Episode #58: Understanding The SVB & Signature Bank Collapse W/Kelsey Williams

0:00 I know what you're thinking Dave. I've just heard way too much of you, I understand, but this was pretty important stuff and I wanted to get it covered and turned around really quick. So let me paint you a picture early Friday morning, me and my family. We get up, we load the car and we head off to where our Church's headquarters in Temple. Is the beautiful thing about that place is I get very little cell coverage out there so I can just unplug and visit with friends and I attended the temple. And then I attended the church on Sunday morning and then about 2:00 Sunday afternoon. We start to drive home, and I was just thinking to myself, man, life is good. I didn't have to answer the phone once I didn't look at the news.

0:44 And then I got about 40 miles from home, in my phone began to blow up with the news. That two Banks had collapsed over the weekend. Now, if you listen to this podcast for a while, you know, I've had some very real concerns about the economy in the direction. It was headed. And the fact that these two Banks collapsed only serve to tell me that those fears were very well. Founded. So as normal, whenever I have questions about the economy, I call Kelsey Williams him and I had a conversation about these Bank collapses, and what, they really mean, stick around for some unfiltered information on the economy that you're not going to get very many other places from a guy way smarter than me on this impromptu episode of the Mormon Renegade podcast. So I want to take just a few moments here and just say, thank you for listening.

1:40 I can never tell you how much it means to me that you spend your time here with me. Now, on top of that. Last year, I received donations, that help me upgrade the audio equipment and software. This year, I want to do the same thing for video. Now, if you want to help out and make a donation, you can do that by going to Mormon Renegade.com, and making a donation. They're also check out the Mormon Renegade, supply store at Mormon, Renegade.com, and pick up some merch. Now, if you can't, Do any of those I completely understand. It's not like it's been a banner year necessarily for our finances so maybe just keep the podcast in your prayers. Finally, as I've started to do more video, there's a YouTube channel up for the podcast but just between you and me. Yeah, I'm gonna be there very long. So I have a feeling on my kicked off. So to stay one step ahead of that. I've made a channel on Rumble, so head on over to rumble, look up the Mormon Renegade podcast Channel there and Crush that like And subscribe button.

2:36 Thank you. Been very careful on this podcast to only advertise for items that I feel will add value and purpose in your life. That said, I've discovered a book that I really believe should be in every Mormons Library. The book is called beneath sheep's clothing. In this book, the author Julie be Ling breaks down the Communist infiltration into our schools institutions, and perhaps even most distressing our churches, the book backs up its claims with well cited sources. So you can go do the research yourself. This book will allow you to see the The Communist tactics and gives you the tools on how to combat this Insidious movement. In America, Julie is right now, trying to raise money to make the book into a documentary and I can't recommend donating to this cause strongly enough.

3:20 So head over to Mormon Renegade.com and you can find the link to buy the book and donate to the documentary in this episode page or scroll down to the very bottom of the landing page at Mormon, Renegade.com, to find a link to buy the book. You're listening to the Mormon Renegade podcast. Kelsie, Kelsie, Kelsie, Kelsie, Kelsie, do you remember you remember three weeks ago we had that conversation where and this was off are for everybody listening. But we actually had a conversation where we were like, well maybe, maybe the laws of economy do, stop the US, borders, and then all of a sudden it was it was on it was game on.

4:25 Um I was coming home from from Nevada. And I didn't get cell coverage all weekend long and it was so nice. Right just unplug just you know kind of reset spiritually. And I'm probably I don't know 30 45 miles from home and all of a sudden my phone just starts blowing up and I start looking through my phone and I'm like, oh crap icq Banks had failed in just over the weekend and I'm like, well, I guess it's time I give Kelsey a call. So for whoever is listening, it is right now, Seven Ten in the evening on Monday, Kelsey. And I wanted to jump on and get this episode done and out. I plan on on releasing this either tonight or first thing in the morning.

5:13 But we wanted to get this out there for everybody because The on this podcast I think we've done what three or four together kill. See, where we've been coming to our fourth one, I think. Yeah, so so we've done three prior to this, where we've been ringing the bell that something's not right? And and I think that this is the first in a set of I don't want to be too hyperbolic here but I truly believe this cataclysmic events within the economy. I think that's true. I think there's a, there's a hesitation by most people to use a term like that because they're afraid of maybe spooking something or and part of it that idea of avoiding. Something that's distasteful but don't let's not talk about it. Maybe the problem will go away.

6:11 It really is kind of like a dysfunctional family, right? Like if we just don't talk about it maybe it goes away. And I've heard I've heard of people getting in trouble for quote talking down the economy. Right. Yeah. And so I understand entirely that these are not necessarily happy fun subjects but I I believe those that know, there's a responsibility to ring that Bell and let people know not things aren't right? And so I appreciate you have had I appreciate you coming on so we can talk about it but let's just matter being realistic, you know, we're not. Nobody's trying to talk anything down as much as they are. Say, wait.

7:02 There are some problems here and you need to be aware of Them. Otherwise you will be surprised and it won't be pleasant when it happens. Yeah. And Kelsey, to be honest with you, I've gotten a few emails where they say. Why are you talking about the economy? It's not really your thing. Well, one, it's my podcast, and I'm kind of interested in the economy, so that's one. But the other thing is, is if I feel something's wrong, and I have this platform, and I don't say something and then people suffer down the road. I'm not sure. I Live with myself. And so that's part of the reason I do these episodes.

7:42 I think what you said is perfectly appropriate and you know I've got a good friend in California who is an attorney and he says to me, that's his term. He tells me, I think you ought to write an article about such and such and he said I do it but I don't have the platform. You have. all right, said, you know this is the way it is or something is needs to be said, so Go say it. Yeah. So that's all it is. All right. So let's let's dive in here. What happened on Friday? Okay, there were actually three bank failure since the middle of last week 33.

