Brief Additional Insights on Banking, Political Factors, and the Real Estate Industry
The Lankford Disclosures
A video lasting approximately four minutes has been widely circulated throughout the financial sector of the internet, and it’s nothing short of astonishing. In this video, Senator Lankford of Oklahoma can be seen questioning Treasury Secretary Janet Yellen regarding the bailout of SVB and its implications for local banks in Oklahoma. I recommend starting the video at the 1:12-minute mark.
Lankford posed a straightforward question: Will community banks in Oklahoma and their depositors receive the same treatment as SVB and its depositors?
The response is nothing short of shocking: No.
Yellen’s response implies that a bank only receives such treatment if a supermajority of the FDIC’s Board, a supermajority of the Federal Reserve’s Board, along with Yellen and the President, agree that there would be “systemic risk” if that bank’s depositors are not fully compensated.
This revelation implies that there are now two tiers of banks within the American financial system: the Privileged Nobility of banks, whose depositors are fully insured, and the Peasants and Serfs banks, whose depositors are not fully insured.
Naturally, if you have more than $250,000 in bank deposits, you will likely consider moving your funds to the Privileged Nobility banks. I touched upon this possibility in a recent post.
Lankford, representing Oklahoma rather than SVB, naturally pushed back. He pointed out that this discriminatory policy will encourage large depositors to transfer their funds to the Privileged Nobility banks. Yellen stutters and attempts to evade the question but more or less concedes that depositors will do precisely that.
This is what we might call “voicing the unspoken” and should be remembered as one of the most significant contributions Janet Yellen has made to our country.
The Immediate Future
The key question now is, how will Congress respond to this situation? There are two options.
One, Congress could choose to remain passive, effectively conveying to the world that it is no longer a relevant institution. In this scenario, the Executive branch establishes two classes of banks—the Privileged Nobility and the Peasants—and Congress takes no action.
This path implies the Congresscritters would need to return to their constituents, including powerful local bank executives, and admit that they couldn’t prevent their local banks from going bankrupt. This would likely lead to a rapid end to their political careers, making this outcome improbable.
The other option is for Congresscritters to wield their influence and compel the FDIC, the Fed, and the Treasury to treat all banks equally so that local banks, which significantly contribute to their election campaigns, can survive. They may achieve this by either not permitting the FDIC, the Fed, and the Treasury to bail out any depositor similar to SVB and Signature or by forcing these entities to bail out every depositor at every bank.
We can now assume that every depositor in an American bank—whether an individual or a company, even foreign—enjoys full insurance provided by the United States.
Therefore, it’s highly unlikely that any wealthy individual or company, regardless of its size or location, would use any bank other than an American one, except for local currency transactions. Capital controls, fully insuring their own banks, banning U.S. banks from operating in their countries, and other measures would be taken in response to the U.S. insuring deposits of global investors and companies.
The End of the World (i.e., the end of the dollar reserve fiat money system) has inched closer. This development undermines global trade because nations fear the U.S. hoarding all their money in U.S. banks.
Revising Earlier Predictions
After watching this video, it’s necessary to revise the prediction about the United States eventually having only a few Too Big to Fail banks like Canada. Politicians will likely resist this outcome, as local banks and businesses will demand protection from their Congresscritters.
Regarding the 30-year mortgage, it’s probably not long for this world due to the dynamics related to insuring all bank deposits. However, there will still be hundreds or even thousands of local banks offering mortgage loans.
Once all deposits at all banks are guaranteed, we may see a real increase in mortgage availability. Local community banks should be freer to make aggressive loans since their depositors are fully covered, including mortgages. This might lead to an increase in home prices, which are closely tied to the money supply.
So, party on, but also prepare for the inevitable End of the World.