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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

#381

Post by lottin »

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.

Interest isn't just compensation for risk. It's also compensation for temporarily giving up control of your money.

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

#382

Post by bequanna »

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…

> This is a wrong characterization and makes it look like it's the Fed fault all along.

Rates were far too low for far too long. Why was the Fed still aggressively expanding their balance sheet into 2022 when inflation was obviously happening?

This is a problem created by monetary theory academics with access to too powerful of tools. If you have it, you're going to use it.

Imagine if we gave generals the same kind of unrestricted access to weapons and allowed them to wage war at will with no oversight. That is the Fed.

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

#383

Post by latchkey »

misja111 wrote: post #130
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…

> 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…

> the market always knows better than you

If humans could predict the future, we wouldn't have gambling.

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

#384

Post by comicjk »

permo-w wrote: post #372
comicjk wrote: post #361

Earlier quoted context omitted.

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…

In my analogy, parents = banks and school = bank loan recipients (the federal government, if the bank has bought government bonds). The money isn't missing when it's loaned out by the bank; the bank knows when it will get it back, and can estimate the cost of getting it back early.

The concept of a "modern" bank (federally-insured fractional reserve banking) is 90 years old now. Its faults are well understood and, for all the drama, it isn't high-risk for ordinary depositors.

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

#385

Post by nkrisc »

AnimalMuppet wrote: post #347
nkrisc wrote: post #199

Earlier quoted context omitted.

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.

Sure. I wasn’t trying to declare which administration was “peak nepotism”, only that calling the current one so is disingenuous when you have only to look as far as the previous one to find one that was more so.

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

#386

Post by thworp »

ClumsyPilot wrote: post #207
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…

> as "inflation doesn't cause inflation" since it meant any expansion of the money supply. Since 1950's, population has doubled and GDP is up 10x. What should money supply be for it to cause zero inflation? 1x? 2x? 10x?

I don't know, but I do strongly believe that the "conventional wisdom" that deflation is a horrible phenomenon that leads to a decades-long depression is bullshit. The entire process of industrialization was hugely deflationary Yet still the 1800s were the first time in history where quality of life for the average Joe improved by leaps and bounds. Diet, medicine, child mortality, wealth all started improving exponentially.

Meanwhile under the monetary alchemists and "stabilizing" regime of central banks real wages have stagnated, crises still occur every 10 years and the entire system is so fragile that one major event could collapse the whole house of cards.

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

#387

Post by slibhb »

mschuster91 wrote: post #317
theowawayfed wrote: post #303

Earlier quoted context omitted.

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

It's one thing to take your money out. It's another thing to sound a bullhorn and make everyone rush to take their money out, because that will overwhelm any bank. What Thiel did was beyond irresponsible. He should be criminally tried.

I don't totally disagree with you that his behavior was irresponsible but under what law would he be tried?

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

#388

Post by nemo44x »

AnimalMuppet wrote: post #350
nemo44x wrote: post #268

Earlier quoted context omitted.

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.

> ...though they do take the Fed rate into account.

Understatement of the year. It's based entirely on what they think the Fed will do in the future.

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

#389

Post by mise_en_place »

andirk wrote: post #146
mise_en_place wrote: post #94

What a mess. The Fed has effectively made the United States into a socialist banana republic. As oligarchs will only trust the government, rather than private enterprises, to be their counterparty when banking.

Private enterprises are plenty responsible for this situation and similar past situations. Ironically (is it ironic I don't know), SVB got in trouble _because_ of the regulations. Time will tell if that dang govment got ahead of the situation early enough.

Yes they share in the blame as they got greedy, but the Fed enabled it. Why else did First Republic Bank have a loan-to-deposit ratio of 113%? They were emboldened by the Fed thru the use of RRPs and zero reserve requirements.

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

#390

Post by cyclecount »

losvedir wrote: post #266
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.

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…

https://twitter.com/moshik_temkin/status/1637033761794674688

>> The thing that people don't understand about these elite, neoclassical economists from Harvard, MIT, etc. is that while their whole brand is being "empirical" and objective, they are as ideological and politically driven as the most ardent Maoist who ever existed

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