Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Banking in uncertain times

bitsaboutmoney.com

Post reply on HN
Print view View original

21–30 of 378 posts

Re: Banking in uncertain times

#21

Post by 542458 »

ascotan wrote: post #12
tetrep wrote: post #6

Earlier quoted context omitted.

A deserving; that which makes one deserving of reward or punishment; merit or demerit; good conferred, or evil inflicted, which merits an equivalent return: as, to reward or punish men according to their deserts. "Just deserts" is a common phrase that uses it in the same way.

desert i don't think means deserving. It comes from the latin desertus which means to "make barren or empty/forsake". I think in this context it means to have something fail or be abandoned at a critical moment.

The person you’re replying to is correct - “desert” is in some contexts an old word that’s pronounced like “dessert” but spelled with one “s” that means “the punishment that one deserves”.

https://www.merriam-webster.com/words-at-play/just-deserts-o...

Re: Banking in uncertain times

#22

Post by globalise83 »

ImprobableTruth wrote: post #7
echion wrote: post #3

First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…

"desert" means something one deserves. You probably know it in the idiom "just deserts".

Ha! I just learnt something new. Always thought it was desserts with two S's, but seems that my version is a pun that is slipping into general usage: https://blog.oup.com/2007/07/eggcorn/

Re: Banking in uncertain times

#24

Post by kasey_junk »

pearjuice wrote: post #5

What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit. Why would any bank l…

The bailout to the banks is two fold. First the direct bailout in form loan guarantees. The moral hazard on those are limited by the time limit on when the assets had to have been bought (in the past) and on how long they can be used (a year).

The second is a third or fourth order bailout of banks. By moving the goal posts on depositors responsibilities to “none if you are a powerful lobby”, risky banks no longer have the second most important limit on their riskiness (depositors managing their own risk and due diligence). That leaves only the equity holders to do the diligence.

I think the reason people aren’t calling it a bailout is that it puts all the pressure on equity. Which maybe what we as a society wants but it’s certainly a big change to the existing regime.

Re: Banking in uncertain times

#25

Post by mooreds »

Read this all the way to the disclaimers at the bottom. It's just a fantastic piece of writing, digging deep into some of the unseen structures that underlie our society.

I'm not close enough to the banking system to judge the truth of it, but it was beautiful.

PS If you are on email lists, make sure to respond occasionally to the author. It's hard out there and they are shouting into the void. If a piece makes you smile/think/learn, tell them!

Re: Banking in uncertain times

#26

Post by pearjuice »

duxup wrote: post #10
pearjuice wrote: post #5

What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit. Why would any bank l…

> Why would any bank look at SVB and NOT think "oh, time to take more risk for more profit; the government will prop up the FDIC limit if we fail anyway". Because they don’t want the stock to go to 0? I think most businesses and investors would not want that. We’ve seen bank stocks drop, it is in those banks interest to show they’re not taking chances like SBV.

They don't want the stock to go to 0, but they don't want to miss potential returns either. When the FDIC will cover all depositors, investors (from a purely capitalistic perspective) would demand to use as much of their capital as possible to maximize returns. As we've seen numerous times before in the past, a large quantity of investors is myopic and regulatory oversight often comes too late or after the fact.

Re: Banking in uncertain times

#27

Post by eternalban »

pearjuice wrote: post #5

What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit. Why would any bank l…

> explicitly lifting the 250K FDIC limit.

The desperation of that action speaks volumes about what they faced (and we don't know). Having no limits for FDIC will stem panic in the short term at the cost of (practically guaranteed) mid and long term hazard that this decision will directly engender.

Re: Banking in uncertain times

#28

Post by jjoonathan »

duxup wrote: post #10
pearjuice wrote: post #5

What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit. Why would any bank l…

> Why would any bank look at SVB and NOT think "oh, time to take more risk for more profit; the government will prop up the FDIC limit if we fail anyway". Because they don’t want the stock to go to 0? I think most businesses and investors would not want that. We’ve seen bank stocks drop, it is in those banks interest to show they’re not taking chances like SBV.

Yes, banks as organizations still have the correct incentives. I'm not sure management does, but 1. it's the responsibility of owners to keep management under control and 2. if management doesn't care about investors surely they would care even less about depositors.

Re: Banking in uncertain times

#29

Post by [deleted] »

A4ET8a8uTh0 wrote: post #2

"This is a temporary program; banks can only tap this liquidity for about a year. In the ordinary course, bank runs don’t last for a year; they either cause an institution to fail very quickly or peter out. But the other reason this is time-bounded is to defang the moral hazard, on behalf of both banks and their customers. (Moral hazard in insurance is when the existence of insurance makes it incentive-compatible for…

[deleted]

Re: Banking in uncertain times

#30

Post by patio11 »

echion wrote: post #3

First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…

Per Merriam-Webster, which for the benefit of international HNers I will mention is a well-known English dictionary: “the quality or fact of meriting reward or punishment”
Post reply on HN