Comments on: Guest Post: A Chronicle of the Bank Run by The Male Brain https://didacticmind.com/2023/03/guest-post-a-chronicle-of-the-bank-run-by-the-male-brain.html Strategic Defence of the Mantle of Responsibility Thu, 23 Mar 2023 02:19:37 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Bardelys the Magnificent https://didacticmind.com/2023/03/guest-post-a-chronicle-of-the-bank-run-by-the-male-brain.html#comment-7783 Thu, 23 Mar 2023 02:19:37 +0000 https://didacticmind.com/?p=17733#comment-7783 The Fed raised rates another quarter again today, although they hinted and only raising one more quarter by year’s end. There will be more banks fall in similar fashion before it’s over. Rates were kept too low for too long, and nobody planned on the party ever ending. The hangover is now here. We’re going to see who drank their Gatorade. Wells Fargo exited the correspondent mortgage space two months ago, as did Rushmore back in the fall. That’s not small news.

Just to add some color, the 2.5 coupon MBS was trading somewhere around 102 in mid-2021. It can now be had for about 80. As the article noted, this is fine as long as the holders of these coupons don’t have to sell (a mortgage at 2.25% is a very safe bet to avoid early pay-off when current rates are four points higher). Higher rates always lead to liquidity problems while lower rates leave lenders flush with cash, but when rates rise as quickly as the Fed has pushed them, it’s bad news. We haven’t seen the last of the bank run, I’m certain of it.

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