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

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

#421

Post by _heimdall » Wed, Mar 22, 2023, 10:29 PM UTC

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…

+1

I started college as a business major focusing on finance. Ended up switching to software but got enough finance under my belt to know the basics.

Definitely start with learning the basics of the "standard" models used by mainstream economists today. Whether you end up going down the rabbit hole of Austrian economics or bitcoin madness, it's best to know what the mainstream view is first IMO. Know your enemies, and all that

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

#422

Post by edmundsauto » Wed, Mar 22, 2023, 10:50 PM UTC

bluGill wrote: post #331

misja111 wrote: post #184

Earlier quoted context omitted.

> Shouldn't everyone just buy the lowest cost passive ETF of a big enough index like S&P 500 then? Yes, this is very best the advise to invest your money (except if your name is Warren Buffet). Buy it and hold it. There have been so many papers published that show this. You cannot predict the market, what you can do is save yourself some risk and some transaction costs. Any investment advisor that tells you different…

If everyone invested in index funds, then there would be a lot of money to be made from you alone looking at the market. There are often companies that announce some new product that will (at least for a few years) outsell their competition. Index fund have no way to know that the company will thus be worth more money than their competition, but you do. The problem is the above is similar to a zero sum game in that t…

> I concluded long ago that if I made studying the market my full time job and hobby I could make a good income doing it

I'd be curious how you reached this conclusion. The outside view (lots of academic papers on this) is that nobody beats the market over a long time frame. I've often thought this assumes scale-invariance; as I look to make lower volumes of money, I'll see things that aren't worth a real trader's time. Another way I can see this as true is if you don't need to have the money invested all the time - if you strategically pick 1 investment every 5 years, can I expect to beat the market by picking the absolute best trade?

Despite those ideas, I concluded long ago that nobody can beat the market over time, with maybe 1-2 exceptions.

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

#423

Post by robertlagrant » Wed, Mar 22, 2023, 10:58 PM UTC

geysersam wrote: post #396

robertlagrant wrote: post #220

Earlier quoted context omitted.

Can you elaborate? How does the existence of a rich person somewhere else reduce my economic output?

The ideal market maximizes utility production because economic actors expose their utility gain by pricing commodities. The assumption is that price and utility are similar. But when there is wealth inequality this assumption breaks down. A person with large wealth can offer higher prices for less utility compared to a less wealthy individual. This biases markets to satisfy wealthy individuals, overall reducing total…

This is too simple, and misleading, as it leaves out tiered pricing.

A slightly better seat on an airplane is 10x the price of economy seats. Without those seats, economy seats would cost much more each.

A slightly better car spec is 2x the price of the base model. Without the better spec model, the base model would cost much more.

Additionally, just the development of new technology is often for the wealthy first, as it's prohibitively expensive, and then as manufacturing techniques work out the tech filters to a large group of people. E.g. Tesla cars; computers; pretty much everything, really.

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

#424

Post by _heimdall » Wed, Mar 22, 2023, 11:09 PM UTC

makomk wrote: post #411

_heimdall wrote: post #371

Earlier quoted context omitted.

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.

At least based on this article, it even sounds like this is what they wanted banks to do! The reverse-repo market was created because the Fed wanted banks to buy securities directly from them when interest rates where increased, sounds like SVB and others just followed that playbook

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

#425

Post by 1vuio0pswjnm7 » Wed, Mar 22, 2023, 11:29 PM UTC

lr1970 wrote: post #275

_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.

I think that a healthy financial system does not need innovations beyond technological advances in operations and security. Anything else is happening at the expense of the economy at large. Banking (especially depository) should be boring as it used to be in the past.

"Innovation" == obfuscation

Increased (and arguably unneccessary) complexity that hides simple truths. For example, SBF and his colleagues were committing fraud.

Whether this added complexity is intentional is left as question for the reader. Regardless, obfuscation has its benefits.

Arguably same critique can be applied to software.

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

#426

Post by geysersam » Wed, Mar 22, 2023, 11:41 PM UTC

robertlagrant wrote: post #423

geysersam wrote: post #396

Earlier quoted context omitted.

The ideal market maximizes utility production because economic actors expose their utility gain by pricing commodities. The assumption is that price and utility are similar. But when there is wealth inequality this assumption breaks down. A person with large wealth can offer higher prices for less utility compared to a less wealthy individual. This biases markets to satisfy wealthy individuals, overall reducing total…

This is too simple, and misleading, as it leaves out tiered pricing. A slightly better seat on an airplane is 10x the price of economy seats. Without those seats, economy seats would cost much more each. A slightly better car spec is 2x the price of the base model. Without the better spec model, the base model would cost much more. Additionally, just the development of new technology is often for the wealthy first, a…

Is your point that wealthy people subsidize air travel by paying relatively more for the space on the plane?

That's a perfect example of when inequality biases a market to produce suboptimal outcomes.

Why?

Because if people wouldn't be willing to spend to pay the cost of an airplane ticket in perfect market conditions, then them not buying a ticket is the optimal allocation of resources.

If they then buy a ticket in current market conditions, that's an example of a suboptimal allocation of resources.

Same goes for the car example.

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

#427

Post by opportune » Thu, Mar 23, 2023, 12:08 AM UTC

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.

Fed open market operations are entirely to adjust the market conditions regarding rates to what they want them to be. The Fed is participating in these transactions to the tune of trillions of dollars

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

#428

Post by scott00 » Thu, Mar 23, 2023, 1:18 AM UTC

hcknwscommenter wrote: post #314

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.

Oh you can get a lot more creative than that. You can hedge out "catastrophic" interest rate rises while taking your chances on smaller increases. In this case, catastrophic can easily be estimated by taking the duration of the book and the equity cushion and applying a margin of safety. Or you can simply ladder Treasury durations that inherently don't have enough duration to cause problems. SVB apparently did none o…

There is exactly one investment strategy that presents no risk of ruin for a bank: depositing all customer deposits in the bank's account at the fed. That investment strategy is so discouraged by regulators that they literally denied the application for a charter from an organization whose stated investment strategy was exactly that. (google the narrow bank if this is unfamiliar to you).

For any other investment of any amount of your deposits, a run of sufficient size combined with an investment loss of sufficient size will ruin a bank.

That being said, SVB had by a wide margin the flightiest deposits and the most IR risk. But it was an error of magnitude, not category. There is no run-proof fractional reserve bank.

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

#429

Post by Cyberthal » Thu, Mar 23, 2023, 7:02 AM 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…

It's almost like the government shouldn't be trusted with a monopoly on money.

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

#430

Post by brabel » Thu, Mar 23, 2023, 7:11 AM UTC

Maakuth wrote: post #299

brabel wrote: post #271

Earlier quoted context omitted.

EU banks are ok? Didn't Credite Suisse just go under and had to be forcedly saved by its main competitor?

Credit Suisse is Swiss. Switzerland is not a member of EU and they don't use euro.

I appreciate the correction but that probably doesn't change the point being made, as the economy of Switzerland is obviously closely tied to that of the EU (when I read EU I normally think Europe, not just European Union, which is my mistake, but in conversations like this I think "Europe" would be the better term after all).