YouSaid · the spoken record

John Maxfield

lines on the record: 119
first: 2023-04-04
most recent: 2023-04-04
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Not very many managed it well. But that is not to be that's, I'm not saying I would have done it any better. You know what I mean? I probably wouldn't have. I would probably have done it just the same. In fact, I think you can even take it a step further. Think about if you were the CFO of Silicon Valley Bank and you're sitting there and $100 billion in cash is dump on your head. What are you going to do? And so remember, and this is where everyone's talking, lower for longer, lower for longer, lower for longer. That's what everyone's saying back then.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Many sort of MT banks are there out there, and how many Silicon Valley banks are there out there? And just because it's a Silicon Valley Bank doesn't mean it's going to fail. By Silicon Valley Bank, I mean, didn't manage their interest rate risk appropriately. And maybe if you disagree with that, we can get into that. We can get into hedging and the duration of deposits, which is a very fascinating topic that I'm a little about. But the question is, how many banks are there that manage their interest rate risk prudently and how many did not?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“As opposed to securitize them, okay? So you're retaining more of that yield, and you are in control of that credit risk, right? So if you're comfortable with the loans that you're making, like bring on your balance sheet, take the yield from that and just sit out and hold it out until interest rates go up and just wait in cash. Cash, cash, cash, cash, cash, interest rates go up. And so that's what they did. So their bond portfolios are just naturally going through attrition and going they really, really low because of these interest rate situation. And then when the Fed jacked up interest rates to 5% in 2022, that's when they made their move and bought a whole bunch of mortgages or not mortgages, but that's when they bought a whole bunch of bonds. So just like waiting it out. And so the harder part is when everybody's telling you to do this one thing and you know what's wrong. The hardest part is like just sticking to your guns and doing the right thing.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So the biggest thing is that you're going to these conferences, Renee doesn't own a majority of that stock. It's a huge bank. Renee is a very, very, very, very small percentage of it. So that means that he's kind of at the whims to a certain extent of the market, right? And so they go to these events, they get on these conference calls and the analysts are all the time. Are you going to protect your net interest margin? Are you going to protect your net interest income? Like, how are you going to do that? How are you going to do that? How are you going to do that? What the analysts are saying is go by long bonds. That's basically what they're saying, okay? Because they're interested in the short term. Renee is basically like, no, I'm not going to do that. Like, we know that we're not when you're, you do not buy bonds when the interest rate is 0%. That's just like a fundamental, you just don't do that. It's just like, it's ludicrous. Like, he's like, we're just going to wait this out. We're going to, what we'll do in response is we will portfolio some of our mortgages.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Well, to your point, yeah, because I mean, there's an oversupply of credit right now. Why is there overs? Because all that liquidity. Got all that liquidity, right? I mean, it's like it's still in the system. It is still there. A little bit went out. Just a tiny bit went out from that panic we had, right? Tiny bit, but it is still there. It's still there. And that's why like there's all these people out there like, oh, commercial real estate back, commercial real estate this. You know, I'm like, that's going to be the next big thing. Like M&T Bank, like they've masterfully masterfully managed the liquidity situation. I mean, just like what Renee Jones has done there over the past, I mean, just like, it's mind-boggling how well they did that. Tell me.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“No, no, but no, but interest rates are always the story of interest rates is that they're always moving. Know what I mean? Will they go up to 20% like they did in the age? Probably not, right? But they're always moving. And so what I mean is that we'll get back into a place where that spread for the banks is more of a kind of a normal spread. Right now, it's not because we had, because you're in such a dynamic environment where the rates shot up so fast. Kind of like broke all of that. Like the banks will get it back where there's a healthy spread. And we want that as society. We want our banks to earn money. Not too much money, but we want them to earn a respectable amount.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So, the bigger, the lower the efficiency ratio, the better, right? Because that means more money is being kept and just dropping straight to the bottom line. And so the way it has, one of the reasons it has such a low efficiency ratio in addition to just their discipline around costs is that they borrow a lot of money from the federal home loan board. And then that kind of stuff. So you don't have to have as big of a branch network and branch networks are expensive. Well, when you're using that kind of financing structure that your liability is sensitive in situations like this. And so the cost of your liability outpaces the cost of your assets. And so like their NIM gets their NIM gets crushed. And so you say, okay, like you talk to, you talk to them, say, well, what are you guys going to do? And this is basically what they say. So like, look, things are going to go back. Like the biggest mistake we can make right now is to go out and change everything just because of the short-term things that are happening right now because we know things will go back.