Billionaire Bill Ackman has warned that the US economy is “heading for a train wreck” if the government allows the current banking crisis to continue. “Trust and trust are earned over many years, but they can be gone in a few days,” he said. “Hopefully, our regulators will get it right.”
Bill Ackman Warning
Billionaire Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, has warned of a looming train wreck. Pershing Square is a hedge fund management company with approximately $18.5 billion in assets under management. Ackman’s net worth is about $3.4 billion.
Commenting on the ongoing banking crisis following the failures of major banks, including Silicon Valley Bank and Signature Bank, Ackman tweeted on Wednesday:
Consider the impact of recent events on the long-term cost of equity for systemically unimportant banks where you can wake up one day as a shareholder or bondholder and your investment is instantly reduced to zero.
Systemically important banks (SIBs) are banks that are considered so large or complex that their failure could have a significant impact on the financial system and the economy in general. On the Financial Stability Board’s (FSB) 2022 list are 30 systemically important banks, including JPMorgan Chase, Bank of America, Citigroup, HSBC and troubled Credit Suisse.
“When combined with the higher cost of debt and deposits due to rising rates, consider what the impact will be on borrowing rates and our economy,” Ackman continued, warning:
The longer this banking crisis is allowed to continue, the greater the damage to smaller banks and their ability to access cheap capital. Trust and trust are earned over many years, but they can disappear in a few days. I’m afraid we’re headed for a train wreck. Hopefully our regulators will get it right.
The billionaire believes that the government should guarantee all bank deposits. On March 22, he tweeted that Treasury Secretary Janet Yellen’s “reassuring comments” the previous day “led the market and depositors to believe that all deposits were now implicitly guaranteed.” He also referred to “a leak” suggesting that Yellen, the Treasury Department and the FDIC “were looking for a way to guarantee all deposits and reassured the banking industry and depositors.”
However, Yellen then “rolled back yesterday’s implicit support for small banks and depositors, while making explicit that system-wide deposit guarantees were not being considered,” Ackman’s tweet added.
“We have gone from implicit support to depositors to Secretary Yellen’s explicit statement today that no guarantee is being considered,” he further opined, noting that the Federal Reserve raised the federal funds rate to 4.75%. 5.00%. “5% is a threshold that makes bank deposits much less attractive. I would be surprised if deposit outflows don’t accelerate with immediate effect,” Ackman warned, explaining:
A system-wide temporary deposit guarantee is needed to stop the bleeding. The longer the uncertainty lasts, the more permanent the damage will be for smaller banks and the harder it will be to win back their customers.
Do you agree with Bill Ackman? Let us know in the comments section.
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