The spectacular implosion of Silicon Valley Bank (SVB) and mounting troubles for Credit Suisse, among contagion fears spreading to other parts of the Global Financial System, marks a new and dangerous phase of weird uncertainty and extreme volatility, which I compare to the fictional Alice in Wonderland saga, where she goes down the proverbial rabbit hole of “unreality”.
While fingers are being pointed at the Federal Reserve and the regulators for SVB’s collapse, one has to remember that the era of “easy money” is over. Skyrocketing inflation is “forcing” the hands of Central Bankers worldwide, leaving them with no choice but to raise interest rates. This creates a vicious “doom loop” of banks and other financial entities seeing their net worth evaporate, making them borrow more to make up for their lossses.
However hard the “men or women in charge” try, the reality is an “unreal” outcome where social media driven “bank runs” and “induced panic” by vested interests stoke volatility. For instance, this was the case with SVB as well, with the “alleged” role of Peter Thiel and other “insiders” being talked about. Moreover, SVB’s “rapid” descent into the black hole is also the first “real” financial crisis of the Digital Age.
Having said that, the role of fraud and excessive risk taking is also apparent as the aspect of plain criminality, with Credit Suisse being the most prominent example. On tge the other hand, these are “too big to fail” and “too big to save” at the same time, the clear contradiction due to a “gone too far” case. The decades of money for the taking and the “double whammy” of Pandemic and Putin leaving everyone and their dog “frazzled” is adding a new dimension to the present “unreality”.
The point here is that despite the “protections” put in place after the Global Financial Crisis of 2008, it is “deja vu” again as we haven’t learnt from the “mistakes” that led to The Great Recession. Indeed, some are even calling the “growth” between 2008-15 a “fictitious” gorging on easy money and hubris. More so, the Big Tech “titans” for whom Covid represented an unprecedented opportunity to be as “unreal” as Alice with their “irrational exuberance” now leading to extreme volatility.
In short, the party is over and the music has stopped. What comes next is a “wash, rinse, repeat” cycle of the aforementioned too big to fail financial entities becoming too big to save, and in an Orwellian twist, being “saved” in the nick of time, without the word “bailout” being uttered in a manner of blasphemous usage. I do believe that these ‘shenanigans” would be “delaying the inevitable” as the best course of action would be to return to “sound” money as opposed to “funny” money, as has been the case since Nixon “abandoned” the Gold Standard.
Of course, as we live in the “real” world, volatility is part of the game and uncertainty is par for the course. However, where we become like Alice is when technology driven exponential acceleration meets the above, and leaves us with a Kafkaesque rabbit hole. If you don’t believe me (just like Alice found herself being made fun of), I refer you to the “abrupt” collapse and equally swift “rescue” of SVB giving us a “surreal” experience of watching a “live” performance, just that the “drama” was as unreal as any other Operaic show.
Back to reality (a term much popular in Corporate America) can happen either when Putin “ceases” or Powell “pauses” – each feeding on the other. Moreover, we now have Biden “chipping” off Xi’s strengths and so, this is yet another volatility inducing dimension. So, here we are folks! Grab some popcorn and plonk on the couches or beds, with the “unreal” reality tv show available for all to consume, thanks to 24/7 global media.