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

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

#411

Post by makomk » Wed, Mar 22, 2023, 6:42 PM UTC

_heimdall wrote: post #371

makomk wrote: post #359

Earlier quoted context omitted.

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.

Yeah, in the US fixed rate mortgages are handed off to the government who guarantees them and bundles them up into securities... that SVB then ended up buying a bunch of because it's not like there was exactly a wide variety of investment options available that they could back their deposits with that actually paid meaningful interest.

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

#412

Post by relaxing » Wed, Mar 22, 2023, 6:49 PM UTC

regpertom wrote: post #352

kriro wrote: post #176

Earlier quoted context omitted.

If the market always knows best then why do I need traders except for market making purposes? Shouldn't everyone just buy the lowest cost passive ETF of a big enough index like S&P 500 then? I think "the market always knows best" is correct in most cases and if you think you know better you are probably wrong but there are empirical counterexamples like the Buffets of the world (unless one would claim that his gains…

I thought the market knows best was kind of a joke. As in all your best reasoning and prayers, but it can still go against you, the market knew best. Is it in the same vein as a wizard being neither early or late, he arrives precisely when he means to (nothing’s ever priced incorrectly)? Or, like a loving mother who beats you (you didn’t properly factor in jupiter)? Depends how you’re feeling, but the market always k…

That is not what is meant, and you should stop thinking that.

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

#413

Post by lamontcg » Wed, Mar 22, 2023, 7:40 PM UTC

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.

I'd recommend the books by Galbraith -- Money: Whence It Came, Where It Went, The Great Crash 1929, and A Short History of Financial Euphoria.

That is some pretty timeless background.

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

#414

Post by lamontcg » Wed, Mar 22, 2023, 7:43 PM UTC

barsonme wrote: post #46

snake_plissken wrote: post #17

"The answer begins with money-market funds, low-risk investment vehicles that park money in short-term government and corporate debt. Such funds, which yield only slightly more than a bank account, saw inflows of $121bn last week as svb failed." Which banks' savings accounts are yielding anything close to money-market rates?

Ally is at 3.6%.

Ally might wind up being in trouble like SVB, they're underwater significantly on mark-to-market as well:

https://www.marketwatch.com/story/20-banks-that-are-sitting-...

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

#415

Post by bern4444 » Wed, Mar 22, 2023, 8:00 PM UTC

pm2222 wrote: post #400

I don't get the idea of using higher interest rates to tame inflation. Isn't this just kicking the can down the road kind of approach？ Deposit earning more interests will eventually become cash in hand and flow back into the economy. No?

higher interest rates encourage more saving and less spending.

If the going interest rate is 0% you're much more likely to spend money in the economy somehow - goods, services, stocks etc.

If the going interest rate goes up to 5% are you going to spend as much as you did? Will you keep buying stocks? Or will you cipher off some of that cash and buy the security yielding 5% guaranteed.

As longs as interest rates are high why would you take the money out as cash and risk it in the market or spend it on goods and services when you can continue to make 5% guaranteed.

As the interest rate goes up more people move more money out of goods, services, and riskier assets taking money 'out' of the economy.

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

#416

Post by temp512345 » Wed, Mar 22, 2023, 8:20 PM UTC

DeathArrow wrote: post #233

> America’s banks are missing hundreds of billions of dollars Did those money even exist in the first place?

What do you mean exist? All money is just a promise basically. A promise to get some good at a future date and exchange it for that illusory number, be it paper or electronically. By that description yes all that money existed. They were promises made in contractual and legal forms. And behind those promises lie pensions, payrolls and a big part of the economy. Without those promises holding and some basic level of trust being maintained economic activity becomes very difficult

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

#417

Post by pash » Wed, Mar 22, 2023, 8:42 PM UTC

kgwgk wrote: post #156

pash wrote: post #149

Earlier quoted context omitted.

Yes, really. The Treasury guaranteed dollar-for-dollar redemptions for all investors’ holdings at the time the RPF broke the buck, following Lehman’s failure several days before [0, 1]. Only those who speculated on the value of the fund after that time lost money, and very little. 0. https://home.treasury.gov/news/press-releases/hp1161 1. https://elischolar.library.yale.edu/cgi/viewcontent.cgi?arti...

