April 26, 2023
Even after a $30 Billion loan a few weeks ago, from a group of major banks to shore up its Balance Sheet, depositers continue to flee.
The basic problem is again concerns about the liquidity of the Bank’s investment portfolio. Like many of the other banks facing a loss of confidence because they invested billions of dollars in low paying bonds, and mortgage securities, several years ago.
Now as interest increase as the Federal Reserve, the Fed, is trying to control inflationary forces, these bonds are trading at substantial discounts to their original purchase prices.
The fiction that these bonds will eventually be worth their original cost, is meaningless, as the Banks are being forced to sell to meet customer demands for cash, and withdraw deposits.
Why these high priced executives made these terrible investment decisions, is a billion dollar question. Anyone who has taken a basic course in economics, would know that the value of bonds fall dramatically when interest rates rise. They all had ample warnings that the years of low interest rates were coming to an end two years ago as the Fed began to fight inflation, by raisng interest rates.
And shouldn’t the Bank examiners have also had a basic course in finance? Was everyone blind to the risks?
The Fed may find some way to bail out this bank, but the problem exists throughout the banking system. The question becomes who will be next? Which bank is the next to experience a depositer run?
Might be a good idea to have some cash on hand and maybe a few Gold Coins. I still don’t really understand Cryptos, so I would not recommend any of those coins, like Bitcoin.
Gold has a 5,000 year history as a store of value. How long has Bitcoin been around?