Avoid Crisis

April 30, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler interrupt their weekend to plead for the Biden Administration to recognize the incompetence of the Federal Reserve and to try to stop the direct path to severe recession with an effort to save First Republic Bank. They predict a sale to a large bank will not stop the crisis.

Key Points from Rey:

• The war room is set up here. In real time they are working on it now.
• Was the Big Bank $30 Billion injection done when they knew how deep the deposit run was?
• The fair market value of the assets has to be determined.
• First Republic bank had 30 year loans for around 3% rates and invested in Treasuries that thefair value, they are in trouble.
• Regional banks are GameStop in reverse. There is not a single bank in the US that can survive a bank run. Every bank in the system is vulnerable.
• Banks are important pillar of our economy and society. The accounting rules and the steep rise of interest rates created this situation. It needs exceptional and unusual action to resolve.
• First Republic Bank lost more than half of their deposits in a very short time.
• Small banks are not lending as they have in the past. The credit issue in our system will limit the economy. Jobs and investments are impacted. Lending terms are going to choke out growth in the economy.
• Does it mean every bank should be putting in a “going concern” disclosure to their financial statement?
• Every single bank has these issues, and all could have a bank run.
• There are enough banks around maybe the shock in real estate won’t be that big. But people can react emotionally.
• Wall Street sharks are circling.
• What if China is shorting the bank stocks? This pillar of our economy is vulnerable.
• The dominos here are not good. SVB and Signature had different risk issues, but the regulators didn’t do what they needed to do.
• Labor shortages are causing issues.
• Things are happening faster now. We can’t take time to fix this as more things will break.

Key Points from Allen:

• Auction for First Republic bank is going on. Who are they protecting here?
• We saw SVB fail, Signature Bank fail, and now they are asking for Big Banks to help take over the banks in trouble.
• The friendly bankers, with here to help message, was a way to make the bank die and then be here to pick up the pieces.
• Too big to fail is a misnomer. All banks have a balance sheet that is a derivative.
• Why are these banks even publicly traded? Where is the SEC on this?
• The accounting rules need changed for the banks.
• There is a regulatory failure here. SVB should have been taken over long ago based on the MRAs and MRIAs issued.
• This is going to go from a banking crisis to a political crisis.
• Janet Yellen and Jerome Powell are the ones to blame. There should have had meetings with the banks and worked to make the capital secure.
• There are enough banks around maybe the shock in real estate won’t be that big. But people can react emotionally.
• The next regional to fall is ‘X’ and let’s go attack it. Investors can make money now in the
• regional with the strategy, short, short, short, the regional bank and they will fail. Hedge funds across the world know this.
• Imagine if the SEC determined to stop the shorting in the regional banks. It would reinflate the Regional Banks stock prices.
• Covid money flooding in is a part of the cause of the issues today. The banks didn’t know what to do. It was ok to save America, but now it is not ok to save the lenders to America?
• Every small town has its wealthy people in the local community banks. They will take their money out of the banks when they see bank failures.
• Maybe the Treasury only wants big banks. But the fight on inflation is not right because we are not going to have inflation, and instead we are going to have a severe recession. There are high risk loans that are not going to be paid back. This is consistent with prior lending periods where excess risk was taken.
• The Fed needs to provide guarantees to make a deal with First Republic Bank to happen.
• Joe Biden is missing how critical this is. If he doesn’t do the right thing, this banking crisis is going to turn into turmoil and severe recession.
• When you see panic, it is real. When you see fear, it’s real. When you see the crowd react, it’s real.
• Even the big banks are vulnerable here.
• There is risk in the commercial real estate market, and in home prices if there are not jobs being created. The Bay Area has more risk now with losing SVB and First Republic Bank.
• Credit Suisse action was related to SVB failing. Are banking issues in Europe contained? Do we feel safe?
• The government should use the weekend to stop the ...

March 30, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler open up about being a real podcast for real people, and that includes being in the process of figuring out technical challenges. Strange footnote in Form 10K from SVB parent gets a drill down on what it could mean. FTX impact is not fully known yet. First callouts for guests invited to the podcast are made.