8:32 I thought it was just too over the weekend, there's a firm Silver Gate which is associated with the crypto sector and it was Fallout from FTX, you know, and all of that. And so then Silicon Valley Bank SES VB people call. It was announced, and then over the weekend, another bank with Signature Bank in New York. Which now the thing about these is the Silver Gate and Signature Bank Both associated with crypto, digital currencies. So, that was definitely a factor was Fallout from that, the Silicon Valley Bank, you have the technology-based companies and Venture capitalists big Venture capitalists. So that, you know, the type of customer the Investments, everything, those are factors here, but there's two main factors as far as it has, SV B and all banks are concerned. And that was definitely a parent in. What happened with Silicon Valley Bank, one is the fractional Reserve banking

10:04 system and the other is interest rates. Those are the two key things that happen. Now, they they close the bag. They made arrangements to work directly since they haven't found a Someone to buy the assets and take over things yet. They have made the depositors whole share owners and bondholders their out. Okay. So and that's the way it should be. It's, you know, there's arguments well. Well, is it a bailout? Or is it not the FDIC handled it correctly to a certain extent?

10:48 What happened is, Is they did go beyond the 250 thousand dollar limit, you know, the insurance limit for depositors and made all depositors full. But, you know, part of that too is you have to look at the size of the bank and there's a, there's a phrase that's used when you're talking about owing money, if you owe a bank, a million dollars, They own you, but if you will a bank, a hundred million dollars, you own the bank. So the size of this Bank, It's a big factor because the amounts of money involved in terms of how do you handle it to contain the damage as much as possible?

11:45 so, When you say, shut down the bank, you mean, like people weren't able to go to the ATM and pull funds out. Correct? Exactly. As you see, what happened is they reached the point where they had no money. And here's why. And this, this is the first part, I guess about two part thing that would people need to understand if we can want to understand, how does the bank get to this position? What actually happens, we can talk more about it later but simply put put when you put when you deposit money in a bank, And let's just call it say ten thousand dollars.

12:26 The bank at the end of the day, balances their total takes a total on their deposit of that total on their deposits. They are required by Federal Regulation. It's Federal Reserve regulation, right T, to maintain, 10% of those deposits on hand. In the event, and of people want their money quickly, the other 90%, they're allowed to lend out. Now, that practice is we go a fractional. Reserve banking is the is the way the banks operate. The reserve requirement varies from time to time, but it's been ten percent for quite a while and I don't see that changing tactically.

13:14 What that means is if a bank Falls below that 10% Reserve ratio are in violation, They, you know, the, The Regulators would see that as a problem there, they would call them insolvent. I would say they're insolvent in any way because they don't have enough money. And can you get it if everyone wants or too many people want their money at one time? It's simply not there. All right. Now what happened is you had depositors associated with high-tech.

14:00 And crypto and other things, but for whatever reason they needed to pull money out, okay? Whether they, whatever it was the either, they were having issues, they wanted money when they went to draw their money out. The bank, of course, complies with that. Until you reach the point where he's you've exhausted your reserves because once you do that you're bankrupt, you don't have more money. What happened is that in order to satisfy the depositors demands to draw their money out.

14:40 The bank also had to sell bonds that they held in their portfolio of reserves. In other words, they had huge amounts of cash is part of the Reserves. So they put it to work, they would normally own treasury bonds but they also a couple years ago bought a lot of mortgage-backed Securities. Well, interest rates have been going up and when interest rates go up the value of bonds declines and we'll talk about that later. But what they're doing is they were forced into selling assets, on the books or money that bonds that They had at losses.

15:25 Mmm, so it's a combination of Paying their the people they owed as well as selling assets at like fire-sale prices in order to pay them off. So this is the combination of two things. Those who that's what put them in the position of not being able to give any more money back where they be, technically consider bankrupt. So, they, they've been operating like this for quite a while, right? I mean, this is nothing, new well, so all the eggs operate under the same system, right? We can argue that. And so in that sense we can talk about Reckless Behavior, but sometimes it goes beyond that, sometimes a bank will do something with its reserves.

16:18 That is reckless, right? Okay, or they will make loans that, you know, see, like I would say, okay, what's Reckless Behavior? How about 3% interest only mortgage to a night clerk at a 7-Eleven convenience? Store, who's never owned a home and makes minimum wage. Right. Okay, you know, where's the qualifications financially simply weren't there, so, and it doesn't have to be that. So you, if you remember the what happens, you had auto loans, you had student loans, you have mortgages all these things came into question.

17:04 Well, that could cause problems for the banks that continue Tip the scales. If you're only dealing with operating on a 10 percent Reserve, requirement doesn't take much to wipe that out. What would cut? What was the initial Catalyst to cause enough people to go to the bank and say, you know what? Give me your money. Give me my mom know that I believe, don't know, yet per se. I'm assuming part of this is when a bank you, you know, some of these people People probably were on both sides of it. Some of them may have been banking with them.

17:47 Others may have been lender borrowing from them and they may have been both, and they may also know because quite frankly was what's happening. The credit markets are in disarray. It's very difficult. You know what this does is it stamping down liquidity. so if you have to depend on the debt markets for your funding, it's more expensive all the time and it's harder to get Not you. So there's any number of possibilities. Now, let's just take it, take it, you know, a little another step further. If they were, if the depositors had problems of their own that combined, with the fact that assets of the bank are declining is like, hey, you know what can we do? There's nothing else you can do.

18:47 If enough people are unemployed and have to take their savings out to pay bills if too many people, for whatever reason have to get their money out from a bank. It's a problem. So then you have the ripple effect gives you SV B SV. B Bank was a second. Largest bank failure in history. Next to the washing Mutual Savings Bank in 2008. so, that size has implications, If you can't get your money, how do you pay your bills and what happens to the people you owe money to right?

19:29 You know, so people that are depending on these things in various ways. Sort of up a creek without a paddle. So there is a ripple effect and how far that extends depends on how limited the exposure was, but the size of the bank tells you it's much bigger than that and with the attitude of investors today and the overemphasis I say that only to emphasize how far beyond Historically normal patterns, we've gone in terms of assessing, any type of investment that.

20:14 The next big thing is always what's on the minds of lips of every investor. So the more risky we don't think they don't think about it. Can I get the money? How cheaply? Boom, and the economy functions on credit. So anything that calls that into question is going to be a problem. Okay, it's a big thing. It's a really big thing in. Can they contain it? I don't know. And what's interesting is, I still don't feel like it's getting the amount of coverage that it really deserves. They don't want to write what that their, their whole thing that back. I believe they are definitely hoping that back. So, so they Look, we know that they like to play word games up there in the FED.

