Silicon Valley Bank, Silvergate and “The Everything Bust”
“The pressure on banks will rise”
by Bob Stokes
Updated: March 14, 2023
The phrase "Everything Bust" means a bust in just about every financial risk-asset of which you can think, as well as the economy and, I dare say, the financial system itself.
Indeed, in a section titled "The Everything Bust Is on The Way," our December Global Market Perspective noted:
The pressure on banks will rise as the economy heads south.
And, now, we have these headlines:
- Silicon Valley Bank Fails After Run on Deposits (The New York Times, March 10)
- Crypto-focused bank Silvergate is shutting operations and liquidating after market meltdown (CNBC, March 8)
Silicon Valley's collapse was the biggest bank failure since Washington Mutual in 2008 and the second largest bank failure in U.S. history.
Many of those on Wall Street blamed the bank failures for triple-digit declines in the Dow Industrials on the day the news came out. However, the real 'bust" in the Dow Industrials and S&P 500 began a year earlier, in January 2022. It reflected a downturn in a social mood; today's bank failures have the same roots that stretch back months and months. And since social mood is showing no signs of improvement, it's likely not over.
The "Everything Bust" is on -- in stocks, real estate, bonds, the world of crypto, SPACs (a.k.a. special purpose acquisition companies) and elsewhere in the world of finance, including the subprime auto market.
This chart and commentary are from our March Global Market Perspective:
The percentage of subprime auto borrowers who are at least 60 days late on payments surged to 6.05% in December, more than double the seven-year low of 2.58% recorded in April 2021, and eclipsing the peak reading of 5.7% during the Great Recession of December 2007 to June 2009.
As a March 10 New York Post headline said:
Silicon Valley Bank meltdown sparks contagion fears: 'We found our Enron'
Whether you want to call it "contagion fears" or the manifestation of an increasingly fearful mood, don't be surprised if more bank failures appear on the horizon sooner rather than later.
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