261–270 of 378 posts
In defense of bailouts, we need to acknowledge the systemic risks that a failing bank can pose to the broader economy. If we let a major bank collapse without intervention, the consequences could be far-reaching and have negative ripple effects throughout the financial system. By stepping in and providing a bailout, the government helps to maintain confidence and stability, ensuring that the entire system doesn't col…
Was this ChatGPT?
As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
Finance is an imaginary staircase that only works until we look down and freak out. We don't document the robustness of the stairs because the stairs aren't real.
As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
> Banks engage in maturity transformation, in “borrowing short and lending long.” Deposits are short-term liabilities of the bank; while time-locked deposits exist, broadly users can ask for them back on demand. Most assets of a bank, the loans or securities portfolio, have a much longer duration. > Society depends on this mismatch existing. It must exist somewhere. The alternative is a much poorer and riskier world,…
If I don't trust that the bank can give me the money, it doesn't matter if it's in a CD or checking account, I'm going to pull it out (screw the gains) and the liquidity problem still exists. The extra months/year of interest don't stop a bank run.
This is why I think this can really only be solved by government and regulation. Government regulation on the quality of investments to make sure that they're really worth X% long term. If there is a bank run, government needs to step in with the government liquidity, and say "customer gets their money, we get your assets". Of course, brokering an auction for these amongst other banks is the preferred approach.
There should be a fairly free market around what leverage banks are willing to take on as long as the investments that back it are regulated and solid. If a company wants to expose their shareholders to risk by keeping high levels of leverage, that's their problem, but you can't punish depositors for the mistakes of the bank. Not saying we shouldn't have any regulations in this space, but as long as mistakes impact shareholders and not depositors or taxpayers, I think everyone is happy.
Earlier quoted context omitted.
The money is mostly created as debt, with the obligation to repay more money. So it's not "not giving anything back in return". A company wants some money to fund business expansion. So it borrows $1m with a promise to pay $1.06m back, which it can fund because it has customers. The bank in turn can fund this by borrowing $1m and promising to pay back $1.03m (when lending activity increases this money comes from the…
Banks in compliance can create loans on demand. They don't need to borrow the funds.
As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
Many of their assets aren't really fungible either. Mortgages are the canonical example: yes they can now be turned into MBS, but your local credit union just issues and holds them). The same is true of the commercial loan to the local stationary business. As far as I know those aren't bundleable into commercial paper securities. The debtors do the same: they don't treat their loan as having any market value at all beyond what it had when issued. House prices generally don't mark to market except in places with property tax assessment.
As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
> why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Because at maturity, the bank gets back its money. So it is perfectly valid to say "in ten years, this $100m bond is worth $100m...and I intend to hold it for ten years, so it's worth $100m [equivalent] today". The "I intend to hold it" is the relevant part of the valuation, though.
As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
It seems to me (being uneducated in the matter) that if a bank is holding US government debt (treasuries) as "hold to maturity" that the US Government should have some ability to offer a line of credit against those assets for cases like this one was. Or that the bank should be able to say "depositor X transferred $100 million to Chase, so we sent Chase a wire for $10 million and treasuries marked HTM worth $90 milli…
The repo market is vast and generally massively liquid; trillions of dollars of funding per day.
So it makes no difference to me if the bank sector crashes or not. To the degree I care about sectors at all, I'm more likely to be concerned about railroad stocks (would interfere with goods) or automobiles, even though I don't own any any more (employ a lot of people).