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The efficiency ratio is the percentage of your revenue that you're spending on expenses. So let's say you bring you bring in $100 of revenue and you have $60 of expenses, your efficiency ratio would be 60%.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Aaron Graf down in Triumph, Brent Beardall at Washington Federal, like they are patient. They're patient. So you have like, let me give you an example. So Patrick Og and the Hingham Institution for Savings. So this is a phenomenal, phenomenal bank, okay? But one of the things that they do, they have like their efficiency ratios, like 20-some percent. I mean, it's like, it's incredible. I haven't checked it the last couple quarters.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And there will be banks that do that, and they will pay for it doing that. But again, you don't know whether a loan alone isn't good until it's paid back. It just, it's not good until it's paid back. Until then, it's like TBD. That's what it is. I just don't know it. And so you got to keep that in mind. And so the really good bankers, they're constantly worried about their loan books. It's the bankers. And like, let's be clear. Like, banking is like India is like a policeman, it's like garbage man. It's like, you know, the lunch ladies, it's like whatever, right? There's, there's a spectrum of quality. And it's like the 101080 rule, you know, like there's 10 really good 10% really good, there's 10% that are really bad and evil. And then there's the ones in the middle that can kind of go either way depending on the influence of the environment. Like the really good bankers that you're Renee Jones is the Goggin.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I mean, these things always increase or reduce risk appetite. The banks, the one point, banks want to lend money. They want to lend money If every good loan that walks in that door is going to go, and they're going to make that loan. But if you don't have good loans walking in the door, you don't want us, we don't want our banks making those loans. That's just as simple as it is.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, like there are periods of transition. There's like six months or eight months or like there are these periods of transition like we're fighting our way back into equilibrium where it's everything is just like kind of wacky and like and we're in that right now. We're in that right now. But we'll get back into equilibrium more closely approximate this idea of equilibrium, right? And that'll be like I said, I mean just think about how many times has this happened? It happened after the financial crisis, right? It happened after all that stuff in the 80s. I mean, there were like there were like four crises at the same time in the 1980s. There was the Great Depression. I mean, it's just like that historical context is like it helps you be like, oh, just none of these things and not only is another one of these things, it's a little one of these things, not a big one.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“If you hold all else equal, higher rates will reduce demand for whatever that is, right? But this is not a world that you do hold all else equal, right? When do you have high rates? You have high rates when the economy is going really well. Know what I mean? It's a counterbalance when you have low rates, you have low rates when the economy is doing really horrible. It's actually reversed. The demand. There's an absence of demand when the rates are low, and there's too much demand when rates are high. It's like this counterintuitive reality about the demand of credit that things that are bought with credit.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“What about, and I know this is an issue much more in residential, it's very acute and residential mortgages than maybe perhaps other sectors. But when interest rates are at zero, everyone wants a mortgage. And when interest rates are at 7%, it's a lot harder. So when the bank wants to make a mortgage, there are fewer people who want a mortgage. And when the bank is like, you know, interest rates are at zero, I'm making a mortgage at 2.9%. I don't, I'm not really making much money. And I'm vulnerable to interest rate hikes, as we've seen over the past year. That's when everyone wants a mortgage. So to what degree is that is that a problem in other parts of lending, commercial real estate, consumer banking, stuff like that.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“What you do is it's the spread. They make money from this. It doesn't matter where the interest rates are as long as you can make a spread. And so that's, I mean, that's what they'll have to do. The lending rate, you know, what it will cost to borrow money will just go up. Or they'll like try to find some non interest income source, but like they're just, he just can't, they're not like standing on the street corner of every street. So it's like, yeah, you just have to raise the cost to borrow.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Normal, everything goes back to normal, always it always has, and I think we should expect it to always do that in the future.