Mish: Tidal Wave of Money Leaving Banks Will Kill Bank Profits and Lending

Let’s tune into a mass exodus of deposits at banks for money market mutual funds and what it means.

Mish, Apr 24, 2023 – Excerpts:

Jim Bianco 21-Tweet Thread / Mish opinions:

The “bank walk” becomes a “bank powerwalk” to 5%.

More Bank Failures? – “To be clear, a bank walk will NOT lead to another bank failure, wrong metric. But it will kill their profitability, especially the smaller banks.“

Giant Bank Sucking Sound – Question On Stopping the Run 

Mish: “Banks need NEW Deposits because they already locked up existing deposits in 10-YR notes at 2.0% or so. Offering 3% will not attract much new money with others offering 5%.“

Bianco: “Exactly correct: They [banks] locked up securities and loans that generate much lower interest rates. Somewhere around 3%. Over time they mature and get rolled into higher rates. But not now. So, they lose money by trying to compete with market rates. This explains why the bank stocks cannot rally.“

Bianco The “bank walk’s” cumulative impact on markets, the economy, and lending. It will be a significant drag later this year.

Moody’s Downgrades 11 Regional Banks:  Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance.

Regional banks, Moody’s said, are more exposed to hard-hit commercial real estate. U.S. banks hold about half of total CRE debt outstanding, and some are concentrated in construction, office, or land development.

U.S. Bank has a “relatively low capitalization” as well as unrealized losses on its securities, Moody’s said.  Zions has “significant” unrealized losses on its securities portfolio and its capital has deteriorated, Moody’s said.

Downgraded Banks

• U.S. Bancorp USB, with $682 billion in assets
• Zions Bancorp ZION with $89 billion in assets.
• Bank of Hawaii Corp., BOH with $24 billion in assets.
• Western Alliance Bancorp WAL, received a two-notch downgrade.
• First Republic Bank, which faced a run last month, had its preferred-stock rating cut.
• Six More: Associated Banc-Corp., Comerica Inc., First Hawaiian Inc., Intrust Financial Corp, Washington Federal Inc., UMB Financial Corp.

Banks will not be taking any extra risks. Nor will larger banks that also face the “powerwalk”. This will pressure bank lending across the board.

Like it or not, the Fed is purposely angling for recession to cure inflation. 

And the Fed does not have an inflation ally in the White House. Biden is doing everything possible to fuel inflation with inept Green policies. 

This post originated at MishTalk.Com

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The right way for the Fed to rescue troubled banks:

The Leviticus 25 Plan, provides the tidal wave of fresh capital that will flow into banks through debt pay-downs by American families: Mortgage debt, Consumer debt, Household debt, Student Loan (unsubsidized) debt; credit card debt.

A good share of that debt, in ‘delinquent’ status, will be ‘satisfied,’ or ‘made current,’ which will be an important additional benefit.

The Leviticus 25 Plan will also reignite economic growth, which will help relieve pressure on Commercial Real Estate (CRE) debt service.

The Leviticus 25 Plan – An Economic Acceleration Plan for America

$90,000 per U.S. citizen – Leviticus 25 Plan 2023 (6066 downloads)

Here’s A List Of Biden Tax Hikes Which Take Effect Jan. 1

ZeroHedge, Dec 31, 2022 – Excerpts:

When the Democrats finally passed the “Inflation Reduction Act” in 2022 (how’s that going?), they included several tax hikes set to take effect on Jan. 1, 2023.

Americans for Tax reform‘s Mike Palicz has conveniently compiled a list of them, along with his take on their intended effects:

$6.5 Billion Natural Gas Tax Which Will Increase Household Energy Bills   

Think your household energy bills are high now? Just wait until the three major energy taxes in the Inflation Reduction Act hit your wallet. The first is a regressive tax on American oil and gas development. The tax will drive up the cost of household energy bills. The Congressional Budget Office estimates the natural gas tax will increase taxes by $6.5 billion.

And of course, this tax hike violates Biden’s pledge not to raise taxes on Americans making under $400,000 per year. According to the American Gas Association, the methane tax will slap a 17% increase on the average family’s natural gas bill.

$12 Billion Crude Oil Tax Which Will Increase Household Costs

Next up – a .16c/barrel tax on crude oil and imported petroleum products which will end up on the shoulders of consumers in the form of higher tax prices.

