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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

#181

Post by cm2187 »

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.

They charge more for credit.

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

#182

Post by flangola7 »

gruez wrote: post #176
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…

>But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly What you're describing is pretty close to a "narrow bank", minus the "owned by government" part. The Fed doesn't like it for several reasons: >The Fed raises three main objections. 3 The first is macroeconomic: The Fed worries that narrow banks could mess with the implementation of monetary…

I have a hard time seeing his 3 and especially 2 are even that bad

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

#183

Post by FireBeyond »

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 .

LOL. In Australia, an inter-bank ACH transfer was typically complete within the hour, worst case. Usually within minutes. Without fees. In 2002.

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

#184

Post by denimnerd42 »

delfinom wrote: post #175
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.

Bonds weren't the problem. The financial strategy employed to use those bonds was the problem. You can do the same thing to yourself. Take your life savings and emergency fund and put it locked up into 10 year treasuries bought direct from the treasury. Now go have an emergency. Good luck, have fun.

you can transfer your treasuries to a broker and then sell them. i do see your point though. if your emergency is you need your life savings TODAY then yeah you'd have a problem. but you could probably find a source of credit while you sell.

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

#185

Post by andrepd »

phkahler wrote: post #140
arez wrote: post #44

Earlier quoted context omitted.

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.

My country has an 8% budget surplus before interest payments, and 2% deficit after. What would be the consequences of ignoring/defaulting on that debt exactly? Seeing as how it's already doing fine with an 8% surplus.

I can think of other (political) consequences, but not economical per se, if you assume that a loan has a risk of default priced into its interest rate.

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

#186

Post by cplusplusfellow »

jacobolus wrote: post #160
cplusplusfellow wrote: post #41

Earlier quoted context omitted.

I don’t understand the disgust I’m reading for VCs and startups. Bailing out the bank doesn’t mean we let the bank CEO get richer off this transaction (like we did in 2008). It means the startup companies making payroll are going to survive and continue building the future of technology and healthcare. What am I missing?

I don’t think people are disgusted at “startups” in general, but David Sacks deserves any scorn that comes his way after his shameless and pathetic Musk sycophancy through the whole Twitter deal. This guy who has spent years (decades?) constantly whining about how government regulations are excessive and federal agency should be curtailed and government should stop protecting various groups from harm etc. is now sudd…

[flagged]

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

#187

Post by atomicnumber3 »

projektfu wrote: post #68
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%.

I noticed that he conflated the safety of a T-note* with the asset price. US Treasuries are AAA-rated super safe guaranteed returns because they're not expected to default or miss a coupon payment, and they'll be redeemed for the full value when they mature. That doesn't mean they don't have market prices that fluctuate. *T-bills are up to 52 weeks maturity.

Heh I was wondering if someone else would spot that too. Who said finance people aren't fun at parties?

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

#190

Post by aqme28 »

cm2187 wrote: post #180
twelve40 wrote: post #138

Earlier quoted context omitted.

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?

Yes and no. LCR is basically requiring you to keep in cash and liquid assets the equivalent of a 30 day bank run. And it should work. A european bank had very large bank run last year and survived without even breaching its regulatory minimums. But that still leaves the bank in a weak position after the bank run, and you can't predict the exact magnitude of a run.

What is a "30 day" bank run? How is a bank run measured in time?
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