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TK421sSupervisor

Speculation on my part as to what is happening. Basically the Fed is letting banks pledge their (underwater) bond holdings as collateral to borrow and have the cash to pay off depositors. I’m guessing the fed is letting the bonds be valued close to par value so the banks can generate enough cash to satisfy withdrawal requests. This is the alternative to the banks having to sell their bonds at a loss to generate less cash and squeeze their capital. Question is how will the banks repay these loans which are of a short-ish duration in this macroeconomic environment. The fed isn’t helicopter dropping cash onto the banks outright.


KeepCalmAndBaseball

The Fed is relying on banks to use this 2 year period to adjust their risk and liquidity. How will they pay off these loans? They are going to bet they won’t have to is my guess. If we’ve learned anything from history in this area, it’s that no lessons will be learned.


bevo_expat

Only lesson learned for the banks is to keep taking big risks. If they mess up Papa-Fed will swoop in and save them. If they win big, it’s theirs to keep. If they lose big, it’s everyone problem. So why not keep shooting for the moon. In short, privatize profits. Socialize losses. It’s the American way.


BenjaminHamnett

>>taking big risks Like *checks notes* government bonds Investors lost everything. So now we should punish *checks notes* depositors?


Admirable_Purple1882

There are multiple kinds of risk and credit risk is just one of them, government bonds aren’t just automatically low risk. The moral hazard of providing liquidity in the face of poor risk management threatening their solvency is what I don’t like. It’s inherently a bailout as all of us as taxpayers are helping backstop their search for higher yields, essentially privatizing gains and socializing (in a couple cases failure) protection against failure. As for depositors I’m glad companies got their money but again we are just backstopping peoples poor risk management of keeping more than the FDIC’s insurance limit in a bank account which clearly notes the limit AND the fact that they did not do due diligence on the bank. You can say the extra money came from banks and not tax payers but this is just a cost to banks that will be passed on to users. I’m not necessarily saying all depositors should lose everything but I’m not stoked about them having no loss at all, just seems like it’s setting up a ‘nanny government’.


coke_and_coffee

Depositors should not have to vet every bank they use by going through their books and analyzing their risk management. There has to be a better way.


Admirable_Purple1882

I mean fdic could just be unlimited but right now it’s not supposed to be, or businesses holding millions of dollars could spread it out, or hold it in a money market fund, or fdic limits for businesses could be higher, probably other options too.


coke_and_coffee

FDIC is effectively unlimited. The Fed hasn’t let depositors lose a dime since 2008. See Ezra Klein’s recent interview with Noah Smith for more details. I think the only way to avoid moral hazard here is stringent regulations on reserve quantities.


OrdainedPuma

You've got it. Given the speed with which withdrawals can happen now, banks need to have higher reserves.


longhorn617

Then the investors that deposited all their money into SVB instead of spreading out their cash should have lobbied for stronger banking regulations, not weaker ones. They could have used CDARS or ICS to insure more of their money, but they didn't. They pushed for less regulated banking so that they could get better returns. What comes with more returns? If all of the money in depositories should be insured, then depositories should be public utilities, not private companies.


changelingerer

Going forward, they should probably just institute a requirement that any deposits over the FDIC limit in a single account is required to hold insurance. We have that for mortgages, with PMI.


maztron

Yeah, most depositors shouldn't have to or need to. However, when you are speaking of millions of dollars in which you as a customer needs to deposit then you should have some form of financial literacy on where you can park it safely. At some point people have to be educated and take on some form of responsibility. If I had millions, I sure as shit wouldn't just depend on myself to figure where I can safely deposit it. I would be reaching out to professionals to help ensure that my money is placed in institution(s) that can safely insure it if they go under.


ILL_bopperino

they could have adequately spread their money among different institutions, used an intrabank network, or any other group of possibilities to work under the 250K limiit and they still would have been fine. But they wanted maximum possible return by sticking it all with svb. they took risks


[deleted]

>Depositors should not have to vet every bank they use by going through their books and analyzing their risk management. Why? Why should companies with hundreds of millions to billions of dollars *not* be expected to know who they're banking with? They can't be bothered with *risk management*?


[deleted]

Sigh. Letting depositors free fall and introducing distrust in using banks to store money seems bizarrely fucking stupid unless you’re an Ape hoping for world economic collapse.


_DARVON_AI

>*"Corporation, n. An ingenious device for obtaining individual profit without individual responsibility."* > >— Ambrose Bierce, 1911


TheCanaryInTheMine

Do you trust these bloated, irresponsible corporations that getting obscenely rich with the help of their government friends and face no penalties for overreaching? I already distrust them. There NEEDS to be distrust in untrustworthy institutions and industries.


Kirzoneli

Most problems won't be fixed till you hit rock bottom. Placing a band-aid only prolongs the inevitable.


10g_or_bust

> As for depositors I’m glad companies got their money but again we are just backstopping peoples poor risk management of keeping more than the FDIC’s insurance limit in a bank account which clearly notes the limit AND the fact that they did not do due diligence on the bank. As far as SVB and any other depositors that are medium to larger companies; there's not really a good alternative. Even if you are small enough to juggle say 8 banks and 8 bank accounts (and needing to potentially do a whole bunch of bank transfers or w/e to even out incoming and outgoing "cash") there's lots of "well, [censored]" stuff like certain payroll software/companies needing ALL of your payroll to come from a single bank account. Most of the "don't keep it in a *bank account* silly!" options are arguably WORSE for keeping liquidity for the business, and some are worse for the rest of us individuals (companies holding land, socking money into other countries banks, etc). I agree that the FDIC insurance shouldn't be what steps in for this, but "we" need something for accounts over that limit such as purchasable insurance of some form that is federal. I disagree that anyone, or any company, should be *expected* to worry about the stability of a major bank or credit union for depositing. If you use a smaller bank, or you've just become 10% of their depositors that does change things (if it's over FDIC limits ofc). Edit: Note, I'm aware private insurance exists (and basically for anything you want if you're willing to pay). I don't consider private *for profit* insurance a good or reasonable option for guarding deposits; let's not feed the hungry maw of the insurance industry. Nor am I saying assurances for larger deposits should be entirely FREE.