Key Points from Rey:

• You have to be aware of issues and that starts you down the path of Avoiding a Crisis.
• Again, calling for FDIC to raise the insured deposit limits to $500,000
• We have buyers for Signature and SVB assets, do they know what they bought?
• Technology now permits rapid deployment of funds and transfers. This is a part of the escalation of risk in the financial sector.
• The Fed and FDIC need to take action now to avoid a crisis.
• Money is going to get really tight.
• Companies are not getting funded and rough waters are coming.
• Monitor your cash and cut back on spending to get through an upcoming recession.
• California residents are getting relief on tax payments and due dates. Details provided on who benefits and the extensions provided. Counties impacted include 44 counties in California.Rey
• Rey invites a guest as well. To respond he asks for email to [email protected]
  • Warrant Buffet

Key Points from Allen:

• Is the market thinking this crisis is over? Is there really a guarantee of all deposits? What impact would there be if there are a large number of people pulling out of the bank?
• The movement out of deposits in banks is happening in both large and smaller banks.
• FDIC got an equity kicker in the deal, what about the equity holders that were taken effectively to zero.
• The guarantee of uninsured deposits as a government backstop was too little too late.
• What if the government acted faster to stop the run on SVB with a guarantee of the uninsured deposits?
• You may need a financial planner now to help avoid a crisis
• With reminders of “It’s a Wonderful Life”, Allen asks for the Jimmy Stewart Museum to send an invitation and maybe an episode will happen there.
• SVB was a lender of choice, where do you go now if you are a startup? You need a source of funds.
• Allen points to his speech during the financial crisis at Financial Executives International on FAS 157 a Troubled Solution that his research led to a footnote that showed Congress the power over the accounting standards and the standard setter the FASB. It was just a footnote, but it had a lot of meaning. He called on Congress to drive change on the mark to market criteria.
• SIVB, parent of SVB Form 10K has a footnote that discusses a change in accounting policy that was retrospectively presented. What exactly was the change and what led to the change?
• The SEC should be looking in their investigation into SVB their use of derivatives and their disclosures.
• We have not seen the full impact of FTX yet. Who made the money and where did it go?
• Is the government too early with the all clear view?
• Using a financial planner now may be prudent to Avoid a Crisis.
• Allen names his guests that are invited to the podcast and names. No further details are provided for why they are invited, but it is aligned with the Avoid Crisis themes. He requests to be contacted at [email protected]
  • Sharon Stone
  • Spencer Lee
  • Shaquille O’Neal

Connect with Rey
linkedin.com/in/reynaldoarellano

Connect with Allen
linkedin.com/in/allen-plyler-cpa-mpm-3803992a/

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March 24, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler caution the tentacles of contagion have spread to the world as Credit Suisse is sent to the bank penalty box. The SEC warning on Crypto and the Wells notice to Coinbase could mean a crisis in crypto is on the way. Block and Cash App are targeted by a short report. Inflation may lead to a new wave of layoffs.

Key Points from Rey:

• Avoid Crisis is going to cover more than just the banking crisis, but right now it is the topic of the day.
• To avoid crisis you have to look at the signs in front of you. The tidal wave of information, good and bad, makes it difficult to focus on the macro issues and avoid a crisis.
• This is a podcast for the real world and in real time.
• Correlation and coincidence are distinct. You have to look deeper.
• People are moving their money around. Sweeps at Banks are getting larger. Technology makes moving money easier today.
• Integrated Consolidated Sweeps are something to look at to avoid uninsured deposit risk.
• The Fed raising rates this week impacts the economy.
• You are a fool if you are not minimizing the risk of an uninsured deposit.
• Avoid Crisis by minimizing the risk by spreading cash around in banks so your deposit is insured, but you have to maximize your returns and make sure you don’t incur operational risk as you do that.
• Speculation by short sellers seems to focus on the deposits that are uninsured but we could be looking at short squeezes on regional banks as information from the banks come out.
• Square, renamed Block has been hit by the Hindenburg report.
• There is a seesaw here, if inflation continues to go up you might have to fight it with interest rates, but layoffs may be about to snowball into a recession.
• In the middle of an information storm, you have to find multiple reliable sources to separate the good from the bad information. To avoid crisis avoid a single source of information in making decisions.

