Vladimir Lenin once said something to the effect of, “There are decades where nothing happens; and there are weeks where decades happen.”

The overall perception of the U.S. and European economies seem to have undertaken a massive vibe shift over the past week since the run on Silicon Valley Bank began, and now that the largest shareholder in Debit Credit Suisse says no, not going to inject any more money.

It’s not clear that markets have figured out what it means yet, though the broad expectation of some form of soft economic landing seems to be dissipating. (Larry Summers made the point two years ago that the Federal Reserve has never managed such a thing before.)

The two year Treasury is currently down to 3.8% with CPI inflation stubbornly staying at 6% per annum.

I think this only makes a shred of sense if you think the GFC is around the corner again.

And the equity market has held up much better which really doesn’t fit a GFC… https://t.co/xJVTgvoYuA pic.twitter.com/BoahhIQPOP

— Clifford Asness (@CliffordAsness) March 15, 2023

When SVB failed I immediately thought about the points and miles fallout because that’s the piece of the world I can speak to most confidently. We saw a brief interruption in Plastiq’s bill pay service (many people use them to charge payments like mortgage and car to their credit cards for a fee), and Brex make a huge no-notice devaluation to their airline points transfers.

And not for nothing, but Federal Reserve stress tests of banks really didn’t consider the scenario of rising interests last year, while rates were rising?

So now as we evaluate whether the Fed’s implicit unlimited deposit insurance backstop and commitment to expand its balance sheet lending to banks at par for government securities that are worth less than that can forestall a banking crisis, that could spill over into the real economy, I have to again wonder what this all means for miles and points.

Now, this is early and speculative. And so far as the Fed has raised rates, I’ve been wrong.

• I thought that banks would have tightened acquisitions with rising interest rates. Money is more expensive!

• The net present value of a new customer is lower with a higher discount rate, so it makes sense to spend less to acquire that customer!

However, here are some thoughts on what to expect.

• The issuers of the big travel cards are too big to fail. The big co-brands have all become such expensive deals that only the biggest banks could swallow them. So your airline credit card isn’t going to disappear. And the big banks are also the only ones that have been able to afford to stand up their own rich transferable points programs which can outcompete airline cards.

• The programs themselves could be more vulnerable? American and United have stacked themselves up with significant liabilities coming out of the pandemic, and there’s only so much borrowing to do against loyalty programs. While they’re all paying down debt, they’ve only just begun. A major recession coming so soon after Covid could pose real problems.

• In the short term miles could become more valuable if there’s a recession and plenty of empty seats it should become less costly to book those seats using miles, although for U.S. airlines that could be a somewhat short-lived opportunity. They have become faster at pulling down capacity they don’t expect to sell (after the 737 MAX grounding and then Covid) so maybe the effect won’t be as great as in the past, though hopefully a bit more durable for award space on foreign carriers.

• New cards could become more difficult to get approvals on as banks tightening up lending in the event of recession (repayment risk, and bad loans aren’t good for the balance sheet). There’s also likely to be more regulatory scrutiny that follows an implicit guarantee of all bank deposits.

In the meantime you can get both your authentic and humorous knockoff SVB swag on eBay.