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The banks will make the banks will always make money, and there'll be years here and there, we don't make as much, but the banks will always make money. I mean, they are a central component of the ecosystem. They're a central component of that equilibrium, right? So like the equilibrium has got a, part of where it will settle is the banks, like they have their fingers on that scale. I don't mean that in some sort of like conspiracy-oriented way, but in terms of like they've got to earn a cost of capital or like the capital won't be attracted to that place. And so like if things will just set like they'll just set like there you have these intervening time periods where like interest rates shot up real quickly and so like you know it's now out of equilibrium, but it'll move back into equilibrium. You'll have banks that'll be able to earn 12% on their equity, 14% on their equity, assuming they don't like jack up the capital rules really high It'll just go back to how it was you know what I mean it'll just that's the one thing if you the longer you can look out over time in your head like the if you it just everything goes back”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“But then the follow up spike is caused by the regulatory response and readjustment, because the regulatory response in a highly competitive industry where you're dealing with a 100% fungible product, it changes the equilibrium. It totally jacks the equilibrium off. So you got to then get back into equilibrium. And so then that's that second spike. So the question is, is like, well, what's the regulatory response going to be? And is that going to cause issues? I don't think that it will, but you don't know for sure. So let's say like I mean, you could say you could see a situation where they say, okay, you're going to mark to market all your bond portfolios, right? And so that's going to make it harder to return a decent return on equity. And so what you will have, there will be banks that in that scenario will go out and do stupid stuff with their loan books because they're trying to maintain the earn their cost capital. They're trying to like maintain their positions in the most profitable bank in the United States or that kind of stuff. You know what I mean?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The panic in 1830, I think 1837 or 1857. And what you see over and over again through history and all those major panics is these two spikes. The first spike is the You have an initial spike that's caused by the market response to like an overextension of credit.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“In my opinion, that is caveat. I think it's over, okay? I think it's over. That doesn't mean everything is over, but we have been through the cute period. Like, I don't, I don't think we're going to see another one of those here bit. I mean, if here for a while. I think that the government's response was powerful enough that it took care of that. Now, that doesn't mean that there aren't going to be other failures, but when you think back of those days, like with when that was going on in Silicon Valley, I mean, there was like people were panicked. I mean, I have friends who like in BC world and like they were trying to get their money out running. And then I had people, I knew people who were getting their money out of First Republic. I think those days are over. Now let's game out like what it could look like going forward. If you look and to look forward, you have to look back. If you look at all these different crises, like you see that picture back there, the yellow and the blue, that's the panic of 18.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Meet the same fate as Silicon Valley Bank if they also have the unrealized losses, to what degrees it depends on the deposit outflows. And there are banks now where their common stocks have collapsed maybe 80, 90% in value for exactly this reason. And of course, the rumor magger continues where if the stock goes down, people will draw more money. And then there's been liquidity injection from the big banks. And then there's the bank term funding program. So a lot we haven't talked about. But yeah, John, sticking to right now, I mean, what is your base case of how did this thing evolves? I mean, is the banking panic over? Is it just getting started? Or is it about to end? I mean, and obviously no one has a crystal ball, but I just want to hear your sort of high level thoughts.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I mean, a bond and a loan are the same thing. The same exact thing, the same thing. You know what I mean? And so here's the alternatives. Like if you think about they say, okay, well, like let's say we go down the mark-to-market road on everything, or even just on all the securities, right? What would that mean? Well, banks would have to sit with a lot more capital. They'd have to sit with a lot more capital. And so what is that going to do? That's going to reduce your return on that capital. And you're also, there's going to be a transitionary period where it's kind of your level setting to be having a much more capitalized banks. And that is going to have an appreciable difference on your growth rate. And so everything, like anything can be done, this is democracy, even although like our politicians are kind of clownish, but like, you know, these are choices that we get to make. So we say, are we willing to trade off these cyclical patterns in order to get accelerated growth, in order to have all these other things?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“If Bank A has a tons of agency mortgage backed securities that they're valuing at 100 and then interest rates go from zero to 4.75, so interest rates go. So yeah, the calculation is not easy, but it's to be done, but a mortgage book is so complicated because it's individual mortgage, individual mortgage, individual mortgage. But there are an interesting component there, right? I mean, mortgage security is built up of the same thing as mortgages. maybe makes sense. I don't know.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And who is the primary provider of capital? It's banks. And why are banks the primary providers of capital? Because they use 10x leverage. So, that if as a country we say, you know what, economic growth is not that important. A big, powerful military is not that important. We'll take our chances. Yeah, then like, let's not ignore these fictions and let's punish all the banks for like having so much leverage. But if I would suspect most people would prefer to be safe, you know what I mean?