America’s banks are missing hundreds of billions of dollars • Hacker News Board

Re: America’s banks are missing hundreds of billions of dollars

#171

Post by harry8 » Wed, Mar 22, 2023, 9:33 AM UTC

mnd999 wrote: post #104

csomar wrote: post #53

Earlier quoted context omitted.

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in te…

Interest rate swaps exist to manage this risk no?

No.

You /can/ manage short term liability mismatch against long term assets in one sense but it's actually useless when you think about why you have long term assets at all.

Just like you can manage the risk by selling your long term assets and buy short term to make the mismatch not exist.

The cost of managing using swaps will be about the same as selling your long term assets and buying t-bills. If it isn't, you hit it as hard as you can knowing it won't last and it's free money.

Re: America’s banks are missing hundreds of billions of dollars

#172

Post by misja111 » Wed, Mar 22, 2023, 9:34 AM UTC

Dwolb wrote: post #169

misja111 wrote: post #130

Earlier quoted context omitted.

> I honestly was thinking we will stay in this zero-rate regime for the next decade or more. I suspect the people at SVB thought in a similar fashion and plan accordingly I have been working in several trading companies, both as trader and in IT, and the first thing they teach you when trading, is that the market always knows better than you. So hedge your risks and don't trust that you have some kind of vision that…

There’s interest rate risk, credit risk, and prepayment risk with the securities they buy. On a Treasury or guaranteed bond, there is no credit risk. On a Treasury there is no prepayment risk. Therefore if you hedge out the interest rate risk, you’re essentially left with 0 risk. 0 risk = 0 or near 0 premium. e.g. there’s no point in doing the trade if you hedge.

You don't need to hedge out all the risk. You can for instance hedge the risk that rates go up more than one percent and take the risk when it changes less, in return for a moderate yield. This way you limit your losses when things go wrong and probably you'll avoid bankruptcy.

Besides that, financial institutions don't only make money on re-investing deposits. They charge all kinds of fees as well, which make for a steady income.

Re: America’s banks are missing hundreds of billions of dollars

#173

Post by cto_of_antifa » Wed, Mar 22, 2023, 9:34 AM UTC

hanselot wrote: post #129

jquery wrote: post #119

Earlier quoted context omitted.

>Probably a Republican president would be just as bad Yes we all know the previous President famously kept his family far away from the levers of power.

This is accurate. Don't you know his son had an infamous laptop that exposed all of his illicit dealings with Ukraine, never mind the straight up insane things regarding their family affairs. I mean, if there was ever a time to know the people supporting the current regime are in a cult, look no further.

[dead]

Re: America’s banks are missing hundreds of billions of dollars

#174

Post by the_gipsy » Wed, Mar 22, 2023, 9:36 AM UTC

skellington wrote: post #109

somenameforme wrote: post #87

Earlier quoted context omitted.

I never understand things like this. She looks like a deer caught in the headlights when he asks her the most predictable and basic question about her decisions. How can you be in such a position, make such decisions, and be unable to offer a compelling answer to the most basic questions? Even if it some sort of a hidden agenda and [further] centralizing banking is just seen as a convenient stepping stone towards CBD…

[flagged]

Peak nepotism? Really?

Re: America’s banks are missing hundreds of billions of dollars

#175

Post by seydor » Wed, Mar 22, 2023, 9:36 AM UTC

throwawaaarrgh wrote: post #112

so they're missing 1/7th of what we spend on the military every year

if america stops spending in world policing, it won't be able to print all those dollars though. It's a double edged sword

Re: America’s banks are missing hundreds of billions of dollars

#176

Post by kriro » Wed, Mar 22, 2023, 9:37 AM UTC

misja111 wrote: post #130

csomar wrote: post #53

Earlier quoted context omitted.

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in te…

> I honestly was thinking we will stay in this zero-rate regime for the next decade or more. I suspect the people at SVB thought in a similar fashion and plan accordingly I have been working in several trading companies, both as trader and in IT, and the first thing they teach you when trading, is that the market always knows better than you. So hedge your risks and don't trust that you have some kind of vision that…

If the market always knows best then why do I need traders except for market making purposes? Shouldn't everyone just buy the lowest cost passive ETF of a big enough index like S&P 500 then?

