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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

#301

Post by theowawayfed »

vxNsr wrote: post #65
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 all gonna get brushed under the rug by most journalists because of the political party that supported most of this mess.

All did their best

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

#302

Post by optiomal_isgood »

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.

It does not cover everything you asked for, but Ray Dalio has a excellent 30 min. video that explains ELI5 how the economy works: https://www.youtube.com/watch?v=PHe0bXAIuk0

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

#303

Post by theowawayfed »

mschuster91 wrote: post #145
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…

> 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. The cause of the inflation is not a classic spiral, it's profiteering especially on the side of fossil fuel producers and in retail. > 5. A bunch of VCs decide they'd like their money back today, not in 20 years. A bank doesn't have it on hand, so it goes under. It's not "a bunch of…

Yea. Depositors should never try to take their money out. How dare they ask their money back.

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

#304

Post by nonethewiser »

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 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.

Just to be clear, this is finance 101. Its not a surprise.

Having to sell treasuries at this time was the surprise.

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

#305

Post by marcus0x62 »

SturgeonsLaw wrote: post #143
di456 wrote: post #118

Earlier quoted context omitted.

Banking is basically nationalized now. The government outsourced this responsibility to the Federal Reserve at the same time that a federal income tax began. There are 3 main ways to balance a government budget. Spend less, raise more funds through taxes, or make the scale of debt decrease through inflation.

> Banking is basically nationalized now. More like government is privatized

¿Por que no los dos?

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

#306

Post by pixelmonkey »

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…

Your analysis is missing this critical piece: duration risk.

The government requires banks to buy bonds/treasuries, but gives the banks full leeway as to whether they buy short-term, mid-term, or long-term bonds/treasuries.

In a low rate environment, long-term bonds have a higher yield but also suffer from interest rate risk (a risk caused by their long duration).

Even an untrained amateur wealth manager knows to stagger the durations of the bonds you hold, ESPECIALLY if you have any reasons you might need to sell those bonds on the secondary market before maturity. Risk managers and investors working in the finance/risk department of a top-20 bank, managing billions in deposits, should especially know this.

Some banks were simply greedy, lazy, or both (SVB).

It's econ/finance 101 that when interest rates rise, bond values go down. They could have held a much larger percentage of short-term bonds/treasuries, and they would have been fine.

I think the big lesson is that the banking industry isn't nearly as smart and self-regulating as many people think it is. Bank finance departments either chase yield, when they can (2021), or they manufacture it, when they can't (2007-2008).

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

#307

Post by macinjosh »

andirk wrote: post #230
seydor wrote: post #175

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?

Yes, that’s what it is.

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

#308

Post by andruby »

hgomersall wrote: post #273
losvedir wrote: post #266

Earlier quoted context omitted.

Be careful out there reading blogs. Maybe I'm biased because I have a degree in Econ from MIT, but I'd highly recommend starting out with the "orthodox" treatment of the subject, as you'd learn at a university. To that end Core Econ[0] is a very solid, free, engaging, easy to read book that covers it. Chapter 10, "Banks, money, and the credit market", is particularly what you're asking about. You can take a look at t…

In the words of Joan Robinson "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists." Everything written by mainstream economists should be taken in such light. Being a professional economist is not the authority you suggest it is.

As opposed to the arm-chair economists writing blogpost with an agenda?

Economics is not an exact science like maths or physics. "The Economy" is the collective human activity. It depends on so many actors. Actors who don't have full information, and who don't actually behave in a rational way.

Yes, I would be weary of anyone who speaks in absolutes and you should use your own common sense and judgement.

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

#309

Post by Spooky23 »

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…

SVB leveraged cozy relationships to attract business than they could handle. They ignored compliance and normal banking risks. They left their C level risk management position open and we’re not transparent about their fiscal health.

Rate risk is a key feature to buying any bond, and it’s a risk that is manageable if management isn’t asleep at the switch. Nobody forced SVB to buy long duration bonds. Any investor with a moderate level of expertise understands that, and you’d have to be pretty green to not expect rate increases from the all time lows.

Blaming the government is a cop out. The job of finance professionals is to manage the assets in their custody responsibly.

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