Where We Are This Week 05/09/2023

First Republic goes kaput, Putin doesn't go kaput, and the press is, decidedly, kaput.

I never want it to seem like I’m dwelling on the negatives of life. Generally, I do try to balance the grim and cynical with the hopeful and beautiful - not so much this week it would seem, however. But, that doesn’t mean there’s not always a plethora - Jefe, what is a plethora? - of things for which to be thankful.

My wife and I and our families are celebrating our daughter’s birthday this weekend which is both a statement and an event that is profoundly surreal.

One of my closest friends just celebrated his child’s third birthday and another member of our cohort welcomed his third(!) into the world just this week. And yet another of mine and my wife’s comrades are set to bring one more little human into the mix in the coming months. Blink and you’ll miss it.

I know that I write - and talk - about it a lot but it’s just astounding to be surrounded by all of this burgeoning life. It’s nothing short of psychedelic being in the thick of the living. I’ve always done it - the living thing - but never have I felt more of a participant.

I try not to take for granted the blessing that no matter how much we muck it up - and we do that plenty - that everywhere I look, I’m surrounded by the miraculous, the divine, and the fantastic. But maybe, I’m just looking in the right direction.

---

First Republic but not the last

( And the Rich get Richer )

This is essentially a continuation of last week’s WWA where we discussed how the hits of 2008 were being played on Top 40 radio again. I’d love it if WWA didn’t become a weekly installment of me chronicling the demise of our financial system, but it seems that regulators and lawmakers are fresh out of new ideas, and damnit if they’re not just plumb tuckered from all that work they’ve been doing!

On Monday, JP Morgan got a lot richer. Well, I guess a bank of their proportion is always getting a lot richer, but I mean a lot richer. First Republic Bank was seized by government regulators and a sale to JP Morgan was finalized. That morning, over eighty of First Republic’s locations across the nation opened under their new name.

The collapse of First Republic is the latest in the continued fallout from the SVB and Signature bank runs two months ago. First Republic’s customer base was mostly of the very affluent, and too many of them decided to pull their deposits out of the institution as interest rates rose and scrutiny heightened.

For the time being, this most recent failure appears to be the extent of the contagion that we saw in March - not the first of a new line of dominoes.

However, what it does signal is the incredible precariousness of our financial system. First Republic wasn’t siloed in the tech industry like SVB, their business was mostly comprised of single-family residential mortgages and the various tedium of the wealthy. As its depositors pulled out over $100 billion in a few short weeks, the bank was unable to stave off the vultures despite private attempts to rescue it.

Government regulators, who apparently weren’t doing their job in the first place, happily facilitated the sale to JPM while the FDIC will be tasked with reconciling the $13 billion in losses the failed bank had accrued. Government officials and politicians alike, just as they did with SVB and Signature earlier this year, attest that the cost will not be borne by the taxpayer, but rather by the insurance fees these financial institutions are required to pay.

As if those fees aren’t already baked into our costs of doing business. As the insurance fees will surely rise - because the maximum insured deposits of $250,000 is now clearly a joke - so will the fees and penalties paid by the average consumer. Does this pie taste like a million bucks or what?

SVB, Signature, and First Republic all grew exponentially during the preposterous lending rates of nearly 0% doled out by the feds during the pandemic. With the coupling of Jerome Powell’s hand on the throttle of the interest rate and the stalling American economy, it proved to be too much for the San Francisco outfit and thus its acquisition was facilitated by the federal government.

Already a behemoth, JP Morgan will extend its lead as the largest bank in the country. As of April, JPM held just over 16% of all of the nation’s private deposits; with the addition of First Republic, that number is creeping toward 1/5 of all deposits inside the United States.

\As a result of the risky lending practices adopted by banks all across America and the intensifying codependence of the public and private sectors, it’s only natural that trend will continue as depositors will be taking their money to where they think is safest - the behemoths.

Close to 50% of all deposits in the United States are held by five banks - Citibank, BOA, JPM, Wells Fargo, and US Bank - and their market share is only going to improve as time goes on.

Weren’t we supposed to learn any lessons from the 2008 crisis? ‘Too big to fail’ was supposed to be an accident, a moment where the government sheepishly issued a mea culpa but vowed to not do it again. Now, it’s the rule.

It’s not a matter of if one of these integral institutions hits hard times in the near future, it’s a matter of when and who.

The FDIC recently issued a statement regarding the collapse of SVB - and while they do shift some blame, rightfully so, to the abysmal risk assessment done inside the bank - the report admits that government regulators weren’t doing their jobs well enough to avoid the impending crisis.

Well, that’s funny. I’m sure they’re doing their utter best in other areas inside the banking industry, though.

Oh, additionally, there is a regulation on the books that would prevent a bank that held 10% or more of the nation’s deposits from taking on any more by purchasing another bank but evidently, the feds had no qualms about making an exception for JPM.

The original JPM, the actual person, bailed out the United States government in the late 19th century after the Panic of 1893. Detractors of Morgan’s unprecedented bonds purchase accused President Grover Cleveland of selling the US government to Wall Street. I wonder what they’d make of us now.

---

Putin Assassination Attempt

Well, sort of. In a pretty shocking video that went viral on Wednesday, a drone could be seen being shot down over Moscow skies.

