Sometimes I wonder about the NYT.
The bank’s options to save itself absent a government seizure are limited and challenging. No buyer has emerged for the bank in its entirety. Any bank or investor group interested in taking over the bank would have to take on First Republic’s loan portfolio, which could saddle them with billions of dollars in losses based on the recent interest rate moves.
They clearly believe that the buyer would take on the losses. No, that’s not the problem. First Republic would suffer the losses in a lower purchase price. Which would destroy their capital base. Which, you know, causes a problem at First Republic:
Which is exactly what happened to Silicon Valley Bank of course. The hunt for liquidity meant selling the portfolio, booking the losses and therefore having no capital left.
Ah.
OT or semi-OT: supplying the world’s #1 reserve currency is one of those wishes you make on a monkey’s paw in a Hammer House of Horror movie, isn’t it?
It’s one of those things which isn’t as lovely as people think. All of US money – all $ – do come back into the US economy. Or near all of them. The bit that doesn’t is the cash $100 bills that mafiosi us in briefcases. This makes the Federal Reserve maybe $20 billion a year (number from Krugman, P) which is nice but hardly game changing in a $25 trillion economy.
I can’t believe how stupid these Bank executives are.
I, as a numpty layman, know that lie yield treasuries are to interest rate hikes.
Interest rates are raised to combat inflation.
Joe Biden gets elected with a stated manifesto of a war on fossil fuels/Green New Deal which woukd inevitably jack up energy prices across the board.
How come these morons can’t connect the dots?
Did they really bet their companies existence of perpetual zero interest rates?
No, just that they would last long enough to pay enormous bonuses.
“Did they really bet their companies existence of perpetual zero interest rates?”
I thought the banks got made a ‘deal’ by the State: ‘Nice bank you’ve got here, it would be a shame if something happened to it if you didn’t invest all your spare money in our debt…..’
If First Republic go under it’ll be interesting to see if their depositors get made whole or not. I guess it’ll depend how many well connected Democrat donors have money in it……as it generally operates in California, New York and Massachusetts I’d guess they will.
their companies
They are rarely ‘their’ companies.
For example, the FRB CEO got paid $7m and has less than $1m in stock. The chairman (also founder and former CEO) famously paid himself Jamie Dimon-style money for years following the GFC. He and other directors sold $12m of shares in recent months.
It sort of depends on whether the loan book is stuffed with liar loans to dodgy customers, or whether they got caught out lending at low long term interest to savvy customers.
If the latter they may not be quite as far up shit creek as supposed.
Never buy the company. Buy the customers, buy the assets, buy the people, but never the company. Those one-dollar companies end up costing mega.