SVB shows that there are few libertarians in a financial foxhole • Hacker News Board

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

#191

Post by beezle » Mon, Mar 13, 2023, 9:06 PM UTC

tfehring wrote: post #181

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…

> 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…

Well, I'll take issue with your post as you captured the problem with the others. Where SVB was different than other banks is the absence of hedging. SVB's tier 1 capital was basically wiped out by a mark of the HTM portfolio, unlike other banks who suffered hits but far, far smaller.

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

#192

Post by zac23or » Mon, Mar 13, 2023, 9:06 PM UTC

I read a lot of hackernews, for the technical part. But I never liked or believed in the VC/Startup bullshit. If HN had a filter just for technical stories, that would be great.

I never believed in the talk of “let the market decide”, “we invested in that startup to change the world”, “disruption”, “good product will win” and other nonsense.

Everything revolves around money, money and money. And there's nothing wrong with that, the problem is the bulshit not to assume it.

For now, every time someone starts with this kind of bullshit, I will submit the YCombinator petition to the government.

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

#193

Post by yunwal » Mon, Mar 13, 2023, 9:06 PM UTC

fisherjeff wrote: post #149

sdfghswe wrote: post #50

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. Correct. So, if you have customers and you put THEIR money into a bond and say you're holding it to maturity, but then your customers want their money, what exactly was the plan?

I mean, it’s a balancing act, right? If you plan to be able to accommodate 20% redemption in a single day , you’re left with a portfolio maturity of 5 days. You will be almost unavoidably marked to market but your yield, even when rates are high, is going to be roughly zero and you’re going out of business anyway.

If your customers actions are all highly correlated, you need to be planning for things like this. The fact that having your whole customer base in a single group chat is a bad business model for a bank should not be the taxpayers’ problem.

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

#194

Post by shagie » Mon, Mar 13, 2023, 9:07 PM UTC

pg314 wrote: post #163

shagie wrote: post #94

Earlier quoted context omitted.

The bonds are worth exactly what they thought they'd be worth if held. There is no bet on that part. The purchase of 10 year bonds also implied a bet that faster maturing bonds won't be more valuable. As shown in https://fred.stlouisfed.org/series/T10Y3M that is no longer a true statement and that bet failed. It was a true statement for about 15 years with one flirtation in August of 2019. It appears that this is is…

> The bonds are worth exactly what they thought they'd be worth if held. That's wrong. A 10 year treasury bond with a .60% you bought in august 2020 is now worth significantly less. Whether you hold it or not is irrelevant. If you disagree, I'm willing to give you one, if you give me a 7 year treasury bond at the current interest rate of 3.86%.

Has the amount that it pays when it reaches maturity changed?

The yield curve has gone negative - the shorter term bonds are worth more than the longer term ones (and certainly the longer term ones bought back in 2021).

And if you were trying to sell me a 10 year note at 0.6% I'd want a serious discount because even your 7 year note at 3.86%, I can do better with a 3 month note at 4.794% or a 6 month note at 5.086%. https://www.marketwatch.com/investing/bond/tmubmusd03m?count...

But that's if you were trying to sell it now. The amount it will pay at maturity remains unchanged and in 10 years it will be worth exactly the same no matter what the financial history that brought it to that point was.

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

#195

Post by dboreham » Mon, Mar 13, 2023, 9:07 PM UTC

mathattack wrote: post #112

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…

It’s not a matter of being prescient. They made an explicit bet. “Rates won’t go down, so let’s get as much yield as possible via long term securities” They could have just as easily done what most other financial institutions do: match the duration of their liabilities with the duration of their bonds. If people can quickly pull their money, then keep the money in short term bonds and money market funds. The problem…

They also had to pay out significant interest to depositors. The graph of those outflows looks like a hockey stick. So seeking a high return on their assets wasn't unreasonable. Presumably if they had paid low interest on deposits, depositors would have moved their money to some other institution, leading to the same outcome.

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

#196

Post by pookha » Mon, Mar 13, 2023, 9:07 PM UTC

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…

Here's another source of the problem...Pumping trillions of active currency into the economy, over heating the CPI, and ignoring demand-side inflation (hey it's "transitory") for ideological reasons.

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

#197

Post by wins32767 » Mon, Mar 13, 2023, 9:07 PM UTC

worksonmine wrote: post #104

gregw2 wrote: post #61

From a Libertarian perspective why would we not: 1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about…

Instead of all these complicated hoops, wouldn't a true libertarian expect his money in the deposits to be no-go for gambling. And a separate account for stocks. If the bank want's to gamble they would need the customers approval for that, IE lock your money with us for 10 years and get this interest. Insurance is socialist, even if it packaged as capitalism. The bank has to cover it, but not today. And it's an agree…

You think there is complaining now, what do you think would happen if you lost 1-3% of your principal each year forever. And what do you think would happen to society of all that capital was sitting around doing literally nothing instead of being available for others to borrow and use on productive activities?

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

#198

Post by maxbond » Mon, Mar 13, 2023, 9:08 PM UTC

reducesuffering wrote: post #178

maxbond wrote: post #147

Earlier quoted context omitted.

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.

You can `s/treasuries/mortgage-backed securities/g` into my comment and it doesn't change much, but my understanding is that they had a lot of treasuries (not to the exclusion of having MBSs).

> To fund the redemptions, on Wednesday Silicon Valley Bank sold a $21bn bond portfolio consisting mostly of US Treasuries.

https://www.theguardian.com/us-news/2023/mar/10/silicon-vall...

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

#199

Post by eep_social » Mon, Mar 13, 2023, 9:08 PM UTC

senko wrote: post #159

doodlesdev wrote: post #97

Earlier quoted context omitted.

I suggest that the FDIC does what it should do and cover all losses that were insured, and let the uninsured losses be realized, as they should be normally. There's a gigantic moral risk in the FDIC covering uninsured losses, because that's a value judgement, and if next week my bank fails why shouldn't the FDIC cover all of my uninsured losses too? The value judgement that was done here is that if they didn't do it…

> I suggest that the FDIC does what it should do and cover all losses that were insured, and let the uninsured losses be realized, as they should be normally. And then a bunch of small business fail, then everyone else looks at 20 other small and middle-tier banks and realizes they don't want to end up the same way and pull their money out, then they fail, per your suggestion FDIC still does nothing, then another cou…

You are echoing bullshit driven by the VC freak out over the weekend. There are literally hundreds of ways that actual small businesses could have bridged this disruption. Those that failed this basic risk-management exercise would have richly deserved what they got. How else are they going to learn?

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

#200

Post by seanw444 » Mon, Mar 13, 2023, 9:09 PM UTC

JohnFen wrote: post #91

gregw2 wrote: post #61

From a Libertarian perspective why would we not: 1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about…

> have Congress+FDIC create a new form of deposit insurance Such insurance exists on the private market already and is commonly used by businesses who have large sums of cash on deposits. Presumably, the depositors at SVB didn't do that because they didn't want to pay for it. Wouldn't a libertarian prefer that over having the government do it?

Why does everyone conflate libertarians with ancaps? It's not the same thing. Libertarians accept that there is a degree of government that is necessary.