Bikinis, Garbage Loans, And Fishy Finance

“A 30-year mortgage at Michael’s age essentially means that he’s buying a coffin. Now, if I were buying my coffin, I would get one with thicker walls.” – The Office

Most garbage workers don’t get official training.  They pick it up as they go along.

The Big Solution to the Great Recession was printing lots of money.  I would have (back then) thought that it would have hit the economy all at once.  In reality, what the Federal Reserve® and the Treasury did was send all that money they printed off to the banks.

The banks didn’t lend it.  They kept it on the books, and in fact many of them redeposited their free money with the Fed™.  In reality, the Fed© was scared about was the entire system locking up.  It was pretty bad in 2009 – basic chemicals that were necessary (say, sulfuric acid) for a basic, functioning economy just stopped production.

No one knew who had money, or who would have money.  As one friend of mine noted at the time, “When the tide goes out, you finally see who isn’t wearing swimming trunks.”

My office above a bank, my assets over tens of millions of dollars.

The inflation stayed “within target” for the Fed™, flipping up and down around 2% during the decade following.  Again, with all of the money printed, I expected it to be more, and I still don’t trust the official government figures on inflation since that would be like trusting a used-car salesman on that gently used 1995 Ford Taurus© with only 350,000 miles on it.

COVID was the final straw, though.  People produced less stuff, so there was a lower supply.  The government printed a lot more money and then gave it to everyone, who most definitely didn’t save it, and in fact bid prices up on everything.  Making nothing and buying everything?

Inflation.  Or my ex-wife.

Inflation finally triggered interest rates to go up.  That posed a problem for the banks.  Let’s take me:  I have a small mortgage left on Stately Wilder Manor.  I’m in no hurry to pay it off because I can get a CD for 5.5%, but my mortgage is only 4%.

How did Metallica stop people from pirating their music?  They started releasing garbage.

My mortgage is worth less to the banks now than I owe on it – if I were another bank, they’d sell it to me for less than I owe.  That’s a problem for banks that have exposure to mortgages and didn’t sell them off or hedge them.

It’s not just mortgages – Silicon Valley Bank® decided to invest in lots of long-term bonds and such because inflation had been so low.  Buy a corporate bond yielding 4%, pay depositors 1%, and profit!

But when interest rates started heading upward, the same sort of math as with the bank that owns my mortgage applies – what used to be worth $100 is now only worth, say, $80.  Oops.  When the people who put hundreds of millions of dollars into the bank, money that wasn’t insured, find out?

Bank funs.  Er, bank runs.

And it’s gone . . .

How bad was it?  Of the $172 billion deposited at the bank, only 11% was covered by deposit insurance.  I imagine that there were quite a few tense billionaires like Oprah worried that she’d have to get a job at the McDonald’s® drive through, and how could she resist those perfectly salty fries?

Since billionaires were in danger, the FDIC immediately said, “Rules?  Who needs those.  All money is safe in Bartertown!”

My initial expectation is that we’d see more bank failures right around now as interest rates increased and the piles of garbage on the balance sheets of the banks started to rot.  Instead?  Banks are still (I believe) happily lending money borrowed by the Fed™.

How do they do it?  They manage to do it by having the Fed© allow them to mark their assets to what they paid for them, not what they’re worth.  So, they’re lying.  I’m fairly certain the Fed™ is buying this stuff to get it off the balance sheets of the banks and lending them more money whenever they don’t have enough caviar.

Does the Sturgeon General recommend caviar?

The rot, though, is still there – it’s only a matter of who pays for the rot.  Debt always gets paid, the old saying goes, either by the borrower or by the lender.  I do know of two local businesses that are going bankrupt.  Their debt is what drove the bankruptcy.  My guess is that, combined, they have a debt of a million and a half dollars (or so).  Who will pay it?  In the end, the lender will.

I think that might be at least part of the big jump in debt that the United States owes.  As interest rates go up, Uncle Sam is acting like a raccoon and jumping straight into the trash can to eat the garbage loans and bonds that the banks had to throw out because they were stinking up the fridge.  Here’s proof:

England doesn’t have a kidney bank, but it does have a Liverpool.

Eventually, printing lots and lots of money is like a magic trick the magician does one too many times and everyone sees how it works.  Will it work this time?

Unrelated, frequent commenter Ray notes this Give Send Go.  I’ll let him explain more. GiveSendGo – Loco Needs Divorce from Prostate: The Leader in Freedom Fundraising.

Author: John

Nobel-Prize Winning, MacArthur Genius Grant Near Recipient writing to you regularly about Fitness, Wealth, and Wisdom - How to be happy and how to be healthy. Oh, and rich.

35 thoughts on “Bikinis, Garbage Loans, And Fishy Finance”

  1. This essay reminds me of a story that Carl Sagan (Famous Astronomer) told near the end of his life (as I recall, paraphrased): “When my doctor got the test results back from the lab, he said ‘these can’t be right. You’re still on your feet, leading a fairly normal life. Other patients with results like this have a hard time getting out of their hospital beds.’ But, no, the results were right, and I probably don’t have much time left to live.”

  2. By an amazing coincidence, that $100 billion loss of “real money” at the Fed is almost exactly what it has loaned out to the Banks via the emergency Bank Term Funding Program (BTFP) that was set up to stop a domino effect of bank failures when Silicon Valley Bank went down last March.

    https://cms.zerohedge.com/s3/files/inline-images/bfmBB11.jpg?itok=Ni0ecr9f

    This Fed injection of funds to Banks was in the form of a one-year loan to cover bank losses on their purchase of Treasury notes = money lent to the US Government. There have been three Fed rate hikes to combat inflation since BTFP, which means the Bank Treasury Bond losses have only gotten worse.