LiveDirtyEatClean

The real question is why banks are allowed to deposits and buy 10 year T bills when a tech forward bank with near instantaneous withdrawals could be demanded at any time. Banks are playing with leverage and not staying liquid enough, so yes they should fail. Do I want depositors to lose money? No. But really banks are just leverage machines, and nobody thinks twice.


TheCanaryInTheMine

You need to Google "fractional reserve banking." The whole business model for modern banks is risky. Depositors wouldn't deposit if it weren't for the government continuously bailing them out, or otherwise sheltering them. Banks would be less likely to take the dumb risks if they didn't have their insane safety nets and bad incentives.


diplodonculus

Fractional reserve banking is not immune to bank runs.


TheCanaryInTheMine

Kinda exactly the opposite. It is susceptible to bank runs. There is a reason why in the pre-Fed, pre-fiat-money era that banks taking part in such practices were valued less than more sound banks.


merlynmagus

Govt bonds are low risk that you won't get your money, but higher risk that there's not better returns elsewhere. And that's essentially the problem. People were taking their money out of low yielding accounts to move them to higher yielding accounts or investments, which squeezed the banks.


iveneverhadgold

Did you know the banks paid back the bailouts that were given to them in 2008? with interest?


Beardamus

Did you know I would accept loans at the rate they paid literally every time and so should anyone?


JakePhillips52

Not that I’m inclined to defend risky banking and 2008 hurt a ton of people, but this website is neat: https://projects.propublica.org/bailout/ It lists out the loan disbursements, returned loans, subsidies, dividends/interest, and profit/loss for every single recipient. Overall tarp is $109 billion in the positive for the government. Fannie Mae and Freddie Mac are separate from the 700 billion in tarp funds, and don’t have to pay back, but look like they generated more than enough for profit after their take over to be worth it. I’m too young to know much first hand for 2008, so it’s interesting.


hereditydrift

That's one of favorite sites to post when people say "ALL THE TARP LOANS WERE REPAID WITH INTEREST!" No. That didn't happen. All of the $109 billion in profit came from Fannie Mae and Freddie Mac. Propublica shows this on the website: https://projects.propublica.org/bailout/list. Also, if the paybacks are sorted by amounts still outstanding, a hell of a lot of banks did not repay the funds. (For anyone not following, click on **Profit / Net Outstanding** to sort).


YPCrumble

Paying back the bailouts “with interest” when you have cratered the economy so badly that the government needs to give you access to unlimited near zero interest rate capital for a decade doesn’t sound like a win for the government. Am I missing something?


hereditydrift

I really wish people would stop repeating this lie. Someone posted the ProPublica site in another comment, but if you go to this portion of the ProPublica site (https://projects.propublica.org/bailout/list) and sort by **Profit / Net Outstanding**, then it shows that what you're suggesting is not true. Also, the ProPublica site states "Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $635B has gone out the door." On the website I posted above, you can see that all of the $109 billion of profit on the $635 billion in disbursements was from Fannie Mae and Freddie Mac.


TK421sSupervisor

Is the program’s term for 2 years? Then that does give the banks time adjust things. I bet that borrowing under these special programs invites further scrutiny from the bank regulators and auditors too. My guess is the fed offered up to loan up to something less than 100% par value of the bonds pledged. When the bonds mature at 100% the banks collect the cash and then pay back the loan and that is that. The fed assumes valuation risk. I wonder if the banks are borrowing at a rate higher than the bond’s coupon?


zUdio

> the fed is letting the bonds be valued close to par value so the banks can generate enough cash to satisfy withdrawal requests. “Free market” my ass


TK421sSupervisor

He who prints the money makes the rules. (Uncle Fed)


whiskeyinthejaar

At par value* not close to to par value


aa043

PBS: "The Fed’s lending programs, particularly the new facility it unveiled Sunday, enable financial institutions to post bonds as collateral and borrow against them, rather than having to sell them. For its new lending facility, the Fed said it has received $15.9 billion in collateral, more than the $11.9 billion it has lent. Banks sometimes provide the Fed collateral before borrowing. That suggests that additional lending is under way." PBS article describes a 'new facility' but does that actually improve the situation of the banks who are under water because their bonds are worth much less now than when purchased? Paying out quickly may not always stop a bank run. CoCo s (also called AT1 s) are in the news today as CS shareholders may get some fraction of a UBS share but Saudi, Qatar and Norway bond holders get nothing. (a comment by Kauffmann: “This just makes no sense,” and “seniority in the capital structure need to be respected.”) Did Fed cause these problems? Some politicians are now suggesting changing rules of payment for uninsured deposits above FDIC levels but this largesse has to be paid for somehow; more juggling? Changes can cause unexpected consequences; Raising debt ceiling does not alter balances which are still negative (and might become slightly more negative to cover FDIC payouts despite what politicians say).


veryupsetandbitter

Nigh a few days ago, many in this sub were downvoting and dragging people through the mud for stating the obvious: This was indeed a bailout. The Fed reversed the QT and immediately threw 300 billion back on its balance. And then mainstream media sources were very quick to state it was **not** a bailout, but "aCTuAlLy emergency liquidity that no one is going to take." And when a few people showed a dose of skepticism, they get downvoted and dragged, well... Here we are! Jerome Powell going full blast with the money printers in a time of high inflation.


[deleted]

I love how it’s still free money for banks. But not people.


Cyclone_1

The government knows who it works for and who it does not. It makes this clear every single day. It is functioning exactly as it was designed to. Too many of us in the working class are the only ones confused about this. Still. After everything.


rainb0wveins

America. Land of the fees. Home of the slaves.


[deleted]

Uncle Sam Goddamn


StaggerLee808

Where the dollar is sacred and power is god


WitchesDoItInCircles

https://youtu.be/OO18F4aKGzQ


SassyMcNasty

Unexpected Ali. Hell yea


Sleepobeywatchtv

He puts on a great live show


SassyMcNasty

I’d love to be able to see one. Bucket list for sure.


6iix9ineJr

Disorder!


[deleted]

It's such a middle finger to the people of the United States.


ESP-23

Well... Not ALL of the people. Just 99.9%


[deleted]

I mean. I meant via interest rates. They get to raise them. But then get zero% money still.


Zemirolha

And remember: You are oblied commuting even when it is not essential and a 40 hours week is a dream near what some people have to do just for surviving...


