Comments by Brian Shilhavy
Editor, Health Impact News

It appears that the Biden Administration is abandoning their rhetoric that “the banking system is fine.”

CNN reported today that Treasury Secretary Janet Yellen met with CEOs of large banks yesterday and told them that “more bank mergers may be necessary.”

New York (CNN) — During Thursday’s meeting with the CEOs of large banks, Treasury Secretary Janet Yellen told executives that more bank mergers may be necessary as the industry continues to navigate through a crisis, two people familiar with the matter told CNN.

The comments from Yellen provide further evidence that Biden officials are starting to warm up to the idea of bank mergers despite concerns from progressives and the administration’s own scrutiny of corporate concentration. (Source.)

Her statements killed a stock rally this week that saw the stocks of regional banks increase 10%, in one of their best weeks since 2020.

As ZeroHedge News reported today, reports show that $billions of losses in deposits at U.S. banks have occurred in the past two weeks, with over $70 billion lost in large US Commercial Banks.

[…]

As I wrote yesterday, the entire stock market is now being held up by a few Big Tech companies, and each day I am reading new reports about just how disastrous this could be, because Big Tech is mostly just moving money around right now and trying to buy in on the AI fad.

For example, think about the $10 billion deal that Microsoft paid to OpenAI to start using ChatGPT. $10 billion went on to the books of OpenAI as a gain, but on Microsoft’s books it was entered as a loss.

For the U.S. economy, that is a net zero until Microsoft starts turning a profit and gaining revenue for what they paid to use ChatGPT and started giving it away for free to the public.

Microsoft has huge cash reserves, so they could afford to do something like this, and by giving it away for free, they put pressure on their competitors, especially Google, to hurry up and get their own AI chat software launched.

How long will it take for Microsoft to start seeing a profit with revenue coming in which would benefit the overall U.S. economy?

This is what Goldman’s Sales and Trading desk is saying regarding how long it will take to start seeing benefits from investments in chat AI:

While we are big AI and Chat-GPT enthusiasts ourselves, we tend to be skeptic of significant productivity gains on short time horizons of any new technology.

Even if the new technology can benefit from an existing delivery infrastructure and educated recipients, it should take at least a decade to start having a meaningful impact on a large economy.

On long horizons, productivity boosts from a new technology are temporary as high wages in the most productive sector, in the presence of redistributive taxation, are pushing wages in less productive sectors higher and the most productive sector shrinks in relative employment size and also in relative size to the economy (this is known as the Baumol effect – see Hartwig, Jochen (2001) – “On Misinterpreting the ‘Baumol Disease.’”).

As less productive sectors gain employment the average productivity declines to possibly even lower level. (Source.)

These are actually pretty basic economic principles, but when you look at what investors are doing right now, one has to wonder if this frenzy that is leading to what appears to be uninformed and emotional (primarily0.

[…]

Via https://healthimpactnews.com/wp-content/uploads/sites/2/2023/05/Yellen-more-bank-mergers-CNN.jpg