According to an X post from a user known as @realmattcouch, there are 63 lenders on the brink of insolvency facing up to $517,000,000,000 in unrealized losses.
Banks don’t own your money, they have 0% reserve requirements, so they just hold a bunch of debt securities. Those banks are insured by FDIC who also doesn’t have any money, just a bunch of debt securities. The FDIC is backstopped by the treasury, who also doesn’t have any money, and just holds debt securities, the treasury is backstopped by the federal reserve, who also doesn’t have any money, just a bunch of debt securities and a money printer.
If you’re a long time viewer you would recall our post from 2020 about the insolvency of the FDIC (created under FDR’s New Deal program).
Well here we are 4 years later with a long held & deeply inverted bond yield curve and tight credit conditions that wiped out trillions of dollars of value in paper debt securities…and the FDIC has approximately $3 Billion in cash on it’s balance sheet and a mountain of (likely illiquid) debt securities.
The FDIC maintains a $100 Billion line of credit with the treasury but we’re talking about the potential for losses 5 times greater than that, and that’s not accounting for wider spread systemic risk.
Here’s a peek at the FDIC’s balance sheet for Q1 2024.
The only solutions in trying times such as these is to turn to the lender of last resort. That old gnarly creature which crawled out of the swamp in Jekyll Island, GA.
The monster must feed.
