SEC Slip-Up Hints at Fresh Financial Fears

Should you be concerned? [The Daily Reckoning] September 20, 2024 [WEBSITE]( | [UNSUBSCRIBE]( SEC Slip-Up Hints at Fresh Financial Fears Baltimore, Maryland [Adam Sharp] ADAM SHARP Dear Reader, Oops. Last week the SEC accidentally published internal commentary along with a speech by Chair Gary Gensler. Here’s one of the comments which was mistakenly included. I strongly recommend that a sentence be placed here (or somewhere [sic] in the first part of the speech) to reassure markets that you are not making the speech because you think there is an imminent crisis. [image 1] These internal comms were quickly deleted from SEC.gov, but not before the page was [archived]( for posterity. The slip-up reveals anxiety among regulators over messaging. Mr. Gensler’s speech addressed financial crises, bank restructurings, and the importance of public disclosures. In it, the SEC Chair rightly argued that depositors need transparency to make good decisions. If a large financial institution is restructured, the market’s need for disclosure doesn’t go away. Indeed, I believe the market’s need for robust disclosure becomes all the more critical. First, it is the best way to ensure that investors, counterparties, and depositors will have sufficient confidence to remain with the firm. It’s a solid point, transparency does need to improve. But there’s something else missing here that we need to discuss. Back in June, Daily Reckoning’s Jim Rickards [warned]( that the banking crisis may still have legs. Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage. In the article, Mr. Rickards [pointed out]( a key flaw with Mr. Gensler’s argument that transparency should allow depositors to make wise decisions. That flaw is the speed at which money moves in today’s world. On the other hand, this crisis could reach the acute stage faster. That’s because of technology that makes a bank run move at the speed of light. With an iPhone, you can initiate a $1 billion wire transfer from a failing bank while you’re waiting in line at McDonald’s. No need to line up around the block in the rain waiting your turn. When a crisis hits, rational analysis is often the first casualty. In this world where money moves in a blink, if you hear about potential issues at your bank, most of us aren’t going to pull up its financial filings, spend hours analyzing them, and then make a decision. We’re going to move it to a safer bank (or a mattress, or into gold) ASAP. So while it is good to hear that the SEC Chair favors more transparency, it doesn’t do much to allay our concerns. More disclosure could actually accelerate a crisis due to the velocity of information and money today. If a crisis hits, things can happen fast. [CRITICAL Election Forecast Change From Jim Rickards]( I believe Donald J. Trump just won the 2024 election. But NOT for the reasons you may think… If I’m right… The days leading to the election will cause complete and utter chaos in the markets. [You need to see my updated 2024 forecast in my emergency election briefing.]( [Click Here Now]( Why The ‘Imminent’ Concern? Let’s get back to those accidentally-published internal comments. An SEC staffer was concerned that Mr. Gensler’s speech might give the impression of an “imminent crisis”. Whenever regulators discuss the solvency of financial institutions there’s a risk that it is interpreted negatively by markets. It’s a valid worry. Unfortunately, in this market, there are some excellent reasons to interpret the remarks in a cautious light. Let’s start with the latest data on unrealized losses at banks. [image 2] Remember when this chart was making the rounds in 2022 and 2023? The updated [FDIC data]( continues to show an unprecedented and sustained rise in unrealized losses at banks. Notice how small the losses during the global financial crisis appear in comparison. These are unrealized losses on banks’ bond portfolios, primarily caused by the Fed’s rapid interest rate hikes. When rates rise, the value of existing bonds (with lower yields than new bonds) falls. This is what caused the failure of Silicon Valley Bank. Unrealized losses stand at $512 billion as reported by the FDIC, down from a peak of around $655 billion. The data has improved a bit, but bank balance sheets remain stressed at historic levels. Ongoing interest rate cuts should help stem the unrealized bleeding at banks. As rates fall, the price of bonds will rise. But lower rates should also mean lower profitability for the lending side of the business, so it’s somewhat of a double-edged sword for banks. Even if the unrealized loss situation gets resolved, there are other potential black swans to monitor. After all, why is the Fed planning to cut rates, apparently with haste? Are they simply trying to get ahead of bank losses and soaring debt servicing costs? Or do they potentially see a recession or financial crisis in the near future? [Man Who Predicted Biden's Drop Out In October Issues Shocking New Election Prediction]( [Click here for more...]( After calling Biden's withdraw, former White House advisor Jim Rickards issues an even more shpcking election warning... [Watch This Video To Learn More]( Let’s review our situation. The Fed is preparing for economic turbulence. Gold is trying to tell us something as it powers to new all-time highs. Job growth for the year was recently [revised]( sharply downward. And now regulators are making speeches about restructuring large financial institutions. It sure feels like something’s brewing. If you want to be proactive and check your bank’s unrealized loss ratio, you can use [this free tool]( by Florida Atlantic University. This screener isn’t perfect and doesn’t tell you everything about a bank’s health, but it's a start. Besides moving to a better bank, gold and silver remain an excellent way to prepare for potential calamities. Tomorrow, we’ll look at the key role of sovereign hard assets during these chaotic times. Sincerely, Adam Sharp Guest Contributor, The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. Do you really think Kamala will be the 47th President of the United States?! Jim just put the finishing touches on a major update to his 2024 election thesis and it needs your viewing ASAP ([click here to watch now](. And it all centers on a massive shock the former White House advisor believes is being IGNORED by the mainstream media… We’re talking about targeting gains as high as 100%, 200% or even 500% in the coming months… It’s thanks to the discovery inside this confidential folder, and the three specific “Trump Trades” Jim has just identified. [click here to play]( Which is why Jim just recorded an emergency briefing to help you get ahead of the curve.  It’s 100% free to attend. You just need to [click here now to watch Jim Rickards’ Emergency Election Briefing.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Brian Maher] [Adam Sharp]( has been a financial writer and Fed watcher since 2008. He is a contrarian who specializes in non-traditional assets. Adam founded and sold Early Investing, a newsletter about alternative investments. Sharp lives in Maryland with his wife, two children, and two dogs.. [Paradigm]( ☰ ⊗ [UPDATE PREFERENCES]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here,]( or manage your newsletter preferences [here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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