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The collapse of SVB exposes the largest crack in the economy

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Re: The collapse of SVB exposes the largest crack in the economy

#131

Post by Forgeties79 »

astrange wrote: post #114
bequanna wrote: post #54

Earlier quoted context omitted.

Please name one “banking innovation” the banking industry has implemented in the last decade which has benefitted consumers.

Same-day ACH, aka why you now get paid two days earlier than you used to. Check deposits by smartphone camera. Most of the stuff on https://www.bitsaboutmoney.com .

We have had check deposits with smart phone cameras for over a decade. I’ve done it with Schwab since college, and while I won’t share my graduation year, it’s been well over a decade lol

Re: The collapse of SVB exposes the largest crack in the economy

#132

Post by bjornsing »

nodesocket wrote: post #9

> A 10Y T-Bill purchased on the first trading day of 2021 is now worth less than $0.80 on the dollar Just one note for those that aren't fully aware, the treasuries were only down approx 20% because they were forced to sell before the 10yr maturity. If they could have held the entire term they would get back 100%.

> If they could have held the entire term they would get back 100%.

Yes. But those "100%" wouldn't be worth as much, due to inflation. There's also an opportunity cost to consider: if you sell now with 20% loss you get a chance to invest that money wiser.

Re: The collapse of SVB exposes the largest crack in the economy

#133

Post by drawkbox »

rehitman wrote: post #80

Everyone says SVB had bad investment and they deserv it etc. However, I am worried about this being the first of many similar financial instutation failing. After all, bonds are supposed to be safe on paper. Increasintg interest rate fast can break many people who are not able to adjust.

The problem wasn't really the bonds, it was the influx of 3-4 times the money from 2019 to 2021 that essentially made SVB make basic and bad decisions chasing profit. The influx was essentially a pump and then they leveraged themselves to current markets not future even with a safe vehicle. SVB's whole premise was that interest rates wouldn't go that high, a very bad bet in high inflation.

The dump trigger wasn't even an action/attack it was the lack of additional influx of VC/private equity/sovereign money, probably mostly from foreign markets that slowed or stopped, that tripped them up.

Then larger investment groups filled with startups like Founders Fund and Union Square Ventures doing a margin call across all their funds/investments caused a big enough dump that it was over. The run was started at this point and days later the bank is over.

Ultimately this is SVBs fault, but also regulators because concentration like this where they are responsible for so many companies and one type of money VC/private equity, is an attack vector just sitting there. It wasn't wise for investment groups to run the bank either because now this harms companies across the board, but may also be a consolidation move, shaking out companies they don't back.

HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezing out an ability to change vectors quickly. This is happening from supply chain to credit to food and more.

The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1]

> Superefficient businesses create the potential for social disorder.

> A superefficient dominant model elevates the risk of catastrophic failure.

> *If a system is highly efficient, odds are that efficient players will game it.*

It is CLEARLY time for some anti-trust busting at the funding level.

[1] https://hbr.org/2019/01/the-high-price-of-efficiency

Re: The collapse of SVB exposes the largest crack in the economy

#134

Post by MrRiddle »

dragontamer wrote: post #38
Jensson wrote: post #13

Earlier quoted context omitted.

> Downside: this also means bank is going to be less profitable. What are the downsides to society if banks are less profitable? They invested in T-Bills, I don't see how that investment served society in any way.

> They invested in T-Bills They invested in T-Bonds (10Y or longer) and MBS (mortgages) it seems like, not T-Bills (1Y or shorter) The distinction is extremely important in this case. If they were trading T-Bills, they would have survived. Instead, they took on much riskier T-Bonds (probably hoping to make more money).

[dead]

Re: The collapse of SVB exposes the largest crack in the economy

#135

Post by celestialcheese »

JohnFen wrote: post #61
cplusplusfellow wrote: post #21

Earlier quoted context omitted.

