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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

#341

Post by bradDonniger »

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 worst thing about takes like this is it assumes none of the bankers and government officials communicate.

It sets up this nice and tidy semantic bubble that ignores the messy reality of these folks socializing together.

Just because the paperwork is in order does not mean these people do not collude and influence each others emotions to empower themselves and just legislate their mess away or get bailed out.

Collectivist and socialist in their nature and choices.

You and I though? Subject to the whims of the “free market”.

Your entire finance system is a joke because your society and culture are a joke. We keep taking marching orders from post-war shellshocked, Cold War paranoids, leaded gas huffers in the Boomers and GenX. 2000, 2008, and again here we go eating their shit.

We coddle people who cannot grow a potato for themselves. What are octogenarians and their progeny whose only skill set in life is “inherit dads imaginary money?” going to do if we quit logging in and showing up?

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

#342

Post by prennert »

throwaway049 wrote: post #196
prennert wrote: post #126

Earlier quoted context omitted.

There is a concept in the armed forces for making decisions in a given timeframe (struggling to find a source for this). Essentially you do the best you can in the time you are given. Then you move on and iterate. If you dither too much you probably don't have to make a decision anymore as the enemy has made it for you. In that framework it is accepted that a solution is not perfect. I think about these crises the sa…

They had 48h in this case, but who gets bailed out and on what terms is a massive strategic decision that should not be made on the hoof. I must be naive because I thought planning for this kind of problem was part of her job.

First up, I do not have any particular insights what happened behind the doors and how government planning _really_ works. But if business / engineering management is in any way similar, there would have been a huge amount of uncertainty at the moment the hand was forced.

One would hope that there were some specialists at hand that know parts of the system, laws, implications on the overall economy etc.

There are likely a couple of plans available how to deal with this kind of situation. But likely not for this exact situation. Plans that exist but have not been implemented as policy likely are too rough around the edges or have significant opposition for different reasons.

On top of this, at this level of complexity and abstraction everything is kind of an opinion until tested and proven (but no time for that). Because no one truly understands all details and system connections.

On top of this in government you never know 100% what the motivations behind all these suggestions and plans is. What is factual, and what is politically tainted.

So all of the sudden things turn from certain to probabilistic. The leader has to figure out how to weigh the opinions and how to make a coherent enough decision (remember this is a system, and individually good decisions can be bad when taken together) to be net positive until the structured decision making can catch up.

Hopefully this is what is happening now and a general policy is decided on based on structured analysis. And hopefully it is quick enough to be ready before the next crisis hits.

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

#343

Post by evantbyrne »

pixelmonkey wrote: post #306
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 sta…

Exactly. I was speaking with my attorney about this the other day because he also advises numerous banks. He explained to me that balancing short and long term investments to handle withdrawals is a basic aspect of modern banking, and SVB should not be viewed as a signal of a more widespread bank collapse.

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

#344

Post by kgwgk »

amalcon wrote: post #328
kgwgk wrote: post #222

Earlier quoted context omitted.

> Treasuries are cash, Obviously not. [edit to add: this seems a controversial comment, it’s being upvoted and downvoted wildly]

Some brokerages break down various types of position (equity, bond, etc). Mine in particular has a "Cash and equivalents" section. Money market accounts go there, but so do treasury funds and such. I suspect the upvotes are because you're technically correct, treasuries are not literally cash. The downvotes are because grandparent obviously meant that treasuries are considered cash equivalents (whether or not they ac…

Treasuries (without further qualification) are not cash equivalents. (And it’s not because of liquidity concerns.)

Treasury bills may be cash equivalents. They present (almost) no interest risk.

Long-term treasury notes/bonds is what was being discussed. There is interest risk in that case and neither your broker nor anyone else would consider them cash equivalents (unless they are already close to maturity).

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

#345

Post by shagie »

sanp wrote: post #185
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.

Would pre-2018 regulations (when they were eased for banks with deposits less than $250B) have prevented this?

Aside from where the bank is chartered...

I would suggest a read of https://en.wikipedia.org/wiki/Credit_Suisse#Controversies and consider that each time that happened they lost money and trust.

At this point, they have neither.

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

#346

Post by kyaghmour »

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.

Have a look at "Investing in Stocks, How to Win Big! Strategizing, Positioning, and Leveraging for Success" by Kishore Mishra. It's self-pub on Amazon. The title is truly horrendous, the text would benefit from an editor, the layout would benefit from professional typesetting, etc. But it's written by an EE. I started reading it a while ago and liked how he approached the explanation from the ground up. It spoke to my engineering mind. Unfortunately I had to set it aside and it's been on my shelf for a while. But I'm thinking of picking it up again.

I had discovered this author by reading another book he wrote entitled "Advanced Chip Design, Practical Examples in Verilog". Also self-pub and also suffering from lots of self-pub issues. But the essentials were more-or-less there.

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

#347

Post by AnimalMuppet »

nkrisc wrote: post #199
skellington wrote: post #109

Earlier quoted context omitted.

[flagged]

You can make a point about the administration, but if you’re talking about nepotism, specifically, you’re making a point about the wrong administration. There’s a much better example of a recent administration engaging in “peak nepotism”, a recent one that had the president’s children working in the White House. I’m assuming the point you’re trying to make isn’t actually about nepotism and you’ve simply misunderstood…

That's not peak nepotism. Peak nepotism would be family members on the Cabinet or the Supreme Court.

Like, say, John F. Kennedy's brother.

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

#348

Post by naasking »

geysersam wrote: post #212
thworp wrote: post #161

Earlier quoted context omitted.

You can only say that once you accept inflation to mean "a single number representing price increases", which is so over-simplified as to be laughable. Not to mention easily manipulated by statistical tricks and more obvious tricks like weighing for "feature increase" or using country-wide medians and not weighing those for population distribution. If you look at real estate prices vs CPI since MMT really began, real…

Thank you for this. The ill-defined nature of inflation is an extremely important and often overlooked fact. Another interesting problem with the concept of inflation: Thirty years ago, what would've been the "consumer price" of a modern smartphone? Millions, easily. Same goes for many other technologies that have fallen in price rapidly. (Big screen TVs, speakers, computers, anything with a screen, a CPU or a wirele…

> Thirty years ago, what would've been the "consumer price" of a modern smartphone? Millions, easily.

Sure, but how many of them were there? Zero. Volume has to be accounted for.

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

#349

Post by mellavora »

BurningFrog wrote: post #251
_0w8t wrote: post #191

Earlier quoted context omitted.

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.

I fail to see how larger TV sets equates to huge increase in living standards.

Maybe we could measure living standards by looking at mental health statistics? Percent of population on prescription mind-altering drugs?

Do bigger houses, leading to greater social isolation, actually represent an increase in living standards? I get that bigger house == bigger house, but maybe the metric is flawed.

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

#350

Post by AnimalMuppet »

nemo44x wrote: post #268
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…

Except that interest rates aren’t the market. They are controlled by the Fed who decides. The Fed was guiding for no raises in interest rates up until they decided to start jacking them at the fastest rate in decades. This would not have been an issue if the Fed raised rates gradually over years and kept the bonds more or less even because of time value. But they panicked and very possibly because they have been poli…

The Fed controls one[1] specific, very short term interest rate. The other rates are determined by the market, though they do take the Fed rate into account.

[1] Normally. Sometimes the Fed does something like Operation Twist or QE or something, where they intervene in the markets of other rates. But that is not the normal way this works.

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