May 3, 2023 - 3:45pm
It appears that 2023 could be remembered as the year that marked the beginning of a new financial crisis. When Silicon Valley Bank and Signature collapsed in March, optimists argued that this was an idiosyncrasy driven by the banks’ large holdings of startup deposits. Shortly afterwards, when Credit Suisse fell, Americans shrugged it off as a foreign bank. With the bailout-buyout of First Republic by JP Morgan over the weekend, the prospect of a general banking crisis is being taken more seriously by the markets.
Earlier this week there were sell-offs in multiple bank stocks. PacWest tanked 42%; Western Alliance plunged 27%; and Metropolitan Bank fell 20%. Comerica and Zion Bancorp followed the pack, both down nearly 10%. The KBW regional banking index, which tracks smaller regional banks, fell 7%. Markets are finally waking up to the fact that a large portion of the banking system is potentially insolvent — around half of it, by some measures.
The banking system is insolvent due to reckless central bank policy. Following the last financial crisis in 2008-09, central banks engaged in wild monetary experiments including quantitative easing (QE), which drove interest rates down to record lows. It is debatable whether these experiments had much of an impact on economic growth, but they certainly led to extreme overpricing in asset markets. QE juiced almost every financial market, from the stock market to the housing market to the market for used luxury watches. With the wave of bank failures, these markets will now likely experience heavy losses.
The bank failures themselves not only drove up the price for risky assets like those just mentioned, but also the price on riskless assets. Investors typically identify certain assets, like government bonds, as relatively lacking in risk. Governments print money, after all, so they can always pay back their loans. This means that banks feel comfortable holding large amounts of these riskless assets, and regulators are happy to let them.
But the QE policies have turned these riskless assets into risky assets. By driving interest rates on government bonds down substantially, the central banks have made these bonds sensitive to increases in interest rates. With central banks now raising rates to try to stamp out inflation, the price of these assets is falling off a cliff.
The losses have spooked depositors, who are now heading for the exit. Data shows that in the past few weeks we have seen the biggest run on deposits since the beginning of the Great Depression. So far, this has mainly impacted the smaller, regional banks. Those holding deposits at these banks that are larger than the Federal Deposit Insurance Corporation (FDIC) limit of $250,000 are scared that the bank will collapse, and that they will lose their money. When the depositors take the cash and run, the bank soon collapses.
The recent use of bailouts and assisted buyouts may become increasingly difficult as more banks come under pressure. The only solution then will be to guarantee all deposits in the banking system.
Doing this, however, would be tantamount to the Government giving a blanket guarantee to all holdings of capital. With such a free insurance policy in place, investors could take as much risk with their investment as they saw fit — after all, if the investments go bad, the Government will pick up the tab. Economists call this problem “moral hazard”.
Yet, even then, the damage to the economy has likely already been done. Credit standards are now tightening rapidly, meaning that lending to the real economy will soon seize up. Consequently, businesses will pull back on investment and people will stop buying houses. At this point, unemployment should start to creep up as layoffs start in the construction sector. A recession should follow in short order — likely accompanied by a full-blown crisis.
The long-term legacy of this situation could be a partial socialisation of the banking system, though. After the last financial crisis, central banks around the world engaged in an unprecedented monetary experiment. The impact of this experiment on the real economy was uncertain at best, and past a certain point the central banks appeared to be doing the QE policies just to demonstrate that they could. But these policies had costs, and we are now seeing those chickens come home to roost. Just don’t expect mea culpas any time soon from the people in charge.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
philippilk
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeWell done Mr Gutman for having the courage of your convictions.
“In the dystopian novel Nineteen Eighty-Four (1949), by George Orwell, the Two MinutesHate is the daily, public period”
Today I await the Two MinutesSelfHate becoming a daily school ritual. (those who are not White may do the Two Minutes Hate)
It may happen soon: https://www.city-journal.org/critical-race-theory-portland-public-schools
I grew up with three sisters. I think if I had been forced to attend a session like that and been treated that way I would still be in jail for slapping that b**** into the following week.
