Federal Reserve's Emergency Lending Program Should Be Under Scrutiny Amid Bank Failures.
Tax to be introduced on stock buybacks.
Here is what we will be getting into today:
The FED bails out Silicon Valley Bank, after being bailed out by the FHLB in 2022.
Inflation Reduction Act Imposes Tax On Stock Buybacks.
Shadow Inventory Looming Over the US Housing Market.
Let's Dive In!
Website: Wall Street On Parade
Title: Silicon Valley Bank Was a Wall Street IPO Pipeline in Drag as a Federally-Insured Bank; FHLB of San Francisco Was Quietly Bailing It Out
Here are the key highlights:
Silicon Valley Bank (SVB) has failed, and Jerome Powell’s Fed has led the effort to ensure that $150 billion of the bank's uninsured depositors' money is treated as FDIC insured and available today.
The financial institution was deployed to facilitate the goals of powerful venture capital and private equity operators, by financing tech and pharmaceutical startups until they could raise millions or billions of dollars in a Wall Street IPO. The bank was also involved in managing the wealth of those startup millionaires or billionaires once they struck it big in an IPO.
Many of the former startup companies ignored the fact that just $250,000 of their deposits was insured by the Federal Deposit Insurance Corporation (FDIC). Dozens of publicly-traded companies made filings with the Securities and Exchange Commission indicating that they had large sums of uninsured deposits now frozen at Silicon Valley Bank. Furthermore, the Federal Home Loan Bank of San Francisco was quietly bailing out SVB throughout much of last year.
According to SEC filings by the Federal Home Loan Bank of San Francisco, its loan advances to SVB went from zero at the end of 2021 to a whopping $15 billion on December 31, 2022. The other FHLB borrowers' stock prices have dropped, and Silvergate Bank has announced that it will liquidate, and Signature Bank has been shuttered by New York State regulators, with the FDIC being named the receiver.
The recent explosion of borrowings by banks from the Federal Home Loan Bank of New York may be a sign of impending financial collapse. The Federal Reserve has a new emergency lending program, which allows banks to pledge U.S. Treasuries, agency debt, and mortgage-backed securities as collateral for one-year loans. This program may violate the statutory language of Dodd-Frank and accuses the Fed of rewarding hubris and enshrining moral hazard in the banking system. There also needs to be an investigation into why the Federal Reserve Bank of San Francisco failed to blow the whistle on the risky practices of Silvergate Bank and Silicon Valley Bank.
Newsletter: The Informationist Newsletter
Title: Stock Buybacks: The Good, the Bad, and the Ugly.
Here are the key highlights:
Stock buybacks, once seen as a tax-efficient move to increase shareholder value, are no longer as attractive and have been subject to criticism from political figures such as Warren and Sanders. However, Warren Buffett is defending stock buybacks as perfectly good business practice. The simple and often main reason that a company buys back its own stock is to boost the valuation of their shares. It can also delay capital gains taxes until the shareholder sells their shares and doesn’t hit them with ordinary tax on a dividend.
Companies also take on debt to engineer their stock higher, which can drain the cash reserves of the company and lead to a credit rating downgrade. In some cases, a buyback may be used as a cover for handing out generous bonuses to C-level executives, diluting shareholder ownership and obscuring the cost to the company.
President Biden’s Inflation Reduction Act now levies a 1% excise tax on all share buybacks worth over $1 million. Instead of just shrinking their shareholder base, companies could invest in their business itself, to buy equipment or other assets and/or fund research and development in their technology, and also pay employees to keep their talent and mid-level executives.
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