@WABAC

But the chance for an average saver to get a safe return of 5-6% on their money will raise Maggie Thatcher from the dead, legitimize neocolonial revanchism, bring back the Cold War order, destroy unions that no longer exist, and, wait for it, throw people out of work.

Never said any of that, merely pointed out as the article did that the Volcker cure for inflation wasn't all that, and had definite negative consequences. Nor can it be said that only one group of people wants lower rates. Most poor people in the U.S. have little to no savings to collect interest on, and actually have more variable-rate credit card debt that increases their burden as rates rise:https://bankrate.com/banking/savings/emergency-savings-report/#over-1-in-3

Over a third (36 percent) of people have more credit card debt than emergency savings, the highest percentage in 12 years of Bankrate asking this survey question. In comparison, 22 percent of people had more credit card debt in January 2022, while 28 percent of people had more credit card debt in January 2020, before COVID-19 began to affect the U.S.

Ultimately, rate cuts are economically stimulative while raising rates constricts. There needs to be consideration on both sides of the consequences. And you yourself by acknowledging labor has little power today compared to the 1970s have pointed out the reason we shouldn't perhaps be too fixated on raising rates too high.
Given the choice, I would rather see targeted fiscal stimulus than monetary stimulus to help the specific areas of our economy that are struggling via government programs, and tax hikes to constrict things when we get overstimulated. But there are obvious political roadblocks to fiscal stimulus. Interest rates are a blunt instrument that helps and hurts multiple parties.
As for SVB, I am fine with making all depositors whole just so long as the rich people getting bailed out stop complaining about the "moral hazard" of helping poor people. Moreover, the capital standards from Dodd Frank need to be restored and SVB should be nationalized, and the government collect all future profits to give back to taxpayers.

Apparently something broke in the banking sector not just in US…
Excerpt from article:

In recent days, a crisis in the financial sector has centered around regional banks as Silicon Valley Bank and Signature Bank collapsed, both casualties of poor management in the face of eight interest rate hikes by the Federal Reserve in the last 12 months. Wednesday morning attention turned to the big banks with shares of Credit Suisse hitting an all-time low.
Saudi National Bank, Credit Suisse’s largest investor, said Wednesday it could not provide any more funding, according to a Reuters report. This comes after the Swiss lender said Tuesday it had found “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022.
As Credit Suisse dragged down the European Bank sector, U.S. big bank shares declined in sympathy. Citigroup and Wells Fargo shed 3%, while Goldman Sachs and Bank of America fell 2%. The Financial Select Sector SPDR Fund lost 2.9% in premarket trading, giving up its 2% pop on Tuesday.
Regional Banks, whose rebounded helped lift sentiment for the broader market on Tuesday, fell back into the red again. The SPDR S&P Regional Banking ETF (KRE) was down 3% in the premarket, led by losses in Old National Bancorp, Zions Bancorp and Fifth Third Bancorp. To be sure, shares of First Republic Bank were clinging to gains.

https://cnbc.com/2023/03/14/stock-market-today-live-updates.html
From Reuters:

Credit Suisse on Tuesday published its annual report for 2022 saying the bank had identified "material weaknesses" in controls over financial reporting and not yet stemmed customer outflows.
Switzerland's second-biggest bank is seeking to recover from a string of scandals that have undermined the confidence of investors and clients. Customer outflows in the fourth quarter rose to more than 110 billion Swiss francs ($120 billion).

https://reuters.com/business/finance/credit-suisse-shares-drop-fresh-record-low-cds-widen-2023-03-15/
Oakmark funds sold their remaining shares last week.