The teachers should quit rather than face this abuse.
The link you provide is truly terrifying; West civilisation is rapidly building its own funeral pyre.
It is so heartening to hear from a parent who genuinely loves their child and won’t let them be subject to propaganda.
Massive respect. Wonder if this got any mass press coverage over there as it should have. One of, if not the only, example of good people putting their foot down and having the integrity and decency to reject these quasi-religious fanatics and their grotesque, obscene, bullying BS. I dearly hope it’s the start of real substantial resistance. It makes me want to start a group to march against political indoctrination in the UK, which is the biggest threat to a stable, sane generation of people, and future ones after them that exists right now.
It’s not the old, fluffy liberalism we are facing. And we can all feel the hatred, malevolence, and toxic resentment of these despicable, damaged, anti-social nightmare group.
Political indoctrination and 1984 social engineering, domestic abuse, child abuse, those are critical things people should be striving for to change. Instead, we’ve got Antifa headcases in far too many positions of influence, and they’re utterly unable to keep themselves from abusing the minds of kids as soon as they get the chance. They only care about people using the right pronouns they demand be used for them and idiocy like that.
I left the UK for various reasons in the early 2000s. One reason was the children`s education.
I could see already the way it was going as I lived in London in a bourgeois area but with even then quite a lot of diversity. I do not really have the money without a struggle for the private sector, and anyway I prefer the state sector if it is run well.
I thought it would be a bad thing if frequently the children were to come home, tell me what they had been told about the world, and I would have to tell them that is not a fact, it is an opinion, and I believe it is wrong for the following reasons. It undermines their belief in authority at too early an age, and in fact it would be reasonable for a child to think the teachers were perhaps talking nonsense even about more factual matters like maths or physics.
I think I made a good choice – the country my wife was born in, where politics and ideology make little (although even here, a little) intrusion into the schools. I think they have had a good education – although no doubt many UK educators would be appalled at their lack of, or even opposition to, wokeness.
“I thought it would be a bad thing if frequently the children were to come home, tell me what they had been told about the world, and I would have to tell them that is not a fact, it is an opinion, and I believe it is wrong for the following reasons. It undermines their belief in authority at too early an age”
I never had a problem telling my son from a young age that his (London, state school) teachers could be wrong about stuff. Maybe that’s a bit aspergery, but he seems to have worked out ok – and he’s very adept at telling people what they want to hear.
It is a question of degree. To say that a teacher got a fact wrong or made a spelling mistake – fine.
To say that a large number of the teachers in a school are constantly repeating wrong things on important matters, and their views on life in general are valueless, nay harmful – that is different.
One memory my wife has was a primary school teacher telling her how lucky we were that the children in the school spoke lots of different languages – and of course, virtually daring my wife to disagree that there could be downsides to such a Tower of Babel. And that is just a minor example.
Where is this promised land, please?
Sorry, Jonathan, people I know might guess who I am. I will merely say it is not in northern or western Europe – but then you probably knew that!
But you know, maybe it could be lots of countries outside northern and western Europe and the Islamic and sub-Saharan African world.
Wokeism is a secular counter-Enlightenment movement. It’s the first time a secular critique of Enlightenment went mainstream and I think this took many by surprise.
There’s also the political angle. It helps Democrats cast the widest net for minority vote at a time of right-wing populism in US. It looked like it was working in pushing the Right back for a while.
But now, a valid question is whether this will all backfire and strengthen right-wing populism after all, by potentially providing confirmation for some of the things far-righters had been saying about the establishment (e.g. political correctness gone mad) for large parts of the population (e.g. trans rights movement, defund police, white fragility, …).
In Australia they are teaching very young children that Jesus was non-binary and wore a dress. We learned this from a video of a bewildered Aussie mum on Alex Belfield’s Voice of Reason podcast this morning. Notwithstanding the fact the religion should not even be taught in schools, this is crazy even by the standards of what passed for education in the West today.
