The Capitalist Investor - Episode 169

This week’s episode of The Capitalist Investor features the three amigos discussing the recent collapse of Silicon Valley Bank. The Federal Government had to intervene as the bank had a high concentration of large depositors, many of which were tech companies. Unlike other banks, SVB had a very high concentration of a single area of focus, like Venture Capital This differs from other banks that are more accustomed to having deposits of firms and consumers with different backgrounds and professions.

Silicon Valley Bank Blowup & Your Money

SVB recently took large deposits of money and invested in long-duration bonds over the past decade. However, with the recent rise in interest rates, the asset prices of these bonds have gone down, resulting in a significant financial loss for SVB. This bad management of deposits resulted in a loss of billions of dollars that was left unhedged against. That is complete moral incompetence and a moral hazard.

What should the Federal Reserve response be in responding to the default of Silicon Valley Bank in the wake of rising inflation? One of the biggest concerns is the concern around a contagion and the strength of the overall banking system. The system has changed over the years as the banking system uses numerous financial instruments, such as derivatives and options, and no longer just the usual hand the money over to the bank and then loan it out to someone else. This amount of complication within the banking world has made the extremes more extreme when things go wrong. This also leaves much less room for error.

What does this mean for Crypto Currency? Essentially these faults in the banking system are the exact reason that crypto came into light in the first place. The free markets are no longer free when the government intervenes, creating more extreme cycles. When things go wrong, consumers and companies want bailed out. But when you reward bad behavior, you get bad results.

0:00:00     Topic: Silicon Valley Bank Collapse and the Federal Reserve’s Intervention

0:02:23     Impact of Rising Interest Rates on SVB’s Investment Strategy

0:04:45     Analysis of Silicon Valley Bank’s Risk Hedging Practices and Implications for the Banking Sector

0:06:44     Discussion on the Complexity of the Banking System and the Rise of Cryptocurrency

0:08:32     Discussion on Silicon Valley Bank’s Risk Management Practices and Impact on Woke Culture

0:13:49     Analysis of the Impact of Regulatory Rollbacks on the US Economy

0:15:45     Analysis of the Impact of the Financial Crisis on the Banking and Investment Industries

0:18:50     Heading: Balancing Act: The Impact of Inflation on Middle Class America

0:22:07     Conversation on Capitalism and the American Dream

0:23:31     Discussion on Global Economic Crisis and Debt to GDP Levels

0:26:10     “Exploring the Financial Risks of the End of the World and the Tech Sector”

 

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Keep Listening to The Capitalist Investor:
Episode 1:
Capitalism vs Socialism
Episode 3:
Impact of a Bernie Sanders Presidency
Episode 4:
Coronavirus, Pandemics, and Your Money
Episode 2:
Is the Stock Market Overvalued?
Episode 5:
What We Consider A Smart Investment Strategy, Ep #5
Episode 6:
Why Investing In IPOs Is Not A Good Idea, Ep #6
Episode 7:
How a Joe Biden Presidency Will Impact Your Portfolio, Ep #7
Episode 11:
The Student Loan Problem: Is Capitalism to Blame? Ep #11