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Bear Stearns collapsed on March 16, 2008. Lehman Brothers on Sept 15, 2008. It took 6 months from the first major one to widespread carnage and bailouts. I can'

Bear Stearns collapsed on March 16, 2008. Lehman Brothers on Sept 15, 2008. It took 6 months from the first major one to widespread carnage and bailouts. I can't tell what will be but I wouldn't assume we're out of the woods by any measure. The first dominos to fall are the ones holding most risk (SBV, CS), but the "safe" ones aren't really safe either. I wonder what the Fed will do next i.e. conform to market expectations of a cooling off of QT and hikes and let inflation possibly rise or continue at 6%, or be resolute in raising rates to control inflation at the risk of a systemic failure.

mschuster91 4y ago
What most people don't account for is that we're not in a classical inflation scenario - we're, at least fundamentally, in an energy cost inflation scenario where the countries with more than enough of oil and gas to spare jack up the prices just because they can. And unfortunately, on top of that comes profiteering. The price hikes of everything that went far and beyond reasonable increases due to rising energy costs are insane - and outside of Spain which has introduced serious price controls and other counter-inflationary measures and Hungary where Orban misdirects EU funds into bribing his voters, no major Western government is doing anything about that. At least the French are bringing out the pitchforks.
- silentsea90 4y ago
  Markets don't arbitrarily inflate prices across asset classes (stocks, crypto, commodities, real estate). Classifying widespread worldwide inflation as energy cost inflation OR profiteering is (subjectively) an excuse for policy failure. Single family home owners in San Diego don't collude with condo owners in Vietnam. They do respond to bidders outbidding each other, flush with cash from asset values rising as a consequence of money printing worldwide. The core reason is money printing. The rest is noise. See charts for Fed balance sheet, M1 and M2 money supply for 10 years worth of printing in a year. The Cantillon effect makes people close to the money spigot richer at the expense of the masses. The Fed knows it too, else QT and interest rate hikes wouldn't be used as weapons against inflation. Political messaging is oriented around not taking responsibility and blaming the pandemic, supply chain issues, Ukraine war etc. These reasons do play a role to be clear, but not to the extent that $ printing does.
  - ameister14 4y ago
    The proximate cause might be money printing, but the policy failures go way deeper than that to the cause of a hyper-concentrated economy.
    - silentsea90 4y ago
      Please expand
      - ameister14 4y ago
        Well, the Massachusetts Fed found that pass-throughs are 25% higher in a highly concentrated market, that these price increases last for longer, and that industries in the US are 50% more concentrated than they were in 2005. https://www.bostonfed.org/publications/current-policy-perspectives/2022/cost-price-relationships-in-a-concentrated-economy.aspx https://www.bostonfed.org/publications/current-policy-perspe... So essentially, in more concentrated markets cost shocks are more likely to result in extended periods of inflation. Why are things more concentrated? A lot of reasons, but a big one is that there were almost no effective antitrust actions for decades, and courts weakened the ability of the DOJ and FTC to enforce competitive guidelines. At the same time, Congress weakened the regulatory controls.
  - nonethewiser 4y ago
    Agree with everything except the US “fanning” the war in Ukraine. In what sense? Is Ukraine fanning the war?
    - silentsea90 4y ago
      I removed this sentence as it is subjective and distracts from the original point. That said, the US supplies Ukraine with weapons and Intel, instead of making strong efforts to bring all parties to the negotiating table. China is now supplying weaponry to Russia. This is escalatory and takes us further from peaceful resolution. Of course, I don't have any insider information so this opinion is weakly held