@hank, I grew up with the irresolute response to the last inflation. I don't want to spend what could be the rest of my life going through that again

@WABC -You weren’t pleased with Nixon’s 1970 wage & price freeze? :)
I was pretty irresponsible with money 50 years ago, so I doubt any Fed policy would have helped. Fortunately, we had a strong labor union where I worked and so wages kept up with inflation. With annual raises based on seniority, I stayed ahead of inflation. I do not remember a lot of public yelling and screaming about it in the 70s. It crept up on us slowly; started creeping up bit by bit in the 60s. Once we went off the gold standard (‘71) it quickened. For the most part we took inflation in stride as part of life. In Michigan the “Big Three” auto plants were still humming. The unionized workers there did very well. Could afford to own nice new vehicles and suburban homes. Some even owned second homes in the northern reaches of the state.
While I contributed automatically to a 403B from my pay, I wasn’t really attuned to investing. But left alone the global equity fund (run by John Templeton then) did quite well and paved the way for the future. A gold & silver craze developed in the late 70s. There was tremendous media hype as the price of gold soared from $35 a decade earlier to around $800 an ounce. I grabbed off a couple K-Rands near the top and watched it slide to $400-$500 over a few years before selling. It was the best lesson in investing I ever received. And the Hunt Brothers somehow managed to buy enough silver back than to push the price over $50 an ounce - an astronomical height it has never reclaimed.
Whatever we’re facing now by way of inflation is mild compared to the 60s thru 80s period. And I think the Fed for reasons I don’t fully understand is engaged in some serious overkill. Throwing the baby out with the bathwater might apply.
A blast from the past
”With inflation on the rise and a gold run looming, Nixon’s administration coordinated a plan for bold action. From August 13 to 15, 1971, Nixon and fifteen advisers, including Federal Reserve Chairman Arthur Burns, Treasury Secretary John Connally, and Undersecretary for International Monetary Affairs Paul Volcker (later Federal Reserve Chairman) met at the presidential retreat at Camp David and created a new economic plan. On the evening of August 15, 1971, Nixon addressed the nation on a new economic policy that not only was intended to correct the balance of payments but also stave off inflation and lower the unemployment rate.
The first order was for the gold window to be closed. Foreign governments could no longer exchange their dollars for gold; in effect, the international monetary system turned into a fiat one. A few months later the Smithsonian agreement attempted to maintain pegged exchange rates, but the Bretton Woods system ended soon thereafter. The second order was for a 90-day freeze on wages and prices to check inflation. This marked the first time the government enacted wage and price controls outside of wartime. It was an attempt to bring down inflation without increasing the unemployment rate or slowing the economy. In addition, an import surcharge was set at 10 percent to ensure that American products would not be at a disadvantage because of exchange rates.
Shortly after the plan was implemented, the growth of employment and production in the United States increased. Inflation was practically halted during the 90-day wage-price freeze but would soon reappear as the monetary momentum in support of inflation had already begun. Nixon’s new economic policy represented a coordinated attack on the simultaneous problems of unemployment, inflation, and disequilibrium in the balance of payments. The plan was one of the many prescriptions written to cure inflation, which would eventually continue to rise.”
Source

@WABC. I have posted before about our experiences in the last time of very high inflation. We were young, sorta dumb, childless, without any equity investments, had money in the bank and rental properties in the best( luckiest ) location possible. In retrospect it was all blind luck. It was the best of times as we spent three years sailing in the sea of Cortez. The bigger take away from this is that people’s circumstances are highly individualized. And the ability to be flexible and open can be very powerful. And be lucky.

krugman, smartly argued piece, is not much in alignment w my fussy thinking:
... there are good reasons to feel uncomfortable about this bailout. And yes, it was a bailout. The fact that the funds will come from the Federal Deposit Insurance Corporation — which will make up any losses with increased fees on banks — rather than directly from the Treasury doesn’t change the reality that the government came in to rescue depositors who had no legal right to demand such a rescue.
Furthermore, having to rescue this particular bank and this particular group of depositors is infuriating: Just a few years ago, S.V.B. was one of the midsize banks that lobbied successfully for the removal of regulations that might have prevented this disaster, and the tech sector is famously full of libertarians who like to denounce big government right up to the minute they themselves needed government aid.
... Adam Smith ... called for bank regulation, which he compared to the requirement that urban buildings have walls that limit the spread of fire.
https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=116&emc=edit_pk_20230314&instance_id=87696&nl=paul-krugman&productCode=PK&regi_id=22268089&segment_id=127769&te=1&uri=nyt://newsletter/d34a70ea-8e6e-5785-a915-260c60335e86&user_id=83d45440ead1d14c2a89a1e7221337d1

@hank

But you might make an argument that inflation harms the wealthy more than the working class.

