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The collapse of SVB exposes the largest crack in the economy

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Re: The collapse of SVB exposes the largest crack in the economy

#161

Post by headsupftw »

quantgenius wrote: post #20
nodesocket wrote: post #9

> A 10Y T-Bill purchased on the first trading day of 2021 is now worth less than $0.80 on the dollar Just one note for those that aren't fully aware, the treasuries were only down approx 20% because they were forced to sell before the 10yr maturity. If they could have held the entire term they would get back 100%.

They would have gotten their principal back but missing out on interest for 10 years is a huge cost, particularly if you have to pay out interest in the interim to your depositors.

That's just another way of saying "that's why its price is down 20%".

Re: The collapse of SVB exposes the largest crack in the economy

#162

Post by drstewart »

JohnFen wrote: post #119
drstewart wrote: post #91

Earlier quoted context omitted.

Funny that in threads about crypto companies failing everyone cries about "this is why we have regulations and safety valves in the financial industry!" but now when these are in force people cry about the safety valves and regulations existing, and how the companies should just be allowed to fail

Who's doing that? Part of the issue here is that SVB was able to get into trouble because important regulations and safeguards were removed years ago. The ones that exist to minimize the wider impact of a bank failure are working, and I don't see anyone upset about that fact.

>Part of the issue here is that SVB was able to get into trouble because important regulations and safeguards were removed years ago.

Which important regulations and safeguards were removed?

Re: The collapse of SVB exposes the largest crack in the economy

#163

Post by rufus_foreman »

cplusplusfellow wrote: post #12
Apocryphon wrote: post #10

So between the tech angle and the housing-related investment vehicles, are we remixing 2000 with 2008 now?

Self inflicted wounds this time, though. There is nothing wrong with a bank purchasing 80bln of MBS with their depositors money. The issue becomes when the fed suddenly raises rates faster than any time in their history while still failing to fight inflation (which is a result of having a stronger economy).

> The issue becomes when the fed suddenly raises rates faster than any time in their history

The Fed funds rate was 9% in July of 1980 and 19% in December of 1980.

Re: The collapse of SVB exposes the largest crack in the economy

#164

Post by dehrmann »

yalogin wrote: post #31

As someone that is not following this as closely as I would like, does the collapse of this bank have nothing to do with FTX and Crypto?

I'd say they're unrelated. This situation could hit any US bank that placed the wrong bet. What's somewhat unusual, and might shelter other banks, is the bank run was viral among VC-backed firms. They also had a stronger incentive to withdraw a lot more because their funds weren't insured. A bank with lots of retail customers doesn't have this issue.

Re: The collapse of SVB exposes the largest crack in the economy

#165

Post by JohnFen »

drstewart wrote: post #162
JohnFen wrote: post #119

Earlier quoted context omitted.

Who's doing that? Part of the issue here is that SVB was able to get into trouble because important regulations and safeguards were removed years ago. The ones that exist to minimize the wider impact of a bank failure are working, and I don't see anyone upset about that fact.

>Part of the issue here is that SVB was able to get into trouble because important regulations and safeguards were removed years ago. Which important regulations and safeguards were removed?

I'm thinking of the Glass-Steagall Act that was put into place after the great depression. It prevented banks from engaging in both commercial and investment banking at the same time. You had to choose what sort of bank you wanted to be. The effect of this was to prevent banks from being able to take depositor's money and put it in risky investments.

It was effectively repealed in 1999 by the Gramm-Leach-Bliley Act. Its repeal is one of the things that allowed the 2008 crash to happen.

Re: The collapse of SVB exposes the largest crack in the economy

#166

Post by boeingUH60 »

worik wrote: post #75
JohnFen wrote: post #55

Earlier quoted context omitted.

It means that the bank was gambling, lost, and wants to externalize those losses onto the rest of us who weren't gambling.

Yes An alternative is to bankrupt the partners, cancel the shares, then take action for depositors That is what did not happen in 2008

This is exactly what's happening here. Equity investors have lost their shirts. The government protection is only for depositors.

Re: The collapse of SVB exposes the largest crack in the economy

#167

Post by boeingUH60 »

JohnFen wrote: post #149
celestialcheese wrote: post #135

Earlier quoted context omitted.

Asking honestly - if you just got $100m wired to your account from a Series C, what's the right way to protect your cash?

Honest answer? I don't know. But when my business was in a similar position (not from VCs and only about 25% of that amount), my business partner, attorney, and accountant sure did, so I know it can be done. IIRC, it was a fairly complex mix of different things. There certainly wasn't a single place that held all of the money. I know that this sort of problem isn't new, and I know that there are a variety of ways to…

In jest, this comment reminds be of that article about "The Gods On Hacker News" [1]. A random user just typed "when I had about $25mn in my business account..." like that's nothing, lol.

1- https://www.riknieu.com/the-gods-on-hackernews/

Re: The collapse of SVB exposes the largest crack in the economy

#168

Post by Jensson »

Godel_unicode wrote: post #146
Jensson wrote: post #101

Earlier quoted context omitted.

But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly? I don't see how these corporate profits benefited society. They didn't fill some hard to do function, they just risked others money and planned to skim the gains for profit, why should society encourage that? And they didn't even risk the money in growth areas, they just gave it to the gove…

T-Bonds tie up money for a long time, bank deposit are largely retrievable on demand. Banks take a fee for bundling lots of deposits together to invest and depositors trade upside for convenience. If you know you have a 10-year horizon, by all means buy treasuries instead of depositing at a bank.

But that doesn't work if the bank is allowed to put your money into T-Bonds, then your money is locked there just without the upsides.

And you can sell T-Bonds, they are as liquid as any other assets, the bank just lost money on it. If the T-bonds hadn't lost value they wouldn't have collapsed, they would have just sold the bonds.

Re: The collapse of SVB exposes the largest crack in the economy

#169

Post by npunt »

TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

What other banks that startups use have an exemption to Basel III? Would love to understand broader risk to startup ecosystem.

Re: The collapse of SVB exposes the largest crack in the economy

#170

Post by twic »

tialaramex wrote: post #151
Jensson wrote: post #101

Earlier quoted context omitted.

But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly? I don't see how these corporate profits benefited society. They didn't fill some hard to do function, they just risked others money and planned to skim the gains for profit, why should society encourage that? And they didn't even risk the money in growth areas, they just gave it to the gove…

The UK government owns several banks, one of these banks is for exactly this purpose. National Savings & Investment Bank (NS&I) does not offer loans, but money you save with this bank is in practice just part of the country's general fund, they're paying you interest on your savings because if they borrowed that money commercially they'd have to pay interest too. This has one obvious big advantage for the saver - it'…

Three modest notes about premium bonds. Firstly, you can cash in bonds at any time, so it's effectively an instant access account. Secondly, the current rate is 3.30%. Thirdly, the payouts are tax-free.

3.30% on an instant access account is actually pretty great (best i see elsewhere is 2.51%; i see a six month fixed term deposit at 3.28%), and getting it tax-free without having to have it in an ISA makes it even better.

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