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I'm saying the US economy needs it. Because this is a country that banking issues are fundamental economic issues. These are what we think is important for the U.S. for our country. And so one thing that we think is important is being safe, having a strong military, right? Like that's really important. You have China coming up like, no, no, no. We don't know what their plans are. You know what I mean? We want to be protected. Well, militaries are not cheap. You got to have a strong economy is the key to a strong military. Okay, so now what makes a strong economy? Okay. You just break down economic growth, right? It's just labor, capital, and a productivity coefficient. Okay. Like we can only do so much with labor. That's just like, you know, we let so many in a year and like we have a birth rate, death rate, all that kind of stuff, right? Like that's your labor. It's the capital where you can really juice your growth.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Because it's like if you sold it, you're marking it at $100. If you sold it now, you'd get 80 cents on the dollar. And I'll note in non-financial corporations, including financial corporations such as Berkshire Hathaway, if they hold equities, they have to mark those to market. You know, if there's a SPAC that has a warrant liability, they can mark those up and down every single quarter. Banks are being given a special exemption insurance companies too, probably. You're saying that they need the exemption.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“They all fail every time, every time, like, every time. You want your banks to fail. All the banks to fail every time. You don't want the banks to fail every time. It's kind of an accounting fiction that they've created to like make it possible to run these highly leveraged institutions through kind of the vicious cycle that the United States financial system is.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“But it's either going to hit your tangible book value or it's going to hit your net income. Okay. So it's going to be one of those, neither one of them is good. But in the other bucket, it's called hold to maturity. And those securities are you do not mark, you do not change the value of those securities on your balance sheet. Because the idea is that, look, if these are riskless securities, i.e. like government US government bonds, right? And you're going to hold them until they mature, when you're going to get the value of the bond when it matures. So you don't need to adjust it, you know. And so, and that's where like, you know, banks with big bond portfolios, that's where they'll put their bonds a lot of times, right? For that very reason, because you don't want that volatility. And so this is what I would say about should you be worried on all this kind of stuff. We don't want.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Which means, oh, you know, interest rates went from zero to three percent. We're marking it down from 100 cents on the dollar to 87 cents on the dollar. And that's. Reflected in, is that reflected in net income or in book value or both? I'm not unaccounted as”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“First of all, I'm not somebody who thinks that I wouldn't recommend anybody be worried. That's not going to do anybody any good. So we'll start with that. But yes, there are some banks that when you mark their. Important to know, and I know you know this distinction, but you know, there's two you can hold, you can designate securities in one of two ways. One is available for sale. And if you designate them available for sale, you have to constantly marking them to market, right? As you're coming out with your balance sheet, or means.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Percent off by using code Guidance 10. Thanks, let's get back to the interview There are some pretty alarming charts out there if you put the data together as people have about the unrealized losses on banks' balance sheet. It's not just Silicon Valley Bank. And as a percentage of book value equity, tangible book value, whatever you want to say. And in some cases, it's true, correct me if I'm wrong, that, and I'm not just talking about Silicon Valley Bank, that the unrealized losses exceed the book value, meaning that mark to market if the bank had to be liquidated tomorrow, it would be marked to market insolvent. Is this true? How worried should we be about it? Are there a plethora of examples throughout history of, oh, yeah, that bank was marked to market insolvent, but it still is with us today? I mean, how big of a problem is this?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And when they said that sentence, they must have been like, we're screwed because they had, it was like 270 some percent of their tangible common equity was that that was the size of their position in Fannie and Freddie's stock. I mean, it just obliterated that thing overnight. It just went just like up and up in smoke.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“By the government on September 7th, I think of 2008. And then when that happens, Hank Paulson has a joint press release with a guy named, I think it's Lockhart, I think is his last name, Josh Lockhart or something like that. He's the head of this new thing that's going to oversee Fannie Mae and Freddie Mac. And they come out and they say, look, we're basically, they don't say we're wiping out the equity. But they say, look, common comes last. Preferred comes right before that. So like, we're just putting that out there, basically saying they're basically, they're saying but not saying that we're wiping out the equity. And the next two sentences, they say, we know a lot of community banks hold the stock. And there's only a couple of them that hold an insignificant amount, but like we're aware of that. And so I just think about like these guys who ran this bank, men and women who ran this bank, were probably watching that press release.