- baremetal 4y ago
  >introduced serious price controls and other counter-inflationary measures Price controls are not effective in curbing inflation [1] And they have a deleterious effect on production. For example: no farmer is gonna sell his produce at a price that is less than his cost to produce. So if you control the price, there will be nothing on the shelf. [1]https://www.stlouisfed.org/publications/regional-economist/2022/mar/why-price-controls-should-stay-history-books https://www.stlouisfed.org/publications/regional-economist/2...
  - mschuster91 4y ago
    Price controls can also be of the form "COGS+5%". These allow profitable operation but limit excess profits. Or you can do post-fact price controls by comparing profits now with average profits over the last years and taxing everything above at 100%. All it needs is the political will to help the people.
    - nonethewiser 4y ago
      Is this what the Communist Party of China does?
    - junofan 4y ago
      Cost-plus pricing on commodities will fuck with forecasting. There aren’t good tools. You’ll get shortages. It’s fine for natural monopolies.
    - deleted 4y ago
      [deleted]
nostrebored 4y ago
The fed has absolutely abandoned QT. The fed has already added hundreds of billions to their books this week and is looking at a 25bps hike. From where we're at, this is effectively QE.
- adventured 4y ago
  The Fed had to know that as they kept pushing, more serious stress would show up in the financial system as they went higher. This is exactly what they have been looking for. To the Fed this means what they have been doing is working (their goal has rather openly been to slow the US economy, and to a lesser extent the global economy, to bring down inflation via demand destruction). Nothing quite brings economic growth to a halt like a large banking crisis and the corresponding panic.
  - nemo44x 4y ago
    Yeah but this could be an instance where the cure is worse than the disease.
    - adventured 4y ago
      I think it's very likely to be worse (certainly drastically more risky). The Fed has a history of hard landings. There was a level at which more modest rates would have gradually bent inflation downward over time, and it would have taken a while (a year or two longer, say). IMO the Fed was too aggressive in trying to stop it asap. They went too far too fast and we'll see a rolling fallout from it for several years yet. Lower rates with elevated inflation for a bit longer, would have been the more prudent choice, than cranking the volume fast and risking a financial crisis.
- silentsea90 4y ago
  Maybe, maybe not. The Fed has wiped out 6 months of QT's impact within a week. They might temporarily slow rate hikes but I am not convinced they will stop. I see this more as them plugging a hole in the economy. It will take a collapse for them to pivot and admit defeat to inflation.
jeffbee 4y ago
Bear Stearns was a very different case. Instead of a run on deposits, their credit disappeared. Bear operated on a system of continuous credit. They would pick up the phone and call some other place and borrow. Everyone else collectively decided to just stop lending to them, quite suddenly. They had been writing down a lot of losses but when their guy went on CNBC in March 2008 to announce that his bank had plenty of liquidity, the next day literally nobody on the street would lend them anything. Then the Fed had to bail them out on Saturday. It was really a completely different type of thing.
- silentsea90 4y ago
  Everything is different at a granular level but similar at a higher abstraction. In all cases (SVB, BS), banks ran out of liquidity and had paper losses on current investments that would see them go under. Ultimately, if you run out of money, you're bankrupt as a country/company(even banks)/individual
- postingawayonhn 4y ago
  There was news over the weekend that major banks were declining to trade with Credit Suisse: https://www.reuters.com/business/finance/some-credit-suisse-counterparties-put-curbs-new-dealings-involving-lender-2023-03-17/ https://www.reuters.com/business/finance/some-credit-suisse-...

