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Posted March 14, 2023

Sean Ring

By Sean Ring

The Silly Valley Bank Bailout Lingers

Good morning from a gorgeous, bright Asti!

I haven’t stopped shaking my head for two days.

I’m still shocked, stunned, and disappointed with the Biden administration’s decision to bail out the depositors at Silly Valley Bank.

It’s bad enough that Janet Yellen, the USeless Treasury Secretary, was briefed on the situation over a month ago.

It’s worse that the President was separately briefed on SIVB when Yellen was.

That’s two too many people who saw this coming and did nothing about it before a bailout was “necessary.”

But I still hold that the best thing to do was nothing.

Say it with me: Deregulation is okay when you let businesses (especially banks) fail.

I’m still trying to understand what’s happening in the market.

So, I’m going to take today to give it a closer look and then report back to you tomorrow.

In the meantime, my friends and colleagues have put together a fantastic half-hour video for you to watch, so you’re fully briefed on the situation.

Pro tip: I watched it at 2x speed. That way, it only took 15 minutes, and I didn’t lose any of the messaging.

The Man Himself, Jim Rickards; the smartest working analyst in the newsletter business, Dan Amoss; and our fearless leader/publisher, Matt Insley, have put together a short video that’s well worth watching.

In today’s Rude, I will prep you for that video. Once you read this, you’ll be fully ready to absorb Jim’s, Dan’s, and Matt’s fantastic revelations.

Why Is This Genuinely a Bailout and Not a Bail-in?

From Jim:

So, Friday afternoon, they said, we're shutting the bank. All deposits up to $250,000 are fully insured. You'll get your money. They moved the deposits over to a new bank called the Deposit Corporation Bank of Santa Clara. Those under the $250,000, you'll get your money Monday morning, but everyone else… you're wiped out. By the way, they didn't freeze those deposits. Those deposits were gone.

And they said, “What we're going to do is give you a certificate in place of the deposit. We'll tell you what it's worth. It's completely illiquid. You can't use it for anything. We're going to sell the assets, get the money, and see how much there is relative to these liabilities.”

Um, and then we'll pay them off, you know, as and when possible. But it could be a year, could be longer. Who knows how long it will take to sell the assets or what they will be worth? Nobody knew. Well, if you're a startup and you got, let's say, $5 million in venture capital from Kleiner Perkins, and you had it all in Silicon Valley Bank, your $5 million is now gone.

You hold a certificate of uncertain value but can't meet payroll. You might have a payroll Monday morning, you can't pay your vendors, you can't pay your rent, you can't pay the light bill, you can't do anything. You're out of business. And then, there would've been a wave of bankruptcies, which would've rippled through to the venture capital firms.

These things always happen on a Friday. They always happen on Fridays because they need the weekend to figure it out. So, watch out for Fridays!

So that's the story as of the end of the day Friday. So, over the course of the weekend, the Treasury’s Yellen's (you know, Ms. Clueless), Jay Powell, Martin Greenberg, the head of the FDIC, and I'm sure there's a lot of input from the White House from Lael Brainard. She just moved from the Fed to the White House. So, no one in the White House knows much about this, but she does. So, she's the White House kind of point person on this.

So, they came up with a new plan. It was announced at 6:15 pm Sunday, which was no coincidence because six o'clock Sunday is when the futures start trading. And they opened down.

So they changed our minds. They weren’t going to limit the insurance to $250,000. They just blew it away. Unlimited insurance, all depositors are fully insured.

If you had $5 billion in the bank, you're getting $5 billion, not $250,000.

That business of sticking to the deposit insurance and not paying for the rest that's called a bail-in. We're used to bailouts. We've seen those a lot. But the bail-in is “No, we're not going to use taxpayer money to bail out the rich guys. The depositors are actually going to lose."

And this was something they produced in 2014. It was nine years ago. But the problem is, in nine years, there hasn't been a bankruptcy of this magnitude.

They've never had a bank resolution in the whole nine years where they actually had to do what they said they were going to do, which was bail-in, not bail-out. 

They tore the bail-in rules up, threw it to one side, and bailed out all the depositors 100%.

So, the FDIC did a 180 in 48 hours.

I’m thrilled whenever Jim and I agree. He’s one smart cookie, you know!

Wrap Up

I will keep this short today because I want you to watch the video.

No information is required, and certainly no credit card! Just click this pic and hit play.

Click here to learn more

This emergency video briefing from Jim Rickards, Dan Amoss, and Matt Insley is where Jim breaks down everything you need to know about the past of SVB, the present of the FDIC, and THREE major pitfalls to keep an eye on in the coming days.

Again, there’s no credit card needed for this one.

This situation is so important that we want as many people as possible to view this video.

Jim answers three critical questions:

  1. Now that we’ve got this bailout, what will the Fed do next?
  2. If printing money solves the SIVB problem, where does that leave the Fed’s balance sheet?
  3. Did this whole situation start when part of the cryptocurrency space got upended?

His answers may stun you… but not if you’ve read the Rude for a while.

Tomorrow, I’ll have more market stuff for you.

Until then, have a wonderful day.

And watch the video!

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