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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

#141

Post by AnimalMuppet »

Jensson wrote: post #13
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…

> 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.

There is no downside to society if banks are less profitable. There is a definite downside to the banks, though. And given the chance, at least some banks will try to get out of that downside.

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

#142

Post by rationalist »

SideburnsOfDoom wrote: post #89
marcopicentini wrote: post #79

In 2008 we learned “cartolarization”. In 2022-23: “Bond convexity”. This word is still not on headlines yet, so maybe more loses has to come.

> In 2008 we learned "cartolarization" Did we? So what the hell is it?

A misspelling of "collateralization"?

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

#143

Post by inconceivable »

bjornsing wrote: post #126
guhcampos wrote: post #90

This whole discussion around bonds makes me feel like I'm either too stupid or too smart, because it does not make sense to me that SVB would not have any sort of hedging around government bonds? I don't know much about US bonds, but Brazil issues 3 types of bonds: fixed rate, inflation-indexed floating rates and interest-indexed floating rates. It's common sense between investors you need to hold a mix of the 3 to h…

I'm not aware of any useful hedge for long term US government bonds. There are inflation protected bonds (TIPS), but they wouldn't have worked as a hedge in this case [1]. 1. https://www.schwab.com/learn/story/treasury-inflation-protec...

there are interest rate swaps (insurance, basically) but i think there may be some kind of regulation against banks engaging in derivatives trading?

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

#144

Post by Dalewyn »

lxgr wrote: post #139
Dalewyn wrote: post #127

Earlier quoted context omitted.

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.

What part of "very basic" do you not understand?

If we want to get deep into the thickets of finances we absolutely can, but that's not what I'm here for.

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

#145

Post by [deleted] »

guhcampos wrote: post #90

This whole discussion around bonds makes me feel like I'm either too stupid or too smart, because it does not make sense to me that SVB would not have any sort of hedging around government bonds? I don't know much about US bonds, but Brazil issues 3 types of bonds: fixed rate, inflation-indexed floating rates and interest-indexed floating rates. It's common sense between investors you need to hold a mix of the 3 to h…

[deleted]

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

#146

Post by Godel_unicode »

Jensson wrote: post #101
PKop wrote: post #19

Earlier quoted context omitted.

Literally funds the government lol

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…

T-Bonds tie up money for a long time, bank deposit are largely retrievable on demand. Banks take a fee for bundling lots of deposits together to invest and depositors trade upside for convenience.

If you know you have a 10-year horizon, by all means buy treasuries instead of depositing at a bank.

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

#147

Post by astrange »

talideon wrote: post #129
astrange wrote: post #114

Earlier quoted context omitted.

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 .

OK, how about mentioning something that isn't typical in the EU while still adhering to Basel III. Plenty of time here... Meanwhile, how close is the US to making Chip-and-PIN a thing? And who still uses cheques these days?!

We have chip-and-nothing, or contactless, which is better than Chip-and-PIN. (Note Apple Pay and similar are basically chip-and-PIN because it's authenticated by the phone passcode.)

> And who still uses cheques these days?!

US uses them for business-to-customer payments, especially unsolicited ones, because we don't want to give random businesses we don't know our bank account numbers.

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

#148

Post by [deleted] »

delfinom wrote: post #137
PKop wrote: post #115

Earlier quoted context omitted.

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 "d…

[deleted]

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

#149

Post by JohnFen »

celestialcheese wrote: post #135
JohnFen wrote: post #61

Earlier quoted context omitted.

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?

Honest answer? I don't know. But when my business was in a similar position (not from VCs and only about 25% of that amount), my business partner, attorney, and accountant sure did, so I know it can be done. IIRC, it was a fairly complex mix of different things. There certainly wasn't a single place that held all of the money.

I know that this sort of problem isn't new, and I know that there are a variety of ways to mitigate the risk to acceptable levels. I don't think you can ever completely eliminate risk.

Dealing with large amounts of money is very complex and really requires experts to do right. I'm an engineer, not a money expert. Your question is better aimed at a subject matter expert.

But my underlying point isn't even that these companies did the wrong thing. Only that they took a risk -- and starting a business is itself taking a risk. That's not necessarily a bad thing.

But when you take a risk, you're (obviously) taking a risk that the money will be lost. That's truly an unfortunate thing, but everyone knows the rules of the game.

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

#150

Post by 1vuio0pswjnm7 »

The author myopically tries to extrapolate this incident to "the economy" and "other industries". SVB's customers panicked. But who are SVB's customers. For the most part, VC, PE and non-profitable "tech" startups. Not surprising they would panic. They produce nothing themselves, conduct surveillance, sell advertising services, pay employees from funding rounds and call this a "business model".

This is not "the economy". This is a giant sucking leech attached to it. A parasitic fungus that has attacked the minds of an alarming number of susceptible people. But not everyone is a mindless zombie.

Among other things, the parasite needs "zero" interest rate borrowing to survive.

"The economy" is not synonymous with Silicon Valley nor the SV mind virus.

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