There are a number of I think mistaken assumptions in your post. One is that the wealthiest keep most of their money on deposit. The more money someone has, the more risks they can take with that money to keep up with inflation. It is the middle class and poor who need to keep most of their assets in bank accounts, not the wealthiest, as the middle class and poor need to have liquid capital in case of emergencies. A wealthy investor can afford to tie their money up for several years in far less liquid but very lucrative investments with returns that exceed inflation.

On the other hand, if you have lots of debt (assuming at a fixed-rate) you are helped by inflation as you pay back the debt with cheaper dollars.

That assumes the poorest people's wages keep up with inflation. That is often not the case as the unskilled or low-skilled labor have the least bargaining power when it comes to wages. If you're not making more money to pay back the fixed amount of debt, that doesn't work. Moreover, much of the debt poorer people often assume like credit card debt is often variable rate that rises with interest rates and inflation.
The poor spend almost all of their wages on items they consume, and the prices of those items are going up. They have no means of saving in ways that can keep up with inflation.

I only mention this because M* typically wears rose-colored glasses . . .
Here's a taste. No sugar.
https://www.morningstar.com/articles/1144082/why-investors-should-care-about-the-banking-scare

It’s easy for investors to dismiss the ripples from the collapse of Silicon Valley Bank SVIB as contained and nothing to worry about when it comes to a broader portfolio.
But if there’s one thing to know about banking crises, it’s that they are never just about the banks. They may start there, but they don’t end there. Easy financial conditions tend to lead to higher risk-taking and a complacency that long-established patterns will continue. Until they don’t.
As Warren Buffett has been known to observe, only when the tide goes out do you see who’s been swimming naked.
The Worry Is Fear
The failure of two major regional banks since Friday threatens to erode investor and consumer confidence to a degree that could spiral in unexpected ways. And with inflation still raging at the highest levels in 40 years and the Federal Reserve raising interest rates at the most accelerated pace since those years, things are starting to break.
“The worry is about fear,” says Tim Murray, capital markets strategist for multi-asset portfolios at investment manager T. Rowe Price.
In good times, too, policymakers get lax and tend to feel like it is safe to repeal or reduce important protections designed to prevent systemic events and consumer safeguards.

My grandfather used to say the business cycle was driven by how long it took to forget lessons learned the hard way. He rolled up banks working for The Comptroller of the Currency during the Great Depression.
Ah, the good old days, when depositors money was vaporized.

@BenWP
Fair point you make from where I'm sitting. Reminds me of what kudlow said a while back about all the quant etc funds. "they all work until they don't when you need them to" or something close to that
I do hold but likely going to sell out of blndx and fortx. Maybe these guys models read the trend right in energy and bonds going down the last few years and backwards looking spiffy but those trend reversal moments are hard to digest as you refer to. Not sure how they'll perform going forward. Please don't even mention mafix. Ouch
I'm going to take those monies and put it into more pmefx and maybe tsumx. Really like the fund manager cippolini at Penn. Working class guy who went to Drexel after junior college. Rhymes with my background.
Ymmv. Good luck to you and good health to you and yours
Baseball fan

Unbelievable "analysis."
I subscribed to Forbes years ago.
This publication has really declined over time.

I bought some SCHW at 51+ this morning. I had considered it on Friday but decided to see how the weekend went. It touched 45 early this morning, but I spent some time looking for data and opinions before pulling the trigger.
I'm somewhat nervous about taking this position, because this is not an industry I've followed (even though I've had some BAC for years).
Everything in the financial industry has been tarnished. I considered adding to my AXP position (down about 10% in the last month) but don't really see this as a big buying opportunity (yet).
CNBC has had some interesting guests through the day. Brad Gerstner of Altimeter Capital for one.
The world of big banks seems much more complicated than the banking issues most of us have encountered in our lives. So their "governance/regulation" is pretty complex.
Like many other "large" issues in our economy, there are often no easy answers.
David

Thanks @LewisBraham - Didn’t intend to sound critical of anyone. I read Grantham quite a bit 12-18 months ago and learned a great deal from him. Helped prepare me for the onslaught later on in mid ‘22. It’s just that watching all the different global & domestic assets move around today highlights the value of a broad perspective.
To your later remark - I actually considered attaching a proviso to the S&P remark along the lines of what you mention. Will we be a democracy in 35 years? Will workers still have the means to invest in the S&P or anything else? Will the atmosphere be fit to breath?