“Notwithstanding the fact the religion should not even be taught in schools,”
Religion SHOULD be taught in schools! To say otherwise is like saying history should not be taught in schools as people disagree on its meaning. Or literature should not be taught as there are too many viewpoints so some must be wrong, and those could hurt innocents…..
As religion has been mans greatest accomplishment in arising from the savanna – grubbing roots and clubbing zebras – into forming structured societies with philosophical concepts, agreed morality, and set organizations of educated leadership.
I did not know you were one with the modern cancel culture, or a knee-jerk atheist.
Am I a reactionary atheist if I object to creationism being taught in schools?
Awaiting approval above for word j ** k, so repeated below with offending letters redacted:
“Notwithstanding the fact the religion should not even be taught in schools,”
Religion SHOULD be taught in schools! To say otherwise is like saying history should not be taught in schools as people disagree on its meaning. Or literature should not be taught as there are too many viewpoints so some must be wrong, and those could hurt innocents…..
As religion has been mans greatest accomplishment in arising from the savanna – grubbing roots and clubbing zebras – into forming structured societies with philosophical concepts, agreed morality, and set organizations of educated leadership.
I did not know you were one with the modern cancel culture, or a knee-*e r* atheist.
“teaching very young children that Jesus was non-binary and wore a dress”
My guess is they will not go into explaining Mohammad wearing a dress as well, but keep him in his dishdasha. Purely to be culturally sensitive, and to avoid any inconvenient beheading.
What the major religions purportedly believe should be taught in schools (would be nice to catch some of the minor ones too) alongside a historical analysis of whether followers of those religions have practised what they preached.
I have a family member in the state school system in a Republican state. Every subject, somehow or another, has to include Wokeness, from computing (you must acknowledge how others feel) to geography (oppression is everywhere), by my estimate 20% of teaching now is Woke, in every subject. I shudder to think what they teach in Oregon, California, etc.
I wish Mr.Gutmann well, and I do, truly, hope it works out. I suspect that it will be massively over-subscribed.
How about looking at what is happening in schools in England?
https://www.dailymail.co.uk/news/article-9557845/School-reports-chaplain-telling-pupils-theyre-allowed-disagree-LGBT-teaching.html?ito=email_share_article-top
Gutmann seems like he would have been fine with actual anti racist policies. But that isn’t what Brearley was implementing. Its policies were distinctly racist. Just calling them anti-racist when they were, in fact, the very opposite, is designed to squelch dissent against racist policies. Bravo to Mr Gutmann for standing up to them.
I also think mr Gutman would merely trim the extreme, but set up a school which would still be way Liberal/Left for a typical, Non-NYC-rich guy. That ‘Thanksgiving will always have a foot note to dead Native Americans, and Imperial India history be about British exploiting the natives., with some bits of architecture, and their religion, and civil rights (and maybe even the millions killed during the partition, but maybe not, depending who is made to be the bad guys.) so much better than normal schools, but Liberal.
Not that it will matter as he clearly explains the entire function of the $54,000 a year school is to feed into $70,000 a year universities and so into $1,000,000 + per year jobs amongst the right sorts of people.
In the Daily Mail today is a NYC liberal school teaching kindergarten children about master***ion using sexual correct cartoon characters. I would have the person presenting this class charged with pedophilia to be a lesson to all adults to not get weirdly into this kind of situation with children.
Yes, one of my daughters attended a university which was about $48k tuition and room and board. The first year all parents got a letter apologizing because some fraternity on campus had a cowboys and Indians party with some questionable dress on the part of the “Indian” attendees. And they were serious. I guess the administrators never attended college themselves. She found it amusing that anyone would apologize for this and any “offense” it caused and so did I. As Jerry Seinfeld famously said…..”if I like their race, how can it be racist?”
