The fallout from the shuttering of Silicon Valley Bank — the second-largest bank collapse in U.S. history — continued Monday, dragging down international banking stocks.

European banking stocks were down 6.3% at 12:40 p.m. London time on Monday, after closing 4% lower on Friday, as U.S. financial regulators shut down SVB and took control of its deposits. All major U.S. indexes closed at least 4% lower on the week Friday amid the SVB panic, while regulators shut down Signature Bank — one of the cryptocurrency industry’s main lenders — on Sunday, citing systemic risks.

U.S. federal regulators said that all deposits will be made whole, in a relief to many depositors. But the SVB crisis is far from an isolated incident, and its roots lie in a bigger systemic problem, many investors and analysts say.

“With regard to who’s to blame here, I think that the greed and avarice that has long been present in Silicon Valley has come home to roost,” Keith Fitz-Gerald, a trader and principal of the Fitz-Gerald Group, told CNBC’s Capital Connection on Monday.

“We had the Federal Board of Reserve change from fractional reserves to no reserves, and that let banks like SVB go out and start buying assets instead of simply loaning money,” he said. “My contention is banking should be boring, a lot like watching paint dry — and any time it’s not, you’ve got a problem. Which is unfortunately what happened.”

SVB — the 16th biggest bank in the U.S. at the start of last week — had been operational for 40 years and was considered a reliable source of funding for tech startups and venture capital firms. The California-based commercial lender was a subsidiary of SVB Financial Group, and it was Silicon Valley’s largest bank by deposits.

SVB Financial Group’s holdings — assets such as U.S. Treasuries and government-backed mortgage securities viewed as safe — were hit by the Fed’s aggressive interest rate hikes, and their value dropped dramatically.

The company’s tipping point came Wednesday, when SVB announced it had sold $21 billion worth of its securities at a roughly $1.8 billion loss and said it needed to raise $2.25 billion to meet clients’ withdrawal needs and fund new lending. That news sent its stock price plunging and triggered a panic-induced wave of withdrawals from VCs and other depositors. Within a day, SVB stock had tanked 60% and led to a loss of more than $80 billion in bank shares globally.

SVB employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments. And the bank’s CEO, Greg Becker, sold $3.6 million in company shares on Feb. 27, less than two weeks before SVB revealed the massive losses that prompted its collapse, according to regulatory filings.

Regulators asleep at the wheel?

Many market analysts say that regulators have been asleep at the wheel. SVB’s strategy — relying heavily on corporate deposits as opposed to retail and holding a large proportion of assets in loans and securities — actually made it significantly riskier than many other banks.

Some argue that the bank’s downfall was due to its leaders’ greed for yield: its holdings were disproportionately exposed to long-term interest rates, which are at a 15-year high in an effort to bring down inflation. The increased rates hit the value of SVB’s securities, which subsequently damaged depositors’ confidence.

“SVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits,” Michael Cembalest, J.P. Morgan’s chairman of market and investment strategy, wrote in a weekend note to clients.

The lender, he said, “carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.”

This is more the product of a faulty system than the bank itself, Fitz-Gerald argued. Concerning federal and state regulators, he said, “I would submit not only are they complicit, they had a hand in designing this mess…. SVB did what they needed to do, arguably, within the structure of rules that are the problem. So, to me, it’s the system that’s broken, or at least needs to be seriously reviewed here.”

‘Stupid risks’

Legendary investor Michael Burry similarly called out what he described as greed and “stupid risks” in the sector.

“2000, 2008, 2023, it is always the same,” Burry, who founded the hedge fund Scion Asset Management and gained fame for successfully betting against the subprime mortgage market in 2008, was quoted as saying on Sunday.

“People full of hubris and greed take stupid risks, and fail. Money is then printed. Because it works so well.”

Fitz-Gerald doesn’t see SVB’s collapse and the crisis in the tech and crypto markets as mirroring 2008. Additionally, he sees a lower contagion risk due to federal regulators’ emergency plan, announced Sunday by the Treasury Department, the Federal Reserve and the the Federal Deposit Insurance Corporation, to guarantee depositors’ funds.

