”I'm living so far beyond my income that we may almost be said to be living apart."— e.e. cummings
My son bought this shirt on Ebay for $23 bucks:
A chic buy, no doubt, as the shirt could become a collector’s item. The name First Republic is tainted. JPMorgan is not going to call it that anymore; they’ll likely assimilate it in the Morganverse like the Borg.
“LMAO,” responded our best copywriter, “it reminds me of the Enron shirts from back in the day.”
“This is my first credit cycle,” my son quipped back. “I’m enjoying myself.”
You can still get the First Republic shirt at a bargain… and commodify failure yourself!
Back to the story… “lack of financial oversight”… That’s what they’re calling it; the river running through the collective failures at Silvergate, Silicon Valley Bank (SVB), Signature and now First Republic.
We’re only a tad over a month into this regional banking crisis and we’ve seen the collapse of the three good agents. Their combined assets were larger than the 25 banks that failed in 2008, including Washington Mutual, the largest bank failure of the modern age. The 25 banks that collapsed in 2008 comprised $373 billion.
Moving from an 0% interest rate, inflation-inciting, era into a recession-inducing 5% over the past year has proven even more costly–putting $548 billion among SVB, Signature and First Republic into receivership or outright fire sale.
Inflation plays a role in the valuations, but still, crazy numbers have been racked up very quickly.
You have to wonder what kind of bankers could put a tie on and go to the office each day and still be unaware of the Fed’s aggressive rate hikes.
Those who “lack financial oversight,” apparently.
With yesterday’s move by JPMorgan, the largest bank in the world has become, well, even larger, by up to $1 billion in annual income… a deal backed by $13 billion from the FDIC’s warchest.
Prior to the deal, JPMorgan Chase already represented the 5th largest GDP in the world.
That is, if the institution were a country and not a private bank. Only the economies of U.S., China, Japan and Germany are larger. A behemoth private bank with more clout than the UK and France… What could go possibly wrong? It puts Jamie Dimon in an interesting, unelected, “too big to fail” position worth paying attention to.
As juicy as those details are, we think the story is much bigger than aggressive Fed hawks and witless regional bankers.
The real story begins over a year ago with Alameda Research and the bankruptcy of the crypto exchange, FTX. We intend to explore the connection between Alameda, FTX and the two “stablecoins” Terra and Luna this week.
We may even begin our inquiry as far back as the Dutch Tulip Bubble, Mississippi Scheme and the South Sea Bubble in the early 1700s. To reference Dr. Marc Faber:
The bubble model always involves a ‘displacement’ which leads to extraordinary profit opportunities, overtrading, over-borrowings, speculative excesses, swindles and catchpenny schemes, followed by a crisis during which fraud on a massive scale comes to light, then by the closing act during which the outraged public calls for the culprits to be taken to account.
In each case, excessive monetary stimulus and the use of credit fuels the flames of irrational speculation and public participation, which involves a larger and larger group of people seeking to become rich without any understanding of the object of speculation.
There’s a remarkable similarity to all booms and busts throughout financial and economic history. Most begin with the introduction of a new technology or invention that inspires the imagination. Then leads to mania.
The firms Alameda Research and trading platform FTX and their concomitant culprits fit this narrative to a “T”… that’s a capital T.
It’s really quite a story. And somewhat delicious that, having studied booms and busts of the past, we have our very own history-making story unfolding right before us.
So it goes,
The Wiggin Sessions
P.S. Today is the official pub date for Demise of the Dollar: From the Bailouts to the Pandemic and Beyond. I’d be grateful if you could give it a once-over and consider purchasing a copy. You can do so, right here.
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by Consilience Financial, in March 2020. He films from a homegrown studio in his basement.