I’m something of a novice when it comes to analyzing warfare videos, and while I do believe these drones had the capability to cause the destruction they are purported to have intended, they looked to have been easily thwarted by Russian defense systems.

So, it’s a little hard to believe whoever sent them were hedging their bets on a successful mission.

Understandably, Russia reported that the attempted drone strike was an attempt on President Putin’s life orchestrated by Ukraine. Yes, you should take that with a grain of salt, and realistically, at this point, if your blood pressure isn’t skyrocketing from all this extra sodium, you’re doing it wrong.

Pro-Ukraine outfits will immediately claim that the ‘attack’ was a Russian false flag operation. Ukrainian President Volodymyr Zelenksyy has already denied any involvement from Kyiv in hopes to distance himself and his military from the operation.

Thanks to the Discord leaks a couple of weeks ago, we do know that China’s redline for involvement in the conflict was a strike in the Russian interior. Hypothetically, if Russia were desperate for support from its Chinese allies, faking the crossing of that ‘redline’ wouldn’t be a terrible idea.

I’m not entirely discounting that possibility, but it seems highly unlikely that Russia would feel the need, or would want to risk significant escalation by involving the Chinese. Let’s take assess the various incentives involved here.

Before the attacks, I outlined what I think Russia’s strategy is for this stage of the war in a note on Monday’s

The Liberal Patriot

's post, so I'm bootstrapping that for today's post.

As we have previously discussed, Russia is winning this war. I mean that as a description of the current lay of the land, not a prediction - that does, however, seem like the most likely outcome. The Kremlin continues to make significant inroads capturing territory well within the borders of Ukraine and as the war has dragged on well into its second year, Ukraine’s Western allies are starting to appear less steadfast than they were in the spring of 2022.

French President Emmanuel Macron met with Xi Jinping last month and was notably warm to the idea of China playing a significant role in brokering peace talks. Macron even said, rather directly, that Europe should resist the pressure to become “America’s followers.” Stateside, Republicans control the House of Representatives, and it looks as if military support to Ukraine won’t be as readily available as it once was.

The conflict has settled into the pace and grit of the pre-nuclear era. Updates are fewer and further between and news from the front is no longer leading the line every evening. The West is losing interest.

Moscow has already released its statement on the attacks and has promised it will retaliate when and how it sees fit. But, the way I see it, escalation is the last thing Russia wants. If Russian forces exacerbate the state of emergency in Ukraine, it will only serve to galvanize the Western public and their governments in further bolstering Kyev’s defenses - and, worse, offenses.

It’s not obvious that Russia would prefer heavier Chinese involvement in its ‘special military operation’ either. Activity from Beijing would surely entice America to increase its support for Zelenksyy. What do you call a double-proxy war?

The Kremlin will do its best to keep Ukraine weakened, occupied, and further isolated. My best estimation is that the attacks on Putin were no more of a false-flag operation than the Nord Stream pipeline attacks were - just slightly more clever.

The attacks were likely never intended to actually assassinate Putin but elicit a violent reaction. Despite the war being reduced to a dull roar for the time being, the conflict still presents the most perilous predicament we’ve found ourselves in since the Cuban Missile Crisis. The nuclear option is always on the table and is only ever one ill-conceived moment away.

We can only encourage and pray that our leaders act with the wisdom and resolve for which this moment calls.

In light of that, we’re doomed.

---

Freedumb of the Press

The White House Correspondent’s Dinner was this past weekend. It is, and always will be, one of the most nauseating events of the calendar year.

The who’s who of press rooms of DC, New York, and LA gather together in a ballroom of opulence and unrealized irony to celebrate the relationship between journalists and the federal government.

To be clear, there should be no mutually shared admiration between these two entities. Yeah, it’s nice that they can all play together and get along. But wouldn’t it be nicer if the press corps actually played an adversarial role against the state?

Journalists are supposed to represent the people, not themselves yet the whole evening is a chance for everyone in the industry - and that’s what it is, an industry - to give themselves one long, caressing, pat on the back.

It’s also a moment where they reveal the truth to the American public; the journalists of Fox, NBC, CNN, and the like may posture as opponents but are really on the same team. And I’ve got bad news for you my friends, they don’t play fair.

President Biden, after all of the light-hearted ribbing and schmoozing, sang the praises of a free press and avowed America’s commitment to the whole enterprise. He demanded the release of Evan Gershkovic, the Wall Street Journal writer detained by the Russian government on accusations of being a spy. Biden was right to demand his release, but the extent to which he has sought to enable Gershkovic’s release is murky at best.

“We are here to send a message to the country and, quite frankly, to the world: The free press is a pillar, maybe the pillar, of a free society, not the enemy,” Biden said. “Journalism is not a crime.”

Julian Assange, an Australian journalist, is still being persecuted by the American government. Obama, Trump, and now, Biden have continued to seek the extradition of Assange so that they may try him for violations of the Espionage Act.

Biden had the gall to profess his love for the press and claim that acts of journalism should not be subject to state persecution in a room full of - you guessed it - members of the press.

And what’s worse? They cheered.

---

To a better next week.

Cheers,

~FDA