Investment banker Whalen on bailouts: The public ‘will pay through inflation’

During a recent appearance on Chicago’s Morning Answer, Christopher Whalen, an investment banker, chairman of Whalen Global Advisors LLC, and editor for The Institutional Risk Analyst, discussed the present state of the banking industry.

 Whalen talked about the term “back door bailout,” coined by host Dan Proft, which suggests that the average person bears the brunt of the financial burden. The discussion centered around the demise of Silicon Valley Bank and the factors that led to its downfall.

“It’s the private banks picking up the tab here. Not the feds,” Whalen said. “And, when they say it’s not a tax-payer bailout, kind of, sort of true, but they will pay through inflation.”

“The real bottom line is, in the last couple of days is, we’ve realized finally that the feds can’t raise rates anymore,” Whelan said. “Having manipulated the bond market so that three-quarters of all mortgage and corporate bonds are now priced between 2% coupon and five. You can’t then move the market 600 basis points and not expect that every bank in the country is going to be insulted.”

“Today, if you really look and the numbers, if you mark both the securities and the loans, every bank is pretty close to insolvent,” Whelan said. “And this is because of the feds.”

According to trading Economics, interest rates have increased eight times over the past year, taking the fed funds rate to a target range of 4.50%-4.75%. According to the global macro models and analysts expectations from Trading Economics, the United States’ interest rate is anticipated to reach 5% by the conclusion of this quarter. Its econometric models predict that in the long run, the United States Fed Funds Rate will follow a trend of approximately 4.25% in 2024 and 3.25% in 2025.