I assume that you are like me and don’t really understand what is happening. I see a lot of flash and almost zero in details. Friday, the news broke that Silicon Valley Bank was seized by the FDIC and that was really all of the news of substance. This combined with Signature Bank last Sunday are being billed as the 2nd and 3rd largest bank failures after Washington Mutual in 2008.

For those of us seasoned to remember 2008, Washington Mutual was the largest consumer facing bank to fail but there were some even larger institutions like Lehman Bros and Bear Stearns that were probably indicators of the the seriousness of the problem. I did some investigation to try and understand what was happening here.

What Happened: The Fed has been raising interest rates since last year to combat inflation. Remember, we have been consistently told that there is no inflation? These two banks have been highly leveraged in debt to asset ratio because their primary business has been loaning money. Credit has been much stingier in this increasing interest rate environment so patrons have been taking money from the bank rather than leaving it in the system and a bank collapse has ensued. From there, the institution no longer has enough cash to continue to operate and thus is seized by the FDIC.

What exactly does this mean? In practical terms, nothing. The FDIC is going to assume operations of the bank and transition operations to another suitor when found. In essence, your savings account is still there and your debts are still due. I do imagine that loans in progress are probably suspended if not terminated. Other than that I don’t see much in the way of changes.

I think that what this says about what is not on the surface is pretty compelling. The fact that more than one institution has failed within days is a sign of some pretty strong sickness within the landscape. The reason I say this is that one bank is based in California and the other in New York. We cannot say that this is a one off situation nor can we say that it is environmental because of geography.

I don’t claim to have any sort of insight or even knowledge of the business but I think that things must be much worse than we realize because of these events. Please, don’t be fooled by lies. We are smart enough to know that if something doesn’t smell right that it likely is not right. We don’t need to have specialized industry knowledge to know that that wrong is wrong and we shouldn’t be convinced otherwise.

Don’t forget that this is business and shouldn’t be construed as personal. The people running these institutions are doing exactly what they are permitted by law and expected by shareholders to do. That would be run up debt and leverage the institution to the brink of failure in an attempt to wring every last cent out of the company. Of course, you may not know what the line is without crossing it and that appears to be what has happened.

Where does this leave us? We already know that liars lie, we know that cheaters cheat and we know that players are going to play the game. My recently surfaced attitude of not being angry at bad guys leads me to be pretty ambivalent towards all of this. This being said, some day this is going to be real. Get your financial house in order by eliminating debt and build some level of savings. Freaking out gets us nowhere. Getting prepared for issues is something tangible we can do no matter what happens.

End Your Programming Routine: To be sure, this is another kick the can down the road moment. It just so happens that when the can was kicked, the kicker also slipped and fell down. We will have to wait and see if the fall broke our leg or not and let’s hope that while we are on the ground that we don’t get run over by a car ending it all. I am saying don’t panic, don’t make it more than it is but don’t stick your head in the sand either. Be situationally aware, remember one of the 100 skills a man should have.