Key Points from Allen:

• This is a whirlwind. This interpretation of information from the media has to be understood in light of the bias of the presenter and their agenda.
• Now we have Signature Bank, the tentacles of contagion go around the world.
• The CDS went up and now Credit Suisse is at risk. Assets from SVB might get sold this weekend.
• FDIC is to make depositors whole, now with Biden saying depositors even beyond the FDIC limit will be taken care of, does it represent a guarantee.
• Everyone is talking about banks now. What is the backstop for the uninsured deposits in the system from the government?
• What other banks will get support like the $30 Billion that went to First Republic Bank.
• At the beginning of 2023 if you thought Credit Suisse would be around in the same form at the beginning of the year at the end of the year, you would have been wrong. It won’t even be there anymore at the end of the first quarter.
• As more people seek to get more of their total deposits covered under FDIC limits, the total insured liability risk for the FDIC is going up. Where will that money come from?
• When rates go up, purchasing power to buy a residence goes down.
• Shorting regional banks right now should remember that during the financial crisis there was a freeze on shorting bank stocks, what happens now if there is put in place a ban on shorting regional bank stocks.
• In a display of sarcasm, the question was posed on “How did interest rates get below zero, could regional banks stock prices trade below zero?”
• People need to believe in their government, without faith in banks, this crisis continues.
• The Hindenburg report goes point by point through a large list of items, but has a lot of focus on Cash App, and how it is used in sex trafficking, drugs including fetanyl, and how many fake users are on the account. The report says Cash App Fake accounts include Elon Musk and Donald Trump.
• The charge of Fake accounts was aimed at Twitter as well. Twitter and Block, both public companies, should be investigated by the SEC based on their disclosures.
• The SEC is saying stay away from Crypto. Coinbase got a Wells notice. More to watch there.
• Inflation around the world is a major problem, Argentina over 100% but China around 1%. The US is around 6%. It can continue to rise.
• The risks are becoming more elevated, and the pace of the change is rapid.
• Think through what we are observing as far as information and think deeper.

Connect with Rey
linkedin.com/in/reynaldoarellano

Connect with Allen
linkedin.com/in/allen-plyler-cpa-m...

April 5, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler studiously postulate that the Jamie Dimon led $30 billion balance sheet injection to First Republic Bank will stop the spread of contagion in the banking crisis.

Key Points from Rey:

• First Republic Bank (FRB) had big banks come to their aid, but we still don’t know if it was a rescue
• FRB has lost key employees and their earnings may suffer
• Do we have too many banks, does the market need this many
• The Federal Reserve's next report on M-1 will be interesting to watch.
• Money may be going back to the market
• To hold a short on FRB now, you must think it is going to tank completely, which I don’t think is going to happen
• The rebound could be steep for the stock price of FRC, you will be competing with other buyers
• Interest rates went up a quarter a point, and inflation seems to be coming down some
• More money paid in interest is less money to pay for a house, and housing prices may come down further
• OPEC cutting production made oil go up in price, the long cycle and going green has to be thought of
• Companies that need to raise money now may not be able to get the cash they need. A lot of good ideas won’t get funded.
• Easy cheap money isn’t here anymore and it won’t be for a long time. This will have a big negative hit on our economy.
• Everyone listening to this podcast should tell their friends to listen too
• Rey added to his list of invited guests of Warren Buffet and Jamie Dimon, a new guest, Mike Roffler, CEO of First Republic Bank.

Key Points from Allen:

• Earnings season release for banks are about to come out and we will hear more on the economy
• Jamie Dimon indicated the banking crisis is not over
• The big banks are not necessarily the winners here
• FRB lost employees even after the injection of $30 billion
• Deposits are coming out of banks internationally
• Can banks consolidate until they are too big to fail?
• Local lending is important, big banks may not understand the local community lending needs
• The banking crisis we are in is leading to people taking deposits out of banks. Where is money going?
• If you were a winner with the short of FRB, take your win, there could be a short squeeze coming. The short volume has gone from 5 million a quarter before to 9 million now.
• If you are shorting FRB, you are betting against the city of San Francisco
• Regional banks may be losing employees in this banking crisis
• Local banking is needed because big banks don’t have the same understanding of the local community
• Analyst questions with the banks will focus on deposit inflows and outflows
• It is going to be harder for individuals to get a loan now
• The Fed should pause on raising rates now
• People should be looking to reduce their debt now
• Shaquille O’Neal, an invited guest, just showed how he helped a teen in a crisis and helped get the teen Size 22 shoes.
• Jamie Dimon and Janet Yellen orchestrating the injection of funds into First Republic Bank was significant and we don’t know what would have happened if bank runs continued.