21:03 We know that they like to position everything like everything's. Alright. But this was a bailout right despite what they want to call it. I would say yes but if the bailout portion applies more to the fact that they Made depositors whole, who had money there in excess of 250 thousand, which was probably a goodly portion of the deposits. So, in that sense, yes, because the FDIC of the ones that took it over and they should have only made whole those for 250,000. And the next thing is that would have taken months if it was done that way they made everybody hole, As of today, that's what the announcement was.

21:56 So otherwise they would not have gotten their money back and they would have continued to look for a Suitor. Somebody to come in and take it over, do it. So if you even if you were under the 250,000 limit you might have not gotten access to your money at this point, you know. So that's when I you know you could probably call Portobello. Let me ask you this question real quick. Before we dive into those two subjects. We We really want to cover because it's the root of what's going on. But I heard something today that there was a British bank that had either bought them or were looking at buying them. Have you heard anything on that? I have. Not yet.

22:37 I have not. Okay. All right. Good enough. As you can tell, it's still a very fluid situation out there but regardless it's important that we get on here and talk about this because I feel like it's the first Domino. And I think that's quite possible that we've been talking about that for several months. We haven't had a real crises since pandemic and that was more self-induced than anything. So, you know, going back to 2008 when things kind of imploded under their own weight and that's kind of where we are.

23:20 They built things back up to Point where sustaining, it takes all their efforts justices. So I'm sorry. I keep saying this one last question, before we dive in, I'm curious because they've made the discount window really easily to get to, right? And they've taken a bunch of limitations Off of borrowing from from the discount window. Why didn't why didn't that bank? Just go to the discount window. The problem is, with the discount window, is that supposed to help in marginal situations?

24:03 Okay? Not, it's not supposed to be a case of look, we're going under give us a bunch of money because that's that's the whole reason for the FDIC and, and the regulators and The Fad. Once you reach that point and part, the other reason is there's a there's a hesitancy or has been in packed in the past for banks to go to the discount window because as soon as they go to the discount window, the FED knows they need money. For the to meet their reserve requirement. That's that's why there is a overnight Market fed funds. That Banks, you know, borrow and lend from each other, on an overnight basis.

24:51 And, and the discount rate you can do the same thing, but you go directly to the FED but then the FED realizes. Oh, if you're borrowing from us, we see that they may, it may you know, they're afraid. It's like well we don't want to show our hand or we don't. Want them to know too soon, and maybe it's not that big of a problem, but then the FED starts watching a little more closely. The other hand, the FED wanted to find a way to use the discount window to better facilitate their own efforts to encourage Banks to lend more money and to not keep reserves on hand. And so they made it easier to borrow from the window.

25:36 Directly. And they also stopped paying the kind of rates that they were paying that would cause someone to Simply say, well, I'm not a member banks. A, I'll just leave my funds on deposit with you. I'll create excess reserves, you know, if you don't lend it all out to the, to the temperature, down to the ten percent ratio. Anything else above 10% is Littered excess reserves and that could be on deposit with the fed, you know, they have accounts there. So it's more, it was more a matter of not wanting the FED to see directly what they were doing. But I think we've reached a point now where everybody's aware of that and if it's an attractive enough rate and the bank's feel good enough about it, they're going to borrow from them whatever because they can.

26:36 Borrow that, it doesn't have to be just to me reserve requirements. Did. I thought the regulator's job I thought this was part of the promise of the FED, right? Is that they were going to step in and make sure stuff like this doesn't happen. We have Regulators. How did they manage to fly under the radar and such carrier's position for so long? Because I can't imagine that one day. They were fine. The next day they were broke, right. I mean, there's settle steps in between, again, I think this is Out of the bank's, create an appearance doing very well, if they are doing well, it's easy to present that aura. Even if things start to turn, At this point, I think it's more a factor that the longer the FED continued to raise rates. The sooner there was going to be a problem because it's just a function of the fact that you're marking down assets continually because Bond Holdings, you know are affected directly. So the higher interest rates drives, you know the value of the bonds is declining and As that happens. It makes everybody more

28:06 vulnerable regardless of the situation. You're if your Investments are continually going down and you depend on those Investments for collateral or or if you need to sell something and you're forced to sell it at a loss that you hadn't expected to, I mean, you know, you can't account for that until it happens, you know, it's you can expect it, but sooner or later you realize, okay, I just Have any money. But I didn't want to tell you because I thought so. And you to see the way everybody is, they're all they're betting that the FED is going to change. You know, this fed pivot thing. Federal Reserve reverse do make, they will not do this, they'll do this and and so nobody really thinks they know what's and are they think they know but they don't, you know and it's really It's a circus and it never really ends because everybody's playing a game, right? The feds trying to keep the system together and the banks are trying to milk the system and stills the FED really. I mean, you know, there they can't control the effects of their own inflation.

29:27 We've reached a point where We're vulnerable, you keep blowing up a balloon, a little bit at a time, the structure and the skin becomes more vulnerable. In great tip from the outside, just a tiny bit. That little hole in the air comes out of it. So you can keep blowing the air in and eventually blow through it from the inside, the big gaping hole. The point is at some point. There is the piper to pay, you know, you can't get away from it and the we're at a point now, where all of these things that are happening, are probably going to have more of a detrimental effect, initially than the FED had hoped for when they started raising rates.

30:21 So we have another new set of variables, will they slow down? Will they stop? Raising rates or will they try to bring them down again in order to smooth things out and that has its own set of concerns and problems? Because you've now got people who are built into the expectation that rates are are going to go higher and so it can have an impact that way, but the other one is that They may go overboard trying to accommodate a situation that looks like it's about to run out of control in which case they may end up doing something to really damage the dollar from this point because they would, you know, pull out all the stops you know, the helicopter money Ben Bernanke referred to as a real possibility. It'll be in digital form but you can just imagine regular monthly checks.

31:30 Because it looks like we're going into a depression and we got to save people and, you know, and that would just they would be fighting the obvious. And I think there's the potential that that tidal wave of default and deflation would overwhelm whatever efforts, they they can come up with but they're still going to try, right? Who good times. So let's get into the two things. We really wanted to break down that that we felt were kind of well let me rephrase that I'm not smart enough to feel or think anything here, but let's let's call it. You know what you felt were the two driving factors here. The first one was bond, interest rates and we just covered a little bit of that.

