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SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

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Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#21

Post by antibasilisk »

ericb wrote: post #18
antibasilisk wrote: post #11

Earlier quoted context omitted.

i guess they should have thought of that before they deposited their money into a business that plays games with money to scam wealth out of the economy

I guarantee that you have almost no understanding of whatever the bank you use is really doing. Feel free to point me to the balance sheet, and explain it. Of course, that won't matter because in the event that you can explain it, there's no guarantee you're not being unknowingly defrauded. Save your schadenfreude, it's gross.

What I'm saying applies to all banks including the ones I use, not just SVB. I'm fully aware of the fact a significant portion of my money is in the hands of a bunch of coke addicts.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#22

Post by name-form »

nytesky wrote: post #6
SkyPuncher wrote: post #4

Earlier quoted context omitted.

> The situation is that the depositors will eventually get some money. And that should be good enough. No, it's not "good enough". Far too many companies can no longer make payroll as a result of this.

My expectations is they will liquidate all current holdings of SVB, and probably half their assets are down 20% because of interest rate pummeling of long dated bonds, so maybe everyone gets a check on Monday or Friday for 90% of their total assets at SVB. Payroll gets made, most companies will be fine, some runways are a wee bit shorter. I think fast is better than perfect in this scenario.

That is what will happen, and the assets will be liquidated against some depositor holdings.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#23

Post by HWR_14 »

nytesky wrote: post #6
SkyPuncher wrote: post #4

Earlier quoted context omitted.

> The situation is that the depositors will eventually get some money. And that should be good enough. No, it's not "good enough". Far too many companies can no longer make payroll as a result of this.

My expectations is they will liquidate all current holdings of SVB, and probably half their assets are down 20% because of interest rate pummeling of long dated bonds, so maybe everyone gets a check on Monday or Friday for 90% of their total assets at SVB. Payroll gets made, most companies will be fine, some runways are a wee bit shorter. I think fast is better than perfect in this scenario.

As I understand it, the FDIC normally steps in early enough that even non-insured accounts get made while.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#24

Post by gruez »

machina_ex_deus wrote: post #14

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they…

> What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail.

They're not exactly risking nothing. Capital requirements mean that each dollar of deposits need to be backed by more than a dollar worth of assets. The extra assets serves as a cushion in case something goes wrong. That cushion makes up the equity of the bank, and comes from shareholders. If the bank "fails", the shareholders lose it all, so it's in their interest to prevent that from happening.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#25

Post by ithkuil »

swatcoder wrote: post #9
SkyPuncher wrote: post #4

Earlier quoted context omitted.

> The situation is that the depositors will eventually get some money. And that should be good enough. No, it's not "good enough". Far too many companies can no longer make payroll as a result of this.

If you had a payroll to make this month and only had that much in cash on hand, you were already a marginal business and a gust of wind could have knocked you out. Your bank failing was that gust of wind. You’ll definitely get up to $250k back soon and probably more, and hopefully you can sort out the disruption and find a way to carry on. If, on the other hand, you had a lot more cash on hand but parked it all as un…

I'm a complete ignoramus in this field, so this is a honest question. Please ELI5:

Is $250k a fixed limit for insured deposits? If your company needs more than $250k to meet a month of payroll, is it advised that you have accounts in multiple banks so that you have the necessary liquidity guaranteed as insured deposits? (E.g. if you need a million you'd need 4 different banks, if you need 5 million you need 20 different banks?)

Or can you pay some extra insurance in order to get the required protection without the operational hassle of having to deal with multiple banks?

Or is it the logic that you need to protect from bank runs to one (or two) of your banks and assume that the others will stay solvent?

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#26

Post by adam_arthur »

machina_ex_deus wrote: post #14

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they…

You don’t have to use a bank. Cash is one option, and perhaps someday soon a self managed/federal CBDC.

You can also put your cash into money market funds that invest in T-Bills, which is what anybody with some common sense and a large amount of money should do.

But in this world entities that offer you a return on your money will still exist, e.g. banks. If I can register my cash and you pay me x% per year, that’s better than getting 0. So banks would form regardless.

Banks make loans and create credit which allows the broader economy to grow. Better to have properly regulated private sector entities with skin in the game making lending decisions than having the federal government do it.

If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly.

Clearly the existing bank regulations aren’t sufficient though.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#27

Post by water-your-self »

adam_arthur wrote: post #26
machina_ex_deus wrote: post #14

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they…

You don’t have to use a bank. Cash is one option, and perhaps someday soon a self managed/federal CBDC. You can also put your cash into money market funds that invest in T-Bills, which is what anybody with some common sense and a large amount of money should do. But in this world entities that offer you a return on your money will still exist, e.g. banks. If I can register my cash and you pay me x% per year, that’s b…

>If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly.

Similarly, ceasing steroid use will reduce muscle mass.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#28

Post by helianer »

credit_guy wrote: post #19
helianer wrote: post #5

Why would they hedge? They would lose pretty much all of the return that they were getting by going long duration. The problem is that their portfolio was too long duration, not a lack of hedging.

> Why would they hedge? They would lose pretty much all of the return that they were getting by going long duration. In general you are right. But last year was special. Everyone and their grandmother knew the Fed will hike rates, numerous times. The Fed did not tire to tell that to whomever bothered to listen. Not putting any interest rates hedge on in such a situation sounds a bit crazy.

Sure, but they could have sold off a lot of their long term assets earlier instead. To me, the problem was not an outright lack of hedges, rather it was continuing to take too much risk all of the way down. Hedges only make sense to me if they were a cheaper way to achieve the same thing as selling the assets.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#29

Post by paxys »

SVB is not getting a bailout. It is dead. Its share price is $0 and all shareholders are walking away with nothing.

The government's decision on whether to bail out its depositors or not isn't going to be (and shouldn't be) based on how well the bank was run, especially given that it was fully compliant with all regulations.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#30

Post by muzz »

paxys wrote: post #29

SVB is not getting a bailout. It is dead. Its share price is $0 and all shareholders are walking away with nothing. The government's decision on whether to bail out its depositors or not isn't going to be (and shouldn't be) based on how well the bank was run, especially given that it was fully compliant with all regulations.

Depositors knowingly took the risk of having such large deposits there. They made this decision and should face the consequences of it, not the taxpayers.
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