Explaining The Bank Crisis

 To explain the current approaching banking crisis.....you have three key issues.

First, since the 2008 mess.....fixing the banks has not been a priority....so a fair number of problems still relate to business practices allowed to continue.

Second, we have this brewing problem with treasury bonds that the banks bought at inopportune times....with some holding bonds that aren't paying well.  On their books, the crappy-paying bonds can't be resolved or  fixed.  BoA stands in the middle of this particular problem.

Third, we come to a magnificent issue of failed commercial real estate of epic proportion.  

For decades....people and companies came to banks for commercial real estate loans.  They wanted to  operate hotels, office-buildings, restaurants, bars, and malls.  X-property was worth $10-million....the bank made the loan, and up to the Covid-era....this strategy worked, with banks making money.

Covid and the home-office routines....with diminished business....messed-up the whole strategy.

Example?  X-company would own a office building with 25 tenants (lawyers, doctors, accountants, etc).  Home-office crapped on 8 of the tenants, and they don't need max-office-space.  Those eight ended up exiting the building.   New tenants?  They can't be found.  Income from the remaining 17 tenants?  It's enough to cover the mortgage, but not enough to cover maintenance, security, and operational costs.  Selling the property for what you paid for it?  Won't happen.    So eventually, you write up a bankruptcy situation  and approach the bank to hand the the keys. Bank selling it for what the loan was for?  No....that's a wish but won't happen.

So the bank goes to a auction, and discovers the $10-million structure is worth around $3.5-million.  Some bank official signs off on the 'loss', and the bank sits there quietly with a growing list of losses.

This occurs at the local, the regional and the national banks.

Quietly, banks are escalating fees....to cover losses, and the loss-sheets are reaching a point where it'll be public knowledge.

If you notice....the Berkshire have dumped a lot of stock in banks in the past six months....sitting on a ton of cash.

So, what's the be the end?  Banks admit this serious loss, and need saving.  Sadly, FDIC doesn't have the money to cover this.  They would turn to Yellen and Congress.  Well....Yellen would typically go and sell treasury bonds. Yet, at this point....who really wants treasury bonds, at 4.25-percent?  China?  No.  

My expectation is....by the end of January....this mess reaches the point where Berkshire is the ONLY ones willing to buy treasury bonds, but at some rate like 5.25-to-5.5 percent.  Debt issues for the United States?  OH YEAH....this will drag up a five-star mess....requiring either major cuts or major taxes. 

Oh, and if you were wondering....Berkshire has 330-plus BILLION ready to spend.  

BoA surviving?  Only if Berkshire helps them....meaning a massive amount of ownership/supervision by Berkshire in the future.

But this drags me to the key problem....all this excess commercial property....hotels, restaurants, malls, etc....the gov't has to absorb this and 'dump' it.  Where does it go and who would take on possibly tens of thousands of prosperities.....that have lost 50-plus percent of value?

As much as this election stuff involves Trump/Harris....it's really about who will inherit the mess, and if things match up to 1929. 

Ending my observation?  Well....ONE Berkshire share is currently (for the A-stock) around $666,000.  I will say if you could  just afford to buy one single share....it's likely to double in value within three years.