Two of the largest bank failures in History happened this week but before we Talk about why I have a question why is Jim Cramer so good at being so bad at His job just months before they both Collapsed he said this these are never Ever talked about why because they're Too boring I like to make money boring Is good watch out for Signature Bank That's my fave SBB Financial don't you Want this copy is a merchant bag with Deposit base the Wall Street have been Stankly concerned about this morning we Witnessed the second largest bang Failure in American history which Actually created a wave of fear As the day went on hence the Dow Ultimately losing 345 points SMB 41.45 In the NASDAQ tell me 1.76 percent And I have to admit he has a way with Sound effects now I understand why they Call it Mad Money But there is one thing Jim Cramer isn't Wrong about which I know is shocking Fear is in the air and many are worrying Is my bank safe so today I thought we'd Break it all down the recent collapses Why the government has announced a Special bailout why some people are Happy with it and others are mad and of Course what's next let's start with the Facts Three major banks in the United States Have failed in a short period of time
Silvergate signature bank and Silicon Valley bank now silvergate was the Smallest with about 11 billion in assets Signature was like the mid-sized one and Silicon Valley Bank was the largest now Silvergate and Signature Bank were well Known in the crypto space while Silicon Valley Bank was massive in the tech Startup World however despite their Differences these banks failed for Similar reasons at a high level which is This they all experienced a run on the Banks when too many people demand too Much money too fast and the banks don't Have cash on hand now I want to make Something clear it would be easy to draw The comparison to the crypto crash in 2022 when several crypto companies like FTX collapsed but there's an important Difference companies like FTX were Insolvent when there was a run on their Banks they had no money to to give Whereas the banks were talking about Were illiquid meaning they had the money But when they had the bank run some of It was locked up in long-term assets Like bonds now to be clear these are not The same things at all but things can Get a little fuzzy in the details for Example when a bank run happens what can Start as a liquidity problem can become An insolvency problem if the bank has to Sell what they have for cash and let me Explain one of the safest Investments is
Considered to be treasury bonds your Grandparents probably invest in it Banks Invest in them both for the same reason They they provide a stable rate of Return so say your signature bank right You've got billions of dollars in Customer assets where do you put it well In the treasury Bots which let's say Earn you one percent a year you keep Some cash on hand for withdrawals but You figure look if I need to sell these I can sell my bonds right but what Happens if interest rates rise really Quickly well suddenly you have this Five-year Bond you bought a year ago Which gives you one person a year but Now the government is selling the same Five-year Bond and offering five percent Because of that now your bonds value on The open market drops it's no longer Even worth what you paid for it because It's giving less interest than other Bonds and so if you try to sell that Well now you lose money now to be clear If you held the bond to maturity well You would still make that one percent And not lose anything but when Depositors are asking for cash it's Simply not an option to hold on now I Know that seems complicated but the Essence of it is this Banks were forced To sell long-term assets that they Didn't want to sell like bonds and they Took losses because of these Bank runs
Because of that what started as a Liquidity crisis became an insolvency Crisis and that's why they got shut down Because they weren't going to be able to Service all those withdrawals so now What right doesn't the government Guarantee Bank deposits why are we even Talking about this well They kind of do the FDIC insures up to 250 000 per account however at places Like Silicon Valley Bank they had a lot Of accounts with a lot more than that Because as we spoke of they hosted a lot Of venture capital startups that might Have had anywhere from 10 to 50 million Dollars in there and suddenly that Company which was healthy yesterday now Can't get access to that money and can't Meet payroll because their bank had Failed and this triggered a huge Response from many in Silicon Valley to Call for depositors to have their money Guaranteed with people like Jason Calacanus saying you should be Absolutely terrified right now that is The proper reaction to a bank run and Contagion guarantee all deposits up to 10 million or this will spiral into Chaos and comments like this sparked a Huge debate on whether the government Should or would get involved ultimately With the answer coming on Sunday when The U.S treasury said this quote Depositors will have access to all of
Their money and there you have it the US Government is stepping in to save not Only Silicon Valley Bank but also Signature Bank as well they did this Citing a systemic risk exception which Really boils down to a single idea uh Please don't panic guys please don't Please don't take out your money Ultimately the US government doesn't Want you worried about your bank Deposits however not everyone saw this As a win many were quick to point out That once again the government only Seems to step in to help a certain type Of person quote Mark Cuban bailout Silicon Valley Bank tonight feds Approved Goldman Sachs needs 824 billion Approved JPMorgan Chase needs 416 Billion approved Average Joe my wife has Cancer can we get Medicare we're broke Now I do have to tell you that those in Favor of the fed's actions will tell you That this is an unfair characterization That it's not the Super Rich getting Bailed out they'll point out that this Isn't a traditional bailout at all Because it only applies to the Depositors and that Executives and Shareholders will get nothing and that Sounds good except for the fact that Some Executives and shareholders in Silicon Valley Bank had already cashed Out with Greg Becker the CEO selling 3.6 Million dollars worth of his shares
Right before their collapse and this Gets even worse when you consider that Greg Becker was one of the people who Lobbied to deregulate his own bank According to Heather Landy of course Quote the ability of these Banks to fly Under the radar in the US was no Accident Greg Becker svb CEO lobbied U.S Officials several years ago to raise the Asset Threshold at which banks would be Considered systemically important so Let's get this straight They faced less regulatory scrutiny Because they weren't systemically Important according to them but when Everything goes wrong they're Systemically risky and must be bailed Out it's a classic case of wanting it Both ways now again this isn't the same As the full bailouts we saw in 2008 and Regardless of whether you land on Whether there should have been or should Not have been a bailout the idea that Systemically risky Banks should get Special treatment and regular Banks I Guess don't sends a pretty clear signal If you're rich you should move your Money into banks that are too big to Fail otherwise you run a systemic risk Of ending up on Jim Cramer feeling like This