During the last session, investors piled into financial #stocks with $XLF up 1.26%, and several major banks had a good green day ahead of the next #FOMC.
Since October, $XLF is up 24% despite banks’ books starting to have more holes than Emmental cheese 🧀 (and some even starting to smell like rotten eggs). If Jerome Burns doesn’t explain today how banks are going to be able to deal with their mounting losses without the #BTFP, it’s fair to expect $XLF to quickly dial back all the last (illogical) bull run.
The #FED discount window is clearly not a solution to replace the #BTFP, as I have already explained before (see post TwitterX). Whatever new 🐇 comes out of Jerome Burns’ 🎩 today must have the following characteristics to ensure the GFC2.0 doesn’t start soon:
🚩 Allow banks to mark their assets at a much higher value than what they could fetch a price for in the open market
🚩 Allow banks to remove the ☢️ loans and securities from their books for a very extended period of time to free up capital
🚩 Allow banks to potentially access liquidity even without the immediate pledge of eligible collateral
I am aware that what I’ve written is totally insane, unethical and unfair to citizens, but that is pretty much the case for any type of emergency facility the #FED has engineered through the years no? However, the #FED is clearly becoming more and more creative to avoid them being pointed out as another broad banks bailout at the expense of honest taxpayers.
Considering the banks’ situation is worsening, then we shouldn’t be surprised whether the #FED stretches the envelope even further to keep the whole system from crumbling like a house of cards.
Today feels like one of those days when the 🍿 consumption will be pretty intense.
Read on TwitterX