The tax hike violates President Biden’s tax pledge to any American making less than $400,000 per year.

As noted above, Biden administration officials have repeatedly admitted taxes that raise consumer energy prices are in violation of President Biden’s $400,000 tax pledge.

As if it weren’t bad enough, Democrats have pegged their oil tax increase to inflation. As inflation increases, so will the level of tax.

$1.2 Billion Coal Tax Which Will Increase Household Energy Bills

This one increases the current tax rate on coal from $0.50 to $1.10 per ton, while coal from surface mining would increase from $0.25 per to to $0.55 per ton, which will raise $1.2 billion per year in taxes that will undoubtedly be passed along to consumers in the form of higher energy bills.

$74 Billion Stock Tax Which Will Hit Your Nest Egg — 401(k)s, IRAs and Pension Plans

Democrats are now imposing a new federal excise tax when Americans sell shares of a stock back to a company.

Raising taxes and restricting stock buybacks harms the retirement savings of any individual with a 401(k), IRA or pension plan.

Union retirement plans will also be hit.

The tax will put U.S. employers at a competitive disadvantage with China, which does not have such a tax.

Stock buybacks help grow retirement accounts. Raising taxes and restricting buybacks would harm the 58 percent of Americans who own stock and more than 60 million workers invested in a 401(k). An additional 14.83 million Americans are invested in 529 education savings accounts.

Retirement accounts hold the largest share of corporate stocks, accounting for roughly 37 percent of the outstanding $22.8 trillion in U.S. corporate stock, according to the Tax Foundation.

In 2017, corporate-sponsored funds made up $4.45 trillion in market value; union-sponsored funds accounted for $409 billion; and public-sponsored funds, which benefit teachers and police officers, added up to $4.25 trillion.

A tax on buybacks could dissuade companies from doing so, and US companies will face significant compliance costs, which will – again, be passed along to consumers.

$225 Billion Corporate Income Tax Hike Which Will Be Passed on to Households

American businesses reporting at least $1 billion in profits over the past three years will now face a 15% corporate alternative minimum tax, which will be passed along in the form of higher prices, fewer jobs and lower wages, according to Americans for Tax Reform.

A Tax Foundation report from last December found a 15 percent book tax would reduce GDP by 0.1 percent and kill 27,000 jobs.

Preliminary cost estimates from the Congressional Budget Office found the provision would increase taxes by more than $225 billion.

According to JCT’s analysis, 49.7 percent of the tax would be borne by the manufacturing industry at a time when manufacturers are already struggling with supply-chain disruptions.

Which industry will likely be most affected? According to the Tax Foundation, “the coal industry faces the heaviest burden of the book minimum tax, facing a net tax hike of 7.2 percent of its pretax book income, followed by automobile and truck manufacturing, which faces a 5.1 percent tax hike.”

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Question: Do Washington Republicans have a plan to erase these Democrat tax hikes, generate federal budget surpluses, reignite economic growth, and restore American families’ financial health?

Answer: No

Main Street America Republicans do have a plan.

The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens.  It is a comprehensive plan with long-term economic and social benefits for citizens and government.

The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.

The Leviticus 25 Plan – An Economic Acceleration Plan for America

$90,000 per U.S. citizen – Leviticus 25 Plan 2023 (6065 downloads)

America needs a clean path to reducing dependence on government… and eliminating the massive fraud and waste built into our big government social policy ‘solutions.’

It is shocking that Washington Republicans and Democrats, for all intents and purposes, have turned a blind eye to this gigantic, ongoing tax-payer rip off.

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Improper Payments

Government Accountability Office (.gov) | https://www.gao.gov › improper-payments

Improper payments—payments that should not have been made or were made in the incorrect amount—have consistently been a government-wide issue…

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Welfare Fraud – Federal Safety Net

Federal Safety Net | https://federalsafetynet.com › welfare-fraud

Improper welfare payments, including welfare fraud and welfare abuse, are estimated to be 15.2% of all federal welfare payments. They total $161 billion in the fiscal year 2021. The estimate stems from the Office of Management and Budget (OMB) [i] and The General Accounting Office (GAO) reports. Eight of the Welfare Programs make the OMB list of “High Priority Programs.” These are programs with improper payments greater than $2 billion annually.   Shown below is information on each program.  

