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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

#171

Post by wunderland »

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…

Whenever a contradiction of capitalism arrises like this, the problem is always too much interference in the markets, and the solution is always more unfettered capitalism.

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

#172

Post by eep_social »

cal5k wrote: post #63
mhb wrote: post #34

Earlier quoted context omitted.

What is the larger issue? That people buying bonds don't understand that their value drops when interest rates go up and that if you might need the money from the bonds before the bond matures you need to hedge for that?

At the time they were purchased, central banks around the world were going out of their way to assure people that rates would not be going up for a long time. Not excusing their failure to properly account for duration risk, but regulators didn't see this coming either - what they were doing was considered to be not only wholly acceptable, but downright "safe".

Central banks have been telegraphing rate increases for over a year. Your statement might have been true on the day of the purchase but SVB had an entire year to fix their mistake and failed to do so.

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

#173

Post by reducesuffering »

strbean wrote: post #128
worksonmine wrote: post #53

Earlier quoted context omitted.

SVB locking money they might need access to is the FEDS fault do I understand you correctly? Did they hold a gun to their head? I'm not saying they're doing anything different than their competitors, but that's a stupid excuse. The only thing that's broken is the financial system. A customer should be aware when depositing money that that money might be locked away, and agree to those terms, and get a cut. This is SV…

[flagged]

They didn't buy treasury bonds, they bought mortgage-backed securities with average duration of ~10 years (risky), why are people still wrongly repeating this?

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

#174

Post by steve76 »

Animats wrote: post #42

Right. Without a bailout, each customer would have $250K today (if they had that much n deposit) and probably another 10-20% this week, as assets were sold off. The FDIC could have worked a deal so that depositors were paid off in a few weeks, but in Treasury bonds with 5-10 years to maturity, to match the maturities of SVB assets. Depositors who really had to could sell their bonds immediately at a discount. That wo…

[dead]

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

#175

Post by strbean »

postalrat wrote: post #79
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.

Not liquid like trying to buy a house with a Pokemon card you guarantee will be worth $300k in 10 years but is only worth $50 now.

Are we really comparing treasury bonds to pokemon cards now?

Treasury bonds are guaranteed by the government with the worlds largest economy. US treasuries are pretty much the safest investment instrument in the history of mankind.

In 10 years, they WILL pay out at face value, unless the USA suffers complete collapse. In which case your dollars in the bank are worthless anyways.

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

#176

Post by elzbardico »

originalcopying wrote: post #76
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…

> Being called a libertarian would be an enormous source of shame and disgust for my mom. But you are not your mom. you don't have to share on the disgust and shame, however you may chose to do so if you want. the points being: the disgust is your mom's not necessarily yours. whether to partake on your parent's shame of being called a libertarian is a choice .

A choice that I deliberately made years ago.

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

#177

Post by tripletao »

fnordpiglet wrote: post #93
swatcoder wrote: post #54

Earlier quoted context omitted.

You say it takes a run, but all it really takes is an aggregate change in deposit behavior. Like, for instance, your disproportionate share of startup clients easing off the cheap loans you had been offering them, because they’re no longer so cheap, and instead drawing down on (or moving) the balances that you had insisted they keep with you as collateral. Trouble was brewing on both sides of the business, not just o…

That’s what led up to the need to create more liquidity. The run happened after that when depositors spooked and drew down faster than the bank could liquidate assets. They were never, even MTM, under water. They just couldn’t raise enough cash in a single day to pay out all the withdrawals. But the cause of the run is the suspicious part to my mind. It feels orchestrated, and I have heard rumblings that Theils found…

> They were never, even MTM, under water.

This is completely false. If the SVB (or any other bank) had been adequately capitalized on a MTM basis, then they could have borrowed from the Fed to withstand any bank run. The SVB was not:

https://www.bloomberg.com/news/articles/2023-03-10/the-balan...

The hold-to-maturity accounting allowed them to pretend otherwise, disregarding losses on long-term bonds when interest rates increased. They--and their regulators, since such accounting is perfectly legal--hoped this would let them ignore the problem until they could earn their way out of the hole. Instead interest rates increased further, the hole got deeper, and the SVB blew up.

It's not impossible that Thiel somehow benefitted from the collapse, though I'm not aware of any evidence for that yet. It's also possible that he simply didn't want his money in an insolvent bank.

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

#178

Post by reducesuffering »

maxbond wrote: post #147
notch898a wrote: post #107

Earlier quoted context omitted.

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 ba…

It's not that they shouldn't have bought treasuries, it's that they shouldn't have bought such long dated treasuries, and if they did, they should have hedged against interest rates, and if they didn't, they should have realized the loss when it was smaller. But they did none of those things and it was fatal to them. The Fed kept making it clear that it was raising rates, and it seems like SVB just slipped quietly in…

They didn't buy treasuries, they bought mortgage-backed securities.

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

#179

Post by wins32767 »

ajross wrote: post #28
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…

> Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. That's revisionist and silly[1]. Spending all your liquidity on long term bonds isn't "conservative" if you're a bank . It's not your money! It's your customer's money that you're just holding for them, and you just dropped it all in a vehicle that doesn't mature for 10 years. What if…

Do you really think putting it out as mortgages would lock the money up for a shorter duration? SVB had a reasonable amount of liquidity for normal stresses. They'd gotten close to breaching their regulatory cushion for spare capital which was why they were trying to recapitalize.

However once the VCs panicked started a bank run, they folded. Just like literally any bank would. ~45b of net withdrawals in a single day is going to cause any bank significant trouble.

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

#180

Post by [deleted] »

yunwal wrote: post #155
_ktx2 wrote: post #87

Earlier quoted context omitted.

You should probably look at the link my guy. 13/20 of those definitely aren't Libertarians.

I don’t care about what political party they belong to. Do they regularly argue to slash regulations on the basis of government=bad? Do they routinely try to convince people that technology companies should be in charge of social organization rather than the government? This is the type of shit that gets talked about at VC conferences all the time: https://youtu.be/K8JIzP8HmjQ

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