Apr 1, 2023Liked by Joseph Politano

Very sobering article but informative.

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Excellent post-mortem of the Signature Bank situation which indeed has been overlooked. Well done.

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Apr 2, 2023Liked by Joseph Politano

Very interesting post-mortem dissection of two major banking institutions. Hard to imagine how nobody anticipated what was coming nevertheless. Thanks Joseph!

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Yeah, this one was under discussed. Excellent coverage!

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What’s interesting is what we are seeing in real time this year is what won the economic Nobel Prize last year.

I haven’t looked much into Signature Bank, so thanks for the write up.

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Change in topic: Inflation.

It appears that PCE inflation is concentrated in 4 areas:

Housing - there's a 12+ mo measurement lag. That inflation already came and went. and the lag undercounted actual inflation 12-24 months ago.

So actuall high inflation is mostly in: Transportation services (airfare, car rental, auto repair), Recreation, and Food & Hotels. All 3 were the most punished by Covid, and have low cost employees who found jobs elsewhere like Amazon. Demand for all 3 service areas increased from dismally low areas, but all 3 also cut their capacity in many ways. It is also here where wages are increasing the most to entice employees back. Is this inflation really about excess aggregate demand, or is this just the echo of Covid?

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Thank you!

Your coverage on the banking crisis has been amazing.

I’d love to see analysis on how Signature’s profile matched up with the likes of First Republic and PacWest.

You make a very clear case for why this made sense, but there were multiple other similar banks that did get to open.

That analysis is going to be extremely interesting when it gets done.

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All banks are leveraged 10+X with short term liabilities (deposits), so ALL banks rely on depositor confidence. Many large banks have high uninsured deposits, many have big HTM losses. Seems like CRE and crypto are the 3rd strikes.

Regulators need a narrative that these banks failed because of bad management because the more troubling story is that most banks lost a lot of liquid capital because they had huge mortgage refinances gave them trillions of cash to invest somewhere with a positive yield (not T-bills @ 0.1%), and so bought T--notes, T-bonds, and MBS at high prices because they were competing with the Fed's $4T QE purchases. Then inflation comes, and the Fed forgets about their original financial stability mandate, and for some reason about the massive HTM losses on their own bond portfolio, and in the FDIC's insurance portfolio.

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Very nice recap here Joseph. It simply goes to show that capital is important, but confidence is everything. If we do head into a hard economic Landing, I suspect that there may well be quite a few more banks that lose the confidence of their lenders/depositors

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