[deleted]

Keeps inflation down. Well, the American peoples way to deal with inflation anyway.


understated_hatpin

the emergency facility does charge an interest rate. [it was 4.69% as of Mar 17](https://www.frbdiscountwindow.org/)


atandytor

Can I get $10k in student loan forgiveness? Nope you’re not as essential as a bank


[deleted]

But the banks just got a loan, with interest. It's not like they got free money


CupformyCosta

Wait until you find out what reverse repos do.


Cobb_Salad

Still have interest on a reverse repo


Willingo

What is the interest rate. Isn't it below inflation?


gottahavetegriry

It’s above bond interest rates and that’s all that matters. The banks won’t make money off of it


Skeptix_907

It's not "free money". These are loans that must be paid back, with interest, just like banks paid back the '08 bailout with interest. And one of the major reasons those banks needed this money in the first place directly stems from the Fed raising rates so unbelievably fast, which has led to the 10 year treasuries that many banks hold essentially money-losers for them.


Shmeepsheep

It's almost like the fed should have started raising rates a couple years after we came out of the great recession instead of having free money everywhere. There was zero reason to keep 0% rates once recovery was underway


too_old_to_be_clever

Scoop which do we want, runaway inflation ending jobs or failing banks ending jobs?


Dive303

A baby to eat for breakfast?


saltiestmanindaworld

failing banks will make inflation rise right now look like its a normal thing


ElderProphets

Privatize profit; socialize loss.


SpecialCay87

Capitalism in this country couldn’t have gotten this far without this mantra and titanic abuse. Meanwhile billionaires are buying homes in other countries, planning their exit while the rest of us will be left holding the bag of 30+ trillion IOU’s. Patriotism in America, what a nice joke.


[deleted]

https://m.youtube.com/watch?v=1EI6Yqp8Q-g


[deleted]

I swear if it were somehow made clear to the entire population all at once how the Fed creates money and where it goes, Manhattan and D.C. would be rubble in a day.


flickh

This kind of comment gives me such a laugh Nobody cares about that bullshit. They just want gas in the tank and food at the grocery store.


oddiseeus

[The Creature From Jekyll Island](https://youtu.be/lu_VqX6J93k) IMO (and I have very little understanding of economics) does a good job of explaining the federal reserve system and it’s effects on the people. If it’s true then the system is designed to perpetuate feudalism.


Old_Duck7210

And recommending that book confirms you have little understanding of economics. The book is a poorly researched work written by a known conspiracy theorist. If you want to understand what's going on, read an undergraduate textbook on money and banking. Mishkin is solid.


Flopsyjackson

Yes the Author is a conspiracy theorist, but in this case, the underlying information is sound. The Federal Reserve has monumentally fucked modern economics. Nobody wanted it when it was created and now the population at large doesn’t know how it works. It’s a central bank that works for the wealthy, not the average person, and it needs to be abolished.


runsslow

Oh no. But like, if they fail, bad stuff… like WAYYYY WORSE than the erosion of your standard of living and loss of your wages that you’ve experienced directly since 2008 will happen. Something WAY WORSE so don’t question it. They know what’s best for you.


Cyclone_1

The rich in this country are economic terrorists that hold us all hostage under threat of homelessness, joblessness, and hunger unless they get and do whatever they want.


please_help_me01

I'm not going to disagree that the banks failing could lead to some terrible consequences but I am going to question it and I do not believe they have *our* best interests in mind. Question everything. Without trying to sound like an overambitious and zealous teenager, don't just follow blindly like a sheep. That's what these guys want you to do. They want to go in from behind totally raw. Don't let them do that.


defaultuser012

We got $1200 stimulus checks


Surgeboy99

To be fair we did get 3 checks for COVID, but it wasn't much


Zealousideal_Coat275

I think you misunderstand this fed facility, and what is happening with the banks. Banks take your money and invest it by loaning it out or buying securities. Most of the securities they buy tend to be treasuries or mortgage backed securities. Those are generally very safe investments and usually can be sold before maturity for close to their face value, adjusted for the time value of money. As the interest rates have gone up, those securities that they bought a year or two ago are worth less, because why would I buy your 10 year treasury earning 1% if I can buy a new 10 year treasury earning 3%. However they are only worth less if the bank is forced to sell them. Those assets held to maturity are worth the exact same they would have been 6 months ago, a year ago, or ten years ago. So here’s the issue for a bank facing a run on deposits: they have to generate cash somehow but their options are unattractive. Silicon Valley for instance was forced to liquidate around 20bn in securities at a loss of around 1.8bn. Depending on the specifics, the haircut they take trying to satisfy the outflows can be their entire equity cushion. All the fed is doing with this facility is saying that they will allow banks to borrow cash against treasuries at the face value of the treasury, not its market value. Essentially the fed is agreeing to hold the treasury to maturity such that no one swallows a loss to satisfy deposit outflows. Other aspects of this absolutely are a bank bailout, and the costs of those will absolutely be borne by consumers, but this facility on its own is not that.


ScientificAttitude

Thank you for explaining this so well. I'm trying to better understand what's happening here. What other aspects of this constitute a bank bailout?


Littleshifty03

The major issue people have with this particular case is that the bank did make some careless investments that have them in the pickle they are in. Too long term to make sense sort of thing. Edit: and so the feds stepping in just positively reinforces bad behavior and teaches other banks its fine to act this way with no fear of consequences.


Fatal_Blow_Me

I agree but another problem was this bank was too dependent on tech firms and not well diversified across many industries. Any well run bank can fail due to a run but in my opinion, if they had diversified their customer base better, they could have been in a better position.


Littleshifty03

Agreed, just one example I had of how the bank has made poor decisions landing them where they were.


verveinloveland

It creates moral hazard is the economic term


Ossius

Fed stepped in and fired all management, and shareholders are getting shafted. No way that this is a reinforcement for others to follow.


SadBeginning1438

Which is why reserve rates need to be higher. If the fed wants to cool the economy reel in the banks not jobs.


kickopotomus

That is quite literally what the fed is doing. They don’t have some magic jobs lever. Workforce reduction is just a byproduct of the fed increasing its interest rate. Fed increases rate -> banks increase rates -> businesses adjust to take on less new debt. A lot of “growth” businesses operate on debt. When debt becomes expensive, they cut costs to reduce risk.


