Commentary. Interest rate hikes by the Federal Reserve and the European Central Bank have put the US banking system at risk of a credit crunch, with the failure of mid-sized banks a structural problem, not an isolated event.

The savage Sundays of casino capitalism

“And God blessed the seventh day, and sanctified it: because that in it he had rested from all his work which God created and made,” Moses wrote (Genesis 2:3). On Sunday, God rests, while the bankers don’t. That must be why they’re all going to hell.

I don’t know if you’ve noticed, but it is on Sundays, usually late at night, that modern capitalism works at its “finest” – that is, it bails out banks with taxpayers’ money (money from the man in the street, because millionaires don’t pay taxes, having written their own tax rules).

Three weeks ago, the Financial Times, which considers itself entitled to tell even uncomfortable truths because the rabble doesn’t read it, published an article with the title “Are banks on the edge of another 2008-style precipice?” – with a subtitle saying there are “good reasons to hope not.”

On Wednesday, Jerome Powell, the chairman of the Federal Reserve (the central bank of the United States), again raised interest rates by 0.25 percent, immediately followed by the European Central Bank. This was after he spent Sunday amicably persuading JPMorgan Chase bank to buy First Republic – as “amicable” as the unexpected visit of two armed gentlemen wearing hats can be to Don Corleone himself. Negotiations between regulators and JPMorgan were not easy: FDIC (the banks’ insurance fund) had to provide, as an incentive, $13 billion, after completing what the press release called a “highly competitive bidding process.” For his part, Jamie Dimon, the CEO of JPMorgan Chase, said slyly, “Our government invited us and others to step up, and we did.” No, that’s not a parody, he did in fact say that.

In a tribute to transparency, the new owners wrote that they had taken over the “substantial majority of assets” and “certain liabilities” of the bank. The key word here is “certain.”

Is it that they bought the bank but not its debts? And what happened to the debts? Just to get an idea, the three banks that failed in 2023 were larger than the 25 banks that collapsed in 2008. To be precise, in 2008, the assets of the 25 failed banks amounted to $526 billion, while today, the assets of Silicon Valley Bank, Signature Bank and First Republic Bank total $532 billion.

As we have written, today the insolvency of many banks is not an occasional phenomenon but a structural one: three have failed in the United States in the last two months. To this we should perhaps add the fact that, in the era of casino-capitalism, bank bailouts are the tax we all have to pay for a few to continue to get richer. US Treasury Secretary Janet Yellen has her hands full with teetering US banks: after Silicon Valley, Signature Bank and First Republic, there is a long list of other institutions that could go belly up, and as early as this Sunday it could be the turn of PacWest, another mid-sized bank, whose shares had dropped 50 percent on Wednesday.

Why? It’s simple: research published in March by Erica Xuewei Jiang and others (“Monetary Tightening and US Bank Fragility”) explained that “The US banking system’s market value of assets is $2.2 trillion lower than suggested by their book value.” Translation for the uninitiated: rising interest rates are strangling seemingly healthy banks.

Is this a uniquely American problem? It doesn’t seem to be.

As I wrote in this newspaper in March, the Swiss government had spent the Saturday and Sunday of March 18-19 looking for someone to take on Credit Suisse. In the end, the regulators convinced UBS by providing, as a “cherry on top,” a 100 billion Swiss franc credit line. Finance Minister Keller-Sutter had been keen to point out that this was not a local problem: “The US and the UK were very grateful for this solution … they really feared a bankruptcy of Credit Suisse.”

In other words, the interest rate hike decided by the Federal Reserve a few months ago, followed by the European Central Bank, has turned the US banking system into a powder keg, and no one really knows what will happen when the lit fuse reaches the gunpowder. The most likely scenario is an imminent credit crunch, or the closing of the credit spigots because no one trusts anyone anymore.

As we merrily go from banking crisis to banking crisis, the TV and newspapers present them to us as isolated and unpredictable events, like the eruption of the Mauna Loa volcano or the fall of a meteorite in Yucatan. The truth is precisely the opposite: banking crises are part of the operating paradigm of today’s capitalism. Especially on Sundays. Let’s see what Monday’s news brings.

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