America’s banks are missing hundreds of billions of dollars • Hacker News Board

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

#371

Post by _heimdall » Wed, Mar 22, 2023, 2:11 PM UTC

makomk wrote: post #359

zarzavat wrote: post #183

Earlier quoted context omitted.

Yes that’s the point. Treasuries are cash, they are not meant to make money for banks, they are meant to be a place for banks to put money when they don’t have anything else to do with it. Banks are supposed to make money from the premium between the base interest rate and the rate on the loans they make. The implied contract when you deposit money in a bank is that the bank has a dependable business model as a lende…

The trouble is that other US government interventions also eliminated a big chunk of the "anything else to do with it". In particular, most mortgages in the US are fixed rate for the entire duration of their term through government backing, which almost entirely eliminates one of the big sectors of loans that banks in other countries can use to make money on the premium from interest payments with less duration misma…

I'm not as familiar with how mortgage markets work in other countries, but at least in the US fixed rate mortgages are almost always risk balanced against fixed rate investmentsor wrapped up in securities that move risk off the banks' books.

A bank would indeed be crazy to hold onto fixed rate 30-year loans with interest rates at near zero.

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

#372

Post by permo-w » Wed, Mar 22, 2023, 2:15 PM UTC

comicjk wrote: post #361

permo-w wrote: post #315

Earlier quoted context omitted.

so what you’re saying is that there’s a major bank out there that could pay out all - or even half of - its deposits right now?

This is not what "missing" means, or else every parent at work with kids at school would have a missing child (after all, they don't have the kids right now ). The banks have loaned out the money, but they do keep track of whom they loaned it to.

this is a poor analogy. first of all, the parents (depositors) may not have their kids (money) right now, but the school (bank) definitely does. real banks definitely don’t

it would be like if at the end of the day the parents came to pick up their kids and—on a good day—10% of them were available to be picked up

a more appropriate analogy would be if the school was handing out the kids to random people that very possibly wouldn’t give them back, or if they would, possibly not for at least a few years once they’ve grown up a bit

the whole concept of a modern bank is ridiculous and a lot of people need to seriously reset their thinking around it. if you want a high risk investment than you can put your money in a fund. high street banks should not be high risk investments, especially for the measly interest rates they give out

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

#373

Post by pbmonster » Wed, Mar 22, 2023, 2:20 PM UTC

dageshi wrote: post #164

okeuro49 wrote: post #137

Earlier quoted context omitted.

Put a shield around the most vulnerable and their carers, until there was a vaccine for them and leave everyone else, especially the young, to continue their lives as normal. Easily said now, however.

Can't see that as ever working. There'd be no practical way to shield the vulnerable or the carers and beyond that if it's left to run rampant in the wider population eventually the medical system is overwhelmed and collapses.

It's approximately what Sweden did. By most accounts, it worked better than what it's neighbors did (which more closely resembles what most states in the US did).

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

#374

Post by Workaccount2 » Wed, Mar 22, 2023, 2:21 PM UTC

naasking wrote: post #337

makomk wrote: post #179

Earlier quoted context omitted.

The trouble is that a large chunk of the media has basically lied about this and told people that no, they'd be able to consume just as much as before if it wasn't for the evil profiteering corporations and the mega-rich stealing from them. They've done things like point to the increase in wealth of the super-rich "during the pandemic" to prove that ordinary people have become poorer because the money they deserve wa…

> The trouble is that a large chunk of the media has basically lied about this and told people that no, they'd be able to consume just as much as before if it wasn't for the evil profiteering corporations and the mega-rich stealing from them Not a lie at all, corporate profits are the largest driving factor behind inflation over the past couple of years: https://www.epi.org/blog/corporate-profits-have-contributed-...

Corporations are always greedy and always trying to maximize the amount of money they can get for their goods and services. This has been true since forever.

Corporations raising prices is a response to inflation, not the cause of it.

When the levy breaks and the town floods, don't blame the river for being a river. Blame the engineers that built the levy.

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

#375

Post by balderdash » Wed, Mar 22, 2023, 2:22 PM UTC

User23 wrote: post #55

simple-thoughts wrote: post #47

Earlier quoted context omitted.

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. How does the banking sector in aggregate hedge its interest rate risk exactly? They have to find a net counterparty outside the sector who wants exposure to interest rate risk. Who exactly would that be at sufficient scale to protect trillions in deposits?

It’s probably easier to think of who wants long duration risk, and I think the answer is 1. Speculators (who like the volatility/convexity) 2. Pension funds (they have very long dated liabilities, and so potentially want to increase the duration of their portfolio)

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

#376

Post by balderdash » Wed, Mar 22, 2023, 2:24 PM UTC

petrocrat wrote: post #135

gen220 wrote: post #38

Earlier 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…

> Does the government require banks to buy long-term treasuries? Yes, there are a number of banks that have "Primary Dealer" [1] status which confers to them some benefits, but also makes them legally obligated to make some minimum number of winning bids on government treasury auctions. See the section under "Expectations & Requirements" in the link. Probably the most quantifiable requirement is they have to maintain…

The answer to the parents question is no. While most of the primary dealers are banks these days, they have nothing to do with the conversation at hand, or SVB and it’s problems

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

#377

Post by Mezzie » Wed, Mar 22, 2023, 2:32 PM UTC

postexitus wrote: post #252

unyttigfjelltol wrote: post #236

Earlier quoted context omitted.

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.

I'm a child of a bookkeeper with no econ training under my belt and I know about interest rate exposure and risk hedging. And there have been discussions since 2008 about how long QE and low interest rates could last, it's not like that was a new question.

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

#378

Post by ren_engineer » Wed, Mar 22, 2023, 2:42 PM UTC

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 find it amusing how far away from capitalism the Fed is, it's literally the opposite of a free market. Instead it's a communist style central planning committee made of "the smartest guys in the room" making decisions that impact the entire economy. Why is anybody shocked they made a mess of things?

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

#379

Post by jasmer » Wed, Mar 22, 2023, 2:49 PM UTC

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'm sorry but I think you missed something a bit relevant aka 'Global Pandemic' which literally shut down massive swaths of the global economy, and was materially the biggest extant shock to the US economy probaby ever. And I mean ever, except for literally the Civil War, and maybe but not really the Opec crisis. Ok maybe the war of 1812.

Historically, we would have just 'let people die' and work through it, but this time we want to react and try to save lives so we shut stuff down, but it's existentially damaging.

Hence money printing.

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

#380

Post by tablespoon » Wed, Mar 22, 2023, 2:51 PM UTC

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 you're being a bit misleading. It's not some issue related to government bonds specifically, it's about long-term bonds generally. IIRC, SVB went under because it took up a large position in long term mortgage-backed securities not treasuries. If it had instead invested in short-term treasuries, it would have been fine.

Government debt is the safest, and if you buy any other kind of debt, you'll want to be paid a premium for the extra risk you're taking. If interest rates are going up, you don't want all your money in long-term bonds.