I think "the market always knows best" is correct in most cases and if you think you know better you are probably wrong but there are empirical counterexamples like the Buffets of the world (unless one would claim that his gains come from some sort of other unfair advantages like the deals only he gets to make). I also think that human behaviour isn't always rational and herd effects and the like are a thing and not always priced in correctly. And while the flow of information feels pretty efficient in this day and age, I also think that there have to be some pockets where individuals can gain informational advantages.

I do like Sorros' book (Alchemy of Finance) which is dense and hard to get through but vibed well with me philosophically.

Re: America’s banks are missing hundreds of billions of dollars

#177

Post by AdamN » Wed, Mar 22, 2023, 9:38 AM UTC

pash wrote: post #70

dr_dshiv wrote: post #54

Earlier quoted context omitted.

What’s the hidden risk of money markets?

Money-market accounts are not covered by government deposit insurance. But money-market funds make a return for themselves by investing their customers’ cash in risky assets, similarly to a bank. If there’s a run on your money-market fund akin to the bank runs we’ve recently seen, the FDIC isn’t going to save you. (Kinda. The other big distinction between a bank and a money-market fund is that the latter don’t indulg…

Also the risk for money markets is breaking the buck, not going to zero like an AT1 bond or something. There is a very small risk of losing a very small amount of money and there is a slightly larger risk that liquidity takes longer than expected.

Re: America’s banks are missing hundreds of billions of dollars

#178

Post by _0w8t » Wed, Mar 22, 2023, 9:40 AM UTC

Dwolb wrote: post #169

misja111 wrote: post #130

Earlier quoted context omitted.

> I honestly was thinking we will stay in this zero-rate regime for the next decade or more. I suspect the people at SVB thought in a similar fashion and plan accordingly I have been working in several trading companies, both as trader and in IT, and the first thing they teach you when trading, is that the market always knows better than you. So hedge your risks and don't trust that you have some kind of vision that…

There’s interest rate risk, credit risk, and prepayment risk with the securities they buy. On a Treasury or guaranteed bond, there is no credit risk. On a Treasury there is no prepayment risk. Therefore if you hedge out the interest rate risk, you’re essentially left with 0 risk. 0 risk = 0 or near 0 premium. e.g. there’s no point in doing the trade if you hedge.

There is always a point as the risk is not binary. SVB should have hedged against big interest jump that would bankrupt them, not against any risk.

Re: America’s banks are missing hundreds of billions of dollars

#179

Post by makomk » Wed, Mar 22, 2023, 9:40 AM UTC

groestl wrote: post #133

mrbombastic wrote: post #125

Earlier quoted context omitted.

I buy this outline but honest question, was the massive covid stimulus avoidable? I rode a bicycle around NYC during the early days of covid and it was a ghost town, like not a person on the streets in a city of 8 million. On the weekend I took a ride up state for a hike and virtually every business was closed on the way. It seemed inevitable at that point the economic consequences of this were going to be massive an…

> I am wondering what the alternative was? When an economy stops producing services and goods, somebody is going to need to reduce their consumption of said goods eventually. The question is just, who that is. Another poster above mentioned three ways a government can balance their budget: spending less, raising more, decreasing real value of debt by inflation. Each of those has a target "audience", which suffers the…

The trouble is that a large chunk of the media has basically lied about this and told people that no, they'd be able to consume just as much as before if it wasn't for the evil profiteering corporations and the mega-rich stealing from them. They've done things like point to the increase in wealth of the super-rich "during the pandemic" to prove that ordinary people have become poorer because the money they deserve was "siphoned off" (never mind the fact that wealth does not represent services and goods that are available to buy and their measurements conveniently start at the bottom of the pandemic-induced drop in share prices) or run breathless headlines about how profits at grocery stores have doubled and this proves profiteering is responsible for price increases when the profit margins of those companies goes from 1% to 2%.

Re: America’s banks are missing hundreds of billions of dollars

#180

Post by hutzlibu » Wed, Mar 22, 2023, 9:41 AM UTC

robertlagrant wrote: post #116

piva00 wrote: post #95

Earlier quoted context omitted.

Or it shouldn't be a private entity.

Better a private entity that needs bailing out with taxpayer money than one that is normally funded by taxpayers.

Socialise the risks, privatise profit.