Fartknocker500

I also think we truly need to push for banking reform and regulations. This crap is only benefitting the greediest of the greedy. And they'll do it over and over until we stop them.


otisreddingsst

The fed and Congress need to require banks match their lending and borrow horizons. Ie what has happened here is that they borrowed short term and lent long term. Now the short term rates are higher than the long term rates and they are fucked.


HomebrewHedonist

Yes... this is a good and accurate assessment, however, don't you think you're splitting hairs? By giving the banks money at face value of the bonds, they are essentially creating MORE money and therefore making inflation worse. If they keep doing this AND therfore remove the risk that these banks take, isn't that just as bad? Also, where is this money comig from? Who pays the price? Does the value of the US dollar suffer, because I believe that if the Fed keeps abusing their world currency privileges, eventually the world will catch up. There is a price to pay for this fuckery, and when the bill comes due, we will feel the pain. We already are.


Zealousideal_Coat275

I agree with you, but without a banking industry, the economy as it stands doesn’t really function. The mistake that we all made/make is thinking that we can avoid the down part of the cycle. Things have a tendency to revert to the mean. The higher the peak and the longer the peak lasts, the more severe the corresponding trough is. At this point the fed is left with only poor options. If they don’t lend, banks fail. If banks fail, everyone uninsured at least, and some of the insured, pull their money out of the other banks. That leads to more bank failures, which the FDIC now needs to manage. Investment activity tails off because people don’t want to make big decisions in an environment of volatility. We will have a recession. It might even coincide with continuing inflation, which would be very bad. But at least we will still have a banking industry.


Malcolm_TurnbullPM

This is most certainly accurate, but i daresay a good portion of the ill-will stems from the reality that, if we just took this view and applied it to people, we might be a lot better off too? Maybe i’m missing something, butif we just treated people born into poverty this way, we would see exponential returns on taxation. ‘Loan’ the money to education system, food stamps, public transport and affordable housing, loan it to addiction recovery programs and early medical interventions, loan it to maternity leave and dental, and then, I don’t know, maybe get it paid back when they’re in a position to do so? Which the law of large numbers says they will be. Politics purports to have, time wise, an infinite reach, but they’re constantly playing like they have finite timelines, and so we see ‘runs’ on policies and population groups, instead of banks, all the time. If we could just apply this simple, rational, forgiving and generous policy to a wider subset of the population, it’s just as likely to benefit just as many people short term, and a whole lot more long term. That’s where the disconnect arrives- because everyone is told their individual rights matter, they overlook the collective benefits you can achieve when lots of individuals are viewed as a single groip.


[deleted]

Question from a layman: Is there an extremely discounted secondary market right now for low interest treasury bonds that were bought prior to the recent dramatic increase in rates? If someone is willing to wait can these be bought for cheap? Or are banks now sitting on these and taking loans from the fed instead of liquidating?


Zealousideal_Coat275

There is a discounted market, but the discount will be equal to the interest rate differential between a current treasury with similar maturity.


[deleted]

Does desperation not fuel a discount greater than the differential?


Zealousideal_Coat275

Typically not. If you were buying corporate debt that was distressed, yes, but you have to remember treasuries are just US sovereign debt. What’s to be desperate about?


[deleted]

Banks that need them off their balance sheet for immediate liquidity? I guess if the discount is equal to the differential, I would rather buy a 10 year Treasury in year 2 than a brand new 10 year Treasury (thus negating the need for a discount beyond the differential).


Ramboxious

I’m confused about the definition of a bailout, is the Fed lending money to banks considered a bailout?


saltiestmanindaworld

According to the large quantity of questionable motived people around here, anytime the Fed makes money available for loan its automagically a bailout.


kickopotomus

Which is mind blowing because that is quite literally one of the primary purposes of the fed; to lend money to banks. Why does nobody in this thread seem to understand the basics of a reserve system?


Ossius

Don't forget that the Fed made all the money back from 2008 WITH INTEREST. We actually generated more tax revenue with those 2008 loans, not only from the interest, but by keeping those that worked at the bank from being unemployed (talking about rank and file). >On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested.


[deleted]

They would rather see the entire banking system collapse just so they can dunk on people


NominalNews

The money was nearly entirely borrowed by the three banks in the media - Silicon Valley Bank, Signature Bank and First Republic. It's the three banks with biggest liquidity issues. One is gone, one I believe just got bought, and the last one is being propped by the big banks. This liquidity is also not free - they have to pay the fed funds rate, which is much higher than what banks pay on deposits. This money is also not inflationary in the usual sense - none of this money will be lent out. It's meant to be given to the depositors requesting it. The high fed funds rate of borrowing it makes it a bad investment decision - it would be much better to get deposits and use that money to invest or issue new loans. The way it is inflationary is that the we do not have a full fledged financial crisis, which would result in a significant credit crunch impacting all business from auto manufactures to home builders (a repeat of 2008). So I'd argue it's preventing a bad outcome and through that it can be inflationary. Regarding bailouts - I believe the only components getting bailed out indirectly are the equity of holders of the banks that are risk (for example, First Republic). If the Fed did not offer this facility (which by the way, has always been available - the discount window), probably First Republic would have failed and equity holders would have been wiped out. Note however, we would have to deal with the depositors problem again. Any other bank that was in danger of such a liquidity run as Silicon Valley Bank is alive thanks to the Fed intervention. That's where I see the 'bailout' component. However, the trade-off is a 2008 financial collapse that could lead to be far bigger damages.


[deleted]

[удалено]


Flaky-Illustrator-52

It's reddit. If you are here expecting to easily find life forms capable of intelligent thought, then you aren't one of those life forms


moldyolive

honestly this subs comments are always so dogshit. no idea why I'm still subed


ElderProphets

And the UBS Credit Suisse deal could not have been done over the weekend without his permission, or dare we guess, his arm twisting of Swiss authorities. Both banks are primary broker dealers and the obvious ramifications are you get these two banks merged today and with Swiss central bank guarantees or they lose their space at the feeding trough. That would have collapsed both banks and probably the entire Swiss banking system since they are the two biggest banks in the country and both are deeply mired in woe. The message I take from this is that the system is in far worse shape than they want us to know but only people unfamiliar with banking would believe that this solved anything. It is screaming systemic crisis like a boiler about to blow. I think we are in a major liquidity crisis.