They are college kids, showing up at parties inappropriately dressed is what they do. I’m fine with liberal beliefs and my kids were all armed with an explanation of what they might see and how not to over-react. How not to walk around with a huge chip on their shoulders.
A good and brave man. One can only hope that he manages to establish his new type of school in New York, and that this leads to more such schools across the US.
I think the idea of a parallel school system for people who want to avoid the rapid shift in the woke direction is a terrific idea. I’m happy to hear he actually has some momentum and money behind the idea. I applaud his initiative. I’m very worried, however, that what we’ll end up with is 20% of kids getting a decent education while 80% are in public schools getting the indoctrination. I’m just guessing at the percentages. But, even if it was 50/50, it seems like there is a dark future ahead for these kids and our country. I don’t see ‘a more perfect union’ in the future if CRT and all its baggage is allowed to be taught. It is inherently divisive. Its goals include basically tearing down the government and educational structure of the nation and starting over. I applaud parents getting their kids away from this ideology, but there are still going to be millions of kids being indoctrinated. This isn’t going to end well.
A courageous and principled man. Just a question…. I thought that Biden had signed off CRT for all schools at the beginning of the year?
Biden doesn’t have the power to do this. In addition, some states have banned CRT in public schools. Presidents aren’t monarchs.
Raised Catholic but never believing in original sin, I see here a repetition of that obnoxious doctrine: born white, you are born more or less a psychopath, or vicious oppressor, etc. I later learned that the Eastern CHurch has a different and older definition of what is called the sin of Adam and Eve: we all bear the consequences of that sin (the cruelty and inhumanity we so easily inflict on each other and, yes, class and racial oppression) but we bear no guilt. We are only guilty of the sins we ourselves personally commit.
We are only guilty of the wriongs we ourselves commit. And those wrongs can be repaired by a non-ego focused acknowledgement of them, a resolution to do those wrongs no more, and action to perform what reparation we can.
Racism certainly exists and is deeply ingrained in our society. So is the easy assumption of superiority by the class of one’s birth, or by “meritocracy.” The wrongs of society need to be explored with a view to advancing justice. A medieval theological approach does not advance justice or challenge the priviliged to stop fcusing on themselves and their guilt and instead focus on social and class realities with a commitment to advance solutions to the wrongs that are there. I favor ecomnomic security for everyonne and access to certtain resources for everyone. in other words, a well regulated social democratic form of a capitalist economy and democratic governance. But other approaches can be discussed, especially ones that assure economic security and the right to govern one’s own life without hectoring form preachers (religious or secular, right or left) within an orbit of relationship and civic obligations.
Dwelling on one’s guilt is a form of egoistic focus on one’s self. Focusing on shared problems and solutions is one way we escape the human dilemma and harm of egoism.
I am sure there are good aspects of critical race theory. But a far better way to confront and work out solutions to our race (and class) problems are avaiiable. Parents need to discover what has been emppiricalluy proven to solve poverty, class, race and police problems and demand that these solution oriented approaches be taught. A good resource, one that catalogs proven effective solutions, is the Shriver Center at the University of Maryland.
We all remember Martin Luther King’s, “I look to a day when people will not be judged by the color of their skin, but by the content of their character.” This humanistic approach, respectful of people of good will from all backgrounds, did not prevent him from seeing the injustices perpetrated on working class people, especially blacks and other not mainstream white populations, and aiming for radical economic reform as a result.
It certainly seems as though the advance guard of the Woke are adhering to the supposed Jesuit maxim : …give me the child for the first seven years and I will give you the man…..
I applaud Mr Gutmann but Iam appalled that it should come to this. This Woke movement is innately stupid, being unable to see that it represents a most illiberal, racist body of people all proclaiming their egalitarian credentials…….irony does not begin to describe this…..
The next hurdle of course will be what University will these well educated young people attend. I cannot imagine a university that would accept them unless they were prepared to conform…….
Due to their lack of achievement, complete reliance on White people, and their own general unattractiveness, only blacks are racist. Only blacks could be.