As you may have seen on the news, the 2008-style government bailout of banks has arrived. In contrast to the financial crisis of 2008, this time they are making the bailout look like not-bailout. The technical term they came up with is BTFP, Bank Term Funding Program, which is a bailout by another name.
They are also specifically avoiding admitting that we are already in a recession. All the media is controlled so you get silly headlines like “The weekend US officials hatched a plan to stave off a banking crisis” from Financial Times. Make no mistake: nothing was fixed in the global financial system since 2008, and the pandemic shock, when they printed infinite money into their own pockets, only made it so much worse.
A quick note on the relation between interest rates and treasury prices. When rates rise, treasury prices fall. That’s the design of the system. So when interest rates rise and you had $100 of treasuries in your pocket, now you have only $90. That’s how central banks are currently failing. And if you don’t raise the rates, then the currency becomes worthless from infinite money printing. In a way, the entire global financial system is a balance between money printing and raising rates.
The BTFP “not” bailout works by (1) guaranteeing uninsured deposits as if the are insured – which is illegal, and the working class will pay the bill, of course, and (2) swapping (“buying”) treasuries “at par”, as opposed to “mark to market”. This means that when the interest rates went up, and the value of treasures went wayyyy down, instead of banks failing, and depositors’ money disappearing, instead the US guvm’t will support banks as if they never lose value.
The bank assets can now be swapped (sold) to the guvm’t at par value (100%) rather than at, say, a $620B loss. Chase sits on a $0.6T holy crap! unrealized loss, from which would take them around 5 years to recover – they are essentially bankrupt, and every other bank is essentially in the same situation. Every financial institution has been destroyed by the raising interest rates. But wait!
What the US guvm’t just did, with SVB, is allow banks to never lose money, no matter what.
When you saw on the news a few months ago, the Australian central bank failing, the UK central bank failing – that was because when interest rates rise, treasuries’ value falls, making banks insolvent. With the new BTFP facility this will no longer happen.
I’m additionally worried that the US may favor US banks only, and let the rest of the world burn and other countries fail. You may see this as your currency deteriorating sharply against the dollar, and the dollar becoming very, very expensive. However, at the same time, the Fed has a history of secretly bailing of select foreign banks, e.g. central banks of France and Switzerland, recently. So the currency wars may become very political.
What do we, the working class, get as help from the government? That’s the neat part: nothing. We still have to bear the cost of inflation. Everything is more expensive (by 15-30% annually), and there is less of it. That is the cost of infinite money printing. Usually the cost would be, anyone holding treasuries sees their money disappear. But not anymore! The guvm’t will pretend that treasures never lose value, so banks don’t pay the cost of raising interest rates. But we do – dollar by dollar, we will pay more while getting less, while the owners of financial institutions continue making reckless, impossible bets to enrich themselves beyond imaginable, at our expense.
The financial system works in very technical ways, and most people don’t understand how it works. That’s why we still allow this robbery to continue. Maybe I’ve explained it poorly ^ above, but I only now myself realized that the BTFP facility disconnects inflation for the rich and inflation for the poor. It also upsets me that very few people are paying attention to the SVB bailout, and the huge consequences that may become of it. I’m angry and upset.
