Bill Ackman wants bailouts of Silicon Valley Bank, theorizing massive repercussions if not. I expect some haircuts, then the world will go on.

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Ackman's View

"The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. .... the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below."

No Bailout Proposals? Really?

Evans said no one was proposing a bailout. He was wrong.

hyperbole? Where?

How Big the Haircuts?

This is a crude way of figuring, but take a look at IEF, the 7-10 year US Treasury fund.

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IEF 7-10 Year US Treasury Fund courtesy of StockCharts.Com

Since July of 2021 (also January 1, 2021) an investor in 7-10 year treasuries is down about 18 percent. 

I suspect that is a reasonable starting point in absence of other details.

Mark to Market Losses

I believe that implies a far smaller loss than what I crudely estimated. 

Pick a range, say 5 percent to 30 percent. That's not the end of the world, even on the high end.

When Will Funds Be Available?

Might I suggest Monday? 

The Fed, Treasury, and FDIC will easily be able to work this out over the weekend with some sort of idea of maximum loss. 

If so, all of the money under the maximum loss scenario will likely be made available early next week, perhaps even Monday.

Silicon Valley Bank depositors undoubtedly understood the risks. And we do not even know the circumstances.

Did SVB promise above market rate interest on deposits? If so, should there be a penalty of chasing yields when you knowingly take risks?

I do not know if that happened but Ackman doesn't seem to care if it did. I expect Silicon Valley depositors to understand FDIC risk regardless. 

Tired of Bailouts and Moral Hazards

A bailout is precisely the wrong thing to do, even though the Fed encourages speculation.

That brings up another valid point. Much of the money Ackman is fuming about was raised precisely because the Fed encouraged speculation.

Had the Fed not done so, the pool of money creating this setup: "(and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation)" would not have been there in the first place. Silicon Valley knew this!

If the Fed makes most of the money available early next week, will any payrolls not be met?

Color me skeptical. 

Expect Criminal Indictments of SVB Top Executives

I Expect Criminal Indictments of SVB Top Executives. Bring it on. And stop the financial Armageddon hyperbole.

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