Actually, Grantham's models generally include other kinds of stocks besides the S&P 500 and other asset classes in general, although he doesn't always talk about them in more macro interviews. So, I wouldn't call his view of investing narrow.
That said, I'm not sure how anyone can say with absolute confidence that "over the next 35 years an S&P index fund should do just fine." That assumes market, economic and political history just repeats. I wonder if someone asked you, "Do you think over the next 35 years the U.S. will remain the dominant global economic superpower?" if your answer would be as confident. And the two questions regarding future market performance and national performance are connected.

I think in Grantham's case, given the models he uses, it's safe to assume he is referring to U.S. large caps, i.e., something akin to the S&P 500 or Russell 1000.

And pity those with such a narrow view of investing. Unless you’re 25 and DCA’ng into a 401K every couple weeks. Over the next 35 years an S&P index fund should do just fine.

Depositors with big cash holdings are – reasonably – expected to be aware of the risks and spread their cash around several institutions. Businesses backed by venture capital, such as the customers of SVB, ought to have been advised how to manage their liquid holdings.
... the sight of depositors being made whole ... provides a disincentive for both depositors and banks to be prudent. There’s no reward here for SVB customers who banked more carefully.

https://www.washingtonpost.com/business/2023/03/13/svb-crisis-backstop-revives-the-specter-of-moral-hazard/bb2731c6-c188-11ed-82a7-6a87555c1878_story.html
As I wrote above, I take a darker view. It's not just the presence of reward (higher returns) but the absence of punishment that's a problem with risky deposits. There's no penalty (loss) for large depositors to be reckless with their savings.
However, it's not every bank failure that gets protection. It's not automatic. It's just the banks that take the most outrageous risks and lose that are directly protected by the government. On infrequent occasions, uninsured depositors lose money. That happens when a failed bank is not TBTF, but the the FDIC can't find a buyer that will assume all of the bank's deposit liabilities.
https://www.fdic.gov/bank/historical/bank/
This unequal treatment has its own problems, as discussed in this 1990 paper (near the end of the quoted section):

A good first step... would be to cease the present practice of fully paying out uninsured depositors when bank failures occur. This practice, of course, is de facto insurance [emphasis in original] ... Paul Duke, Jr. reports that "many [bankers] support proposals to give depositors a 'haircut' a 10% of 15% loss on deposits above the [FDIC insurance limit] — when a bank fails. Two of banking's biggest guns, Citicorp Chairman John Reed and Chase Manhattan President Thomas Lebrecque, support variations of this proposal (WSJ, Aug 3, 'S9, A16). ... Such a shift in policy should not encounter insuperable opposition since it falls far short of enforcing the insurance limitations which legally already exist.
Since the Continental Illinois bankruptcy the federal banking and S&L authorities have adopted a too—big—to-fail policy. The policy is closely related to the unwritten policy of rescuing any faltering American corporation if it is large enough. The most notable cases so far have been Continental Illinois and Chrysler.
...In the beginning this de facto extension of coverage only applied to the banks and S&Ls which were large enough to have a wide financial influence. ... only the eleven largest banks were originally covered, hence the designation "too-big—t o—fail". The government however was rightfully criticized for this policy on the grounds that it put smaller banks at a competitive disadvantage, so, to correct this inequity the government has for several years made it a general policy to pay off all depositors in both large and small failed banks.

https://scholarworks.umt.edu/cgi/viewcontent.cgi?article=10130&context=etd

I say let SVB fail &stick to the $250k cap..Sickens me that these bank execs take huge risks & suffer none of the consequences. And love that they paid bonuses out just hours before the collapse. Gov't should clawback all that & all the bonuses & compensation from those in charge for the past 5 years at least. Only way they're gonna learn is if you hit them in their pockets instead of us little guys.

