HAVE YOU PREPARED FOR SUCH A TIME AS THIS?

Oh Countrywide, Is That Your Ghost?

Bear Stearns is not the banking system -- it is contained.

Subprime is contained.

"We're gonna OWN subprime lending -- Mozilo"

Uh huh.

Who remembers me over on the Countrywide Yahoo finance forums back in 2007 before it all blew -- when I was shorting into price ramps on that stock because from where I sat they were a zero.  They were a zero.  It was a nice trade.

Who remembers me calling out WaMu in early 2007 when they were paying dividends with money they didn't have, and regulators did nothing?  That article is still here, if you look for it.  They were also a zero.

But First Republic is isolated, just like SVB.  Uh huh.  Sure it is.

How's PacWest doing?

Oh, not so good.  Let's see...oh, looks sort of like an impending zero.

But wait -- First Republic was it, right?

Sure it was.

There's no real problem here, right?  The TNX was down a full percent yesterday because..... the Fed will save it all, right?

No they won't.

Not because they don't want to.

They can't this time.

Oh, you think not eh?  How's your homeowner's insurance premium?  Your car insurance?  Your food bill?  You know, all that stuff you have to buy?  Yeah, you're reading this and you're probably middle class or better.  You're doing mostly ok.  You're on the right side of the bell curve, right?

Half the people are on the left, and they're not ok.  For them that 20% increase means they are taking payday loans to buy food, effectively and sometimes literally.

That ends the game folks.

If The Fed tries it we get government and social collapse.

The ramp in asset prices can't just stop: It has to come back out.  All of it.  And yes, that will mean lots of firms -- and people -- blow up.

This is not fixable with any sort of deposit guarantee.  That's not the problem.  The problem is that the banks loaned out a lot of money at 2% and thus can't pay 4% or so or they will go broke.  But other, equally safe or more-so investments do pay that 4-5%; for example, a government money-market fund that has daily liquidity equal to that of a bank and only holds US Treasuries.

Having made those loans at uneconomic rates in the first place there isn't anything they can do about it now.  As was the case in 2006-2007 and which I pointed out in Leverage losses are made when bad loans are originated; they are often not recognized at that time but the loss has been incurred.  What's left to argue over is who is going to eat it, and unlike the 2008 blow-up trying to force the general public to eat it will not work because they are already under the inflationary pressure from the BS run during the pandemic that led to the problem and trying to force the rest of it on the public will cause enough of them to starve that a revolt is quite likely.

Clip 1 from "Star Trek: The Wrath of Khan"

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