The contagion risk “has been substantially reduced with the FDIC, the Fed and the US Treasury Department stepping into the fray. So you know, again, this collective sigh of relief, I think that global contagion is off the table,” he said.

“But,” he added, “we simply don’t know where the counterparty risk lies right now. So in contrast to 2008, the parallel really is 1929. They have got to stop this and they’ve got to stop it now. We won’t know until the U.S. session opens.”

“I am personally flabbergasted that the system is what it is today and that this stuff was allowed to happen,” he said. “Where were the regulators? Where were the auditors? I think there’s going to be very serious questions asked about how the rating systems work. Why were these banks allowed to take on assets when they should have been backing their deposits?” Fitz-Gerald asked.

“That is a fundamental issue that has got to come to the forefront now. We can’t ignore it and kick the can down the road. I think it’s an embarrassment to the US Federal Reserve. I think it’s an embarrassment to the banking regulators, frankly.”

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As inflation continues to soar and the stock market experiences its worst first half of the year since 1970, economists and financial experts worry that a recession might not only be likely, but inevitable. Technically, the country is in a recession when gross domestic product, the value of all goods and services produced during a specific period, falls during two quarters back-to-back. In the first three months of 2022, the US GDP dropped by 1.4%. The National Bureau of Economic Research, which makes the official call about a recession, meets later this month.

There’s also concern that the central bank — in an aggressive effort to tame inflation by slowing down the economy — could just be forcing the economy into a painful recession. Historically, to lower inflated consumer prices, the Federal Reserve raises the federal funds rate, which makes borrowing money more expensive. But this year’s three rate hikes, including the most recent, which was the largest in nearly three decades, haven’t made a dent in inflation. It sits at 8.6%, more than four times higher than “normal.”

Federal Reserve Chairman Jerome Powell acknowledged the risk of recession during a European Central Bank forum on Wednesday. But he also noted, “I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make … would be to fail to restore price stability.”

As we brace for the storm with recession fears ramping up, more of us are thinking about finances and employment. My So Money podcast audience sent in a number of questions related to recessions about how best to prepare, save, invest and make smart money moves in these uncertain times. Here’s a bit of guidance to help navigate this difficult financial period.

First, what might we see in a recession?

It’s always helpful to go back and review recession outcomes so that we can manage our expectations. While every recession varies in terms of length, severity and consequences, we tend to see more layoffs and an uptick in unemployment during economic downturns. Accessing the market for credit may also become harder and banks could be slower to lend, because they’re worried about default rates. 

As the Federal Reserve continues to raise rates to try to clamp down on inflation, we’ll see an even greater increase in borrowing costs — for mortgages, car loans and business loans, for example. So, even if you qualify for a loan or credit card, the interest rate will be higher than it was in the prior year, making it harder for households to borrow or pay off debt. We’re already seeing this in the housing market, where the average rate on a 30-year fixed mortgage was recently approaching nearly 6%, the highest level since 2009.

During recessions, as rates go up and inflation cools, prices on goods and services fall and our personal savings rates could increase, but that all depends on the labor market and wages. We may also see an uptick in entrepreneurship, as we saw in 2009 with the Great Recession, as the newly unemployed often seek ways to turn a small business idea into reality.

Should I expect layoffs?

With the unemployment rate sitting at 3.6%, the job market may appear to be, at least right now, the only stable part of the economy. But that’s likely to be temporary, as companies battling with the current financial headwinds — including inflation, rising interest rates and weakening consumer demand — have already begun to announce layoffs. According to Layoffs.fyi, a website that tracks job losses at tech startups, there were close to 37,000 layoffs from startups in the second quarter of 2022.

In the Great Recession, unemployment peaked at 10%, and it took an average of eight to nine months for those out of work to secure a new job. So now could be the time to review your emergency fund if you think there’s a shortfall. If you won’t be able to cover a minimum of six to nine months’ worth of expenses, which is hard for most people, see if you can accelerate savings by cutting back on spending or generating extra money. It’s also a good time to make sure your resume is up to date and to establish contact with influential individuals in your professional and personal network. If you are laid off, make sure to apply for unemployment benefits right away and secure your health insurance. 