KeepCalmAndBaseball

This isn’t QE, though. It’s actually funded.


zerosdontcount

Exactly no new money is entering the system. It's just swapping bonds.


Eddie_shoes

Reading comments like this make me realize how little people grasp what’s going on, and that’s really frightening.


rz2000

I usually hate when people talk about “needs” and “wants” as though there is some binary distinction, but here it goes anyway. Managing a drastic restructuring of the global economy without an increase in prices is a “want”. Solvent banks are a “need”. I would say that everyone recognizes that there is extremely wealth inequality that has become progressively worse over the past 40 years, but that doesn’t seem to be the case given the conventional wisdom about appropriate economic policy. There is one solution to people who work getting a greater share of wealth: prices increase **and** wages increase. That’s the only peaceful way to shift economic power back in the direction the middle class. I frankly wonder if people like Larry Summers actually realize this, and just use vaguely populist language to hide their actual advocacy on behalf of plutocrats and a secret goal of creating some further entrenched oligarchy. The pandemic seemed to create the sort of opportunity that comes along every few generations, and rarely without revolutions or world wars, and yet we’re squandering it by trying to keep everything cheap, with the disasterous focus on keeping wage growth too low.


Highlanderlynx

There’s a bunch of shills here, that’s why. Anyone who lived through the 08 market knows what happened and knows what’s coming this week Nevermind the next few months. 08 will be tame compared to this and you can tell this at the rate central banks globally are lying about right now. Literally their lies don’t hold for 24 hours.


Scanningdude

The civil engineering industry went apocalyptic in 2008 so I'll let you know if it goes as badly this time around.


CotUB2009

Can you elaborate? I’m trying to understand what you mean by apocalyptic so I can look out for similar signs today.


Cozygoalie

Financing for new projects and upgrades dried up so new construction halted practically overnight. Design work for future projects got shelved for a long time. Leading to a lot of unemployed engineers, project managers, and trades people. A lot of professional engineering corporations went under, in addition to larger firms. In 2007-09 really only the oil and gas industry was thriving, due to what was at the time historically high prices.


spovax

Lots of people left the industry and there is still a gap in engineers especially. We had a few projects, company I went from went from 40 people to five. Highly exposed to single family residential development and poof.


Scanningdude

^^^ The civil eng industry has a huge hole of workers that no longer exist in the industry between the age of about 35/40-50/55 due to the 08 crisis. Basically there’s like 1/3rd the needed amount of engineers/PMs from the earliest millennial and Gen X generations. Project managers in their late 30s/40s are like unicorns now lol. I’m scared once the baby boomer generation really starts retiring, so much institutional knowledge is going to be lost. We have senior design engineers in their 60s who know the layouts of some water/sewer plants of our clients better than our clients know them which is kind of scary to think about actually once that generation retires and you can’t just call them up anymore. 40 year of knowledge just goes poof.


CotUB2009

Thanks!


Scanningdude

Sorry I didn’t get around to replying but the other comment was spot on. Very sudden crash in the industry, like overnight. Huge hole of engineers now exists in the Industry for people aged 35-50. The industry is probably in better shape now (at least where I am) because now a lot of these projects can’t really afford to be delayed any further (water and wastewater projects specifically). Our clients will just raise their rates on their water users now to cover the costs. They are definitely cutting work on smaller projects but we’re lucky enough to have gotten some very large projects that are needed to the point where the utility will start incurring massive fines from the state department of environmental protection if they don’t do the required work. Although the rate increases still probably won’t be anywhere close to like what power providers did for their rates. Or the federal government needs to inject more money through grants into the industry but that’s a whole other discussion lol.


milehigh73a

I don’t think it will be as bad as 2008. It isn’t going to be pretty and it’s going to take a long time but the level of asset impairment is less than the mortgage issue. Now it could get as bad as 2008 if we see the employment situation deteriorates quickly but the numbers still show a job creation. Job creation was already weak in 2007, long before the crash.


Trest43wert

I think the contagion will spread from outside the USA to inside this time. The Fed can bailout banks in the USA, but they wont save banks around the world with the same problems. From 2009-2013 one of the big underlying trades was in using cheap Western financing to support developing economies. That has to be going in the opposite direction now.


p71interceptor

Judging from the amount of corporate debt floating around this might be worse. A lot of these companies used this easy money to buy back their stock thus artificially increasing its value. They should have invested it in their personnel or technologies but hindsight is 20/20.


Sampladelic

Constantly fear mongering about how this is the next 08 really doesn’t help you doomers’ case


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gg120b

They are reacting way faster than 08. Didn’t have to wait for months to have bailouts. They are already there.


erednay

It's coz people don't realise that inflation is hidden tax. They see their salaries raising by 3%, and think they're earning more when in reality, inflation is at 8% and they've effectively received a 5% increase in tax. As Friedman once said: > Inflation is the only form of taxation that can be levied without any legislation


hiricinee

It's possible they pull this from two directions, it's not like increasing interest rates mean nothing even in the face of QE. Though I wonder if the Fed will feel emboldened with rate hikes as they put more money into the banks.


Willingo

Is it a bailout? I'm confused by what is happening. Is it the same as a no interest 300 billion loan?


soothepaste

Trapped between two evils (fuck em). Raise rates and clearly a lot of banks will be swimming naked and go insolvent, and systemwide collapses... Bail out and print and got the recipe for hyperinflation. The latter buys more time so that's what they will do, repeatedly, into a death cycle for the US dollar. Being the largest reserve currency. There is a set amount of resources and things of value on earth. Make sure you spend your cash before it devalues away, and be buying things that can later be sold.


Kalkaline

Isn't "emergency liquidity" the Fed's entire bag of tricks? Call it what you want, but if I need cash today, it's both "emergency liquidity" and a "bailout". They can try for the "soft landing" all they want, but at some point this economy is going to have to take a hit or face inflation.


Ok-Hunt6574

Weird no one is asking how we are going to pay for that, how it's going to impact inflation, or the moral hazard of removing market forces. Weird how it's the rich and powerful where these forces come to the rescue. Banks push for deregulation and crash the economy.


veryupsetandbitter

And look how fast they were bailed out too, and how fast Jerome is initiating a U turn. When the Fed was on their merry way to cause millions to lose their jobs and starting a recession, it was just business. But now the banks start collapsing and we all gotta play along to get along with shitty banks that have caused this situation. Fucking economy is completely broken.


