Reasons the banking crisis isn’t a repeat of 2008 • Hacker News Board

Re: Reasons the banking crisis isn’t a repeat of 2008

#141

Post by QuadmasterXLII » Sat, Mar 25, 2023, 3:02 AM UTC

bigdaddyrabbit2 wrote: post #116

fyzix wrote: post #113

Earlier quoted context omitted.

By "banks", I mean 90% of the other banks in the country that would've failed, absent the SVB depositor bailout. If the FED didn't step in, every regional bank in the country would experience a bank run as people would withdraw everything and deposit in the "too big to fail" banks for safety. Why I think the depositors should've suffered a haircut: What the FED did, was implicitly guarantee the deposits, this incenti…

>banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail This isn't true, is it? While they do get to keep profits, if the bets don't pay off, the bankers - shareholders, bondholders, employees, executives - all get wiped out (as happened with SI, Signature and SVB). The depositors get bailed out. They get to keep profits if they win, but l…

I think there's some sort of clipping effect distorting things. If your losses are limited at your assets, then the bet (heads: I gain 2X my assets, tails: I lose 2X my assets) has positive EV.

Re: Reasons the banking crisis isn’t a repeat of 2008

#142

Post by bogomipz » Sat, Mar 25, 2023, 3:04 AM UTC

arcticbull wrote: post #86

Avshalom wrote: post #85

Earlier quoted context omitted.

>>four bank rescues not two - Signature Bank, First Republic, SVB and Credit Suisse. so when I said two and a half banks with two rescued it was actually two and a half banks with two and a half rescued. feels to me like even less of a banking crisis.

Indeed - Credit Suisse isn't a retail bank (outside Switzerland), they're an investment bank so they're completely different and shouldn't be lumped in with the other 3. Two small crypto institutions and SVB. [edit] Not to mention Credit Suisse was holding $5B dollars of losses from Bill Hwang's Archegos shenanigans.

None of SVB, First Republic or Signature were retail banks either they were commercial banks. Regardless nowhere have I seen it reported that the current sequence of events is somehow a "retail banking crisis". It's amusing that you feel an investment bank somehow shouldn't be included in a discussion about a potential banking crisis. You might want to read up on the 2008 financial crisis and shadow banking. Bear Stearns and AIG weren't banks at all.

Re: Reasons the banking crisis isn’t a repeat of 2008

#143

Post by nytesky » Sat, Mar 25, 2023, 3:16 AM UTC

bogomipz wrote: post #121

arcticbull wrote: post #81

Earlier quoted context omitted.

> SVB’s uninsured deposits(anything over 250k) accounted for 94% of its total deposits and the FDIC took the extraordinary step of insuring those deposit after the fact. Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders. All the bank's equity would have been wiped out sure (and it was anyways) but losses to depositors would likely be slim…

>"Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders." Do you realize how many tech companies used SVB as their primary banking facility? There were plenty of companies who would not have made pay role. So yes real regular people would have been affected. >"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits -…

I’m so tired of the fake make pay role canard.

All depositors had $250k guaranteed at the bat. But sure maybe that’s short for 2 weeks of payroll for many companies.

Well FDIC was already cash payout warrants against the size of of their deposit assets (something like 50% would be available). If you need more than 50% of available cash to make payroll, you were already a dead firm walking.

With liquid assets like long term treasuries, they could have been liquidated quickly, and at worst most companies would have seen a 10-15% haircut.

A haircut hurts. But running a business includes all sorts of risks. You could have a lawsuit. You could have a fire. Your cloud provider could shutdown. They knew about the risk of being uninsured (since many companies have corporate treasurers who manage multiple banks and portfolio of treasury bills to manage bank risk), and this was just the one risk their company faced that came to fruition.

Re: Reasons the banking crisis isn’t a repeat of 2008

#144

Post by stephen_g » Sat, Mar 25, 2023, 3:19 AM UTC

hayst4ck wrote: post #133

fells wrote: post #132

Earlier quoted context omitted.

The fed doesn't have access to taxpayer money.

Does that mean that instead of giving taxpayer money, they instead devalue all taxpayer money by inventing new money?

The whole “devalues other money” thing is the ‘quantity theory of money’ which has never really been observable as true in normal economies - only at the very extremes (but other factors play in - all in all velocity of money is more important).

Re: Reasons the banking crisis isn’t a repeat of 2008

#145

Post by xiphias2 » Sat, Mar 25, 2023, 3:19 AM UTC

hayst4ck wrote: post #133

fells wrote: post #132

Earlier quoted context omitted.

The fed doesn't have access to taxpayer money.