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“To safe. So these guys are like the interest rates have been dropped because green sand drop after September 11th. So they're looking for yield. That's the highest yield that they can get on what seemed to be super duper safe securities. So they get them. And here's what this. And then Fannie Mae, Freddie Mac are then taking over.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The regulars encouraged him. And so when you read whenever there's a failure, whenever the bank failure that will cost either the greater up, $25 million or 2% of the banks, the failed bank's assets, there needs to be what's called a material loss review. And the material loss review isn't done by the FDIC, but it's instead done by the Office of the Inspector General of the Treasury Department. And so they go through and they look at why did this thing fail and then they say, well, what did the regulators do? And did the regulators act appropriately? So the idea is that you have this kind of this neutral party in there kind of assessing everything that went on. And it is, I've read, I don't know how many dozens or hundreds of material loss reviews, but it is the only one that's like sympathetic to the individuals because what they saw, like everybody was like, these things are safe. They're safe. They're safe. They're safe. They're safe.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Well, and here's another kind of anecdote to kind of like to throw into the mix. So there was a bank that failed in 20 January 16th, 2009, okay, is the first failure of that year. And that year was the, that's when the failures really jacked up. I think there were 145 or something failures that year. Then the next year they're 152 or something like that. Okay. So, but that's the heart of the failures of the financial crisis. And this was a really peculiar one because what it had done is in 2003, four, six, and seven, it had said, you know what? Interest rates are really low. Like I was saying, those bulletins at the OCC was releasing, like saying, like, don't do stupid stuff with your portfolio. So one of the things that regulators like, well, why don't you just go buy preferred shares of Fannie Mae and Freddie Mac.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Anything could be more so because on credit risk, you don't know how much money you lost, but actually people can't really, you know, it could be worse, but people don't know it. But an interest rate risk, it's like you bought paper that yields 3% and now interest rates are at 7%. Finance 101. I put in my calculator. I know exactly how much money you lost. Oh, that money that you lost is more than the book value or equity of your entire company, your insolvent bank run ensues.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I mean, first Pennsylvania failed. Duration risk or interest rate risk, like it can be as deadly as credit risk. Know what I mean? It can be as we saw, you know, it can be just as deadly. And so.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yes, but now the securities that were bought that were causing a lot of problem that are sitting on some bank balance sheets, they are not subprime mortgage-backed securities tied together into CDOs, not credit risk. They are given to you by Jenny May, Fannie Mae, all of these government agencies. So the credit risk is not really a problem really at all. It is interest rate risk. Is that significant? And you also tied it back to the 70s and 80s. Like what happened in what happened in the Volcker era?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“They made those securities because there was so damn much money and it needed to go somewhere. And it was all this money that was in like the conference of Saudi Arabia and Venezuela all these oil producing countries that have made all of that money when oil prices jacked up in the 70s and stayed there ever since. They needed that to go somewhere. And the US has the deepest and largest capital markets in the world. So that's where it came. So they needed to make securities to find that home. So what it does is it just pushes you way out on the risk spectrum”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“A problem because that money's got to go somewhere. The money has got to go somewhere, right? And so if your system is within equilibrium or close to equilibrium, then where's the money going to go? All that new money going to go. You're going to have to go out on the risk spectrum, right? And so you think about like, okay, the financial crisis. So the financial crisis was the last hurrah of that liquidity surge that started in the 70s, in the early 70s, okay? What brought it about? Well, it was about what, subprime mortgages, right? Subprime mortgages. And so why were subprime mortgages such a big deal? Well, some people had figured out how to securitize subprime mortgages. And so they thought that got rid of the risk because you could spread across the country and said, you know, you have no geographic concentration and all that kind of stuff. So you have the securitization. Well, why do the people making those securities make those securities?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Notice system that would happen in the 70s when the oil crisis caught totally switched around kind of the trade patterns in the global trade patterns and money started flowing out of the United States as opposed to into the United States. So that's what caused that second, that one from 73 to basically, let's call it 13. And so, but there's another type of novel liquidity. And that's the type I like to think about as it comes up through the ground like a geyser. And that's what like the Federal Reserve just creates it out of thin air. Like there's a monetary policy or deficit spending by the government, then that money is then immediately inserted into the economy. So like that is another type of powerful liquidity, a novel liquidity. And so that's what we have. And so that's the type that you need to think about when you're thinking about like what defines, you know, kind of like and it has a big impact on the economy. And now I've gone off on my monologue and I've forgotten your question.