32:19 And then the second is fractional, Reserve banking. Yeah, I think this is where if people understood these two issues, they would have a better grasp of what they're reading and hearing that, a lot of the other stuff is designed to take the attention away from these particular issues, but the debate, the issues that affect all banks, and not just Banks, but but definitely Banks because of the reserve requirement. Bonds and interest rates. You can see that structure anywhere once you understand that, what's going on.

32:59 So let's talk about bonds and interest rates, whether you're a bank or not, we're just say that. Dave, you want to buy a bond corporate bonds treasury, bond doesn't matter. You've decided you want one and you're willing to pay and there's one at face value ten thousand dollars and it's paying 3% interest. All right, and great, I like that, I'm going to buy it. And so now you've got a bond, you paid 10,000, you're getting three percent interest, 300 dollars a year on your money.

33:45 A year from now you find out. Interest rates have gone up And we'll say that in the interim, they've risen, 25 percent 50. I'm only getting three percent. I'm gonna sell my bond and I'm going to buy one and get it 5% from Okay, now if I want to buy a bond and I know interest rates are five percent right now and you say, I've got a blind, I'll sell you and I great, what's the interest rate? And you to me three percent, I said, say your plan is to go, buy a Vine and get 5% said, well, why would I give you 10,000 for your bond?

34:28 That's only paying 3%, when interest rates have risen to 5% Huh. So what has to happen is that the price of that bond has to be come down and it does as interest rates rise that bond price drops, there is a correlation directly with interest rates that bond has a price that when you want to sell it. Is now less than you paid. For maybe it's instead of 10,000, you're going to be able to sell it for 9,000, you've lost 10% of your money. Now, if you hold it to maturity, whenever that is you still get your money back.

35:18 But in the meantime, you have a market value that's adjusting always continuously to the changes in interest rates. So, unless you're willing to hold it to me. Already, you're going to have to take a loss when you sell it. Now that's true, whether you're just an investor ordinary investor, buying Bonds in, you know, General Motors corporate bonds or, you know, it doesn't matter. US Treasury bonds, any bond has a fixed coupon an interest rate and it's always based on one thousand dollar par value. so, if you own bonds, You have what is called interest rate risk for your investment? If rates go up the value of your bonds declines to meet eat the actual interest rate change that's out there. So what we're saying is at a cheaper price your bond is the equivalent of earning the new 5% rate if I give you only 9,000 or whatever that actual number, there's a formula that and And I pay 9000, I'm getting three percent based on Ten Thousand so the three percent on 10 as a percentage of my 9,000 works out to be that higher interest rate, okay? That's that's what is actually happening. So, so there's always a risk, so

36:50 that was happening. If bonds treasury, bonds mortgage-backed Securities, whatever it is as race continued to rise. You got these bonds out there that are losing value and a bank that's holding a bond. Portfolio, is watching those assets decline. And they're declining. So they SVD was forced into selling because they needed to pay. Their depositors who wanted their money, that's okay. So it would be like you saying, okay, you come home, you tell your wife, I got laid off. We've got money in the bank and we have some Investments and we need to we'll sell them.

37:40 And you get to the point where you have to sell your Investments because you've got to pay the bills. And what happens when you go? Well, I've got that those Bonds in there, you could have stocks that have dropped in price, you're going to have bonds that have dropped in price or whatever. But the point is, if you're forced to sell them at lower prices, you're not really getting the money out of them that you expected or the growth that you had put it in there for originally. So your Force, that's what they call for selling. It's not the strictest definition of it, but For sellings, what they do, when you get a margin call. It's just liquidate what you have on hand, but you are being forced to sell because of circumstances.

38:25 That's my point here. Is, what's your choice? You sell it at a loss because you need the money, you didn't want to, but you had to. Because you have those obligations. Yes, Phoebe Bank. Silicon Valley Bank had to meet the depositors demands for withdrawal in order to do so. They had to sell bonds that were part of their Reserves. The reserved portfolio. So they because they had those Bonds on the books, it what they paid for now they taken a realize loss. Well, that money isn't there? So that's what tipped the scale.

39:07 Okay, cute things real quick because I just want to make sure I understand it because like I said, I'm still trying to wrap my head around all this. You for your, you basically cash out, those bonds, that are worth less than what you bought form because the cash on hand looks more appealing than holding on to the bond. You're rich. You're basically like, well, how do we keep the doors open? Kind of a think we. Yeah, they didn't have any choice, they had to sell. If they were going to meet the depositors demands and and imagine yourself as like if you had to sell something to me. Meet the demands of creditors.

39:49 You're doing that because you're trying to postpone what may be an inevitable event. But as soon as they had to do that, they realized there wasn't anything else they could do. And, and, and it tipped the scales, it was like, if we don't do this, we can't Pam. So it will show. I mean what we say now, hey, we can't do this because we'd be forced to sell bonds at a loss so you know you Saying up, cut out. I want to contain the damage. I don't want too many people to know him in trouble, so I'll just keep selling things. And if I can get back on my feet here without people knowing about it, I can get, you know, either some help somewhere, get another job, find some depositors, and, you know, whatever, whatever they need.

40:39 It was just a function of two things, the demand by depositors for their money for Whatever reason doesn't matter and me in order to meet that demand being forced to sell assets at a loss bonds, and that, the bonds were down in price because they've held them for several years, and they've been declining as interest rates, continue to go up. Gotcha. Nope, that makes sense. So, and then was with bonds is okay, and she's me. I read an article. On CNN.

41:20 And I've got that, I'm going to throw that in the episode notes, as well as your three articles, but it was an article by CNN that said that Banks could be sitting on up to six hundred and twenty billion dollars of how they put that on unrealized losses, unrealized losses. And that that's a that's what we're talking about here that relates back to those bombs. Again, who are the largest bondholders banks? Who owns larger amounts of Treasury Securities. It mean, in this issue, we're talking about bank.

42:00 So let's face it. What would a bank put their money mostly As treasury bonds but it's still a bond and the interest rates have gone up. And so over time their bond portfolio declines. So any Bank So, how many billions of dollars? How many trillion 0, or in Banks and how much money is in bonds? It's a big number, so I don't, you know, you could have told me a trillion and it wouldn't move. Face me as far as how much money could be there and unrealized losses. Well, let your from CNN so it probably is go through do it right. Yeah. How there's there's a couple other factors that are important here.