If you’re self-employed and worried about a possible downturn in your industry or a loss of clients, explore new revenue streams. Aim to bulk up your cash reserves as well. Again, if previous recessions taught us anything, it’s that having cash unlocks choices and leads to more control in a challenging time.

Should I expect the interest rates on my debt or loan to go up?

As the Federal Reserve continues to raise interest rates to try to curb inflation, adjustable interest rates are set to increase — ratcheting up the APRs of credit cards and loans, and making monthly payments more expensive. Ask your lenders and card issuers about low-interest credit options. See if you can refinance or consolidate debts to a single fixed-rate loan.

In past recessions, some financial institutions were hesitant to lend as often as they did in “normal” times. This can be troubling if your business relies on credit to expand, or if you need a mortgage to buy a house. It’s time to pay close attention to your credit score, which is a huge factor in a bank’s decision. The higher your score, the better your chances of qualifying and getting the best rates. 

Should I stop investing in my 401(k)?

With stocks in a downward spiral, many want to know how a recession could impact their long-term investments. Should you stop investing? The short answer is no. At least, not if you can help it. Avoid panicking and cashing out just because you can’t stomach the volatility or watch the down arrows during a bear market.

My advice is to avoid making knee-jerk reactions. This may be a good time to review your investments to be sure that you’re well-diversified. If you suddenly experience a change in your appetite for risk for whatever reason, talk it through with a financial expert to determine if your portfolio needs adjusting. Some online robo-advisor platforms offer client services and can provide guidance.

Historically, it pays to stick with the market. Investors who cashed out their 401(k)s in the Great Recession missed out on a rebound. Despite the recent downtick, the S&P 500 has risen nearly 150% since its lows of 2009, adjusted for inflation.

The one caveat is if you desperately need the money you have in the stock market to pay for an emergency expense like a medical bill, and there’s no other way to afford it. In that case, you may want to look into 401(k) loan options. If you decide to borrow against your retirement account, commit to paying it back as soon as possible.

Should I wait to buy a home?

With mortgage rates on the rise and housing prices not cooling nearly fast enough, owning could be more expensive than renting right now. A report from the John Burns Real Estate Consulting firm looked at the cost to own versus renting across the US in April and found that owning costs $839 a month more than renting. That’s nearly $200 greater than at any point since the year 2000.

Fixed rates on 30-year mortgages have practically doubled since last spring, which has helped slow down offers and cool housing prices — but competition among buyers is still stiff due to historically low inventory. All-cash offers and bidding wars continue in plenty of markets. If you’ve been shopping for a home in recent months or the past year to no avail, you may feel exhausted and defeated.

Don’t be hard on yourself. You’re not doing anything wrong if you have yet to offer the top bid. While it’s true that a fixed-rate mortgage can offer you more predictability and budget stability, as long as inflation continues to outpace wages, there could be some bright sides to renting right now. For one, you’re not buying a home in a bubble market that some economists are saying is soon to burst. If you have to unload the home in a year or two — during a possible recession — you may risk selling at a loss.

Secondly, renting allows you to hold onto the cash you would have spent on a down payment and closing costs, and will help you stay more liquid during a time of great uncertainty. This allows you to pivot more quickly and secure your finances in a downturn. Remember: Cash is power.

My final note is that it’s important to remember that recessions are a normal part of the economic cycle. Long-term financial plans will always experience some declining periods. Since World War II, the US has had about a dozen recessions and they typically end after a year or sooner. By contrast (and to give you some better news), periods of expansion and growth are more frequent and longer lasting.

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If you think the pandemic-era shortage problems are fading away, think again.

An ongoing shortage of baby formula due to a wide-ranging manufacturer recall has been causing hardships for families in recent months. Production recently resumed at a previously-closed plant, but meanwhile the crisis is still persisting.

