TEK2day

Operating at the Intersection of Technology and the Capital Markets

The Latest Bank Bail Out: UBS To Acquire CSFB.

UBS agreed to acquire CSFB. Sure, $17 billion in high yield debt was wiped out (perhaps we will see high yield downgrades as a result elsewhere across the landscape of financial issuers?) Despite the writedown of $17 billion in high yield debt, I hesitate to characterize this deal as a “bail in” because the Swiss Government stepped in to this deal in a big way via the Swiss National Bank’s $100 billion back stop.

  • Swiss Government’s $100 billion backstop, I mean “bail out”. The SNB provided a $100 billion credit line to UBS to help it absorb CSFB.
  • What’s next? It’s clear that Central Banks globally prefer to inject Trillions of Dollars and other currencies into Banks and economies rather than allow the global economy to suffer pain and purge itself of zombie companies and undue risk. The Central Banker remedy that is now rolling out globally is a far greater problem than scores of bank failures.
  • Wednesday’s Fed action. At this point I do not care what the Fed does with its Fed Funds rate nor QT as the Fed frankly always does more harm than good. Fundamentals barely matter any longer which is why so many smart investors got out of the business years ago. How do you meaningfully outperform other Asset Managers when Central Banks underwrite economies? How does one meaningfully outperform when private Capital Markets are no longer private, but are the domain of perverse monetary and fiscal policymakers? Eventually Central Banks will no longer be able to underwrite economies as fiat currencies won’t be worth anything. However, at that juncture we will have larger problems than failing banks or recession.