42:47 The maturity of the bond is an issue. You go back to that Bond, you pay 10,000 for. It was the 1-year Bond, it doesn't matter and maturity. You're still going to get your money back, okay. It was a five-year Bond. You got to wait or you sell it in boss, but it's going to be a much smaller loss than somebody who locked in that price for 20 years. Say because the flux you take that two percent differential between 3% and 5% is rates have gone up and you factor that in over the next 20 years, you can take some whopping losses on your bonds. So it depends on the maturity.

43:33 Then you've also got default risk, right us treasury bond. You don't have that because they're going to come up with the money regardless of what they say. You know, they'll find a way to pay, but a company, a corporation, can't do that of Corporation. Can't just turn right around and they can try to sell more bonds to pay you but if people want their money you know that's that's the issue. So again, If the corporation defaults the bondholders lose their money.

44:15 That's what's default risk. Yes. And so there's usually a factor built into the rate for that, but if it's a specific company or an industry and those are the bonds you own, then you can add that to the interest rate risk because that affects the value as well, separate from interest rates. I mean, it'll show up in the interest rate but it'll it'll be a much greater. Interest rate than other comparable bonds, which aren't at risk. So now it's important also to recognize that If rates go the other way, you bought that boy, back to the about non you bought.

44:57 You pay 10,000, you're earning 3%, $300 a year, interest rates go up. Excuse me down, did the up. So they go down and now they're paying 10% one-and-a-half percent a year later. Well, I'm not going to get rid of this, okay? Why would you do that? Because the new rates, And a half, but just the opposite thing happens, if you did decide to sell it, you would sell it at a premium because this with rates at one-and-a-half, you're getting three. The price will go up to compensate for that. Differential, gotcha.

45:39 Don't you worry? And that risk is always there. Any time you hear someone say, yields went up or yields went down or Bonds were up and And Bonds were down. You need to know whether they're specifically saying bonds or yields. Most people read this and it just runs right through. If they say, yields on government securities, increase today, that means the price of the bond dropped, okay? Okay. Because sometimes, they'll present it in a way that sounds positive, but it's just the sort of fact, In light of Endor, they'll quote a - statistic that has nothing to do with bonds and interest rates and then they'll say and the yield on treasuries 10-year treasury Securities dropped.

46:35 That means the bond price went up. That's not a negative. You know, your bonds more bonds are more valuable rates went down, so that's happening all the time. That's that's the way the bond market works, okay? Always have a moving interest rate. So, let me ask this, this brings up to questions and it's too that I hadn't thought of when we talked last first is, is there a way that that the average Person. You know, just got a little bit of savings putting away for 401k's.

47:16 You got a savings account? Is there a way for the average person to tell what banks may be over leveraged with bad bonds? I would say it's not so much. The over-leveraged you have bad bonds, you want to know. Are there banks that are Flirting with danger in any sense. I mean I don't care what they're doing. If they're if they're on their involved in investment, see the bond issue, wasn't the problem. In 2008, it was mortgages, right? So what you really want to know, you can you can specifically look for ya banks that we have Bond portfolios, and there are banking sources that will give you statistics and even rate independently Banks wants to watch out for ones to check and you can do that, just go online and I'd have to sit down and your do a Google search because and I've done it in the past. At different times, but there are ways to get information. And there's you know if you do it independently like that, you're probably going to get a more reliable number to base, any judgments?

48:34 Yeah, that was the other part of that first question is, are there sources that are more reliable than others? Because a lot of information you can get through the feds. You know, on there are various websites and certain Banks have websites where they publish things. I would just look two independent sources and the banks will have financial statements. So you know, if there are public Bank, their public company, there's financial statements. Okay? Now I'm going to say something here or ask a question because it occurred to me if because because in all actuality, even though it was a massive Number as far as SBB and and and signature, it was still kind of what would be considered a midsize bank, right. I mean, this isn't a national global bank. S VB was a big bank.

49:41 It was a big Bank. Okay. One say there were a big bank because they were dealing, they were dealing with Venture capitalists and the and the tech companies, this is big money. Okay. All right. So not just, it's not just JPMorgan Chase or you know, Wells Fargo, but it's still a very big bank and they're very well, spread into areas different areas and stuff. Okay, I'm going to ask you a question here and you can just decline to answer this if you want, but it's a thought that came to me as you were describing this. Could the interest rate hikes?

50:21 Have been done to fold one to slow, down the economy, slowed down inflation, but also to maybe get rid of banks that maybe you didn't want. In the financial area this anymore. I suppose it could. I don't know whether the question would be, why would SD be fit that profile, though? I don't know. I'm just, I'm just throwing out throwing out ideas made and it just struck me as odd. The, the question just popped up out of nowhere. So I wanted to ask, I think it's possible. I'm not saying SBB was the actual Target, right? Sara Lee, but like SV B.

51:09 And they just happen to be the one to pull the first winning Wonka ticket, so to speak. Well, you know, depends on depending on how far astray from the specifics in front of us. We want to move. We can always look at the possibility that the FED already knows they don't have control over things. so, maybe what they're trying to do is Contain the potential damage and event Advanced. Okay this okay, we're we know this is going to come down, we don't know exactly how it's all going to evolve, but if we don't do something that makes it look like we're trying to keep it together, we're all up a crate and and this is the problem with people's analysis of the Fed. They're convinced that the FED is there for their benefit to help them, to help them to do what's right financially and help economically with policies and everything else. But it's a little more self-serving than that. You know, we talked about it before, but the Federal Reserve is a private Institution, It was authorized by Congress but it's a private institution and it is

52:45 a banker's Bank. And the way it operates is that the Central Bank provides an environment for member banks. To create money in perpetuity through fractional Reserve Bank. Which was the other thing that we want to talk about bird? Yeah and and collect the interest. And they lend money to individuals corporations. And government, and they continue to collect interest.

