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Ask HN: Do you think this is the start of the new financial crisis?

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Re: Ask HN: Do you think this is the start of the new financial crisis?

#41

Post by TradingPlaces »

No. There is absolutely no comparison to the US banking system now and in 2008. In 2008, banks were 4 times more leveraged than they are now, because regulations are far stricter. The source of the crisis was a giant asset class — private residential mortgage-backed securities — whose risks had been systematically hidden by the banks that made them, and the ratings agencies who were complicit.

So, banks were very vulnerable on the one hand due to over leverage, and they all owned a lot of an asset class that became unpriceable once people realized what had happened.

There is nothing like that now. The big issue is unrealized losses on 2020-1 vintage Treasury and government-mortgage securities because of rising rates. The Fed backstopped that by letting banks borrow against the full value of the bonds, not the depreciated value. If those bonds go to expiration, they are paid back in full, and the unrealized losses never become realized.

This is a tempest in a teapot caused by a few babies on Sand Hill Road who decided to destroy SVB, and then whine all weekend to the government to save them. They are libertarians until it hurts the bottom line.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#42

Post by qaq »

hanoz wrote: post #31

Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the stress of it at these low rates, and the central banks' bailout mechanism is itself inflationary. Although, strictly speaking the answer should be no , this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.

This. I think people are not paying enough attention to the fact that the "fix" is negating anti inflation measures.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#43

Post by arrosenberg »

I doubt this will be as contagious, plus the Fed is completely leaning into interventionism at this point. If only we could get Congress to do their part, we might avoid the crises in the first place.

There will still be a fair amount of pain to go around, but it won't be across the board like 2008.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#44

Post by wslh »

It is easier to create the future than predicting it (just paraphrasing).

First, I think looking only at the economy is shortsighted: worldwide politics is broken: discussions that are not moving "civilization" forwards with the knowledge we have. For example, I see in the medical sector a lot of mala-praxis that is not connected with the state of art.

Now, returning to economics: I see more a shift than a big crisis. Politicians and regulator cannot put the dirt under the sofa and than needs a change.

I think power is a little bit more distributed and there could be someone with enough imagination somewhere.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#45

Post by yborg »

>There are people on HN who weren't alive in 2008.

Are there that many under-15s here?

As someone who lived through the S&L crisis of the Middle Ages, the current agitation doesn't even rise to that level; so far there hasn't been an indication of widespread outright fraud perpetrated by bank execs. This seems more like a less favorable (i.e. less free money from the Fed) environment exposing a few banks with very poor/incompetent management.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#46

Post by stephen_g »

jurassic wrote: post #18

It’s not a great situation. What we’re seeing is that the fed can’t raise rates to fight inflation without further eroding the balance sheet of big institutions holding large amounts of low yield bonds. So they’re kinda stuck. Hello stagflation.

Raising rates never really reduced inflation anyway… In the 70s Volcker shock, when the oil crisis eased the inflation came down of its own accord, and would have with or without the rate hikes (and the money supply was expanding when the inflation started coming down, which was the exact opposite of their theory - they were trying to reduce the money supply with their rate rises, which they thought would reduce inflation, but they were never able to hit their money supply targets anyway). The Volcker era should be remembered as nothing but a failure.

We saw this problem at the opposite end too - central banks around the world were trying for more than a decade to stimulate economies by dropping rates, many even to the point of taking them negative - and inflation remained stubbornly below the target…

So dropping rates hasn’t worked to stimulate, raising rates hasn’t worked to slow inflation… Why persist with the charade that adjusting rates is an effective policy?

Re: Ask HN: Do you think this is the start of the new financial crisis?

#47

Post by Clubber »

adnmcq999 wrote: post #40
Clubber wrote: post #23

I think it's more like 2000 when there was a significant over-investment in tech, then Greenspan increased interest rates quickly and all the companies had to adapt to non-free money. I think the housing market will correct (crash) and tech jobs will be harder to come by for junior folks and people who aren't that great at it. Not a great time to job hop. It won't be horrible like 2008 but it won't be great. Should b…

That does sound more apples to apples. But without looking anything up, it seems like this time we’ve built up a bigger free-money cliff to fall off of

>But without looking anything up, it seems like this time we’ve built up a bigger free-money cliff to fall off of

I agree. This is a good video on it from Frontline.

https://www.youtube.com/watch?v=EpMLAQbSYAw

They argue the free money has been going on since 2008, but I would argue it's been going on since 2001. Lowering interest rates is what the Fed did to combat the dot bomb.

https://www.macrotrends.net/2015/fed-funds-rate-historical-c...

Re: Ask HN: Do you think this is the start of the new financial crisis?

#48

Post by dchftcs »

WalterSear wrote: post #35
neural_thing wrote: post #9

The vibes are similar to early 2008. But the financial structure is different. Banks are not overleveraged. Housing is not all adjustable rate. That being said, easy to see weakness. Commercial real estate is a big one. I'm somewhat concerned about non-bank Financials. Some large foreign banks (CS(dead) , DB, HSBC) I'm skeptical of. And a recession feels imminent (felt to me this way even before SVB). To sum up, I do…

> Banks are not overleveraged. Banks are holding $600+ billion in currently worthless bonds. https://www.google.com/search?q=620+billion+dollar+bonds+ban...

No, the bonds are worth something, and the losses can narrow by a lot if they're allowed to hold to maturity, deposit interest rates rise slowly enough and if broad interest rates drop some time on the future. The risk that they can't narrow is indeed real and whether to backstop that is a source of contention here.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#49

Post by avisser »

lumost wrote: post #20
ksherlock wrote: post #13

ehh, not really. Watch The Big Short to get an idea of what was going on. Bankers were giving money to anyone with a pulse so they could buy a 3rd investment house. Liar loans, subprime mortgages, option-ARMS, etc. The real estate market last year was nuts but nothing like that. Yes, car loan delinquencies are up and mortgage delinquencies are trending up but mortgage delinquencies are still at some of the lowest lev…

About a third of housing sales now go to investors. We really don’t know what their balance sheets look like - but presumably someone is lending them money. Some fraction of those loans will be variable interest rate. Housing was returning 20% YoY - I wouldn’t be surprised to learn some investors are holding 10% mortgages which they may not be able to carry.

I can't say I understand what will become of things if those investors go belly up, but I can't say I have any sympathy for investors who've made the housing crisis worse.

Let them crash and put the houses back on the market.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#50

Post by mrzimmerman »

hanoz wrote: post #31

Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the stress of it at these low rates, and the central banks' bailout mechanism is itself inflationary. Although, strictly speaking the answer should be no , this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.

Honest question, how is (in the case of SVB and Select) making sure depositors don’t lose money while the bank itself is closed and assets sold off, holders of it’s debt (those who lent money to the bank), and those that owned the stock all lose their investments?

I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct?

Again, honest question if I seem to be missing something.

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