@hank With a lot of threads today, tis like reading a short book here.
I'll add this back from a previous post regarding the 2008 TARP program.
Note: these 'loans' did carry interest and was expected to be repaid to the Treasury. The Treasury did have a profit when all was settled and done from the various loans.
The Troubled Asset Relief Program (TARP) was instituted by the U.S. Treasury following the 2008 financial crisis. TARP stabilized the financial system by having the government buy mortgage-backed securities and bank stocks. From 2008 to 2010, TARP invested $426.4 billion in firms and recouped $441.7 billion in return.
---Perhaps the Treasury will have some profit for the efforts. :) I don't know the terms of the 'bail' monies.
Flashback: During the GFC, Bloomberg and CNBC became all-nighters. No info-mercials, etc. 24 hours of everything! SO, if what started Friday could have become systemic; then the actions taken were intended to deliver a full punch here and now. One can only imagine the meetings, phone calls and data crunching of banking records/data. Although, I watched Ms. Yellen this morning state that there would not be a bailout.
NOW, how about a full audit (any organization that is involved with the any form of banking in this country, plain and clear text without any of the cockeyed and perverted auditing standards that have taken place over the years) available to the public every month, online for free.
Overview: Still better than China, and that we have a 'form' of 'rule of law', as perverted as it may be.
Good evening.

@catch22- As you would know from our conversations over the years, I have no tolerance for government rescue of institutions or businesses that get into trouble due to stupidity or greed.
But it's painfully obvious that in today's financial environment there are certain types of businesses that have a need to maintain very large amounts of cash which is readily available for deployment on short notice.
It's absurd to leave our entire financial and banking system open to the inevitable mismanagement which is guaranteed to occur from time to time, and which then repeatedly threatens the entire financial system. I believe that we need to provide a safe place for businesses to easily and safely deposit large amounts of money without requiring those businesses to fend for themselves in managing those deposits.
To characterize such an arrangement as a "government takeover/nationalization" is ridiculous, when for all practical purposes that is exactly what the government is now forced to do in any case, to save the rest of the system from self-destruction.
< end rant />

How can anyone trust Wells Fargo after multiple trangressions committed over many years?

Although it could be inside information, more likely the previous decline before the SVB news had to do with rate hikes and Wells Fargo layoffs:
https://seekingalpha.com/news/3945059-why-did-wells-fargo-stock-drop-today-fed-chairs-comments-hit-bank-stocks-hard

Bank stocks, particularly, were hit hard, with the KBW Nasdaq Bank Index (BKX) slid 3.9%. Among the biggest U.S. banks, Wells Fargo (WFC) sank the most, -4.7%.
While banks often benefit from higher interest rates, in that they are able to collect more interest from the loans they provide, the demand for loans declines as it becomes more expensive to borrow. With higher rates, specifically, demand for mortgages also tumbles. And if the Fed tightening leads to a recession, defaults on loans will increase.
Wells Fargo (WFC) has been one of the biggest mortgage lenders for years, but is scaling back its presence in the sector. The bank reportedly laid off hundreds of mortgage bankers this week and it aims to create a more focused home lending business.
At the same time, banks will also be pressured to pay more interest on deposits as account holders shop for the best rate.

I just received this from First Republic Bank:

To Our Valued Clients,
In light of recent industry events, the last few days have caused uncertainty in the financial markets. We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.
Our capital remains strong. Our capital levels are significantly higher than the regulatory requirements for being considered well capitalized.
Our liquidity remains strong. In addition to our well-diversified deposit base, we continue to have access to over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank.
We are here to fully serve you. We stand ready to process transactions and wires, fund loans, answer questions and serve your overall financial needs — as we do every day.
For almost 40 years, we have operated a simple, straightforward business model centered on taking extraordinary care of our clients. We have successfully navigated various macroeconomic and interest rate environments, and today we have among the industry’s highest rates of client satisfaction and retention.

FWIW...