53:27 See, and that's the key here. They create money, right? The idea behind the origin of the Fed was, let's we need to get it used to be a national bank and then Andrew Jackson cost that and said we're not going to do that again. So the FED came into existence under the guise of not being an ass. Little bank and separating itself from the government as far as being private and that sort of thing. But there is, you know, I do know a bit of collusion if you will in order to get the charter or to be are in order for to get Congress to approve a central bank. they convinced those at the time who were behind institutionalizing the FED Federal Reserve It's a meetings behind closed doors and government.

54:31 Officials were promised that if the FED were organized and approved by Congress that the FED would guarantee that the US government never ran out of money. So, regardless of the charade of issuing treasury, bonds or whatever, you know, whatever we see happening. If there's ever any different to make up the FED steps in, and if there's ever a case where there isn't enough money, from those proceeds or anything else, the FED is always there and they are involved in the marketplace through the New York District district district bank and and they behind some Securities continuously. Every box.

55:28 But as the 2008, they're also involved in a lot of other boss nothing. But if they if they had done what they did, I'm not saying what they did was right. But if they hadn't done what they did, in 2008 2010 to go in and to Market and buy up all these bonds, we would have already been in a full-scale depression, that was a class, they averted that. But Question is, should they have been buying them? Because all they really did is again push things out and then inflate again because the only reason it was a problem was because of overextended loans and cheap and easy credit to start with anyway.

56:14 So that's why the FED exist. They don't exist for our purpose, they exist for their own purpose. Now, Yeah, they're the ones who are saying they're managing the money supply. All right. And yet there's an element that we have to recognize is they are fiercely. cautious if you will about their independence because if people understood that Independence and how far, how deep that goes in terms of who actually pulls the strings and makes the final decisions about policy, they would not be happy, you know, it will be a regardless of that if you take that whole conspiracy idea and set it aside The FED has always maintained that they are going to try to avoid recessions by managing the economic cycle. And that's why they're involved in the market, but that's ridiculous to think that billions upon billions of decisions involving trillions and trillions of dollars can be managed.

57:40 By twelve men around a table. It just doesn't make sense, but they're trying to that's what they say. Whether they are not, that's what they're they said. Their purpose is is we're going to do these things that we're going to make this this way. Obviously, it was a motive there, because as they create money, they lend. It people borrow. They spend more, they borrow more money, you know, so there's a cycle there, but that's good for the fed and the banks. but thinking that, you know, again if you set the concealer any conspiracy ideas aside The FED has been done a very good job of managing things because there are, first of all, they are the ones who create inflation, like by expanding the supply of money and credit.

58:32 They create the effects that we see in the terms of the loss. In purchasing power, the US dollar and higher prices for goods and services. That's the result of the inflation that the FED creates by expanding the supply of money. What? Whether you think? It's right or not somebody. You can argue all day long that they need to do that. They have to do it. It, there's a purpose behind it. It doesn't matter. That's why inflation is what we have. The problems that we do. It's cumulative. It's it's unpredictable and over time, it becomes more volatile. Gotcha. And that's part of what we're seeing is you get to a point.

59:14 It's like you don't have much room to maneuver when you first start out, People who are into a balloon, there's a lot of empty space in there, lets them out, blow some in, let's zoom out a little more in when you get it to the point where the balloon is extended, how much more are to you inject into it before it pops, right? So so you got to try to let some air out carefully, right? No. I make sense so they were fighting their, the effects of their own policies is what's happening now and they done not a good job because the FED caused the Great Depression and they've admitted that You know, it's in the records you they cost it, they didn't cause the crash but they caused the depression. They caused they created the conditions that led to the crash and the conditions were what?

1:00:14 Because the economy is already in a down cycle before the stock market crash in 1929. It's like environment. Yeah, it's like a fireman who sets fire to a house just so he can try this against come back on his truck. Put it out. Yep. So where does fractional Reserve banking fit in all this? All right, that's our banking system. And again, that's what we talked about earlier. When you put your money in a bank, the banks lend out. As much as 90%, they have required to keep 10% of all, deposits total deposits on hand. Now here's what happens.

1:00:59 That's just the first step you go to your bank and put in 10,000 dollars. The bank says less is over our excess reserves. We're going to loan out 9000. They'll own the 9000 out. Okay. Person gets the 9000 says, I'm going to use this money to buy a car. and, Do something else. I'll put some money in savings over, buy a new car. So they go and they put money down on a car. Then they put money in their Bank. The bank to put their money and looks out and said, hey, we got five thousand dollars.

1:01:46 We didn't have before our reserve requirements are met. Wear it alone, out $4500, hmm. Okay. The guy, the car dealer, the got the money for a down payment, puts it in his bank. Banks is hey we got extra money here. Thanks sis we can loan out 90% of that. We had what four thousand so we can lend out 3600 dollars so they lend that. Now what happens here is there's a multiple effect and it works out to be roughly 8 to 10 times but they are theoretically is no limit. The money supply continues to expand on its own because of fractional Reserve banking you go in cold into your bank and they know they've got their deposits, they've got their on hand.

1:02:51 They know what that total is and they've got their reserves and they have just enough money to loan you money, based on their Deposit. They really don't have that money. They're just going to create They're giving you a hunter because all those depositors can come in and get their money at any time. So the money you get is new money created out of or buy a pen stroke or a computer key and it goes over and over again. Now, the problem is all the people who have money in the bank's, their ongoing day-to-day Bank activity varies from one to the next. Some need their money part of it. Some need more of it, some don't need it. And at some point though, more people need it than normal, and they ask for it.

1:03:52 Again, doesn't matter. The reason if you have too many people that want their money back, Too soon that exceed the reserves that are on hand, how do you pay them? See Silicon Valley Bank tip the scale so we don't have it aft at a certain point. This is all we have so they ran out of their reserves which means they were bankrupt. You know, they didn't have any more money by building exceeded the assets. In all banks operate like that. Yeah that's the banking system fractional.

1:04:33 Reserve Banking and I got an article out. It's called fractional Reserve banking the elephant in the room and it goes through an example, several examples, really, that clearly show the problems with this system and every time there's a bank problem regardless of What triggered it? These people trying to get their money out and there and and the reason they can't give it it's because the bank doesn't have it again. It could be a rumor, it could be unsubstantiated, it doesn't matter.

