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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

#201

Post by dboreham »

scrozier wrote: post #125
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…

Why/how does the IRS care if you store it under your bed? Serious question.

> Serious question.

Because criminals/tax evaders do that.

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

#202

Post by gtop3 »

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…

> Insurance is socialist, even if it packaged as capitalism.

What? Insurance companies (in general) are some of the most capitalistic. They teams of actuaries calculating risk to leverage a large capital pool to generate more capital.

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

#203

Post by anon291 »

sdfghswe wrote: post #35
anon291 wrote: post #30

I mean... I'm fine with less regulation so long as we actually let large businesses and investors fail.

Which is exactly what is happening here. A large business is failing and its investors are losing their investment.

Well no it's not. Depositors,especially large ones, are creditors.

What's going on here is the fed is deciding that certain creditors are too big to fail.

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

#204

Post by FormerBandmate »

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…

There would have also been massive bank runs. Check out regional bank stocks, tons of them were down 30% this morning for no reason and a lot are still down. The rich panicked, which destroyed Washington Mutual and Wachovia in 08 and caused both the Great Recession and Great Depression

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

#205

Post by seanw444 »

EdwardDiego wrote: post #160
jacktribe wrote: post #8

Is there a term for someone that is libertarian inclined, but does believe in a minimal level of government regulation and intervention? A "Lite-Libertarian" of sorts.

I consider myself to be economically liberal in the "laissez faire, laissez passe" sense to a large extent. No government should pick winners or losers, no government should protect uncompetitive businesses. But I believe that the government must protect the free market against capitalism's inherent tendency towards monopoly, and that likewise, it must protect consumers against exploitative business practices (which…

I'm pretty sure this is the standard belief of most libertarians. People just keep conflating libertarian with ancap.

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

#206

Post by beezle »

fnordpiglet wrote: post #36
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…

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 the par value of the bond, typically "100"

They were not holding sufficient tier 1 capital against a run or they would still be here today. The did, on the other hand, have enough to exceed regulatory requirements.

They apparently did not hedge at all and additionally, they invested heavily in mortgages which are well known to decline more in value in rising rate environments due to extension risk.

As an earlier poster noted, the primary reason to have a HTM portfolio is to avoid wild swings in reported earnings each quarter from a mark to market as their is no counter on the balance sheet that rises/falls in a similar manner.

You are probably correct in that if there was not a run it likely would be rear view. They would have done their capital raise and probably taken additional measures to improve their ability to withstand such an event. Of course, this all was trigger by a ratings agency and a few bloggers calling into question the unrealized losses in the HTM portfolio.

Then again, had the stress tests still be in place it is unlikely to have even gotten to the capital raise point.

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

#207

Post by smackeyacky »

tyrrvk wrote: post #127
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…

From a Libertarian perspective why would we not: 1) have Congress+FDIC... This made me chuckle. I thought Libertarians want gov _out_ of their lives. :)

Libertarians, like Trotskyites before them suffer from the logical dead end of purity tests.

https://en.wikipedia.org/wiki/No_true_Scotsman#:~:text=The%2...

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

#208

Post by concordDance »

kqvamxurcagg wrote: post #119
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…

You fail to understand the actual reason for their insolvency. Their risk team chose to buy 10 year treasury bonds instead of 1 year treasury bonds. This is because 10 year bonds offered a higher interest rate (more profit for SVB) but at a much much higher risk. The losses were then unrecognised, hoping the market would turn. Only when it was too late did SVB admit defeat. With their equity gone, they attempted a ba…

> Anyone working in risk management will tell you SVB’s risk team and executive team should be in jail.

Jail seems extreme for an error in judgement that neither killed nor maimed anyone.

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

#209

Post by lordfrito »

shagie wrote: post #194
pg314 wrote: post #163

Earlier quoted context omitted.

> 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%.…

> But that's if you were trying to sell it now. The amount it will pay at maturity remains unchanged and in 10 years

This point is lost on everyone. They will get their money back, in 10 years. That's why it's a called 10 year note.

They messed up not considering they'd need the money sooner, and failed to seriously consider that no one would want to buy their notes if interest rates went up, because there would be much better deals out there.

They made a 10 year bet that interest rates wouldn't go up significantly. They bet wrong.

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

#210

Post by wstuartcl »

sdfghswe wrote: post #50
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…

> 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?

They had 13b in cash going into this year and other highly liquid assets, those evaporated as the draw downs happened. Its not like they tucked away all assets into 10 year lockups (or higher risk loans). Even the bonds they did lock up -- in what would be considered 99% "normal" markets given the last few decades a sell off of those bonds would not have been highly problematic. It became problematic when they were so low return needing to be sold to reblalance the 10/90 rule when market rates were much better and they needed to be discounted due to the huge rate hikes.

SVB was pretty much considered the "boyscouts" of the industry and in normal circumstances they took a super conservative placement of the deposits. The only thing they could have done better was to (what would have normally been considered) overly hedge the bonds reducing their return even more.

I personally think they were too transparent with the liquidity crunch, and the investors and their companies that pulled out 20-30b before they even could execute the sell probably saw the ability to crash the bank and offer shark hooked bridge funding to the competitive companies left in the lurch. Its not like these folks were naive clients -- imho they were looking to do damage and get blood returns/equity on those bridge funding after the fall.

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