Does that mean that instead of giving taxpayer money, they instead devalue all taxpayer money by inventing new money?

It was designed to do that.

The creature from Jekyll Island by G. Edward Griffin is a book that describes the creation of the FED, how it was done in secret.

Re: Reasons the banking crisis isn’t a repeat of 2008

#146

Post by fuoqi » Sat, Mar 25, 2023, 3:20 AM UTC

I wonder about the end-game effect of the BTFP. Great, today banks got enough liquidity thanks to the Fed, but after 90 days they have to return borrowed funds together with a relatively high interest and get back semi-worthless paper (because selling it will result in realized losses). In 90 days credit conditions probably will be even tighter than today and a lot of people will flee to the too big to fail banks. How we expect small/mid banks to stay stable after that?

And I don't even want to touch the question of fiscal deficits, which not only do not show signs of moderation, but accelerate even further. It either ends in a real default, or persistent high inflation, with negative real rates, which in a sense is also a default.

Re: Reasons the banking crisis isn’t a repeat of 2008

#147

Post by bogomipz » Sat, Mar 25, 2023, 3:26 AM UTC

nytesky wrote: post #143

bogomipz wrote: post #121

Earlier quoted context omitted.

>"Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders." Do you realize how many tech companies used SVB as their primary banking facility? There were plenty of companies who would not have made pay role. So yes real regular people would have been affected. >"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits -…

I’m so tired of the fake make pay role canard. All depositors had $250k guaranteed at the bat. But sure maybe that’s short for 2 weeks of payroll for many companies. Well FDIC was already cash payout warrants against the size of of their deposit assets (something like 50% would be available). If you need more than 50% of available cash to make payroll, you were already a dead firm walking. With liquid assets like lon…

I'm not sure how you reconcile acknowledging the reality of companies not being able to make payroll for two weeks and also calling it a "canard" in back to back sentences. A "fake canard" would be a double negative by the way ;)

If you reread the thread and the context of what I was responding to it was the OP stating "It's not clear anyone would have lost anything at all ..."

Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people.

Re: Reasons the banking crisis isn’t a repeat of 2008

#148

Post by spaceman_2020 » Sat, Mar 25, 2023, 3:29 AM UTC

treebeard901 wrote: post #101

In 2008, the Treasury and Federal Reserve had a ton of ammo to use to provide liquidity. Since then, they have tried to inflate their way out of it using creative accounting and quantitative easing. The reason this could be worse than 2008 is that those methods will not work as well. Part of the reason SVB failed so fast was because they held a lot of long term government debt, mortgages etc. When they tried to sell…

The core tool the FED has used to fight a crisis has been money printing, disguised in various forms. It keeps finding newer and newer ways to disguise it, all of which essentially keep kicking the can down the road.

The results from this strategy will keep becoming worse and worse every year, however. Unlike 2008, America is too politically divided, there is too little distrust in USD after the confiscation of Russia’s reserves, and there are too many alternate currencies and power centres for the US to still print away.

Re: Reasons the banking crisis isn’t a repeat of 2008

#149

Post by ren_engineer » Sat, Mar 25, 2023, 3:31 AM UTC

fyzix wrote: post #23

History never repeats itself, but it does often rhyme. We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008. There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next…

Capitalism is based around bad decisions being punished, which didn't happen in 2008 because of the bailouts. Nobody went to jail, nothing extreme enough was done to actually enforce cultural changes in the finance industry, so of course having the same problems occur was inevitable. Adding to the problem is that the economy is actually going to get less efficient on a fundamental level due to the geopolitical situation with Russia and China, plus the after effects of all the Covid restrictions and stimulus that distorted the economy in many ways.

Living standards are going to drop unless the AI hype is real and AI actually manages to improve productivity dramatically

also laughed at this line from the post

>While there is tremendous uncertainty, given that the banking sector drives credit creation and subsequent economic growth

bankers really think they are the drivers of growth, that's how you end up with all your manufacturing in China. These people are clowns

Re: Reasons the banking crisis isn’t a repeat of 2008

#150

Post by spaceman_2020 » Sat, Mar 25, 2023, 3:33 AM UTC

tzs wrote: post #60

fintechie wrote: post #43

Of course isn't a repeat, it's just another flavour with similar consequences: bailouts, money printing, rampant inflation, credit crunch, and so on. No matter the language acrobatics and fancy terms used to describe it.

Where was the "rampant inflation" from 2008? I don't see it here [1]. [1] https://www.macrotrends.net/countries/USA/united-states/infl...

Chart assets instead of prices and you’ll see it.

This has social and political consequences. Populists haven’t started popping up across the western world for no reason. Half the country feels priced out of basic dignities like housing.