Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

SVB shows that there are few libertarians in a financial foxhole

ft.com

Post reply on HN
Print view View original

111–120 of 493 posts

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

#111

Post by ren_engineer »

sdfghswe wrote: post #24
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. No. SVB hid market to market losses by saying "these securities are held to maturity so I don't have to realize losses". THAT is the source of the problem. Not all banks did this. Sure excess liquidity was necessary for this behavior to be pos…

at the time they bought them the Fed was saying they had no plans to increase rates. You can blame SVB somewhat for not hedging but they took the Fed at their word and got burned for it, not exactly something that builds confidence in the financial system. The Fed bowed to political pressure related to high inflation rather than following the plan they laid out

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

#112

Post by mathattack »

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…

It’s not a matter of being prescient. They made an explicit bet. “Rates won’t go down, so let’s get as much yield as possible via long term securities”

They could have just as easily done what most other financial institutions do: match the duration of their liabilities with the duration of their bonds. If people can quickly pull their money, then keep the money in short term bonds and money market funds.

The problem with that is it’s harder to make big bonuses when you’re being fiscally conservative.

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

#114

Post by fnordpiglet »

psychlops wrote: post #56
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…

> just don’t have good risk managers They had no chief risk officer for 8 months. They argued publicly against stress testing banks. Their complete absence of hedging guaranteed that time bomb that would have gone off now or later.

I agree 100% up to the point of the necessity of a bank run. I think they faced some serious quarterly losses for some time to come, but many banks see that without a run on the bank. That’s why I suspect someone large and influential in the startup world operated a bank run whisper campaign for their personal benefit. I’ve no proof, but I’ll wager $5 on it.

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

#115

Post by thereddaikon »

doodlesdev wrote: post #59
sdfghswe wrote: post #35

Earlier quoted context omitted.

Which is exactly what is happening here. A large business is failing and its investors are losing their investment.

Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?

They are getting it from liquidating the assets of the Bank. There are three parties who are "owed" here. The depositors, holders of debt and investors. Depositors are being made whole. Anyone who holds secured debt will get what's left. Owners of unsecured debt and investors are left out. Which is fine by me.

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

#116

Post by jmvoodoo »

sdfghswe wrote: post #50
fnordpiglet wrote: post #36

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. The mark to market only comes relevant if you’re experiencing a run, which they were holding sufficient regulatory liquidity for. They should have hedged their rates risk a bit better, especially as infla…

> 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?

So, your plan is to do away with fractional reserve banking entirely ? How do you think that would impact GDP and the overall functioning of the economy?

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

#118

Post by yunwal »

ummonk wrote: post #102
yunwal wrote: post #73

Earlier quoted context omitted.

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.

Depositors were getting gains (4.5% interest rate which is very high compared to similar banks, and for something that’s supposed to be risk-free). The reason these rates were achievable is because SVB lobbied to remove regulations and allow them to engage in risky behavior.

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

#119

Post by kqvamxurcagg »

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…

You fail to understand the actual reason for their insolvency. Their risk team chose to buy 10 year treasury bonds instead of 1 year treasury bonds. This is because 10 year bonds offered a higher interest rate (more profit for SVB) but at a much much higher risk. The losses were then unrecognised, hoping the market would turn. Only when it was too late did SVB admit defeat. With their equity gone, they attempted a band aid with an equity raise but the market quite rightly recognised the bank’s shares were worthless.

Anyone working in risk management will tell you SVB’s risk team and executive team should be in jail.

Don’t blame SVB’s failure on a bank run. SVB caused their own failure with their own risk management policies and it’s insolvency was probably inevitable for months.

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

#120

Post by doodlesdev »

ummonk wrote: post #92
doodlesdev wrote: post #59

Earlier quoted context omitted.

Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?

The banks get their money from their profits. Same as how they would have taken an even bigger loss to their profits if this contagion had been allowed to spread.

That would all be ideal and ok if fractional banking wasn't a thing. Your bank makes money out of investing your money. That's just how it works. But for some reason, some banks are more privileged than others. Citibank can't stop receiving bailouts every 50 microseconds because their management sucks. Silicon Valley Bank depositors receive back money from _uninsured_ deposits. Ultimately, someone has to pay the bill.

I'm not saying prevent the contagion is a bad thing. We all know what happens when contagion becomes a systemic problem (2008). What I'm suggesting is that the fact a bank like this can even fail in a way like this is absurd. I'm mostly someone who defends less regulation over more, but if we are going to regulate banks we need to hold everyone to the same standards, and make sure everyone is accountable for their mistakes and risks taken. If that requires the FDIC raising the amount of deposits that are insured, sure, go with it, but creating "exceptions" every time a medium-sized bank fails is sure to create moral problems, corruption and increase inequality systematically.

What I'm talking about is thing such as the "Reform Act" from 2018, which was basically what allowed this Silicon Valley Bank disaster to happen [0].

[0]: https://www.forbes.com/sites/mayrarodriguezvalladares/2023/0...

Post reply on HN