Connect with Rey
linkedin.com/in/reynaldoarellano

Connect with Allen
linkedin.com/in/allen-plyler-cpa-mpm-3803992a/

Leave a review on Apple Podcasts or Podchaser

Subscribe to the Avoid Crisis podcast in your favorite podcast app!

March 12, 2023 - Avoid Crisis hosts Reynaldo Arellano and Allen Plyler kicked off the maiden voyage of the Avoid Crisis Podcast with a deep dive into the developing financial crisis and a stern warning to the FDIC calling on them to do their job and do it fast. In addition, the crisis of uninsured deposits at risk was focused on with the hosts advising listeners to heed their ability to effect transfers to maintain their balances under the FDIC single depositor limit of $250,000.

Key Points from Rey

• Silicon Valley Bank went into receivership March 10, and this crisis will not be limited by geography or isolated to the tech industry. This crisis is different and there will be awakening by the end of next week.
• There will be winners and losers now and listeners should prepare.
• SVB UK branch is shut down and with Monday coming soon, London will need to work on the unwind. This is a global situation.
• Take out any money in SVB now, even if it is less than $250,000.
• If you have uninsured deposits, try to move them into other banks and stay under the $250,000 limits.
• California laws require paying payroll timely, and IOU’s for payroll don’t count.
• Liquidity is key. You have to access to cash to get through this time. VC, founders, investors are going to have to step up.
• In the CFO seat you don’t get to wait, you don’t get to punt, you have to deal with what is in front of you.
• There is risk of fraud when banks fail.
• SVB workforce will need incentives to stick around and work.
• First Republic Bank is a regional bank that is at risk now based on the uninsured deposits.
• This crisis could accelerate the path to a recession in the economy, and this crisis will impact the global economy.
• Look for banks that are stepping up now, they may be the winners.
• SVB had skin in the game, and a fire sale won’t allow the intellectual property to monetize the same way. The triangle between SVB as a lender, VC as a sponsor of a startup, and the founders of startups, is now broken.
• SVB started from a poker game. Traditional banks didn’t understand how to value tech.
• Nobody understood how Amazon was spending money to build infrastructure that ultimately paid off.
• Risk has a cost, the sword cuts both ways.
• People may have 30 to 40 banks now.
• Diversification of your risk is important now. Be aware of concentration risk.
• Immediate need is cash flow. If you don’t have it go find it. This can be a cash flow crisis. Keep your powder dry.

Key Points from Allen

• Silicon Valley Bank was second most searched item in internet, second to Daylight Savings Time
• In the 2008 financial crisis there were three banks that failed first in 2007, then nine others, way ahead of Lehman Brothers. We have three big failures now, especially since SVB is the second largest ever.
• Because of the interest rate moves, bank balance sheets have been corroded and eroded.
• SVB was so integral to the VC community and Silicon Valley tech scene, that in California, there may only be two or three degrees of separation before someone you know is connected in some way to SVB.
• FDIC paper (certificates) won’t pay your payroll
• Startups may not have very good treasury management, and they need to be developed
• Once you see a crack in the windshield (start of a crisis), the crack is going to get bigger. You don’t want the whole windshield to collapse.
• SVB financials disclosed losses from fraud in their financials
• This is a serious problem and it has the attention of Joe Biden, Janet Yellen, and Gavin Newsome
• The biggest risk now is the contagion of fear
• The law of small numbers is a risk now as individuals may take their money out of banks.
• Banks can’t sit on deposits
• Interest rates over last 200 years averages around 6% now Fed is inching toward that number
• SVB got big upside in its earnings when a company with a warrant from their lending went through an exit in an IPO. There is a large amount of intellectual property that is not on the balance sheet because of the account rules.
• It is critical the right actions are taken now to contain this crisis.
• Tech and Innovation has changed the economy of the US. The 360 view of how innovation gets funded is why Y Combinator and Sam Altman have achieved.
• Take the Amazon challenge, what can’t you find on Amazon.
• Bigger companies absorb startups sometimes because of their niche intellectual property. That may now be at risk if startups don’t have liquidity.
• Spreading uninsured deposits to keep under the $250,000 limits sounds like a startup.
• SVB employees should be looking for a new job and co...