP next week the FED also

hiked through bank failures before and

will through this one that's a very

interesting argument they're saying look

Tech which was the Big Driver weakening

the asset bubble is turning everything's

slowing down this recession is going to

hit hard but not only is this recession

going to hit hard you better believe the

FED is going to go for 25 BP here the

fed's done it before and they'll do it

again precisely because it will not be

seen as systemic to the banking system

in other words the Credit Suisse drama

Silicon Valley Bank will not be seen as

systemic

while this is true relative to 2008

Silicon Valley Bank is also a warning

that there may be more damage to come in

the financial system this is not

mortgages creating a great financial

crisis but it nevertheless leads to a

recession outcome

so in other words the Slowdown of the

asset cycle the banking crisis the tech

slowdown TS Lombard's opinion big

recession coming that's what gets rid of

inflation

now all of that comes on the backs of uh

these these comments of us bailing out

Banks is there a potential Goldilocks

solution here maybe counter argument is

bail out these idiosyncratic issues

these individual Bank issues bail them

out

let inflation fall with inflation or

with the rates that we have now maybe

another 25 BP or we stay stable let

inflation fall as inflation Falls maybe

we can keep going without more banking

crises and more banking failures in

which case if we end up killing

inflation here's the Goldilocks scenario

we kill inflation owner's equivalent

rents come down sticky Services come

down we kill inflation

we have no recession or a very shallow

recession businesses and consumers spend

through the recession

yes you have a little bit of hit on

Staples and discretionaries expected but

it's minor and then what do you do you

come out on the other side with

companies that are much more lean and

efficient now and able to create more

profits

in other words and taxpayers don't end

up fronting any losses to the banking

sector so in other words

as this bubble is deflating

the conditions are present to where we

could actually just reinflate the bubble

and go back to the Moon which is kind of

scary and crazy you'd think we'd have to

go through some more pain but the

government right now is doing a really

good job of making sure that nobody can

fail no failures socialists no failures

nobody's allowed to fail

but hey as somebody who's invested in

stocks maybe I'm biased to the upside

and hopefully that's what happens but I

think TS Lombard makes a good point that

we have yet to see how this asset

tightening cycle which is being

evidenced by the bank failures will end

up affecting earnings I think it's funny

that somebody here in the comments says

employees and investors didn't get

bailed out by the Banks uh yes they did

first of all employees got bailed out

and maybe investors didn't but employees

did they all got a 50 pay bump paid for

by the FDIC to stay with the bank for

another 45 days yes they're gonna have

to find another job but let's be real

they got bailed out too so the idea that

well not everybody got bailed out

somehow makes this time different is

nonsense it's a bailout let's be real

about that it is a bail out suggesting

it's not a bailout in my opinion is is

just it's a Looney Tune it's an absolute

Looney Tune it's a bailout it's very

simple the taxpayer will foot the bill

uh if uh there's any loss the taxpayer

pays for it in fact the taxpayer already

paid for those salaries for example uh

because

of the Appropriations that set up this

facility in the first place Congress

took taxpayer money and stuck it into a

fund that we're now using to bail

everyone out yeah somebody here says

it's bailout light yeah it's a diet

bailout there you go