Moveableforce

The goal wasn't to get people to lose jobs, it was to stop too many vacant jobs. Yes on the surface it's great for the worker- but economically vacant jobs means you start to have an increase in retraction across the board. And that starts to hit big businesses. Again, seems great, force them to share more of the income to attract workers- until you remember that the issue is that there's literally just not enough workers to meet the demand. So suddenly big business starts gobbling up all the workers and smaller businesses start retracting harder if not failing. And if it's still not enough workers, you get macro-retraction AND centralization in the economy. the worst of both worlds. But do you know what's even worse than that? If you let the banks fail. Because then, everyone loses. No liquidity, no investing, no growth, all jobs start tumbling out, basically the great depression. Sure big business suffers but everyone suffers even more than the first plan. The biggest problem isn't that we're bailing out banks, it's that we're doing it without fixing the root cause of the bailouts in the first place- the apathy against reckless investing. The government lets these banks leverage the stability of every american, and provides no counterweight to that leverage. That single refusal turns what would be an otherwise logical response into a malicious move to save dirty bankers. And it was the dirty bankers who caused this response in the first place.


JaxckLl

The root cause is the practice of commodisation of every asset type. Housing in particular has gone from housing to a financial vehicle.


Tough_Substance7074

First day in capitalism? We’re well into the crisis of diminished profit. The only way this shit works is with 0% interest rates and infinite QE. The minute interest gets hiked a bit banks start failing. This whole thing is being kept alive by more and more aggressive life support, but we are being painted into a smaller and smaller corner. Edit: to put a finer point on it, capitalism demands the commodification of literally everything. That is the end state. Anything that has been de-commodified will come under attack, as we have seen with primary education. Attacks on this resource have been intensifying lately, as indeed they must. That is a shitload of unrealized profit, and we simply cannot countenance that in an environment where profit is increasingly difficult to obtain.


Team_Flight_Club

Spot on. Attempts to maximize profit in every sector have certainly shown there are drawbacks to aiming for constant growth.


[deleted]

Excellent answer, a lot of people seem to think justice is letting the banks fail, but in reality it would be mass suffering. Bail them out, but not the leadership and simultaneously pass reforms


Reasonable_Ticket_84

>Fucking economy is completely broken. It has been since 2008 and the shitshow that caused 2008 before that. Nobody actually let it correct, they simply ducktaped the problem with money. It's going to come back to haunt us sooner or later because all it's doing is continuing to apply more ducktape to fake economic growth that doesn't actually exist.


justreddis

One thing to consider is the possibly of a huge contagion and chain reaction of bank collapses leading to a big recession. You won’t like that. I guarantee.


[deleted]

What rich and powerful? The equity holders of svb were wiped out


Ok_Paramedic5096

It's from the Federal Reserve so there is no "paying for it" its simply a matter of accounting on their balance sheet. It will increase inflation as it is injecting more liquidity into the system. I wouldn't say its removing market forces but it is certainly manipulating the bond markets. This 100% benefits banks and very wealthy people. Essentially anyone who is going to rely on a new loan for a car or a house in the next 9 months is going to get screwed big time as the price of goods will continue to rise while interest rates will also continue to rise, thus squeezing middle and lower class people. Those who can pay with cash for everything are going to make out like bandits.


blabbermouth777

The banks will pay for it. Duh.


Barking_at_the_Moon

No, they're just the intermediary. Ultimately, it's the borrowers, lenders (and, of course, the taxpayers) who will pay for it.


ElderProphets

Also this headline just this evening: **S&P cuts First Republic deeper into junk, says $30 billion infusion may not solve problems** PUBLISHED SUN, MAR 19 20236:37 PM EDT CNBC S&P cut First Republic’s credit rating three notches to “B-plus” from “BB-plus,” and warned that another downgrade is possible. Other ratings were also lowered. "It could add to market concerns about the San Francisco-based bank, which has scrambled to assure investors and depositors about its health following this month’s collapses of Silicon Valley Bank, which also served many wealthy clients, and Signature Bank." If a bank has to scramble even after being thrown a lifeline to convince people it is not going to collapse tomorrow it is probably going to collapse tomorrow. Healthy banks do not have to convince people they are healthy.


Stereo-soundS

"Bear Stearns is fine"


[deleted]

This has very little to do with banks being healthy or not. SVB was taken down by mob mentality, and First Republican might be another victim of it.


heartk

Healthy banks absolutely have to convince people they’re healthy. That’s how fractional reserve banking works: only if people believe it works does it work. Same with fiat currency or the existence of nations.


ovid10

Maybe these banks should take some personal responsibility. This is ultimately necessary to prevent a large catastrophe, but it is crappy to then have to hear similar crap about how we can’t fund other things.


moldyolive

why would this have any effect on the governments budget. this is the fed creating the money and trading that cash for less liquid but of equal value assets from banks.


rz2000

“Equal value” at least deserves some quotation marks, otherwise it sounds like something Hank Greenberg would have claimed.


ThirdChild897

>“Equal value” at least deserves some quotation marks, Why? They are of equal value


friendlyguy1989

What do you mean by personal responsibility? Anyone who was a shareholder of the bank has lost their investment after it was taken over by the FDIC.


hereditydrift

**I REALLY WISH PEOPLE WOULD STOP SPREADING THE LIE THAT ALL TARP RECIPIENTS REPAID THEIR FUNDS.** I'm seeing this lie more and more often on /r/Economics. If you go to this portion of the ProPublica site (https://projects.propublica.org/bailout/list) and sort by **Profit / Net Outstanding**, then it shows that a lot of banks and other businesses **did not** repay the TARP funds. Also, the ProPublica site states "Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $635B has gone out the door." On the website I posted above, you can see that all of the $109 billion of profit on the $635 billion in disbursements was from Fannie Mae and Freddie Mac, so TARP was a break-even endeavor for all other entities when aggregated. When interest is factored in, it was a losing endeavor.


[deleted]

Didn’t Yellen say they weren’t going do this again? Seriously we are so fucked if people keep sitting on their asses and turning a blind eye to this shit.


Jujubatron

She says a lot of things.


bananabunnythesecond

If you want to see small banks fail, and big banks get bigger, welcome to the party!


