Earlier quoted context omitted.
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?
The world needs one
America’s banks are missing hundreds of billions of dollars
231–240 of 450 posts
Re: America’s banks are missing hundreds of billions of dollars
#232Earlier quoted context omitted.
It's almost like we should be optimising people getting stuff for creating actual value.
A decade ago I had lunch with a friend through kindergarten (our daughters were friends) he was a financial advisor and things were going good for him. I complained, as people who 'make' stuff often do, that finance was unbalancing everything and taking too big a share of profits (not to be annoying to him, just sharing a viewpoint) and he replied that the reason why finance was getting more of the share was because…
That's the future according to Horowitz: https://a16z.com/2020/01/21/every-company-will-be-a-fintech-...
I feel bad for your friend, however. He was not systemic enough.
Re: America’s banks are missing hundreds of billions of dollars
#233> America’s banks are missing hundreds of billions of dollars
Did those money even exist in the first place?
Re: America’s banks are missing hundreds of billions of dollars
#234Earlier quoted context omitted.
> 4. The old treasuries decline 30-40% in present value. Oops, they're not so safe after all if you need your money back before maturity, which is often decades away. This is because they fucked up their duration risk handling, no one held a gun to SVBs head and forced them to invest so heavily in long duration bonds. If they bought more short duration bonds none of this would be a problem. Other banks didn’t make th…
Maybe, but the latest Fed action violates a 40-year downtrend in interest rates, so it was exceptionally improbable from a historical perspective. From 2020 trough to 2022 peak, government interest rates increased almost 1,000%, which means the magnitude also is hard to anticipate or plan for, and the effects extreme from failing to do so. You can do a regression of interest rates from whenever to now, draw a line th…
>World order is still fluctuating all as a result of these betrayals.
It seems a pretty basic assumption that someone at SVB did a WHAT IF analysis to game out different scenarios if interest rates started rising. This is not rocket science.
>You can do a regression of interest rates from whenever to now, draw a line that's never violated until 2022 (even the 2020 lows were in-trend) and the 2022 highs were almost 50% higher than the trend
Well, if your bank is relying on analysis like this, it deserved to fail.
Here's how easy this situation was:
"Historically, would 5% interest rates be seen as crazy? What happens to our balance sheet if we see those rates?"
Re: America’s banks are missing hundreds of billions of dollars
#235Can anyone recommend some good blog articles or books (aimed at lay people) on how the global economy works, bank interactions with other banks, and government management of inflation and interest rates?
I'd like to understand a bit about both the previous crash and the current banking crisis, but feel I need to do some background reading first.
Re: America’s banks are missing hundreds of billions of dollars
#236Earlier quoted context omitted.
Maybe, but the latest Fed action violates a 40-year downtrend in interest rates, so it was exceptionally improbable from a historical perspective. From 2020 trough to 2022 peak, government interest rates increased almost 1,000%, which means the magnitude also is hard to anticipate or plan for, and the effects extreme from failing to do so. You can do a regression of interest rates from whenever to now, draw a line th…
> Maybe, but the latest Fed action violates a 40-year downtrend in interest rates, so it was exceptionally improbable from a historical perspective. imo this is very flawed thinking, a once in a 40 year event is almost 100% likely to happen in an average persons life — maybe twice. I think when it comes to either your life savings or gigantic amounts of money like banks manage it’s irresponsible to not consider econo…
I'm not disagreeing that SVB was wrong, but it's easy for us arm-chair folks to second-guess the wisdom of creating a business model that was doomed in a once-in-40-year-catastrophe. But, "Silicon Valley" was in the name and 40 years was a long time ago, so why not.
Re: America’s banks are missing hundreds of billions of dollars
#237Earlier quoted context omitted.
Watch the exchange between Sen Lankford and Sec Yellen yourself: https://www.youtube.com/watch?v=Bcvl104tyRY Yellen says unsecured depositors at TBTF banks will always be bailed out, but those at smaller banks are on their own. It's one of the most incredible moments I've witnessed. I'm not sure if there's some hidden agenda being pursued, or if Yellen is just so far removed from the real world that she doesn't under…
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…
>> you'd come up with some passable explanation ahead of time
Central bankers are appointed based on two criteria:
1. A willingness to print money for the government so it can spend more than it raises in taxes.
2. Looking presentable, sounding sophisticated and emitting enough bafflegab that (1) seems scientific instead of ideological.
Thinking deeply about economics and the role of banking/central banks in society is an anti criteria, because if you did think about those things you'd end up concluding that the only fair and stable solution is way less money printing and quite possibly none. That would directly undermine the government that appoints you. Your salary depends on you not understanding your own area of specialism.
I do feel like the defining characteristic of the 2020s is turning out to be people's struggle to accept the horrible truth that government officials/scientists who claim to be experts systematically have no idea what they are doing.
Re: America’s banks are missing hundreds of billions of dollars
#238Earlier quoted context omitted.
Does the government require banks to buy long-term treasuries? [1] Or did banks choose to buy long-term treasury bills, chasing the highest paper returns (i.e. discounting the risk of potential rising interest rates in the future)? It's not a rhetorical question, but a sincere one. [1]: https://en.wikipedia.org/wiki/United_States_Treasury_securit... states that Treasuries are sold in all varieties of duration, from 4…
Imagine you run a small regional bank. You have marketing and operational expenses you need to cover, and you also need to be attractive enough to depositors to keep them from leaving to your giant to big to fail competitors who have explicit state backing. You’re required to buy from a very limited selection of assets that have government approval, especially government debt. Interest rates for short term debt are a…
>Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t.
Oh, so the thing that could have prevented the bank from failing (but, unsurprisingly, costs them money to do), didn't happen? But it's the governments fault?
Re: America’s banks are missing hundreds of billions of dollars
#239Earlier quoted context omitted.
You hedge the existential risk away, while taking on the smaller risk for potential profits. SVB shouldn’t need to hedge the interest rate increasing by .5 or 1%, but they definitely should have hedge the risk of it jumping 4% and more.
Take on /less/ long term assets (sell them and buy t-bills) to remove the existential risk. It's not going to be much different in cost. You see it? Derivatives aren't magic pixie-dust insurance. They will cost about the same as a rebalance on that scale or you hit them as hard as you can because they're mispriced and represent free money.
I understand your point, and your first sentence is the point I (and probably others) are making too: they either take on less long term assets, or bar that, have to hedge them properly (which is equivalent to taking less assets). The hedge was meant to be done at the same time of taking such a massive risk.
Re: America’s banks are missing hundreds of billions of dollars
#2401. 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…
> 4. The old treasuries decline 30-40% in present value. Oops, they're not so safe after all if you need your money back before maturity, which is often decades away. This is because they fucked up their duration risk handling, no one held a gun to SVBs head and forced them to invest so heavily in long duration bonds. If they bought more short duration bonds none of this would be a problem. Other banks didn’t make th…
exactly! even more amateur single investors know better than to bet the farm on ten year notes when rates are exceptionally low
SVB wasn't even operating at the level of the typical individual investor!