Bank Runs and Bailouts: The FDIC $250K Account Limit vs Regulations

Silicon Valley Bank failed last week (2nd largest failure) after making poor investment decisions followed by improperly managing the problem, which scared their biggest customers to start a bank run.

The biggest problem was they bought too many low rate treasury bonds which tanked in value in the era of rising interest rates. Bonds that pay a lower interest rate drop in value when current rates rise since folks can get even higher paying bonds.

So the following questions about “bailouts” are springing out:

Should SVB be bailed out?

For shareholders and investors into that company, the answer is no. Investing comes with risks- and the 2008-2009 banking crisis and new regulations should have eliminated the “too big to fail” category of businesses.

Should SVB account holders that had over $250K be bailed out?

For depositors, the answer is FDIC insures $250K of money per account type (single, joint, 401K, etc…), and the rest is technically not insured, and here is where the problem really lies.

Back in 2008-2009 Great Recession when we were experiencing a tsunami of bank failures, people may have now forgotten that the original FDIC account limit was $100K, but the Fed raised it retroactively to $250K and made most depositors whole regardless of them having much more than $250K in their account, although this wasn’t widely broadcasted.

If the Fed didn’t ensure the account holders at SVB were safe, the fear would have spread and initiated many more bank runs which would have destroyed many banks along with the businesses that placed their deposits there that had accounts in excess of $250K. That would have resulted in another major financial crisis and great recession.

So yes, all deposit account holders should be protected to stop a domino financial collapse.

Moral Hazard Risk comes with Capitalism

Guaranteeing all banking accounts comes with major risks. A bank that knows all its accounts are fully protected by the Fed will be incentivized to take greater risks with their customer deposits, leading to even bigger failures down the road.

The solution is clear – proper regulation is needed to limit the risks the banks can take that lead to bank failures.

Unfortunately the prime directive of capitalism is to increase profits which puts it at odds with more regulations that lower profit potential.

Banking regulations were loosened in 2018 with legislation that allowed banks to take on more risk which helped bring on this result.

The cycle is big business wrecks the economy, then gets bailed out to prevent an economic meltdown with more stringent regulations put in place to prevent a repeat. Big business then lobbies government to relax or remove restrictions, allowing them to take more risks, which eventually results in business failures upon which they ask for more bailouts.

Capitalism will wind up destroying itself unless it’s properly regulated.

Man Paraglides on Sofa with TV

In the digital age of simulations I know many things can be faked, but this certainly looks real to me, as well as crazy and terrifying.

Automated McDonald’s Opens in Texas

The first McDonald’s automated restaurant of its kind has opened in Fort Worth, Texas.

It will allow you to order and receive your meal using an online menu or the order kiosk at the restaurant without talking to or interacting with any employees.

Many news media outlets have come to the wrong conclusion that the restaurant has no human employees and is fully automated. Actually, the employees are still there preparing the meals, just not in front in the order intake or delivery sections. It’s also still possible to talk to an employee if there is a problem with an order.

While people still work there, the automation will reduce the number of workers needed.

Article Link: Link

One Year Anniversary: How Ukraine Stopped Russia’s “3 Day” Planned Victory

February 24th will mark one year since Russia started a full scale invasion into Ukraine. Russia had planned for Ukraine’s forces to be no match and fall quickly before Russian forces.

That assumption turned out to be one of many fatal ones that has seen Russia experience catastrophic losses on the battlefield and being forced to retreat and regroup.

At the start of the war, Russia planned to take over the Ukraine airport, from which they could then fly in their armored forces directly into Kyiv. Ukraine had other plans and fought tenaciously to prevent that from happening.

♥️ Valentines Day: Human Clubbing Mating Ritual, Nat Geo Edition ♥️

A “scientific” view of the mating ritual at the clubbing scene. 🧐 😂

Run Away Capitalism Alert: Car Companies Making Luxury Features Such as Heated Seats Subscription Based

Remember the good old days when you bought a car that had the luxury features you selected included in the asking price?

Well, carmaker BMW is on a mission to change that by offering luxury features as a subscription that used to be included with the initial car purchase. In this case, heated car seats, priced at $18/mo. If one wants full permanent use rather than subscribe, the price is $415.

Companies are catching onto the fact that it’s more profitable to keep a person on a subscription than having them pay a one time price.

They have started this type of pricing in Europe and South Africa, but claim they have no plans for the US…at this time.

Gamers are well aware of the term “microtransactions”, where you might buy a game, only to find that you still have to pay to unlock certain features in a game. Now it’s moving into the real world.

Other listed fees include:

Heated steering wheels: $12/mo

Using car cameras: $235 one time fee.

How would you feel about making a new car purchase, typically the second biggest purchase outside of buying a home, only to be required to “subscribe” or pay additional fees for some of the built in luxury features? Is this the sad wave of the future?

Article Link: Link

2022 Wall Street Bets Dank End of Year Trades

Wall Street Bets, a reddit subsection that is famous for showing people risk huge sums on money on risky trades only to lose it all.

Among all that carnage, there are some that take huge risks and manage to win big, at least for a while. It’s basically the trading/gambling version of highway car wrecks and close calls- shocking, but you can’t look away….

Here’s a summary of the biggest good/bad trades during the end of year Santa Claus rally:

How and Why FTX Collapsed – Great Summary

Easy to understand timeline of what went down at FTX

2022 Year World Review from A – Z

A look back at the biggest events of 2022, done in less than 6 minutes.

And for those who want more in depth coverage of 2022:

California Being Deluged With Several Days of Rain

California and much of the southwest has been experiencing a mega drought over the last few years, so the rain coming in will certainly help.

However, while the rain is solely needed, there is also too much of a good thing with so much rain coming down in such a short time. The ground is super saturated and landslide risk goes up as main highways become blocked or washed out.

Part of Road Collapses Down Cliff:

News Summary I

News Summary II