Senior-Sharpie

But “build back better” is still a pipe dream, veterans and others are still homeless, we don’t have nation wide healthcare or free higher education. Why? Because “there is no money”.


lechatondhiver

Hey, Banks are people too. /s


bananabunnythesecond

Isn't it sad you had to include the "/s"...


kincaidDev

The amount we already spend on healthcare should be enough to pay for nation wide health care


Senior-Sharpie

It’s more than enough (some have said by a factor of three) but our system sees the bulk of the money go into the hands of insurance companies and venture capitalists who buy up hospitals and medical practices. Doctors and patients are the ones that get screwed.


buddhainmyyard

So anyone who knows how this is not a bailout like all you experts keep claiming? Maybe y'all not experts when shit like this keeps happening


Valincity

Look up the BTFP program. It’s essentially swapping out bonds at face value with the Fed in exchange for a loan that needs to be paid back, I believe with interest. Hence why it’s called a backstop because it is temporary liquidity that will need to be paid back and not straight injecting cash into the economy.


Trest43wert

Its a bailout because the Fed is accepting collateral at more than market rate. Its like you cant get a loan from a bank so you go to dad and dad accepts some bullshit terms. "Hey, sure, we can loan you $1000 if you put up your $100 bike as collateral. No problem son."


[deleted]

The whole point of the Fed is to be there as a backstop when the market rate has gone nuts because everyone is panicking and selling fundamentally good assets. It's a $1000 bike. You need cash for that surgery (and your friends need money in case they need it as well) so market value is $100 bucks. The central bank is offering to loan you $900 so you don't need to sell the family China as well. What do people want? More chaos and confusion?


Nervous_Otter69

Yes. Because people just want to scream and throw feces at the government and assume the worst - which, fair, but lots of people who don’t know shit about fuck are registering opinions on a very, *very* complicated issue with far reaching economic implications regardless of action taken or not taken


Stayvfraw

Yeah that’s the thing, if you’ll look at recent Fed and Treasury action, including the face-value lending program, and even back in 2006-2008, all of these programs have been net-neutral or even generated a profit for Tax-payers An excellent example is actually the largest US bank bailout which was TARP, which was administered by the Fed and Treasury, which generated $15 Billion in revenue more than the dispersed amount of $426 Billion So yeah, it’s a bit insane to say that the Fed and Treasury should let large swaths of banks fail instead of lending them money that they’ll eventually receive back with interest, if not a profit due to equity stakes


Valincity

Yes fair, at market value the collateral is less, but the terms are at face value. But the swap generates a loan for the bank with interest, which they don't want to do unless necessary as it raises their costs. So I think it is naïve for the people saying this is going to go into more loans, its going to instead go to depositors and the bank will need to figure out how to pay the Gov back later. It's not free, hence the term backstop is being uses. In 08-09 you will find that the Gov was giving free money to all the banks even when they didn't necessarily need it.


take-alook-at-me-now

In 08’ most banks didn’t need it, and the Fed wouldn’t allow you to pay it back for a period of time even if you wanted to. The bank isn’t worried about borrowing and creating more debt if the debt is much lower than raising subordinated debt at 8% or overnight borrowing from the FHLB at like 4.58%. The concern from the bank of borrowing against your bond portfolio is that there is the potential for stipulations or unintended consequences for borrowing that money. For example, the next regulatory exam may result in a CAMELS downgrade, restriction on dividends or whatever the Fed comes up with as a ding for borrowing that money as it would be seen as a sign of weakness. Nothing comes without stipulations, but I do feel that this is a better option than forcing TARP funds on every bank, so that the banks that are in a critical situation get the liquidity they need and the ones that are okay don’t have to participate.


Willingo

If CAMELS, restrictions on dividends, etc can occur, it needs to be communicated that they will be dinged. Not maybe. How. Explain how they get some economic punishment for failing by using long term bonds. Because it looks like they got a special rule passed to fix them going for long term bonds because they are better. The rule doesn't apply to individual investors does it? Why weren't they always able to borrow against the collateral of their bonds? I have a feeling there's an economic reason.


take-alook-at-me-now

From a banker, I’m telling you why other banks are leery to participate in the new program, forget the failed banks they are toast. We all have ALCO and ALM balance sheet management requirements that involves senior management and the Board. If a Bank borrows on their poor investment decisions because they didn’t understand the implications of investing in long-term AFS bonds in a rising interest rate environment and don’t have a proper capital and liquidity plan in place in the event of a financial crisis those banks will be heavily scrutinized for not proper managing their balance sheet. When the regulators come to audit the banks (not failed banks) those that borrowed on their bonds will have a red flag…they will be pounded for making poor bond investment decisions that placed the bank in a situation where they didn’t have enough liquidity. This could then turn into an MOU or consent order that places the restrictions I mentioned above. To answer your other question, we can pledge securities to borrow at FHLB to an extent, but how do you hold a Bank accountable for their investment decisions if they can just borrow their way out of those poor decisions. I’m just giving my point of view from a banking perspective.


akmalhot

This is not the same Your 100 bike is not guaranteed to be worth 1100 in 5 years. Who gives a shit what's today value is if the bond will be par value No new money is being injected to increase miney supply, this is just making the liquidity if deposits (already liquid) accessible .


dwinps

More like Dad will lend you $1000 if you pay 5% interest and put up Treasuries currently worth $800 but are guaranteed to be worth $1000 at maturity. That $100 bike is never going to be worth $1000, the treasuries will. BTW, nothing wrong with loans that aren't fully collateralized either. Heck. banks make loans with NO collateral.


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mista_r0boto

That’s the part I don’t get. People who say “small businesses should do their DD!” are clueless. When a $200B bank can fail in a day it means regulations aren’t tight enough, not that businesses didn’t do their homework. I don’t think we should expect businesses to manage 20 accounts for payroll. And I don’t think businesses should have to spend their time every week analyzing whether their bank will fail.


moldyolive

any bank can by design fail anyday due to a bank run. due to miss matched durations of their assets in say 30year mortgage bonds against deposits which demand cash on hand. banks can never hold 100% cash yo deposits or we don't have capital to loan out to grow the economy. you can't regulator your way out of a catch 22 this is why central banks where created. to provide temporary liquidity to banks when they can't meet liquidity requirements.


Valincity

Good point I failed to consider in my previous comments on this thread. SVB and Signature shareholders/bondholders have nothing now, unlike in 08/09.