1:05:18 Either you have the money or you don't have the money. If you operate on a 10 percent Reserve requirement, you don't have the money to pay your depositors if they want it at the same time or enough of them. We're not talking about all of them, only a fraction of them have to want it. Just enough to exceed your ability to pay them. So did we always operate trip with fractional Reserve banking? Or is this just since the Inception of the fed? Well definitely. Since the Inception of the FED? Yes. Okay. And prior to that, when she go back to a certain point, you know, you hear people talk about the printing press but that's the way it government's operated in the government still inflated. They just printed money that they need it, if they didn't have it.

1:06:14 They printed it and you, but remember all his pain there was, there was a link between gold and the dollars, right? So there was a, there was a restraint, if you will, and it caused problems for governments and it probably, you know, you want to think that maybe it reduced the possibility of governments. Involved in Wars because they couldn't fund them. Whereas if they had a printing press in their own currency, they would just print it, you know, be whatever they wanted. So anyway, the fractional Reserve banking has been around. That's the way central banks operate. We're modern Central Banking is all on a fractional Reserve basis.

1:07:08 Nobody plays it close to the vest. And, and the precedent for that goes back to when people use gold as money and the people that ran the warehouses would give out receipts that were negotiable for the gold, which was their money and then the bank's decided or not, the banks. But the warehouse is decided, we should lend some of this gold out because everybody, they were just turning in receipts. They weren't coming and physically getting their goal. So if they lent out the goals at interest, They can make some money without as long as more people didn't want their gold, you know?

1:07:50 And then it evolved to the point where it became paper and now a digital currency but it's the same same principle. Fractional Reserve now been around for quite a while. When you said there were some drawbacks to your money being tied to Gold, the first one for government for government for government. Yeah, it's a restraint, so natural restraint. When you said that, the first thing I thought is what kind of downside like they can't spend like drunken Sailors no disrespect meant to drunken Sailors anywhere with exactly the point. It restricts their ability to fund whatever amounts and numbers of social programs and everything else.

1:08:35 They think they're supposed to be involved and wars and see. I do remember from Studying history. That the original idea was is that there was no emergency spending, unless it was in case of War, right? That was, that was the original plan. The only time you got to fire up, those printing presses is when you thought they were going to light fire to your Capital, right? That was it in American history and I find it interesting that oftentimes to this day, when they need a huge influx of cash. Let's just go back to LBJ in the Great Society. It was called the war on poverty, right? Or it was whatever else and it makes you. And again, I know I'm jumping on the conspiracy train here, but it makes you wonder how often have we enacted war or military interventions?

1:09:33 That we later called Wars for the reason of being able to fire up those presses? Yeah yeah no I agree there's and and or that it just the fact that we have that type of a system allows them to do that, you know, if they couldn't do it. You know that that was governments were so happy to get off the gold standard after World War Two. Because it was it's like You know, all their motivations were put on hold as long as you had a goal standard. They were limited, but that was the purpose right supposed to be limited.

1:10:19 It was the people that were supposed to make the decisions that government was making. And once that the government was freed from that, then all the political and financial regulations increased. Let me ask you this real quick. The feds stepped in and at first they said, I shouldn't say they will just name her. Janet Yellen says, we're not going to bail you out, right? That was a Friday and then it only took till Sunday before she was like on second thought you know, and then you can call it whatever you want but in essence it was a bailout, right? And and I want to be clear here.

1:11:08 I'm glad Add that your normal run-of-the-mill. Depositor didn't get screwed. Right, I'm I'm super happy with that. But it still remains that she did an about-face, way fast. And so do you have any ideas? You have any thoughts on why she pivoted as quick as she did? Because it doesn't necessarily send, send the message of, don't worry about this. This was an aberration, you know, because if you thought was an aberration, you two thought, okay, doesn't need massive intervention. We can get through this pretty quick, so, To make an about-face that quickly, any ideas on what it is, she could have seen that would have caused her to do that about face that quickly.

1:11:59 I think this goes back to what we talked about earlier, when we referred to, you can look at the numbers when you look at the size. And the scope. Of the people involved who are affected by this, we're okay. If these depositors aren't made whole, what's going to be the impact? And then you're talking about, like I said, big money, not the guy who owes a few hundred thousand or a million but large creditors or large depositors where the money is such that it's you're going to make waves if you don't do something like this, so I think it was more a matter of that it wasn't like, billions of dollars.

1:12:57 A few thousand at a time, right? Concentrations of money, just huge numbers that would affect a wide. Much wider spread, it will go out and that and the threat that what to whatever extent that wasn't controlled. Not just that. But how it could, it could be played from there you know, expanded that you could have. More contingencies than you could even imagine. So it was just too big to make that kind of a statement which means they were too big to let it go under.

1:13:40 Now the share all of the private owners know the share a stock price shareholders and the bondholders, they lost their investment. Okay, which should have been, right? Because they were the absolutely that's the way it is. That's it. It's definitely. But so I think, you know, initially Janet Yellen was playing the game, as she knows, it's supposed to be played, and she still doing that. She just modified her references once they got together and talked to me, I realized it, we Really let this go because it could bring the whole house, the cards down or something like that, you know, was big enough to worry about.

1:14:31 That's that's definitely a factor. Any inclination on, whether you think they can actually contain contain to this. I know contagion has been a word that's been thrown around a lot on this. Yeah. You know, I looked at it word up again last night when I was writing an article and I'm like, yeah. The potential is there. Okay? Because of the size and the scope and the position. We're in, we're more vulnerable right now, because of what has happened.

1:15:12 Over the last couple years. I know the credit markets are very vulnerable. They were on a Razors Edge before. You've got banks on a 10 percent Reserve ratio so there isn't a whole lot of wiggle room to absorb and contain damage. So, it's I think we're at a point where, yeah, it could, I felt that way before. The problem is, I've seen it too often, where, I mean, when I think back at to 2008 and on this, like, how did we ever get out of that, you know, the way we did, how could, how could people turn on a dime like that? And by end all lat and accept it. Now, the economy didn't get moving that quickly. And that was a big, Concern.

1:16:02 But they kept the system from imploding because the FED jumped in and started buying Bonds in the open market, that's what saved them on Market. His defense purchase of bonds and and then course expanding the credit and getting people to borrow and everything else. But all that did is just, you know, It pushed off and grew the potential. Downside, you know, well in advance if you do, you have to take the time to get better. Or you'll get sick again and nobody wants to. It's not it Defender tries to put it off but you know governments.

