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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

#251

Post by BurningFrog »

_0w8t wrote: post #191
bryanrasmussen wrote: post #140

Earlier quoted context omitted.

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…

There is an observation that the real salaries stagnated since seventies for an average American because all the growth went into financial industries. Those rose in the last 50 years from few percents to close to a quarter of economy essentially resulting in a hidden tax paid by everyone to bankers.

Those calculations are very tricky in conflict with the obvious huge increase in living standards since the 70s.

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

#252

Post by postexitus »

unyttigfjelltol wrote: post #236
dsomers wrote: post #210

Earlier 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. 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.

Risk management is not that difficult. Interest Rate exposure is a first order risk that even juniors should be able hedge out properly - it's not some exotic event where correlations went out of whack or something. These guys were either clueless / had no visibility into their balance sheet or outright criminal.

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

#253

Post by quonn »

75dvtwin wrote: post #51
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…

@nostromo -- you are exactly correct. The US Fed govnt policies caused inflation, now trying to cool it down through raising interest rates on govn bonds. So investors that were buying commericial bonds, now go and buy govnt bonds. Then, the commercial bonds (for good sound companies), loose values. Then commercial bonds investors loose their investment... So the loose-loose sitation were are looking at: a) continue…

The argument with the kids is really bullshit. I‘ve heard it again and again in different contexts. As if anyone could know how the short term economy will affect the kids. As if the kids would only start living in their 30s and the experience of poverty in childhood would be nothing. As if the economy would be a fixed thing that could be predicted for a few decades in advance.

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

#254

Post by BurningFrog »

itsoktocry wrote: post #225
DSingularity wrote: post #167

Earlier quoted context omitted.

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…

Yeah, USD is pretty badly managed, but still better than most other currencies.

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

#255

Post by friendzis »

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…

> 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 not what safety of investment is, by any stretch of imagination. The yield of investment is nominal returns times weighted probability of that nominal return being lower. Government bonds are near zero risk of not being honored.

The risk you talk about is inherent in long assets + short liabilities and has very little to do with issuing body of the bond.

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

#256

Post by IAmGraydon »

ceejayoz wrote: post #228
lmm wrote: post #75

Earlier quoted context omitted.

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.

Money market accounts and money market mutual funds are not the same thing and are not protected the same way.

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

#257

Post by robertlagrant »

ClumsyPilot wrote: post #227
robertlagrant wrote: post #220

Earlier quoted context omitted.

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.

> Growing inequality without growing GDP means you became poorer.

For example: Bill Gates comes along with Microsoft, and sells Windows to businesses worldwide, who all benefit. Why is GDP not growing? And even if it magically doesn't grow, how has that made me poorer?

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

#258

Post by user3939382 »

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…

Let’s talk about the out of control military spending wayyy before the stimulus.

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

#259

Post by quonn »

systemvoltage wrote: post #194
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…

I think the blame squarly lies on 2). Sweden and Florida didn't follow the Science™ and instead followed reason, rationale and logic. The rest of the country was obessesed over lockdowns, especially those on the political left. It was a religion of HN. These are policy failures on all fronts - from monetary to public health.

Sweden failed miserably as is now commonly accepted.

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

#260

Post by harry8 »

NhanH wrote: post #239
harry8 wrote: post #188

Earlier quoted context omitted.

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.

Ok so you take deposits, which are a short term liability and you've got cash money you have to do something with.

1) Buy loads of long term debt and some swaps.

2) Buy less long term debt than that and t-bills.

These two options are exactly equivalent from a financial perspective. Same risk, same reward, quite similar costs.

If instead you've bought loads of long term debt and not hedged, why did you do that? This is the nub of the thing. Why? Because you couldn't make it pay otherwise with the given market conditions? So you took a punt on inflation and the official rate staying low? Could you have done that differently? Should you have? What were the implications for your business if you didn't take a massive bet on interest rates?

Swaps are entirely beside the point here. Swaps here are just "hey let's not actually make the bet we just went out of our way to make." It's likely going to cost you a little more than not exposing yourself to that risk in the first place. It's like betting on both teams in the superbowl. The house takes a cut.

"Should have hedged with swaps" misses: "why did they have an exposure of that size at all?" Recklessness? Idiocy? Should they be prosecuted for extreme negligence? Were they between a rock and a hard place and took a fairly desperate measure? (Which I'm also not excusing either fwiw).

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