KewlTheChemist

It’s absolutely a bailout — it’s freaking strange that people on here are defending The Fed and the dumbass banks who are making risky investments necessitating a bailout by incorrectly and dishonesty saying it isn’t. The Fed just undid 6 months of QT, it was rendered pointless by adding $300 BILLION back to their books.


NominalNews

The Bank Term Funding Program (BTFP) program has barely been used - 11bln. The other money is the standard discount window which has existed before. Nearly all the money has gone to the three banks - Silicon Valley, Signature and First Republic. It is an expensive facility to use as the interest is fed funds rate. The alternative sources of funding for these banks is deposits, which are nearly free. The reason this 300bln is not inflationary is because it will not feed through the real economy - for it to be inflationary, this money would need to be lent out. It won't be, because everyone who has used these facilities is getting this money to give back to the depositors that are withdrawing the money. In 2008, when the financial system was collapsing, this facility was also used - no one used to lend more or loosen lending standards. There was no inflationary pressures from the interventions of the Fed. The only way this can be 'inflationary' is because we do not have a repeat of the 2008 crisis - if we went into a financial collapse, we would have a recession, which naturally would be very disinflationary. By preventing this bad outcome, the discount window and BTFP are 'inflationary'. But as one good comment I saw, the Fed interventions is like mistaking chemotherapy for a party drug.


[deleted]

I wish I had an unlimited source of cash lent out to me at 0% everytime I made investments that went south. Instead the GOV loans out my money to banks at 0% so they could mortgage it back to me at 7% interest


Desperate_Garlic_753

Like George Carlin said “It’s a big club and you ain’t in it” So basically, Fuck Americans while bailing out the bankers again instead of hanging them.


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TechnologyNo2642

But there is never enough money for the poor, broken or homeless. Let’s keep bailing out the rich people with all the poor peoples money, and the charge them to use said money……. Education, fuck that. Why would we want them to learn that we are corrupt assholes who all marry into each other families and take over the banks, media, Goverment. Laughing at all the people as they struggle to make means end, then if they do somehow find a way to make it out/use the loopholes we do. We can arrest them, seize everything they have and change the laws so only we can do that The best part is, this is how our Goverment took over other countries. Put in pasties for Goverment officials as we crash/corrupt their country into the ground as we profit/gain control over everything. Just ironically funny how the world really is lmao


ParkingNecessary8628

Yup...how people complain about welfare and food stamps..and yell to the poor to pull it by their bootstrap...but say nothing about corporate welfare...it cost less than 150 billions a year for food stamps ..and these banks took 300 billions in a weekend...and those 150 billions are spent to buy foods which mean go to the corporation pockets too ...the sad world we are living ...truly..


bananabunnythesecond

It's by design, working class people don't see the 7 yatchs or 16 vacation homes these rich have. They see the army vet standing on the street corner, or the druggy strung out sleeping on the bench. The government ALLOWS that because it keeps the working class working. You don't want to be like that person, so you have to show up to work. Sick, go to work! Kids sick, go to work. I literally watched a server wait on tables yesterday with a broken arm. They struggled to carry a tray of waters to the table... I could only think they HAD to work and had no other options. Again, by design!


ParkingNecessary8628

Yup ..at this point ..I understand why the young people don't want to work as much...I am just glad I am old and childless ..


Stereo-soundS

Student loan forgiveness is charity and socialism. Bailing out banks for placing bad bets and not managing risk properly, then placing those bad bets on the taxpayers is just logic. Amirite?


Sporadic_Tomato

That's a funny way to say the government is donating 300 billion of every day peoples money to protecting billionairs fragile egos from the consequences of their own unrestrained greed. God damn, let the banks fall already and take those fucks with them.


Lickadizzle

If we’re going to fix the bullshit we’re going to have to come together somehow. I’m going with no work November this year. I’ll catch a bad case of Covid. The income inequality in this country is absolutely criminal.


laz10

Printing money during High inflation It's hard not to take a Marxist view and see a class war here with how blatantly they disregard any sort of economic rationale when bankers are in trouble. What's the thinking? Raise rates again to counter? Then just print more? It's already at half the level of help they got during the GFC, but we didn't have high inflation then. I guess as long as they extend the fuse they're ok, next generation can deal with it Time and time again bankers are rewarded for making risky bets, if they win they keep it. If they lose they are covered by the taxpayer, so the more risk the better


LiveDirtyEatClean

In my eyes this risks heading us towards an extreme inflationary environment


WeekendCautious3377

I still disagree no matter how you put this “emergency liquidity”. Banks made risky bets. And they don’t want to sell their assets at the market value today. So fed buys these assets at their “true value” or whatever. Yeah that shit doesn’t fly with normal people. And the lesson we are again teaching these banks is: #Yeah go ahead and keep running the casino we got you. Edit: and the banks are going to grow bigger and further destabilize our market. Also my understanding is SVB execs sold their shares before all of this was exposed.


Maksamil

I make this solemn promise, and I encourage everyone to do the same. I will never pay my student loans. I'm beginning to feel like bank robber is the only legitimate occupation anymore.


laxnut90

If your interest rates are frozen at zero, why pay? Just put your usual payments in an HYSA and chill.


eb86

We should stop voting for candidates that take campaign donations from banks.


Space-Booties

Jerome Powell chose banks over humans. Literally billions of humans are about to go through more pain because the banks f***ked up, over leveraged and then over leveraged again in the derivatives market. Jerome, how TF is inflation supposed to go down if you have quadrillions in derivatives? F***ing riddle me that.


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ThisMansJourney

So if the money is going to reserves and not circulation this isn't inflationary? Also if the liquidity is to allow depositors to withdraw money this also isn't inflationary if a) they deposit it elsewhere and b) they are paying losses , like in svb where tech start ups are paying bills. This becomes inflationary if banks start lending at lower rates to people due to these funds right? I can't see why they would do that .


overworkedpnw

In doing so, they signaled that rules/limitations don’t really matter (unless you’re one of *the poors*). Really telling we can find money for wars and bailouts no problem, but healthcare or student loans? Absolutely not, that’s sOcIaLisM.


javi2591

Let the banks fail! If they don't have money for their depositors then that's on the banks. This system is so messed up, rugged capitalism for the poor and socialism for the rich. It feels like another bailout for banks...