1:16:55 They don't want to hear that. People don't want to say okay you mean I how sick am I? What is there something else I can do? You know? Well that's the way they treat themselves medically. What would you expect? Financially? They're worse. You can't tell these people. They believed everything. They're told now we Got to a point where, you know you totally ordinary citizen. We are going to have to go through a full scale depression in order to get better. It's and whether we get better or not, we're still going to have one. Because that's the end result of all this. Why? Why can't that he do something?

1:17:37 They've been doing something for 100 years. You just didn't know it and that's why we're in this fix. This next, what I'm going to say next year, I want to make damn sure everyone out there. Listening is me, this is me. this is not anything, Kelsey has said or anything else but it's what I feel in my in my core This is the first in. What will be a long? Series of cataclysmic changes to the economy. Prepare and prepare and prepare.

1:18:29 Get your Lifeboat together, get food in your house, get your reserves on hand, do whatever it is, you need to do to get ready. Go see Marcelo. Down at food storage prep in South. Jordan Utah. I had him on the podcast, he he told you what? What? Hyperinflation looks like. He told you, what depression looks like start reading your grandparents journals and figuring out how you how they got through it. It is coming it, there's no. Look, whether it happens today tomorrow, a year from now, 10 years from now, Depression is the natural result of what we have been doing. And as I said at the beginning, I questioned, you know, maybe I didn't know as much as I thought. I knew about economy and I'm not saying, I still know a lot about the economy but I know enough that you can't continue to print money and have it turn out good in the end. It just does not work in a capitalist system and we still do have a remnants of a capitalist system. I'd make an argument.

1:19:47 We haven't trapped practiced, true. Ilysm in about a hundred years but there's enough there that that it will still have the same result and printing all that money. the other thing I'm going to say, Take what the experts say with a great big grain of salt. Go back to Hurricane, Katrina. They told everybody get to the Superdome And everyone went. And the horror show that happened. After that was so bad that the Saints owner, Mickey Loomis called in a priest.

1:20:33 To basically exercise the whole Superdome rapes, murders beatings whatever. But people listen to The Experts The same people who created. This mess are the ones trying to tell you that there's nothing to see. And to move along and maybe I'm wrong. If the spirit is telling you something different go with that. But if the spirit is telling you something is wrong, listen to that. And then prepare because it's is, as sure, as I know gravity works at some point, this all comes to you.

1:21:13 We can't keep kicking the can down the road and we've done that for a long time in my lifetime since the.com bubble. Burst, we have just kicked the can down the road and we have exacerbated the problem to the point now, Now. Where I believe this next collapse. Will be biblical in nature. Please please, please prepare. Now Kelsey, if you think I was hyperbolic there, if you think I was off base somewhere, please push back on me on that. I don't feel that at all. I like I said before, I feel that things are out of control. In terms of being able to manage it very well and have been for quite a while and it's It's a matter of time but we're probably much closer to this point than farther away from it. And and again when you remember that, the effects of inflation are cumulative and unpredictable as well as becoming more volatile every time there's a crisis event. It's worse than the last one.

1:22:32 And it will be more and more difficult to sweep it under the rug. So I and I agree with you. Is the one one thing that definitely is clear, is whether it happens next month or next year, whatever it could very well happen tomorrow versus a year or two from now, but it will be that much harder to come out of it because once it does occur. We'll probably stay there for a decade or two. We have thoughts that it will ever get better, you know. I remember when 08 happened.

1:23:21 I had a lot of free time on my hands so I read a lot about economy. And I remember when I read the last book on it and I just kind of shut the book. I remember thinking, I am more scared of the feds response than I am to the crisis itself. And I think because we've kicked the can down the road so long that's why it's going to be a decade or two. I think of Devastation. I don't know how else to put it. I know I keep using words like that and I'm trying to be measured but it's really what I feel at my core and if I'm wrong you'll never meet a man who's going to be happier to be wrong. Then I will be Well, you eat what you said there about their response of the fed and the government is exactly the unknown and the bigger vulnerability we have because that's the reason the depression lasted, as long as it did because the government resisted the economy's effort to cleanse itself, and if they had let that run, instead of trying to fight it, it would have worked itself.

1:24:32 Self out much better. So, the response. Historically, speaking tends to be that, whatever the problem is, it will be worse and last longer because of interference and intervention by the Federal Reserve and the government. What scares me the most on this is that really the only way I could see out of this Is another horror show, right? Which is a digital dollar? Right. A currency a currency. Yeah, a Currency Reset.

1:25:15 But in doing just a little bit of research, every time that's been done in any other part of the world, you can Bank on the dollar you have now being 40 percent of its value. Before the reset. Yeah, there's there's so many speculations about these things and on a functional basis, they don't make a lot of sense. You know, one thing is that currently we do have a relatively stronger dollar and I'm not talking about where it is over the last hundred years.

1:25:56 But the another thing is that regardless that what are you going to do? We are still coming to people and saying, here's something that's worth something that has no power, right? And it's better that what we did have, which used to have value, but doesn't yeah. And I'm like, What's the difference? What do I can't now. There's a difference between accepting that being forced to accept, right? Okay, so we don't know how that's going to play out, you know, we don't know what specifics there would be and what it would be asked to do in order to save our economy.

1:26:49 They're going to, they're going to do something. Now again, if the dollar is an issue or maybe they just have a plan that they feel is going to give them more control and finding a way to put it in place is the issue. Not so much that they have to come up with an alternative. No, it's more concern of how can we get this in place? And well, let's you know, manufacturer and event. Let's create a problem and and there is some historical precedent for some intervention there, you know, there's there's some financial and economic events that It's kind of funny how the drawing plans were on the board before the event for the solution to the problem that occurred, right?

1:27:44 So yeah, we'll have to see Kelsey, dude, I appreciate it so much. Is there anything else you wanted to say before we wrapped up? No, I think that's good. I think we covered the things we wanted to. I feel pretty good about it. Fantastic. Well, dude, I have a Wind that not you're already in my contact list, but I have a feeling that we're going to be talking a lot more in the coming weeks. Appreciate it very much. I'll look forward to it. Alright, bye everybody. You're listening to the Mormon Renegade podcast.