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SVB shows that there are few libertarians in a financial foxhole

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Re: SVB shows that there are few libertarians in a financial foxhole

#101

Post by juve1996 »

elzbardico wrote: post #11

The author ignores that behind the downfall of SVB was a climate of excess liquidity on the markets, a bonanza created by the authorities that made SVB see itself with a glut of funds. Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. Someone could argue that they could have foreseen that this abundance of liquidity in the markets, alon…

> But in the end, even if we could argue that SVB should have been more prescient, it is clear that the root cause of the problems is the actions of the government and the FED.

The fact that many other banks were prescient disproves this point handily.

Re: SVB shows that there are few libertarians in a financial foxhole

#102

Post by ummonk »

yunwal wrote: post #73
viggity wrote: post #18

Earlier quoted context omitted.

I consider myself to be pretty libertarian but the idea that an intervention was going to cost the government any amount of money that didn't equate to a rounding error is ridiculous. Coupled the contagion it could have caused, this was an easy decision. They had enough in assets to cover 95% of deposits. They weren't just super liquid.

Socialize the losses, privatize the gains, nice

What gains? Depositors weren't getting gains, they were storing money in very low interest (far below inflation or money market yields) checking and savings accounts.

Re: SVB shows that there are few libertarians in a financial foxhole

#103

Post by dpweb »

elzbardico wrote: post #11

The author ignores that behind the downfall of SVB was a climate of excess liquidity on the markets, a bonanza created by the authorities that made SVB see itself with a glut of funds. Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. Someone could argue that they could have foreseen that this abundance of liquidity in the markets, alon…

Glut yes, but that not the cause - nor was the bank run. Simply, hubris.

They bet billions on zero interest rate policy and didn't hedge that bet.

Glut or no glut, would have failed just like LTCM or any other huge bets that failed to consider tail risk.

Re: SVB shows that there are few libertarians in a financial foxhole

#104

Post by worksonmine »

gregw2 wrote: post #61

From a Libertarian perspective why would we not: 1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about…

Instead of all these complicated hoops, wouldn't a true libertarian expect his money in the deposits to be no-go for gambling. And a separate account for stocks. If the bank want's to gamble they would need the customers approval for that, IE lock your money with us for 10 years and get this interest. Insurance is socialist, even if it packaged as capitalism.

The bank has to cover it, but not today. And it's an agreement and not a surprise when it happens.

No, lets create a complicated mess, fractional reserves, excess liquidity and having money costs money, growth and more growth and ... and .. and. You're all falling for it because you're greedy and don't want to be left behind.

When is anyone going to realize the actual problem? How many times does it have to happen? I'll see you guys again in 10-15 years as we have the exact same discussion.

Re: SVB shows that there are few libertarians in a financial foxhole

#105

Post by refulgentis »

nomay wrote: post #65
sdfghswe wrote: post #50

Earlier quoted context omitted.

> I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it. Correct. So, if you have customers and you put THEIR money into a bond and say you're holding it to maturity, but then your customers want their money, what exactly was the plan?

You just explained the businness model of banking.

Correct. And they failed at it. Swap bonds for magic beans and see if it’s defensible. We know the bonds were worth less, but it doesn’t obviate failing to manage the half of the business that isn’t people handing you money

Re: SVB shows that there are few libertarians in a financial foxhole

#106

Post by WinstonSmith84 »

elzbardico wrote: post #11

The author ignores that behind the downfall of SVB was a climate of excess liquidity on the markets, a bonanza created by the authorities that made SVB see itself with a glut of funds. Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. Someone could argue that they could have foreseen that this abundance of liquidity in the markets, alon…

Reasonably, the least we could expect from a bank is to keep the money we give to them, instead of gambling it. But even that, despite all the audits, is not a given, as a matter of fact.

I wish to see the proof of reserve implemented for traditional banks, or the trust will just keep eroding...

Re: SVB shows that there are few libertarians in a financial foxhole

#107

Post by notch898a »

sdfghswe wrote: post #75
nomay wrote: post #65

Earlier quoted context omitted.

You just explained the businness model of banking.

Wrong. The business model of banking is managing the money to an appropriate duration. Locking it up isn't a business model.

Demand deposits can be immediately be recalled, so where exactly do you suggest they park it? In the central bank -- no bueno they've denied banking license for narrow banking. Margin lending that allows recall at any moment? I can think of some options but frankly I'd rather have my money in a bank that over-extends themselves on treasuries than most the alternatives. At least I'd most likely get 90+% of my money back eventually.

Only retroactively in a bank run are you really able to see just what duration and what amounts were the limit.

Re: SVB shows that there are few libertarians in a financial foxhole

#108

Post by fnordpiglet »

ralph84 wrote: post #47
fnordpiglet wrote: post #23

Earlier quoted context omitted.

Well, I’d argue that they should have hedged their rates risk especially as inflation started to tick up. They just don’t have good risk managers. But that said, if there hadn’t been a run the causal issues would have been a foot note in a quarterly filing. Everyone is acting as if SVB were Lehman or Bear Sterns. They just got caught with their pants down and everyone ran over to take a picture and post it on Twitter…

Why hedge when we privatize the profits and socialize the losses? SVB execs sold tens of $millions in stock before the failure. Are the execs going to be forced to return the compensation they received for showing higher profits by not hedging?

Yes. It’s called clawback provisions. They were summarily fired and their compensation was clawed back.

And how are the losses being socialized? The assets of the bank are collateralizing the lines of credit they’re getting to stay solvent. It won’t cost anyone a thin penny, other than bank management and shareholders.

Re: SVB shows that there are few libertarians in a financial foxhole

#109

Post by frankreyes »

lotsofpulp wrote: post #58
spaceman_2020 wrote: post #3

A while back, a small regional coop bank defaulted here in India and could not pay its depositors. The depositors had to protest and camp outside the bank for several days. Most of these were ordinary folks, many retirees, who were just trying to keep their savings in a neighborhood bank. Of course, since this was a political issue and the depositors were innocent, the government stepped in and promised to make them…

The question is, now that we have computers and money is just an entry in a database, why are banks even necessary for storing and moving money? The whole small bank and big bank issue is moot. Technology has long solved this problem so the government could roll out a solution where no one ever risks any deposits, no FDIC is needed, and no bailouts are ever needed.

This is the argument for CBDC. the Fed taking over deposits.

The issue comes when you want to get a loan or mortgage. How does the Fed know if you're financially stable? How on earth can the Fed know how to centrally decide?

In general the answer is: split the savings and investments in two different entities. One entity that saves but has forbidden to invest, and an independent entity that invests.

Re: SVB shows that there are few libertarians in a financial foxhole

#110

Post by sdfghswe »

doodlesdev wrote: post #97
sdfghswe wrote: post #68

Earlier quoted context omitted.

That's like saying that any time any one makes a loss, it's everyone _else's_ loss, because guess where their money comes from. What do you suggest should happen here?

I suggest that the FDIC does what it should do and cover all losses that were insured, and let the uninsured losses be realized, as they should be normally. There's a gigantic moral risk in the FDIC covering uninsured losses, because that's a value judgement, and if next week my bank fails why shouldn't the FDIC cover all of my uninsured losses too? The value judgement that was done here is that if they didn't do it…

> I suggest that the FDIC does what it should do and cover all losses that were insured, and let the uninsured losses be realized, as they should be normally

To which someone like would you say "but who's paying for that? the other banks? and guess where their money comes from?

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