The table below shows billions of dollars of estimated welfare fraud and improper payments by welfare programs. The table takes total expenditures by program and applies the improper payment percentage. Adding up the programs approximates the overall improper payments from the welfare system as a whole.

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America’s Health Care Programs are Full of Improper Payments

Paragon Health Institute | https://paragoninstitute.org › americas-largest-health-c…

Dec 4, 2022 — A new report estimates official improper payments made by federal health programs are about $132 billion annually…

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How Medicare and Medicaid fraud became a $100B …

CNBC | https://www.cnbc.com › 2023/03/09 › how-medicare-an…

Mar 9, 2023 — Medicare and Medicaid programs are being brazenly targeted by sophisticated criminals. Estimated annual fraud tops $100 billion…

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Social Security Fraud: What Is It Costing Taxpayers?

Millions, possibly billions, of dollars every year

By The Investopedia Team | Updated September 02, 2022

Reviewed by Charlene Rhinehart | Fact checked by Vikki Velasquez

Social Security fraud statistics can be difficult to pin down. Some are grouped inside a larger category that the Social Security Administration (SSA) calls “improper payments,” which includes everything from innocent mistakes to willful fraud. The SSA estimates that it made about $8.3 billion worth of improper payments during the 2020 fiscal year.

Social Security-related fraud can also take other forms, such as identity theft using stolen Social Security numbers and scams involving bogus phone calls and emails purporting to be from the SSA. Collectively, these frauds cost the U.S. government and individual taxpayers millions, if not billions, of dollars every year.

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Programs Susceptible to Improper Payments Are Not Adequately Addressed and Reported

Oversight.gov | https://www.oversight.gov › oig-reports › TIGTA

May 6, 2022 — Earned Income Tax Credit (EITC) – The IRS estimates 28 percent ($19.0 billion) of the total EITC payments of $68.3 billion were improper.

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CHD, Apr 12, 2023: Biden to Spend $5 Billion on New Coronavirus Vaccine Initiative Supported by Gates, Fauci and Republican Lawmakers

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The Leviticus 25 Plan

Qualifying participants will each receive a $60,000 deposit into their Family Account – and, for five years, will no longer be enrolled beneficiaries in the following programs: EITC, child tax credits; SNAP, Housing Assistance, SSI, Child Nutrition, TANF.

Qualifying participants will also receive a $30,000 deposit into their Medical Savings Account, and will then have a $6,000 annual deductible for primary health care services accessed through Medicaid, Medicare, VA, TRICARE, FEHB for five years. This would eliminate tens of millions of claims and provide cleaner programs for improper payment and fraud prevention.

Participants will not receive Social Security Disability Insurance benefits for five years. OASI benefits would not be affected.

Participants would not receive free Coronavirus vaccinations.

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The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens.  It is a comprehensive plan with long-term economic and social benefits for citizens and government.

The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.

The Leviticus 25 Plan – An Economic Acceleration Plan for America

$90,000 per U.S. citizen – Leviticus 25 Plan 2023 (5993 downloads)

Much of the banking sector in the U.S. is reeling, primarily from ‘duration stress’ – having lent long-term money out in recent years at relatively low interest rates, and now having to borrow at much higher rates. Inflation hit, rates rose, and in due course market value of these paper assets on their balance sheets have dropped significantly.

The KBW Bank Index, a bellwether indicator tracking the prices of 24 large banks in this sector, began crashing in March. It is now down 46.7% year-to-date.

Index Components – As of May 2021, the individual index components included:

• Bank of NY Mellon (BK)
• Bank of America (BAC)
• Capital One Financial (COF)
• Citigroup (C)
• Citizens Financial Group (CFG)
• Comerica (CMA)
• Fifth Third Bank (FITB)
• First Horizon (FHN)
• First Republic Bank (FRC)
• Huntington Bancshares (HBAN)
• JP Morgan Chase (JPM)
• Keycorp (KEY)
• M&T Bank (MTB)
• Northern Trust (NTRS)
• PNC Financial Services (PNC)
• People’s United Financial (PBCT)
• Regions Financial (RF)
• Signature Bank (SBNY)
• State Street (STT)
• SVB Financial Group (SIVB)
• Truist Financial Corp (TFC)
• US Bancorp (USB)
• Wells Fargo & Co (WFC)
• Zion’s Bancorp (ZION)

Source:  Investopedia

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The S&P Regional banking ETF, KRE, is also under significant stress – down 35% from recent highs.

