Silicon Valley Bank in the United States has gone bankrupt. This is the most influential U.S. bank bankruptcy case since the financial crisis of 2008. Will the bankruptcy of Silicon Valley Bank, like the bankruptcy of Lehman Brothers back then, mark the arrival of a financial crisis?
(The 2008 financial tsunami)
I have said to you all in the past that the economic crisis in the United States must be resolved through a financial crisis. At that time, we even made a witty remark: No economic crisis in the United States cannot be resolved by a financial crisis; if there is, then it must be two financial crises.
From May 2021 when the CPI broke five to now, it has been two years in the blink of an eye. The CPI index in the United States has been running at a high level. Although I have said in the past that one cannot use a single variable to measure the good or bad of a country's economy, there is one variable that is an exception, that is the CPI index, which is inflation. Because this thing is too comprehensive, it reflects too many issues. Therefore, for ordinary financial enthusiasts, if you want to judge whether an economy has any problems, I suggest you can simply look at its CPI.
Advertisement
(High inflation in the United States has lasted for 2 years)
In this sense, the U.S. economy must have serious problems. Therefore, under such circumstances, I have made such a judgment that I believe the economic crisis in the United States must be resolved by a financial crisis. In fact, I am definitely not the only one who holds this view. At the very least, Federal Reserve Chairman Powell also thinks so.
He believes that the current economic problems in the United States cannot be solved by any other means, and to solve the problems in the United States, a financial crisis is necessary. Therefore, since last year, the Federal Reserve has raised interest rates. At the beginning, when the Federal Reserve raised interest rates, everyone generally believed that this was a monetary retraction and was solving monetary issues. But I have also said more than once in the past that inflation is definitely not a monetary phenomenon; it is a productivity phenomenon. Therefore, the so-called raising and lowering of interest rates must not solve monetary issues; it must solve productivity issues.
How can we see this? At the end of last year, when everyone was generally debating whether the United States should stop raising interest rates (because the U.S. CPI had already started to decline), Powell did not give up the idea of raising interest rates. There was one thing that made him particularly uneasy, which was the non-farm employment data released by the U.S. Department of Labor last year, showing that employment in the United States was actually increasing. There is a media in the United States that I think reports on this matter very vividly, saying that when Powell saw this data, he fell silent. Why did he fall silent?
(Why does Powell insist on raising interest rates?)
If raising interest rates is to solve the economic problems in the United States, to solve the inflation problem, then the rise in the number of employees does not exactly reflect economic recovery? Then Powell should not fall silent, but should be very happy and announce to the world, look, our Federal Reserve's policy of raising interest rates has worked. And he fell silent, indicating that he is dissatisfied with this matter, indicating that this data is contrary to his original policy goals. So, what were his original policy goals?From this, it seems we can reason in reverse; his goal should be to trigger a financial crisis, because if a financial crisis were to break out, employment should not rise, it should fall. So why would Powell desire a financial crisis? It's because the problem he aims to solve is how to elevate the value of the U.S. economy after losing China's value transformation capability (everyone must pay attention, our value transformation capability is, in a sense, a supplement to the U.S. However, the U.S. says it would rather do without and wants to suppress you). To achieve value enhancement, the U.S. has only one path, and that is technological innovation. But this technological innovation is not something that can be achieved by everyone just shouting slogans, saying that whoever invests some money can make it happen. In the eyes of Americans, this matter must allow the market to reshuffle. So, how can you make the market reshuffle? That is through a financial crisis.
Therefore, the bankruptcy of Silicon Valley Bank (SVB) is, at least, moving in the direction we initially anticipated.
The bankruptcy of Silicon Valley Bank should be considered a very special signal, but does it necessarily mean a financial crisis, or a financial tsunami like in '08?
I have also read some comments from professionals. There is a viewpoint that suggests the collapse of Silicon Valley Bank cannot be compared to the bankruptcy of Lehman Brothers back then, because Silicon Valley Bank has a very low influence in the U.S., only ranking 16th in the nation. Whereas Lehman Brothers was in the top five of Wall Street investment banks at that time, so everyone should not overestimate the collapse of Silicon Valley Bank.
I do not fully agree with this viewpoint. I think if you must find a difference between Lehman Brothers of that time and Silicon Valley Bank today, you should look from another angle: the main business of today's Silicon Valley Bank is still traditional commercial banking, while Lehman Brothers back then was in investment banking. Don't forget, investment banking can concentrate and transfer risks to the financial market; commercial banks are not very strong in this regard, at least if they want to do so, they also have to go through investment banks. So, the collapse of an investment bank and a commercial bank are, of course, different in nature. So, if you insist that today's bankruptcy of Silicon Valley Bank is not very serious, you should say it from this perspective.
(Will it be another Lehman Brothers disaster?)
But at the same time, let's not forget that there are also many similarities between the current bankruptcy of Silicon Valley Bank and the bankruptcy of Lehman Brothers back then. First, both encountered significant liquidity problems. Wasn't Lehman Brothers back then because of lack of liquidity? Of course, at that time, it was not just them who lacked liquidity, the entire U.S. financial market lacked liquidity. So, even though the U.S. government provided financial assistance to some financial institutions at that time, such as Fannie Mae and Freddie Mac, and established a $700 billion stabilization fund, Lehman Brothers was not saved at that time.The collapse of Silicon Valley Bank today is actually quite related to the lack of liquidity. Moreover, if we go back a week, do you remember that Blackstone Group in the United States had a default on a $560 million CMBS? (At that time, I wrote a micro headline to explain to everyone what CMBS means) It is also a problem of liquidity shortage. So, if you look at it this way, the difficulties faced by American financial institutions now seem to have some similarities with the financial crisis in 2008.
(The lack of liquidity has always been a harbinger of financial crises)
Secondly, at that time, Lehman Brothers was not without hedging assets. As an investment bank, he was very clear about the magnitude of the risk, so he also accumulated some real estate as his hedging assets. However, when a crisis comes, many assets cannot be liquidated, which is particularly obvious for real estate. When your hedging assets cannot be liquidated, and liquidity is gone, doesn't the problem come? Lehman Brothers in 2008 was like this.
Now, let's look at the default of Blackstone Group, which is because real estate cannot be liquidated, so this point is very similar to 2008. And this time, the bankruptcy of Silicon Valley Bank, he did not hold real estate, but it is said that he held a lot of U.S. Treasury bonds. It should be said that U.S. Treasury bonds are liquid, and even very liquid. If U.S. Treasury bonds as hedging assets cannot solve the problems of Silicon Valley Bank, it means that on the issue of hedging assets, the current problems may be more serious than the financial crisis in 2008!
So I say, although I dare not predict, I still vaguely smell the scent of financial crisis.
Copyright © 2024. All rights reserved. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.|Disclaimer |Privacy agreement |Contact information
Leave A Comment