Your second reference makes it quite clear that nobody was “made whole” by the program: “Participating MMFs were required to have an NAV at or above $0.995 on September 19, 2008 (Department of the Treasury 2008f). Architects of the program chose this cutoff to prevent damaging runs while at the same time not curing “losses that had already been sustained (because of credit mistakes) at the few funds that were already…

You’re right, sorry. Reserve Primary was the only fund whose NAV was below the Treasury’s qualifying threshold, so it did not participate in the guarantee program. I had the mistaken recollection that Reserve Primary’s NAV had returned above the $0.995 level by the 19th, but that was not the case.

(In fact, the SEC ended up suing Reserve Primary’s managers for making misleading statements after breaking the buck that they would restore a $1 NAV, which they did not do. Reserve Primary’s investors had an eventual recovery as of 2011 of 99.06% of par value.)

Of the funds that participated in the Treasury’s guarantee program, none were liquidated likely because the program succeeded in stemming the run on the money-market sector. As I’m sure you know, the whole point of the Treasury’s guarantee was to give money-market investors confidence that their money was safe so that they would not redeem their shares and the funds would not need to liquidate assets for payouts.

It worked, and I think it’s clear that the Treasury’s backstop, by ending the run, prevented fire-sales that likely would have led to the liquidation of further funds in the absence of government intervention. That was the point I was making in my original comment: despite the lack of a formal equivalent of deposit insurance for money-market funds, the government did step in to backstop investor’s money in the sector during the only episode in which there was a need for it.

Edit: Whoops, also noticed that in my original comment above, I twice mis-wrote money-market account. Everything we’ve been discussing relates to money-market funds (more formally, money-market mutual funds), not money-market accounts. The latter term is another name for savings accounts at a bank, which of course are FDIC-insured. (The two are related in that the cash put into both gets invested in short-term, low-risk government and commercial bonds, the markets for which are collectively called “money markets”.)

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

#418

Post by SgtBastard » Wed, Mar 22, 2023, 10:03 PM UTC

thworp wrote: post #386

ClumsyPilot wrote: post #207

Earlier quoted context omitted.

> 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 exponen…

>The entire process of industrialization was hugely deflationary

Prices definitely lowered, but the difference being that while there was also supplier upheaval as artisan/bespoke producers were replaced by mass production - the industrialists were enormously and sustainably profitable and could in turn employ those displaced from the failed producers.

Aggregate demand arguably increased with the move of labour from rural agriculture to urban manufacturing.

A deflationary cycle annihilates demand by definition and fixed costs then eat producers alive - leading to wealth destruction, unemployment, debt writeoffs and credit tightening. Which in turn leads to more demand annihilation.

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

#419

Post by lmm » Wed, Mar 22, 2023, 10:24 PM UTC

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.

> They’re protected. There’s an FDIC for securities. Same $250k limit, same likelihood of going above that in practice.

Not really. You're (partially) protected from your broker using your money market fund for themselves - even in a bankruptcy you get your fund back - but you're not protected against it becoming worth a bit less than you deposited (which is what would happen in an SVB-like situation - interest rates go up and so the value of your fund goes down) since it isn't actually cash. The line you quoted is really a warning, in the context of a couple of other lines from your link:

> SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

> SIPC does not protect against the decline in value of your securities

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

#420

Post by _heimdall » Wed, Mar 22, 2023, 10:26 PM UTC

sanp wrote: post #189

The title is clickbaity. It's not like the banks are missing any of their depositors' money.

This is one case where I don't mind the clickbait. People need to know how the heck banks got into this mess and this is the first time I've seen an article tie together the reverse-repo market, covid-era money printing, and banks currently sitting underwater on government-backed securities.

It's also worth noting that if you read "banks" in the title to generally mean the banking system, that money is effectively missing as it now sits on the Fed's books and is no longer in the banking system at all. That's a start difference to standard repo markets where the total liquidity of the banking system doesn't change when securities are purchased.