KRE vs SPX:

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The Fed has three apparent choices.  Two bad.  One good.

1. Bailouts. The Fed may be ‘forced’ into another round of bank bailouts to shore up capital requirements covering scores of Institutions within the sector – with the Fed recreating various credit facilities through which to pump hundreds of billions of dollars out to major banks (domestic and foreign) to stabilize the system.

Primary beneficiaries:  Wealthy industry insiders, Board of Director members, wealthy major shareholders like Warren Buffett and Bill Gates (circa 2008-2011), and others.

Primary non-beneficiaries:  Working class Americans, particularly those losing income, getting laid off, struggling to pay rents and mortgages.

Bad Choice: This would do nothing to restore credibility within the sector.  Federal and State governments would remain mired in debt.  There would be no positive long-term benefits for U.S. economic growth, no positive debt elimination benefits for American families.

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2.  Rate Reduction: The Fed could embark on aggressive rate reduction.  This would ostensibly shrink ‘lend long, borrow short’ rate gap that is plaguing the sector.  Duration risk, theoretically, would be at least partially mitigated as the market value of banks’ paper assets rises. 

Bad Choice:  Fed would lose a lot of credibility. Inflation would likely come back to haunt the Fed (and millions of working class Americans). There would likely be severe repercussions to credit markets (actually, ‘all hell could break loose’). Federal and State governments would remain mired in debt.  There would be no positive long-term benefits     for U.S. economic growth, no positive debt elimination benefits for American families.

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3. Re-target liquidity flows. The Fed could create a new facility, a Citizens Credit Facility, to officially launch The Leviticus 25 Plan.

Primary beneficiaries:  Working class U.S. citizens.

Good choice: 1)  Bank sector duration risk would rapidly resolve as underwater paper assets would be converted to dollars assets at par value – for banks to re-lend at market rates.  It would restore confidence within the sector.

2)  Massive debt reduction / elimination across the board for millions of American families.

3)  Marked gains in GDP growth as trillions of dollars previously earmarked for debt service boomerang back into the economy, creating jobs, re-incentivizing work, increasing economic productivity, generating enormous new flows of tax revenue and payroll tax revenue (Social Security, Medicare).

4) The Leviticus 25 Plan, through its recapture provisions, would generate $619 billion federal budget surpluses and major budget gains for most state and local governments, and would pay for itself entirely over a 10-15 year period.  

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The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens.  It is a comprehensive plan with long-term economic and social benefits for citizens and government.

The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.

The Leviticus 25 Plan – An Economic Acceleration Plan for America

$90,000 per U.S. citizen – Leviticus 25 Plan 2023 (5969 downloads)

The Federal Reserve’s ‘secret liquidity lifelines’ for major banks:

Bloomberg LP filed a Freedom of Information Act (FOIA) lawsuit on Nov 7, 2008 to gain access to information regarding special emergency lending programs that the U.S. Federal Reserve had been running to help borrower banks deal with cash shortages and collateral deficiencies. The Fed fought the lawsuit, but ultimately lost.

Bloomberg gained access to more than 29,000 pages of previously secret loan documents and Fed spreadsheets and published the highlights of those programs in late 2011.

According to Bloomberg, the top 15 recipients of Fed’s ‘secret liquidity lifelines’ were:

Morgan Stanley   $107 billion                                                                                      

Citigroup Inc.   $99.5 billion                                                                                               

Bank of America Corp   $91.4 billion                                                                                

Royal Bank of Scotland Plc   $84.5 billion                                                                        

State Street Corp   $77.8 billion                                                                                         

UBS AG  $77.2 billion                                                                                                 

Goldman Sachs Group Inc.   $69 billion                                                                               

JP Morgan Chase & Co    $68.6 billion                                                                      

Deutsche Bank AG  $66 billion                                                                                   

Barclays Plc   $64.9 billion                                                                                               

Merrill Lynch & Co Inc.  $62.1 billion                                                                                

Credit Suisse Group AG  $60.8 billion                                                                             

Dexia SA  $58.5 billion                                                                                              

Wachovia  $50 billion

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Meanwhile, here’s how Main Street America made out.

8.7 million Americans lost their jobs during the financial crisis years.

4.1 million American families lost their homes through completed foreclosures from September 2008 through December 2012, according to CoreLogic..

