One of the basic problems with AI is that algorithms are making decisions without moral human conscious. We are seeing a similar reaction in the banking industry. SVB collapsed after many of its start-up depositors made a run on the bank amid a venture capital crunch in the tech sector. Then on Sunday, New York’s Signature Bank also closed after a run touched off in part by panic over Silicon Valley’s shuttering.
A Bank survives and thrives by taking deposits, on which they pay interest, and then lend out the money at a higher rate. But depositors can now withdraw their money in a heartbeat, while the loans can’t be recalled or sold off as quickly. Reality is that as interest rates have soared, bonds that acted as bank collateral have lost value, and, therefore, banks don’t have the cushion they once did. What happened last week is that depositors in the know with close ties to those in the know, pulled their companies money out of SVB, which triggered a bank run not unlike The Great Depression.
Every bank in America has the deposits insured but only up to $250,000 per person in most cases. Problem was, almost half of all U.S. bank accounts are greater than $250,000, and thus uninsured. At SVB bank 90% of the accounts were over $250,000
Treasury Secretary Janet Yellen and Fed Chief Jay Powell announced that the government will now reimburse the uninsured depositors, to prevent a nationwide run. In my mind this creates additional problems instead of solving the existing ones. The President stated that it won’t cost taxpayers but when the government bails out a bank it is ultimately the taxpayers who guarantee those loans. What is even worse is that the message to bankers is the opposite of what it should be. Instead of being wise and making sure this doesn’t happen again the real message is don’t worry about your bad investments. Go ahead and toss the coin. If you win great but if you lose don’t worry we will bail you out.
On top of this look at the real folks who were independent contractors with families working for these institutions. The plumber, the electrician, the guy who cut the grass. When the bank goes down it is bankruptcy so all these folks won’t see a dime. Meanwhile the executives that hired them got bonuses and withdrew their money.
On top of all this the Fed will likely stay on track and raise interest rates focused on their DATA. Data is based on algorithms and just like AI without a human side it will fail. As I write this the futures are down 600 and banks in Europe like Credit Suisse are following in our footsteps.
Just my 02. and I am only a photographer ………
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