Seeds of DestructionOver the weekend we saw some large regional banks fail. Some people here have been blaming this on the Fed in the US raising interest rates.
Is this the probem?
Are there more ominous signs under the hood?
1....the sin that the Fed made is not increasing rates but keeping interest rates at zero for so long and thereby creating the inflation (along with Biden spending trillions) that needs to be stopped through high interest rates. It is a well known fact that if something/anything is free it distorts asset allocation of things. This leads to Point 2.
2....with interest rates so long for so long and lax Government oversight, the banks (and other people) sought to find ways to get a higher return and in doing so created a risky investment environment. Sound like the precursor to the financial crisis of 2008? YEP!!
3...as a case in point, SVB didn't even have a risk manager for the past year!! No wonder they got into a situation where the bank collapsed.
4...the lines between banks trading with their own money as opposed to depositor money which was spelt out in Dodd Frank has not been enforced leading to the need for the US Government to start beginning bailouts. The current bailouts themselves are sending/reinforcing a message that came out of 2008 - "banks you can take risks and make money and if your risks don't pay out then the Government has you covered"
I could go on - but here is the main message/warning
Right now we have many of the things that caused the financial crisis of 2008 taking place compounded by an environment of high inflation, rising interest rates and excessive Government debt and budgetary deficits....plus a much higher level of personal debt as percentage of disposible income.
Keep this in mind as you make investment decisions...