18th March 2023 - More bank stuff.

tl;dr

More stuff about banks. Apologies, but I don’t set the agenda. Perhaps if I did, the world might be a better place.

Market Snap

Market Wrap

This flight to safety embracing cryptos, though welcome, is also a little worrying.

Cryptos are far more than just a store of value, and we must hope that investors do not restrict their enthusiasm for all things crypto to just this single facet of the greatest technological revolution ever known to humankind.

Occasional Series – Medium

Larry, our in-house Technical Analyst, became the CCC’s 26th follower on Medium yesterday.

Who will grab the highly coveted 27th spot? It won’t be around for long …

https://medium.com/@mark_curiouscryptos

Occasional Series – The ICC (International Criminal Court)

Vladimir Putin, President of Russia, and mass murderer, finally has a warrant out for his arrest.

Putin’s travel plans are now restricted to a billion-dollar palace on the shore of the Black Sea, Belarus, China, Syria, Iran, and North Korea. Each of those countries does have appeal to intrepid travellers, but - for most of us - that is a poor hand to hold. Now that several of his various super-yachts are also beyond his reach, we can all agree it couldn’t happen to a nicer guy.

Curious Cryptos’ Commentary – Contagion

TradFi is struggling.

The FSA (Financial Services Authority) in the UK has raised alarms about payment firms. Their concern? Segregation of clients’ money.

This has been a common theme throughout the ages whenever there are problems in the world of finance. But it was just yesterday that Matthew Long, FSA’s Payments Director (who knew such a role existed?) has stated that some firms pose “an unacceptable risk of harm to their customers and to financial system integrity”.

He may well be right about that, but why does it take a banking crisis - for that is what we are in right now - to energise bureaucrats? Could he not have started doing his actual job before yesterday rather than WFH or taking long lunches when in the office?

Apparently not.

The flight to safety into cryptos continues apace.

Curious Cryptos’ Commentary – BTFP (Bank Term Funding Program)

The BTFP, created in response to current banking problems induced by the combination of poorly designed capital rules imposed on banks, QE (quantitative easing), supply chain constraints because of illegal lockdowns, and subsequent QT (quantitative tightening) – see CCC 14th March 2023 for more details – has an interesting quirk.

During past banking crises, CBs (Central Banks) would fulfil their mandate of being lender of last resort, either in the form of collateralised loans with a deep haircut, or as a buyer of preferred securities at steep rates, or in the case of Chancellors who have no understanding of risk (remember the gold selling debacle?), as a buyer of ordinary shares.

Basel II rules claim that investment grade sovereign debt carries no risk, though it was the duration risk of long-dated US Treasuries that killed SVB (Silicon Valley Bank). BTFP is making the exact same mistake.

Banks can access funding from BTFP by pledging US Treasuries as collateral but valued at par. A 10-year bond issued at par two years ago at rates below 1% would now change hands at 75c in the dollar. Clearly, no institution with cash flow problems would sell such bonds in the open market with BTFP around, that would be a dumb trade.

As of now, BTFP is capped at only (!) 2 TRILLION dollars but demand is going to be overwhelming.

This is simply another form of QE, at a time of rampant inflation, and rising rates.

The last 15 years or so has seen CBs fail to address the real issues, and to make decisions that patch over current problems, but do not resolve them. Without resolution, those problems fester and become worse.

We can expect this latest model of QE – designed to make the rich richer, and the poor, poorer – rolled out elsewhere.

We are now faced with the double whammy of devaluing fiat against both hard assets and consumables AT THE SAME TIME. Quite extraordinary, and very scary.

Yet another reason why the flight to safety into cryptos continues apace.

…

Let’s look again at what 1 TRILLION dollars represents:

http://www.onetrilliondollars.us/