Billionaire Bill Ackman warns that the US economy is “headed for a train wreck” if the government lets the current banking crisis slide. “Trust and confidence are earned over years and can be wiped out in a matter of days.” We hope the regulators get this right.”
Bill Ackman’s warning
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Billionaire Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, warns that a train wreck is imminent.Pershing Square is a hedge fund management firm with about 18.5 billion; Ackman’s net worth is about $3.4 billion.
Regarding the current banking crisis, which has seen the collapse of major banks such as Silicon Valley Bank and Signature Bank, Ackman tweeted on Wednesday:
Consider recent events affecting the long-term cost of equity capital for systemically insignificant banks, You wake up one day as a shareholder or bondholder and your investment can go to zero in an instant.
A systemically important bank (SIB) is a bank that is considered large or complex enough that its failure could have a significant impact on the financial system and the broader economy. The Financial Stability Board’s (FSB) 2022 list includes 30 systemically important banks, including JP Morgan Chase, Bank of America, Citigroup, HSBC, and troubled Credit Suisse.
“Think about what the impact will be on lending rates and our economy when combined with the rising cost of debt and deposits due to higher interest rates.” Ackman goes on to warn:
The longer this banking crisis drags on, the greater the damage to smaller banks and their ability to access low-cost capital. Trust and credibility can take years to earn, but it can be wiped out in a matter of days. I think we are headed for a train wreck. Hopefully, the regulators will get this right.
The billionaire believes that the government should guarantee all bank deposits; on March 22, he tweeted explaining that Treasury Secretary Yellen’s “reassuring comments” the day before had led “markets and depositors to assume all deposits were implicitly guaranteed.” He also referred to “certain leaks” suggesting that Yellen, the Treasury Department, and the Federal Deposit Insurance Corporation (FDIC) were “looking for ways to guarantee all deposits to reassure the banking sector and depositors.”
{But Yellen later “withdrew yesterday’s implicit support for small banks and depositors and made clear that a system-wide deposit guarantee was not being considered,” Ackman’s tweet added.
“From implicit support for depositors, today Secretary Yellen made it clear that no guarantee is being considered.” and further opined that the Federal Reserve has raised the Federal Funds rate to 4.75%-5.00%.” 5% is a threshold that makes bank deposits that much less attractive. I would be surprised if deposit outflows do not accelerate immediately,” Ackman cautioned, elaborating:
A temporary system-wide deposit guarantee is needed to stop the bleeding. The longer the uncertainty continues, the more permanent the damage to smaller banks will be, and the harder it will be to keep customers coming back.
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