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America’s banks are missing hundreds of billions of dollars

economist.com

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

#241

Post by newaccount2023 »

unyttigfjelltol wrote: post #195
dsomers wrote: post #148

Earlier 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…

> but the latest Fed action violates a 40-year downtrend in interest rates

its no big deal to make a little bet based on that, but SVB seems to have bet the farm

had they even diversified their duration they would have been fine

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

#242

Post by chiefalchemist »

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…

The characterization might be incomplete, but it's wrong to say it's wrong.

The key being, SVB, etc are symptoms. And while we should certain chat about it the focus should be on The Fed. Again. Just like it played a key role circa 2007/2008.

Given The Fed's mandate, how is it once again missing the mark? And where has Congress been? They're mandated with overseeing The Fed, yes?

Yet we're led to believe this is a banking problem? With little of no legitimate dicussion of foundational problems?

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

#243

Post by hgomersall »

beermonster wrote: post #235

Can 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.

Oh crumbs, you're going to get wildly different understandings depending on what camp the books come from. Personally, I'm of the view that the most coherent understanding comes from the MMT crowd, but much of that is quite subtle and open to deep misinterpretation (and regularly is). Warren Moslers' writings are excellent, but make you think https://moslereconomics.com/mandatory-readings/. Neil Wilson writes in a very accessible way and has bite size articles that cover many things you're talking about: https://new-wayland.com/blog/ (IMO, that blog is full of gold).

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

#244

Post by lucozade »

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.

If you bought treasuries at the prevailing rate and swapped them at the same rate then the market price of the swap will be zero. You'll still have to pay credit and funding premia though. If, however, you only hedge once the prevailing rate moves against you, you'll pay a market premium in the form of a spread.

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

#245

Post by em500 »

parineum wrote: post #168
mo_42 wrote: post #89

Earlier quoted context omitted.

> 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. Printing money doesn’t cause inflation necessarily. Your thinking is based on Monetarism, which has been debunked a while ago. In essence, it’s not about the amount of money that is created. It's about the amount of goods we try to consume in relation to the amount of goods produced.

Printing money causing inflation has got to be one of the simplest things in economics to understand. Increase supply of thing, thing becomes worth less. And what's your source on Monetarism being debunked, the people printing currency? It's pretty strange how, when all the money was being printed, it wasn't that hard to find a plethora of economists warning that it would cause inflation (due to Monetarism principles…

> Printing money causing inflation has got to be one of the simplest things in economics to understand. Increase supply of thing, thing becomes worth less.

One more easy things in economics to understand is that your second sentence is only true if demand is assumed to be constant.

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

#246

Post by ClumsyPilot »

hgomersall wrote: post #229
ClumsyPilot wrote: post #219

Earlier quoted context omitted.

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.

How did you square your definition with the fact that some banks make no loans at all?

You don't need to be a bank to make a loan, I can lend money.

Me and you are regulated more than the banks are, because we are not allowed to do things banks do.

Legally the 'bank' means you have a banking licence. That is all.

This licence allows you to create money. This is a huge superpower, but there are terms and conditions attached to make sure it doesn't break the whole economy.

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

#247

Post by FollowingTheDao »

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…

> I honestly was thinking we will stay in this zero-rate regime for the next decade or more.

=^\

Until when? Until there were only billionaires left and all the poors died off? This is delusional thinking and it was the same thoughts the banks and the Fed had which is really why we are in this situation.

It is also why I left Economics behind.

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

#248

Post by dageshi »

okeuro49 wrote: post #218
dageshi wrote: post #193

Earlier quoted context omitted.

> 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…

> Lockdown was the only thing that stopped case numbers going up till the vaccine came along. Really? The graphs I have seen show cases declining even before lockdowns were imposed. > The average age in the UK is 40. So pretty much half the population would need to completely isolate from the other half while the younger half lived their lives as normal. The advice would have been the same, work from homes where poss…

> Really? The graphs I have seen show cases declining even before lockdowns were imposed.

Likely because people were voluntarily locking down.

Unless you deal with schools, there are no "bubbles" or not ones that really work. Do you send teachers into schools who are in the vulnerable group? Or do you close the schools? If you close the schools you may as well do a full lockdown because so many people will have to be at home to look after their children.

The idea you can lockdown half the population by age just doesn't work because society doesn't separate itself out neatly by age.

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

#249

Post by lucozade »

kriro wrote: post #176
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…

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…

> If the market always knows best then why do I need traders except for market making purposes?

You may not. It doesn't follow that the market doesn't. Long term US stock investment isn't the only reason people use capital markets. And even for passive etfs, your counterpart is likely hedging their exposure with someone who you didn't buy the etf from.

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

#250

Post by [deleted] »

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…

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