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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

#181

Post by tfehring »

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…

> 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.

All major US banks - and all or virtually all US banks in general - have assets that are designated as held to maturity. Continuously marking all assets to market would create massive swings in banks' income and obscure the real gains and losses from their operations.

SVB probably had a somewhat longer asset duration and somewhat lower book yield than US banks on average, since its deposit base grew so quickly in a low interest rate environment in 2020-2021. It also had a higher share of uninsured deposits. But nothing that SVB did was categorically different than other banks, and in the absence of a government backstop, I'm not convinced that any US bank would fare much better if faced with a similar volume of deposit outflows. "Magically" transforming long-dated assets into short-dated liabilities wasn't any kind of malfeasance on SVB's part - it's just how banking works.

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

#182

Post by reducesuffering »

ren_engineer wrote: post #111
sdfghswe wrote: post #24

Earlier quoted context omitted.

> 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

The Fed never said they wouldn't raise rates for 10 years, which is the duration that SVB bought mortgage-backed securities for. The Fed didn't bow to political pressure, they are following the plan which is their dual-mandate for 2% inflation and maximum employment. They had rates at 0 while employment numbers were bad, now that employment #'s are good and inflation is bad, it was time to raise rates. It's a balancing act.

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

#183

Post by BurningFrog »

Analemma_ wrote: post #166
tus666 wrote: post #157

Is there any evidence they were libertarians to begin with? Peter Thiel might be, but he isn't asking for a bailout - he got himself out.

Yes, lots. There's a fun meme going around where you take any random VC ""thoughtleader"" demanding a complete backstop for SVB depositors and search "bailout until:2023-03-09" on their Twitter account to see what they thought about bailouts and moral hazard before last Thursday.

I don't have any polls to support this, but I'd be very surprised if the median VC thoughtleader is particularly libertarian.

There are a few outspoken ones, sure. But just a few.

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

#184

Post by lotsofpulp »

frankreyes wrote: post #109
lotsofpulp wrote: post #58

Earlier quoted context omitted.

The question is, now that we have computers and money is just an entry in a database, why are banks even necessary for storing and moving money? The whole small bank and big bank issue is moot. Technology has long solved this problem so the government could roll out a solution where no one ever risks any deposits, no FDIC is needed, and no bailouts are ever needed.

This is the argument for CBDC. the Fed taking over deposits. The issue comes when you want to get a loan or mortgage. How does the Fed know if you're financially stable? How on earth can the Fed know how to centrally decide? In general the answer is: split the savings and investments in two different entities. One entity that saves but has forbidden to invest, and an independent entity that invests.

If you want to borrow money, you can go to a lender, just like you do now. Lenders do not have to be banks that take deposits.

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

#185

Post by _ktx2 »

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

Great, so sounds like we've found the actual culprit then. Technology companies and investors, despite their political affiliations, actually like a hands off environment.

Do you understand how that's a little different from your Libertarian strawman?

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

#186

Post by breck »

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?

> but guess from where the banks get money from?

Oh, I know this one! https://breckyunits.com/the-great-bank-robbery.html

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

#187

Post by lordnacho »

pg314 wrote: post #135
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…

> If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market The NPV calculation should use the market intrest rate. If you use that, it should be pretty much the same thing: an efficient market should value a bond at its NPV. However, they were allowed to value HTM (hold to maturity) bonds at face value. That is just non-sensical from an economics perspective and just hides losses.

This is the right answer. Everything that has a market should be marked to market. This should be the default decision until some kind of good reason it's given to do otherwise.

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

#188

Post by jgon »

fnordpiglet wrote: post #138
psychlops wrote: post #66

Earlier quoted context omitted.

Don't forget they also paid bonuses the morning they failed.

This is the time of the year when banks pay bonuses for the prior years work. My understanding is it was scheduled annually at the same time and happened to occur the day they went insolvent. Frankly I’m down with Nancy in client confirm generation getting her bonus. The senior managers all got fired and their comp clawed back, so seems legit.

You seem pretty emphatic that senior managers have had their compensation clawed back but have posted absolutely zero proof that this is the case. Care to show any reason we should believe you?

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

#189

Post by JohnFen »

initplus wrote: post #165
JohnFen wrote: post #95

Earlier quoted context omitted.

> They're following standard practice They weren't mitigating the risk of how they were using their deposit accounts. That's not following standard practice.

Splitting deposits to stay under the 250k limit is artificial behaviour that doesn’t change the overall risk profile for FDIC. The total amount of money covered by insurance is the same regardless of how it’s subdivided. Splitting up deposits isn’t the intended outcome by regulators here. It doesn’t actually achieve anything meaningful.

Splitting deposits isn't the only option and is often not the best one. There are a number of other solutions available, including buying your own insurance. FDIC insurance isn't the only insurance available (and isn't even intended primarily for businesses). It's just the free one.

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

#190

Post by mtlmtlmtlmtl »

bigtex88 wrote: post #153
mtlmtlmtlmtl wrote: post #122

Earlier quoted context omitted.

I'm probably wrong more often than I'm right when it comes to politics on average. But libertarianism has been obviously illogical to me since I was about 15, half my lifetime ago. Since then I've spoken to some very intelligent libertarians at length and... nope, it still doesn't make any sense. It makes less sense than ever, in fact. At least when I was 15 I just thought they must be stupid, but no, not necessarily…

That's because it is illogical. “There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs." Libertarians are stuck in a pubescen…

Who's that quote from? It's funny you should use that one, I happen to be an avid Tolkien nerd, starting around that age :D

Bit of a tangent, but it continues to amaze how relevant Tolkien continues to be to this day considering he started developing his legendarium almost a century ago now. Gender issues, sexism, addiction, free will, the allure of power and wealth, all explored in an amazingly prescient way that still stands up to scrutiny today.

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