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

America’s banks are missing hundreds of billions of dollars

economist.com

Post reply on HN
Print view View original

221–230 of 450 posts

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

#221

Post by itsoktocry »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

>The government requires banks buy their debt and hold it as reserves because it's considered the safest investment.

They don't require it, it is the safest investment. What do you consider a safer investment?

>Oops, they're not so safe after all if you need your money back before maturity,

Golly, it's almost like banks are supposed to know how this stuff works.

It's funny that you relate "safe" to "never changes price". The bonds were safe and are safe, which is why the "bailout" is an okay deal (ethics aside); the government will pay your money back.

>SVB is certainly not blameless here

Who on this planet would consider them blameless? They are 95% of the blame of their own situation.

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

#222

Post by kgwgk »

zarzavat wrote: post #183
Dwolb wrote: post #169

Earlier quoted context omitted.

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.

Yes that’s the point. Treasuries are cash, they are not meant to make money for banks, they are meant to be a place for banks to put money when they don’t have anything else to do with it. Banks are supposed to make money from the premium between the base interest rate and the rate on the loans they make. The implied contract when you deposit money in a bank is that the bank has a dependable business model as a lende…

> Treasuries are cash,

Obviously not.

[edit to add: this seems a controversial comment, it’s being upvoted and downvoted wildly]

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

#223

Post by robertlagrant »

dageshi wrote: post #193
okeuro49 wrote: post #182

Earlier quoted context omitted.

> There'd be no practical way to shield the vulnerable or the carers The shielding system was an official policy in the UK https://www.local.gov.uk/sites/default/files/documents/SHIEL... > left to run rampant in the wider population eventually the medical system is overwhelmed and collapses. The risk of hospitalisation was low around the 30s and younger.

> The shielding system was an official policy in the UK Yeah, it still didn't and doesn't work though. Carers will have families, they'll have children in school, they'll potentially have more than one job. You can't shield the "carers" so you can't shield the vulnerable outside of a wider scale lockdown. Lockdown was the only thing that stopped case numbers going up till the vaccine came along. > The risk of hospita…

The age of 40 is interesting - is it from the Economist's model[0]? I don't know how accurate it is, but I would say comorbidities look a lot more serious than a general age-based approach.

[0] https://www.economist.com/graphic-detail/2021/03/13/our-covi...

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

#224

Post by csomar »

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…

> But for those they would have to pay a premium.

Wouldn't that be equal to holding short-term treasuries. In that case, they'd be sitting at billions of "worthless" money. Question is, who is the other bank that took that risk. Because of the nature of the market (ie: competition) they had to produce yield comparing to their peers.

So either their peers were smarter or the big unfolding is yet to happen.

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

#225

Post by itsoktocry »

DSingularity wrote: post #167
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…

Finally! People calling it what it is. Corruption. And the domestic angle isn’t even the worst. Breton-Woods put America in a sort of custodianship which they have betrayed. Raising and lowering rates to promote your domestic economy without even considering the global impact is fucked up if you promised the world that your currency can serve as a trusted foundation. World order is still fluctuating all as a result o…

>if you promised the world that your currency can serve as a trusted foundation.

How do people get this backwards?

The US didn't say, "use our currency as the global reserve currency!" Countries chose and continue to choose to use the USD for global commerce. No one is forcing them, the USD really is valuable.

>World order is still fluctuating all as a result of these betrayals.

So raising rates is a betrayal, but allowing inflation to eat away at savings of those with USD holdings is not betrayal?

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

#226

Post by chironjit »

csomar wrote: post #53
nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

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…

Its hard to overstate how true your point is re-bankers responsibility.

The very basic thing you learn when studying banking is durations and how your primary job is balancing that for your debts and assets.

Bankers also have various tools to short circuit any issues, inclusing raising rates on deposits, getting wholesale funding, matching various duration bonds, etc.

Also, while historical data is not an indicator of future data, the average long term interest rates in the US have always been higher than what it was in the past decade.

Yes, hindsight might be 2020, and this applies to even my comments. But we literally are paying these bankers exorbitant sums to know these and do better than the average Joe

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

#227

Post by ClumsyPilot »

robertlagrant wrote: post #220
geysersam wrote: post #201

Earlier quoted context omitted.

Fact remains that wealth inequality has increased enormously over the last decades. This is a big economic issue that deserves journalistic coverage. If you don't want to frame it in terms of "evil" or "profiteering" that's fine. But this issue is important. The expected consequence of inequality is reduced economic output (in terms of utility). It leads to inefficiency. I feel this is a perspective that's not stress…

Can you elaborate? How does the existence of a rich person somewhere else reduce my economic output?

Growing inequality without growing GDP means you became poorer.

Even if we assuming they magically appeared and you did not become poorer: will never own an asset in your life, they can price you own of a house, land, shares, etc.

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

#228

Post by ceejayoz »

lmm wrote: post #75
micah94 wrote: post #8

Earlier quoted context omitted.

Yeah, I had like $4k left in a brokerage account. Then one month I noticed ~$100+ dropped in there and I was like WTF? That's 10x what I see in my savings account for the same amount of money just sitting there! So my money market is now my savings account. The risk is that you could lose your principal...but I guess not anymore!?! Thanks SVB, FRC, et al.

Money market funds are not generally FDIC-insured. Given that the failure of SVB has made the implicit 100% FDIC guarantee a more explicit one, I'd say there's less reason to switch to a money-market fund than there was two weeks ago, not more.

They’re protected. There’s an FDIC for securities. Same $250k limit, same likelihood of going above that in practice.

https://www.sipc.org/for-investors/what-sipc-protects

> Money market mutual funds, often thought of as cash, are protected as securities by SIPC.

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

#229

Post by hgomersall »

ClumsyPilot wrote: post #219
hgomersall wrote: post #120

Earlier quoted context omitted.

What? No, the purpose of a bank is to make loans to loan worthy entities, for which they should receive adequate recompense reflecting the risk of default. Investments don't come into it. It's only in recent years that banks started doing investment, and arguably that's a big part of the problem.

Same difference - they are given capital, and they need to find a way to deploy it. Whether they loan, invest, or do something else is their decision. There is something really fucked up about about the idea that society owes you a risk-free place to put your cash. We accept other risks in life - some job are dangerous, my health could be gone any moment, I might be unable to pay for trratment. My house is not safe f…

That's like saying the purpose of a supermarket is to convert investment into grocery sales. It might be true at some level, but isn't what people describe as the purpose of a supermarket. Banks are entities for making loans. They are heavily regulated in how they do that, and part of that does come with capitalization requirements, but the purpose of a bank is to make loans.

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

#230

Post by andirk »

seydor wrote: post #175
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

Can we just call it a weapons racket at this point or?
Post reply on HN