On today show we’re taking a deeper look at the Silicon Valley Bank failure that occurred on Friday of last week. This spectacular bang failure has been making headlines and I am not going to merely repeat the types of things you might be reading on the front page of the Wall Street Journal. That would not be adding any value to you. I’m going to go out on a limb and state categorically that the federal reserve indeed accidentally engineered the failure of Silicon Valley Bank. That might sound like a bold statement.

We all know what happened. The bank failed in spectacular fashion in what seemed like 48 hours. Clearly the Banks leader ship understood the gravity of the situation in the weeks leading up to the failure. It is alleged that the CEO sold shares in the weeks leading up to the collapse. But that’s a discussion for another day. As of the close of business on Thursday, a little more than 20 billion of the 175 billion still on deposit at the bank, were FDIC insured. Warnings from VCs to their clients is what caused the run on the bank. So the question is how many other banks are carrying assets that in the open marketplace are clearly worth far less than book value? If depositors were to withdraw funds on a moderate scale, and start putting them into US T-bills or German bonds or some other higher quality paper, how many other banks would suffer the same fee to Silicon Valley Bank? Last June when we met with Danielle DiMartino Booth in person at the Investor summit on send she said some thing which I remember to this day. She said the federal reserve will continue to raise interest rates until something breaks. We just did not know what would break. Well now we do. The member banks that on the federal reserve are likely to be the biggest casualties of the banks rapid increase in interest rates. I predict that on Monday morning, one of the consequences of the Silicon Valley Bank failure will be a complete freeze of new loan origination’s nationwide. Businesses with more than $250,000 in bank balances will move their excess funds into 60 day T-bills. We are going to see a panic wave of buying on Monday and the yield for the 60 day T-bills is going to fall. We have already seen panic buying in Asian markets overnight. So it’s not hard to predict the human behaviour.


Host: Victor Menasce

email: podcast@victorjm.com