Comments by "k98killer" (@k98killer) on "Signature Bank Fails: And I Sense Shenanigans" video.
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Here's an outline of what has happened:
1. Fed and Treasury print up trillions of dollars of funny money. Fed drops reserve ratio requirement down from 10% to 0%.
2. Banks get flooded with deposits via Federal Reserve balances.
3. Deposit liabilities have costs due to regulations and FDIC insurance premiums, and reserve balances pay nothing, so the banks buy securities with 0% credit risk rating (bonds, TSYs, MBSes, and agency MBSes) to cover the costs of holding the customer deposits.
4. Fed says they will keep rates at 0% forever ("We're not even thinking about thinking about thinking about raising rates" - J-Pow, 2021), and money supply continues to expand, so bank treasurers don't hedge duration risk.
5. Inflation spikes, so Fed raises rates at fastest pace in history, tanking the market clearing prices of securities.
6. Banks move their securities into the held-to-maturity bucket to avoid recognizing unrealized losses.
7. Broad money begins to contract at fastest rate since the Great Depression. Banks now need to sell their securities and realize losses to settle deposit withdrawals.
8. Realized losses exhaust capital of some banks, causing them to go bankrupt.
[We are here.]
9. Federal Reserve goes bankrupt in late March/early April because their realized losses on their assets and net interest expense ($39.8B as of 2023-03-13) exceed their total capital ($42.5B). What is the value of a dollar when it is by definition worth less than a dollar?
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