Billionaire Barry Sternlicht Says 1 or 2 Bank Failures per Week Coming – Rep. Alex Mooney Introduces a Bill to Help Banks Save Themselves.

Below is the article on the banking crisis, but first, a tweet pulled from Alex Mooney's Senate campaign X account:
  From a report by Zerohedge, “Billionaire Barry Sternlicht, Founder, Chairman and CEO of Starwood Capital Group issued a warning regarding America's regional banks.  He expects that regional banks will fail at a rate of 'one or two' per week. . . . Primary real estate lenders - community and regional banks – “are about to get whacked.”

"You're going to see a regional bank fail every day, or not — every week, maybe two a week," he said, adding that Fed Chair Jerome Powell's ongoing rate hikes will continue to have consequences for the real estate sector.”

"He's got a hard task with a blunt tool, and the consequence is the real estate markets are taking it on the chin because rates rose so fast. We could have handled this, but we couldn't handle it this fast," he said. "The 1.9 trillion of real estate loans, that's a fragile animal right now."

It is important to understand that Sternlicht is arguing one side of the risks as he hopes to influence Fed activity such that he can profit from interest rate reductions. As we face continued inflation, interest rate reductions are potentially disastrous for the American people.  This is because interest rate cuts would likely drive inflation higher, and, at a point, it will be even more difficult to control inflation.

A more practical approach to saving banks would be to allow them to save themselves, and for this Rep. Alex Mooney introduced H.R. 8153 to roll back certain parts of Dodd Frank.
 
The banks are in trouble in large part because of government overregulation.  Dodd-Frank was a partisan Democrat law led by marxist Barney Frank.  The democrats sought to diminish the use of derivative securities and financial products under a manufactured concern that these products caused the 2008 crisis -- and not the actual culprit, which was excessive mortgages, easy lending, no doc loans and "NINJA loans - no income, no job" - that all drove a real estate bubble of massive proportions and ultimately bankrupted Lehman Brothers and Bear Stearns.  

Barney Frank's attack on derivatives instead of mortgage issuers was no different than George Bush attacking Afghanistan when the Saudis destroyed the World Trade Center.

The misguided Dodd Frank law mandated that for derivatives, collateral be posted against losses as they occur.  The problem is that this made no sense for hedging transactions, where an asset of a bank that was hedged by a derivative would increase in value if the derivative fell or vice versa – so there was little need for this collateral posting.

Once Dodd Frank was implemented, banks basically ignored hedging as a tool of interest rate risk management given that they would need to post collateral despite an effective hedge being in place.  In other words, the cash flow risk of unpredictable and unnecessary margin made hedging interest rate risk expensive to banks.

Representative Alex Mooney, who is running for US Senate in West Virginia against the former Democrat Jim Justice, is looking to empower banks in his home state and nationally so that they could avoid posting collateral on effectively hedged assets.

In his press release Alex Mooney states that a 2023 study found that “over three quarters of all reporting banks report no material use of interest rate swaps” and “only 6% of aggregate assets in the U.S. banking system are hedged by interest rate swaps.”

Joining him on this bill as cosponsors are Representative Byron Donalds (R-FL) and Andy Ogles (R-TN).  Note, Byron Donalds is on the list of consideration to be the Vice President to President Donald Trump so his interest in this legislation is critical for its eventual passage early in the 2nd Trump administration.

You can contribute directly to Rep. Alex Mooney’s campaign at https://www.mooneyforwv.com/ and the Primary Day is May 14th – less than a week away.


 
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