mschuster91 4y ago

What most people don't account for is that we're not in a classical inflation scenario - we're, at least fundamentally, in an energy cost inflation scenario where the countries with more than enough of oil and gas to spare jack up the prices just because they can. And unfortunately, on top of that comes profiteering. The price hikes of everything that went far and beyond reasonable increases due to rising energy costs are insane - and outside of Spain which has introduced serious price controls and other counter-inflationary measures and Hungary where Orban misdirects EU funds into bribing his voters, no major Western government is doing anything about that. At least the French are bringing out the pitchforks.

silentsea90 4y ago
Markets don't arbitrarily inflate prices across asset classes (stocks, crypto, commodities, real estate). Classifying widespread worldwide inflation as energy cost inflation OR profiteering is (subjectively) an excuse for policy failure. Single family home owners in San Diego don't collude with condo owners in Vietnam. They do respond to bidders outbidding each other, flush with cash from asset values rising as a consequence of money printing worldwide. The core reason is money printing. The rest is noise. See charts for Fed balance sheet, M1 and M2 money supply for 10 years worth of printing in a year. The Cantillon effect makes people close to the money spigot richer at the expense of the masses. The Fed knows it too, else QT and interest rate hikes wouldn't be used as weapons against inflation. Political messaging is oriented around not taking responsibility and blaming the pandemic, supply chain issues, Ukraine war etc. These reasons do play a role to be clear, but not to the extent that $ printing does.
- ameister14 4y ago
  The proximate cause might be money printing, but the policy failures go way deeper than that to the cause of a hyper-concentrated economy.
  - silentsea90 4y ago
    Please expand
    - ameister14 4y ago
      Well, the Massachusetts Fed found that pass-throughs are 25% higher in a highly concentrated market, that these price increases last for longer, and that industries in the US are 50% more concentrated than they were in 2005. https://www.bostonfed.org/publications/current-policy-perspectives/2022/cost-price-relationships-in-a-concentrated-economy.aspx https://www.bostonfed.org/publications/current-policy-perspe... So essentially, in more concentrated markets cost shocks are more likely to result in extended periods of inflation. Why are things more concentrated? A lot of reasons, but a big one is that there were almost no effective antitrust actions for decades, and courts weakened the ability of the DOJ and FTC to enforce competitive guidelines. At the same time, Congress weakened the regulatory controls.
- nonethewiser 4y ago
  Agree with everything except the US “fanning” the war in Ukraine. In what sense? Is Ukraine fanning the war?
  - silentsea90 4y ago
    I removed this sentence as it is subjective and distracts from the original point. That said, the US supplies Ukraine with weapons and Intel, instead of making strong efforts to bring all parties to the negotiating table. China is now supplying weaponry to Russia. This is escalatory and takes us further from peaceful resolution. Of course, I don't have any insider information so this opinion is weakly held
baremetal 4y ago
>introduced serious price controls and other counter-inflationary measures Price controls are not effective in curbing inflation [1] And they have a deleterious effect on production. For example: no farmer is gonna sell his produce at a price that is less than his cost to produce. So if you control the price, there will be nothing on the shelf. [1]https://www.stlouisfed.org/publications/regional-economist/2022/mar/why-price-controls-should-stay-history-books https://www.stlouisfed.org/publications/regional-economist/2...
- mschuster91 4y ago
  Price controls can also be of the form "COGS+5%". These allow profitable operation but limit excess profits. Or you can do post-fact price controls by comparing profits now with average profits over the last years and taxing everything above at 100%. All it needs is the political will to help the people.
  - nonethewiser 4y ago
    Is this what the Communist Party of China does?
  - junofan 4y ago
    Cost-plus pricing on commodities will fuck with forecasting. There aren’t good tools. You’ll get shortages. It’s fine for natural monopolies.
  - deleted 4y ago
    [deleted]

nostrebored 4y ago

The fed has absolutely abandoned QT. The fed has already added hundreds of billions to their books this week and is looking at a 25bps hike. From where we're at, this is effectively QE.

adventured 4y ago
The Fed had to know that as they kept pushing, more serious stress would show up in the financial system as they went higher. This is exactly what they have been looking for. To the Fed this means what they have been doing is working (their goal has rather openly been to slow the US economy, and to a lesser extent the global economy, to bring down inflation via demand destruction). Nothing quite brings economic growth to a halt like a large banking crisis and the corresponding panic.
- nemo44x 4y ago
  Yeah but this could be an instance where the cure is worse than the disease.
  - adventured 4y ago
    I think it's very likely to be worse (certainly drastically more risky). The Fed has a history of hard landings. There was a level at which more modest rates would have gradually bent inflation downward over time, and it would have taken a while (a year or two longer, say). IMO the Fed was too aggressive in trying to stop it asap. They went too far too fast and we'll see a rolling fallout from it for several years yet. Lower rates with elevated inflation for a bit longer, would have been the more prudent choice, than cranking the volume fast and risking a financial crisis.
silentsea90 4y ago
Maybe, maybe not. The Fed has wiped out 6 months of QT's impact within a week. They might temporarily slow rate hikes but I am not convinced they will stop. I see this more as them plugging a hole in the economy. It will take a collapse for them to pivot and admit defeat to inflation.

jeffbee 4y ago

Bear Stearns was a very different case. Instead of a run on deposits, their credit disappeared. Bear operated on a system of continuous credit. They would pick up the phone and call some other place and borrow. Everyone else collectively decided to just stop lending to them, quite suddenly. They had been writing down a lot of losses but when their guy went on CNBC in March 2008 to announce that his bank had plenty of liquidity, the next day literally nobody on the street would lend them anything. Then the Fed had to bail them out on Saturday. It was really a completely different type of thing.

silentsea90 4y ago
Everything is different at a granular level but similar at a higher abstraction. In all cases (SVB, BS), banks ran out of liquidity and had paper losses on current investments that would see them go under. Ultimately, if you run out of money, you're bankrupt as a country/company(even banks)/individual
postingawayonhn 4y ago
There was news over the weekend that major banks were declining to trade with Credit Suisse: https://www.reuters.com/business/finance/some-credit-suisse-counterparties-put-curbs-new-dealings-involving-lender-2023-03-17/ https://www.reuters.com/business/finance/some-credit-suisse-...