With collapse of SVP and other banks, you’d think we were back in 2008. It’s funny how you start hearing the same stories over and over again. Lack of regulation leaves room for another huge bank fail. Government jumps in to protect the wealthy investors. Rest of the world gets more stress added to their lives as yet another global crisis looms in the future. What’s not to love about our leaders?
Now the Fed is really caught between a rock and a hard place. It’s role is to regulate the US economy through interest rates. Every move it makes is felt by, and influences the entire world. During the great recession of 2008, the last exact fiasco to the one we’re experiencing today, the Fed dropped interest rates to near zero, and kept them there pretty much until a couple of months ago. What’s different today is, inherent in all that money sloshing around for the past 15 years is inflation. We have a big problem with inflation now. The Fed must raise interests rates to stop inflation. The Fed must lower interest rates to stop exposing the downfall of a financial system unprepared for rate hikes. It’s damned if it does, and damned if it doesn’t. It has in effect, removed itself as a driver of the financial system.
Bad timing because this banking failure is showing signs of contagion, and the potential for another crisis. No-one knows right now what’s going on but the facts are, there have been 3 US bank failures in the last few days. Switzerland’s Credit Suisse stock plunged almost 25% today when it disclosed ‘material weakness’ in it’s accounting controls. European banking shares plunged 7%. Broader shares dropped between 3 and 4% in the European markets. Rating agencies are downgrading bank credit ratings, or putting some on a downgrade ‘watch’.
Oh what a tangled web we lead when our economy is driven by greed. That’s how that saying goes, right? More to come.