Running Out of Rabbits

What can the Fed do in the face of the growing list of bank failures? Absolutely nothing, according to Karl Denninger.

How’s PacWest doing?

Oh, not so good. Let’s see…oh, looks sort of like an impending zero.

But wait — First Republic was it, right?

Sure it was.

There’s no real problem here, right? The TNX was down a full percent yesterday because….. the Fed will save it all, right?

No they won’t.

Not because they don’t want to.

They can’t this time.

Oh, you think not eh? How’s your homeowner’s insurance premium? Your car insurance? Your food bill? You know, all that stuff you have to buy? Yeah, you’re reading this and you’re probably middle class or better. You’re doing mostly ok. You’re on the right side of the bell curve, right?

Half the people are on the left, and they’re not ok. For them that 20% increase means they are taking payday loans to buy food, effectively and sometimes literally.

That ends the game folks.

If The Fed tries it we get government and social collapse.

The Federal Reserve has surprised us before with its resiliency. It has certainly kicked the can a lot further down the road than I’d anticipated it would be able to in 2008. But sooner or later, no matter how skilled the magician, the hat runs out of rabbits.

UPDATE: The short-term anecdotal evidence tends to support the hypothesis.

Two more US regional banks saw trading of their shares suspended on Thursday, amid the worst crisis to hit the country’s financial sector since 2008. Regulators halted trading in Los Angeles-based PacWest and Arizona’s Western Alliance after their share prices fell dramatically. PacWest Bancorp said late Wednesday it was in talks with potential partners and investors about strategic options after its shares dropped by as much as 60%.