I couldn’t give two shits about banks that go under. The businesses that concern me are the ones who lose deposits.

They won't lose deposits except insofar as they decided it was OK to exceed the 250k limit for FDIC insurance. And in deciding to do that, they were deciding to take a risk and got burned by it -- but it was a risk they willingly took on.

Asking honestly - if you just got $100m wired to your account from a Series C, what's the right way to protect your cash?

Re: The collapse of SVB exposes the largest crack in the economy

#136

Post by fullsend »

thepasswordis wrote: post #88
tekla wrote: post #51

Earlier quoted context omitted.

FTX was simple fraud. This isn't really related and is more standard bank taking on wayy too much risk.

FTX was because they took customer deposits and gambled with them, lost the gamble, and therefore lost the money.

What is different here? FTX bought shitcoins. SVB bought MBS. They gambled rates wouldn’t change and customer’s wouldn’t withdraw.

Re: The collapse of SVB exposes the largest crack in the economy

#137

Post by delfinom »

PKop wrote: post #115
Jensson wrote: post #101

Earlier quoted context omitted.

But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly? I don't see how these corporate profits benefited society. They didn't fill some hard to do function, they just risked others money and planned to skim the gains for profit, why should society encourage that? And they didn't even risk the money in growth areas, they just gave it to the gove…

Well now you're questioning the necessity of banks in general. Additionally, the government regulates them into these securities. >Why not just make the government do that directly? If I understand, do you mean why not cut out the middle-man and have people buy the T-Bills/Bonds themselves? If so I completely agree, to some degree, that banks nowadays are nearly complete scams as far as warehousing your money, while…

:shrug:

The alternative to banks is a credit union where you are a shareholder and their rates aren't necessary exciting either. There's a cost to maintaining infrastructure both digital and physical. Not to mention providing various financial services to shareholders.

The moving money problem is a bigger issue with the American financial system as a whole and basically the business mentally of underinvestment and "don't break what works". FedNow will hopefully reduce alot of the time delay related friction in the coming year or two that comes with ACH.

Re: The collapse of SVB exposes the largest crack in the economy

#138

Post by twelve40 »

TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

so it looks like the bank run was not the root cause but a consequence of this mess, and all these people moralizing about not panicking were essentially advising small companies to keep funding wild practices of one adventurous bank CEO out of their pocket - how could it have ended in anything else?

Re: The collapse of SVB exposes the largest crack in the economy

#139

Post by lxgr »

Dalewyn wrote: post #127
majewsky wrote: post #120

Earlier quoted context omitted.

Speaking from my German perspective. Our (European) central bank printed central bank money like crazy the last 10 years, and apparently it was not a problem. Prices only shot up once there were supply shocks due to Covid and Putin. And sure enough, the supply shocks are slowly waning, and hence YoY inflation rates are also rapidly declining. Yet everyone keeps talking about how the money supply is causing inflation,…

At a very basic level, more monies in circulation means each individual money is worth less than before. If each individual money is worth less than before, you need more monies to buy something. This is fine if you have more monies on hand to compensate, but generally this isn't the case for individual persons. Thus, you have inflation: The price of goods inflate(!) because the value of monies drops inversely to the…

Your model is missing money velocity.

Creating money does not automatically cause it to circulate, as the ECB and others have demonstrated between 2008 and 2022.

Re: The collapse of SVB exposes the largest crack in the economy

#140

Post by phkahler »

arez wrote: post #44
phkahler wrote: post #32

Earlier quoted context omitted.

Taxes fund the government. Bonds are just a way to avoid managing a budget.

government doesn't need taxes to fund anything, it can just create money and sell bonds. Taxes are just for steering money flows

>> government doesn't need taxes to fund anything, it can just create money and sell bonds.

This is a nice fiction a lot of people spout. The consequences of that are inflation or default. Inflation is very unpopular but defaulting ends the game because investors won't buy the bonds after that. There are consequences to ignoring debt.

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