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Round and round we go – the Federal Reserve is once again bailing out troubled institutions in the banking sector.;;

ZeroHedge, March 16, 2023: Today’s weekly H.4.1 update from the Fed :

In the week ended March 15, borrowings under the Fed’s deeply stigmatizing last-ditch liquidity facility, the Discount Window, exploded to $152.85BN, a record $148BN weekly jump to an all-time high which surpassed even the borrowings during the financial crisis!

It is time to re-target Fed liquidity extensions: U.S. citizens deserve nothing less than to be granted the same direct access to liquidity that has been so generously provided, time and time again, to Wall Street’s financial sector during times of financial stress.

Let the liquidity flow through the hands of U.S. citizens first – and then on up to the banks (to reduce/eliminate household debt, student loan debt, mortgage debt), instead of mass-pumping newly-created electronic ‘money’ into the banking sector, with mere crumbs falling through for America’s hard-working, tax-paying U.S. citizens.

The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens.  It is a comprehensive plan with long-term economic and social benefits for citizens and government.

The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.

The Leviticus 25 Plan – An Economic Acceleration Plan for America

$90,000 per U.S. citizens – Leviticus 25 Plan 2023 (5967 downloads)

                                     

“But the essential features of that individualism which, from elements provided by Christianity and the philosophy of classical antiquity, was first fully developed during the Renaissance and has since grown and spread into what we know as Western civilization—are the respect for the individual man qua man, that is, the recognition of his own views and tastes as supreme in his own sphere, however narrowly that may be circumscribed, and the belief that it is desirable that men should develop their own individual gifts and bents.”  ― Friedrich August von Hayek, The Road to Serfdom

Note: There is a clear path out of this mess…

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World Bank Warns Of ‘Lost Economic Decade’ As Turmoil Spreads

ZeroHedge, Mar 29, 2023 – Excerpt:

“A lost decade could be in the making for the global economy,” Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics, warned in a new report. 

The report “Falling Long-Term Growth Prospects: Trends, Expectations, and Policies” reveals new forecasts that show global long-term potential output in growth rates are expected to slide: 

Nearly all the economic forces that powered progress and prosperity over the last three decades are fading. As a result, between 2022 and 2030, average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century—to 2.2% a year.

For developing economies, the decline will be equally steep: from 6% a year between 2000 and 2010 to 4% a year over the remainder of this decade. These declines would be much steeper in the event of a global financial crisis or a recession.

World Bank’s chief economist continued:  “The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times—stubborn poverty, diverging incomes, and climate change.”

However, he said: “But this decline is reversible. The global economy’s speed limit can be raised—through policies that incentivize work, increase productivity, and accelerate investment.”

Ayhan Kose, director of the World Bank’s forecasting group, said the fracturing of the global economy implies “the golden era of development appears to be coming to an end.”

Earlier this year, the World Bank cautioned global central banks to stay alert to the economic risks related to aggressive monetary policy tightening aimed at combating inflation, as these risks may have widespread consequences. Just weeks ago, the emergence of a regional bank crisis in the US and problems with Credit Suisse in Europe demonstrated the validity of these concerns.

Besides a banking crisis, central bankers are also facing their nemesis… Stagflation…

While the global economy appears to be on a crash course with a ‘hard landing,’ no thanks to reckless central banks, the World Bank said, “It will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one.” 

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The Leviticus 25 Plan.

Again, from the World Bank: “But this decline is reversible. The global economy’s speed limit can be raised—through policies that incentivize work, increase productivity, and accelerate investment.”

There is currently one U.S. economic acceleration plan up and ready to launch, that will accomplish these crucial policy initiatives.

The Leviticus 25 Plan will: 1) incentivize work; 2) increase productivity; 3) accelerate investment; and 4) stabilize the banking system – reversing the damaging effects of ‘duration risk’ and bringing distressed loans to ‘current status’; 5) rejuvenate long-term economic growth and insulate the economy from random economic shocks; 6) generate $619.5 billion federal budget surpluses for the coming 5 years; 7) restore economic liberty.

The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens.  It is a comprehensive plan with long-term economic and social benefits for citizens and government.

The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.

The Leviticus 25 Plan – An Economic Acceleration Plan for America

$90,000 per U.S. citizen – Leviticus 25 Plan 2023 (5963 downloads)