    But why worry so much about a measly $100 billion = $0.1 trillion? The federal debt went up by 0,5 trillion in just past three weeks…

    https://schiffgold.com/key-gold-news/bidenomics-national-debt-increases-by-another-half-trillion-in-just-20-days/

    Storms are on the horizon. Somebody gotta buy out the upcoming trillion-dollar-plus 2024 federal deficit Treasury Note auctions as well as an equally large maturing debt rollover. That won’t be the struggling Banks, it won’t be China or Japan, it won’t be Wall Street hedge and retirement funds who see the trouble the banks are in, so that leaves the Fed. Expect the Fed to play Buzz Lightyear very soon…TO 9 TRILLION AND BEYOND!

    https://wolfstreet.com/wp-content/uploads/2023/02/US-Fed-Balance-sheet-2023-02-02-total-assets.png

    It’s all just a doom loop shell game at this point. Enjoy the show.

  3. That figure, that the debt increased by $500B in three weeks, is just a sign that a bunch of bills payable by the Fed Govt were being held until the turn of the fiscal year. It happens every October. Not that it’s a trivial event, by any means, but don’t try to extrapolate it over the next three weeks.
    Did you know that, when the “debt ceiling” limit is approached, one of the things the Treasury does is stop contributing to Federal pensions? When your company stops paying into the retirement plan, that’s usually a bad sign.

  4. When you don’t have “leadership”, what can you expect? The late Sen. Everette Dirksen (R-IL) is soooo out of date. “A billion here, a billion there, soon you’re talking about real money”? It’s now a trillion here…

    Face it, JP will run the presses at sonic BRRRR speed forever. Until the music stops. Argentinian inflation is a surety. TPTB can’t supress Au & Ag pricing forever. FWIW, Clif High sez April 2024 is our Waterloo Moment.

    This ends badly, with or without a Middle East War. To “Onionize” it, I’m more worried about a Middle West Illegal Alien War. OOPS, “Refugee War”.

  5. The virus and vax scams were designed, in part, to destroy the U.S. economy. Mission accomplished.

    Can’t Build Back Better, Reset Paradise, and crush the White Male Patriarchy until the nation (see: White Male Patriarchy) is ‘levelled out’. They’re real good at levelling, building not so much.

    “A 30-year mortgage at Michael’s age essentially means that he’s buying a coffin. Now, if I were buying my coffin, I would get one with thicker walls.”

    Ain’t that the truth. BTW ‘mort’ means death, from the Latin, so appropriate. It reads ‘gage’ but it’s really spelled ‘gouge’.

  6. We took an Adjustable Rate Mortgage six years back for a jumbo loan that we could not afford to mortgage regularly. 4.3% for three years, with first adjustment (Lenders were banking on an increase!) to whatever the rate would be, then adjusting every five years thereafter to the published rates. The caveat was that our payback rate could never increase more than 2% at a time and no more than 8.3% in total. I can see why banks are very nervous, we are now at 2.3% annual until 2025 when rate can only increase to the original 4.3%! We WIN! (we are taking advantage of the low interest, we are now over 75% paid down) Hope to pay off before the monetary shipwreck happens so we can remain in our home before Blackrock takes possession of our mortgage and forecloses on us.

    1. Don’t worry, The Powers That Be will take away your hair-thin opportunity to survive. At that point, you will need to decide if you are jumping into the Soylent Green food grinder, or refusing to jump into it. Might I suggest stockpiling ammunition in advance of that decision point?

    2. Good for you. But they’ll eventually try to inflate the currency so the taxes are bigger than the original mortgage.

  7. The only good thing about hyperinflation is that it makes your fixed rate mortgage look really small, a decade later.

    1. And it’s been clearly shown that real inflation is usually about twice the Government approved figure…but in the Depression real estate prices collapsed…

  10. On the bright side, the Pedo Joe team is proposing making it easier for illegals to get mortgages. I am sure that won’t blow up spectacularly or anything.

      1. I look forward to the Sheriff’s auctions after the invaders are deported or otherwise removed. Of course, many (most?) of them destroy the property first, so that is a potential down side.

  11. Only because John said it was okay. Here’s the book blurb of my memoir My Cancer Journey: Stage 4 to Cured.

    In May of 2021, I was diagnosed with Stage 4 prostate cancer. I had joined the men’s club that no man wants to join.
    Prostate cancer is the second most frequent cancer diagnosis made in men and the fifth leading cause of death worldwide.
    This is my story of trials and tribulations of cancer treatment with a surprising alternative cure.

    Here’s the link:
    https://books2read.com/b/MyCancerJourney

    If you have cancer or have a loved one who has cancer, then this book is for you.

    2. There are two kinds of prostate cancer. The slow kind, which will kill you when you’re over 130 years old (which 95% of men over 60 have), and the fast kind, which will kill you in a year or less.

  12. There is a problem when a “good” paying mortgage is a drain on a bank’s books….weimar is right around the corner folks

  13. John, I am not a smart man, but making 3.25% in interest (my current 30 year rate) but having to pay out 5% to 7% seems like a quick way to lose money. To be fair, I am a back country hick and not knowledgeable in the ways of finance.

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