Well, haven’t the last two weeks been interesting? From Silvergate, Silicon Valley, and Signature Bank all failing (must be an “S” thing), throw in Credit Suisse across the pond getting nationalized (for all intents and purposes), then a run on select US regional banks, add in a dash of moral hazard (fully insuring all depositors above the FDIC limit of $250k) and a 1/4 point rise in interest rates and what has changed? Nothing.
The Federal Reserve and the Treasury Department have taken a page from the 2008 financial crisis playbook titled ‘Extend & Pretend,’ jawboning markets into believing the banking system is financially stable while allowing banks to borrow from the Fed, using their Treasury securities as collateral at PAR for one year. God forbid, the Fed spoon-fed everybody that interest rates were going up after it noted inflation was “transitory,” yet bankers took on duration risk, ignoring the classic concept of matching assets & liabilities.
The hope (still not a strategy) is that time will alleviate the effects of rapid interest rate increases, thus allowing for bank balance sheets to mend. Good luck with that. The 0% interest rate bill is coming due, fast, in the form of rising delinquencies of all kinds, auto loans, credit cards, mortgages, and the more insidious one of rising defaults in the commercial real estate sector.
If the events of the past two weeks didn’t shake your foundational core, just imagine if elevated asset prices of all types, stocks, bonds, and real estate begin to head south and, more importantly, stay south. Throw in increasing layoffs (Love Meta/Facebook’s ‘Year of Efficiency’), and you better have a chair when the music stops.
So, reduce/eliminate debt (Wealth’s Destroyer), stash cash, and if you haven’t already, develop and stick to a BUDGET. The government can ‘Privatize Gains and Socialize Losses’ with impunity, and they will continue to do so. Your personal financial situation cannot. The object lesson of these past two weeks is: Take care of #1. We live in the real world, not fantasy land, and your financial security depends on being prudent at all times.