It’s not just baby formula. While many of the shortages from the pandemic’s early days have abated and hand sanitizer and toilet paper are now plentiful, consumers are still struggling to find certain goods because of ongoing supply chain snags, production delays and even extreme weather.

Here are eight things that are hard to find or extra expensive right now because of supply problems, from movie theater popcorn to tampons.

Sriracha Hot Sauce

In a letter to wholesale customers last month, sriracha maker Huy Fong Foods said that weather conditions are causing a severe shortage of the chili peppers it uses to make the beloved spicy condiment.

“Unfortunately, this is out of our control,” the company wrote. “Without this essential ingredient we are unable to produce any of our products.” It’s unclear when store inventory will be affected by the pepper shortage.

Popcorn

As moviegoers return to the box office this summer, they may encounter a popcorn shortage — or at least higher prices.

Farmers are growing less popcorn in general because other crops can yield higher profits at lower costs, the Wall Street Journal reported last month. An ongoing shortage of truckers is delaying shipments too.

And it’s not just the snack itself that’s difficult to source. Movie theater concession manufacturers are also facing shortages of cups, trays and the plastic liners for popcorn bags, according to the Journal.

Tampons

Retailers have been struggling to keep tampons on the shelves, according to a recent report from TIME, leaving people across the country struggling to access the essential care products.

In a recent earnings call, Andre Schulten, Chief Financial Officer at Tampax maker Procter & Gamble, cited difficulties sourcing raw materials and described the “costly and highly volatile” process of transporting its goods, including feminine care products. The company will raise prices in July to cope with the extra expenses.

Pet Food

The same supply chain issues affecting the grocery and personal care categories are also slowing down shipments of pet food this summer, and a shortage of aluminum cans is only making things worse. Citing “inconsistent availability and ongoing sourcing issues,” the Trader Joe’s grocery chain announced in April that it would discontinue six pet food products.

It’s hard to predict when things will return to normal. “Food brands are promising they are going to get better in the next four and six months; others are saying it might be up to a year before we see some of their products back in stock,” one Minnesota pet store general manager told local station KSTP this week.

Baby Formula

Back in February, Abbott Nutrition initiated a voluntary recall of certain powdered formulas under the Similac, Alimentum and EleCare brands after complaints of possible bacterial contamination.

The company said that none of its products tested positive for the bacteria, but the disruption stemming from the recall and subsequent shutdown of a plant in Michigan means that families are still struggling to find formula on store shelves and online.

Contrast Dye

Shortages also persist outside the grocery store. A contrast dye that is essential for medical imaging tests like CT scans is being rationed in hospitals and causing delays for patients, CNN reported this week. Coronavirus-related lockdowns in Shanghai, where the dye is manufactured by GE, are being blamed for the shortage.

Rental Cars

If you’re in the market for a rental car for your upcoming summer vacation, or even looking to buy a new car yourself, it’s a good idea to start your search early and prepare to spend extra.

An enormous drop in traveler demand in the early days of the pandemic prompted rental car companies to sell portions of their fleets, and they’ve struggled mightily to replenish their supply of cars. Production in the car manufacturing industry has slowed significantly because of an ongoing shortage of semiconductor chips.

For rental car companies, that means low inventory and high prices across the board. Bloomberg found that daily rental car rates in the U.S. this summer are roughly double what they were in the summer of 2019.

“It’s still tough out there,” Greg Scott, spokesman for the American Car Rental Association, told the Washington Post in March. “There are some instances where the supply of new cars has improved, but it’s not back where it needs to be and it won’t be for a long time.”

Houses

News about the red-hot housing market is inescapable, and home prices are up an eye-watering 20% in the last year alone. Those rising prices are attributable in large part to a severe shortage of housing inventory that has persisted throughout the pandemic. There were 48.5% fewer active listings last month compared to May 2020, according to recent data from Realtor.com.

Shipping delays and shortages of lumber and other raw materials helped drive up costs for home builders and slowed down the pace of construction — just as demand for new homes began to boom as people sought out more space during the pandemic. Thankfully, there are signs that construction is picking back up again. But for now, buyers can expect slim pickings and exorbitantly high prices.

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