Liquidity and the Ten Year Bond

If you study the analysis of these three failed banks, they were not affected by Terra Luna or even FTX. They were all caught in what has come to be known as the Long Term Bond issue.

Long Term Bond issue.

• These banks were invested in safe, secure, ten year bonds at low interest rates. When the Federal Reserve raised interest rates to combat inflation, it is natural in a free market that bond yields must rise. This means older, lower interest bonds lose value as investors invest in newer higher interest bonds. This is not a complicated idea, and everyone in the banking industry and the regulators who regulate them know about it.
• But these Ten Year Bonds still represent huge value. A million dollar bond becomes worth 900,000 plus change, or a ten million dollar bond becomes worth 9 million plus change. BUT ONLY IF YOU HAVE TO SELL THEM EARLY!
• Such as when you have to sell early, because you need liquidity to pay bills or satisfy customer withdrawals. Then you have to sell these safe, secure bonds at a loss.
• These are big losses, but not ones the bank can't recover from, because these are banks, and they can raise cash through multiple fancy strategies.
• In fact Silicon Valley Bank was in the process of raising 5 billion dollars in credit to help it through this crunch. - But Silicon Valley was hit by the largest and fastest bank run in history, and it couldn't turn it's iliquid assets BONDS, into liquid assets CASH fast enough and quickly got to a point it could pay it's own bills due to customers transfering cash out so fast.
• The ironic thing about Silicon Valley Bank is that it served highly desirable customer base of high tech start-ups and venture capitolist, who were all in communication daily, and who all understood that the FDIC limit on account insurance of 250,000 treated them all like Creditors not Customers, so they were always nervous about bank insolvency and the loss of their multimillion dollar accounts, and in some cases multi-billion dollar accounts. When they got wind of a possible problem with Silicon Valley Bank, they all communicated, and they all used electronic means to remove a massive amount of liquidity from Silicon Valley, 400 million dollars in one day. I should note that cryptocurrency companies were the minority in Silicon Valley Bank.

It's Liquidity

• If you read all the analyses of these three banks, it wasn't cryptocurrency, it was a liquidity shortage brought about by the Ten Year Bond problem.
• They don't have enough liquidity or cash on hand to cover customer withdrawals and bills in a stress period.
• This is because of Fractional Banking, where banks used to keep 10% of their deposits on hand and now they are required to keep zero percent, and they can and many times do invest most of their customer deposits.
• Banking failures that we have seen have everything to do with liquidity and nothing to do with cryptocurrency.
• This is the issue Credit Suisse in Switzerland is facing, liquidity due to investments in poorly earning assets which are illiquid.
• This is the next great banking crisis: poor liquidity brought about by Fractional Banking gone wild.
  Remember
• These banks are still in compliance with the rules, and the government regulators know exactly what the banks are doing.
• So whose fault is it really? The banks or the regulators?
• It definately isn't cryptocurrency.

Fractional Banking versus Full Reserve Banking.

• Many smart economists, bankers, and accountants have recognized for years that Fractional Banking with near zero reserves was great for profits, but kept banks on the razor edge of being insolvent.
• A proposed solution was equally radical, Full Reserve Banking, which is going for practically zero percent reserves to 100% reserves.
• It's no where near as profitable, but it eliminates account loss risk to businesses with bank accounts over 250,000.
• So why isn't every business that size invested in a Full Reserve Bank? It's simple, the Fractional Reserve Banks have fought the concept and the competitiors, who saught to come into the Banking Market and provide this alternative.
• That sounds unfair and un-American doesn't it?
• It does if you put it that way.
• But thats not the way such efforts are portrayed and marketing, political influence and money are what really matters.
• So a safer alternative to Fractional Banking, Full Reserve Banking, doesn't exist in the US.
• Hmmmm it is almost like the system is rigged...
  

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