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“That's right. I mean, so let me make a point about liquidity. So it's not just, as I have come to think about it, there's two in this context. You need to think about liquidity in two contexts or two kind of two buckets. There's liquidity that's already within the system. It's like already within the US economy, right? It's already here. It just sloshes around from one place to another place to another place, right? That's fine. I mean, like that, that is all that that's the aggregate amount is in or moving towards equilibrium where you come into a situation like this where it will define a new era is when you haven't the introduction of novel liquidity flows, right? So novel new. So in from another system, so let's say Europe to the United States, that's what happened back in 1870s. And that's what caused that huge 100-year cycle. Or you can have the move out of the system and into it.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Liquidity can be many different things, but in this case, it's just a huge rise in deposits for a variety of reasons. And if you look at JP Morgan's Bank of America, all banks deposits, pretty much every bank exploded higher in 2020 and 2021 for a variety of reasons you can get into. But why is it itself that a problem? When I have everyone's giving me money at 0%, and so I have everyone's deposits and I can let it out at 2%, 3%, 4%, 6%. I can reach when you said reach for yield, I can reach up for yield by taking credit risk or I can reach out for yield by taking duration risk. It is the latter that Silicon Valley Bank did. And that was a very bad risk to take given that the Federal Reserve jacked interest rates up by 475 basis points in about a year, which leads us to say very few people were expecting.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“This lasted from 1973 until let's call it 2013. So that one lasted whatever that was 40 years. The cycle before that lasted for 100 years Like, we're at the very beginning of this new cycle, and that's how significant that amount of liquidity was.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think what does Charlie Munger say is a little bit of liquidity is good, but too much is bad for humanity or something that is detrimental to humanity. I mean, yeah, that's because you have all, I mean, if you think about every system is a system that goes in and out of equilibrium, in a sense, right? And so you think about society and then cash, like it's always we're kind of like moving towards equilibrium. So you have you dump a whole bunch of stuff on top like you go out of equilibrium Do you know what I mean? And so then you have to find your way back into equilibrium And so when you think about like What just happened with Silicon Valley Bank and Signature and Silvergate, like, yeah, that was a little thing, but that was a little thing at the beginning of a much, much bigger thing. That liquidity surge that we had during the coronavirus pandemic, that is going to be the thing that defines the next 50 years in finance, maybe longer, 30 years, 40 years, 50 years, 60 years, 70 years. We don't know, but these cycles can last, the cycle before.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So, the issue was not that liquidity was pulled rapidly. That may have been the proximate issue, but the prime cause was the huge influx of liquidity there. So liquidity itself is a problem. Too much liquidity.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And like that, if there's one kind of contextual way to think about all of this stuff, that's the way to think about it is that when there is the presence of abundance, the presence of extreme or promise of extreme prosperity, that is when the stupid stuff happens. So the issue was.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so it's like basically like the central bank, kind of like it was different, but it was basically a central bank. It was on a 20 year charter. That Congress affirmed or voted in favor of its rechartering, but then Andrew Jackson vetoed that vote and got rid of that bank. And so what they did is they took all money in that bank and they distributed it to what they called pet banks. And in New York City, the pet banks were a mechanics bank, Bank of America, although a different Bank of America than what we think of Bank of America today. And I can't remember what the third bank was. But then, you know what happened? Two out of those three banks all came with damn dear within failure. And there's this great quote in this newspaper article about this from back in 1837. And it was that it is oftentimes harder to bear prosperity than it is to bear adversity.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The liquidity, you're right on with the liquidity. So if you go back to like 2001, 2002, after September 11th, what did the Federal Reserve do? Drop the interest rate really low, right? And I'm really low compared back then. I mean, the high compared to what we were experiencing last few years. But like, and so then you see this OCC start issuing these bulletins. And they're like basically telling the banks, like, we know we dropped the interest rates are really low. And we've started to notice a bunch of you guys doing silly stuff with your securities portfolios, reaching for yield. They're like, don't do that. You go back and you see this over and over and over and over again through history. But the best story of this is that in 1836 when Andrew”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT