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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

#211

Post by yunwal »

machina_ex_deus wrote: post #126
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 turned out that one of the biggest risks to our business model was catering to a very tightly knit group of investors who exhibit herd-like mentalities" And I kind of agree. Yes, the mistake was not hedging MBS and treasuries interest rates. But are they really the only bank in the world doing that mistake? What truly made it fatal is the VCs. That's also why nobody is coming to buy them. The speed at which the b…

> But are they really the only bank in the world doing that mistake?

I’m not sure that looking to the financial sector for examples of fiscal responsibility is actually reasonable, but I’d guess that they’re the only bank that’s “too-big-to-fail” that could possibly fail because of a single slack discussion.

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

#212

Post by Gwypaas »

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…

> 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 couple dozen banks and couple thousand business fail ...and next week you're back in 2008.

That is already in motion. Every company that had yet to do it is now looking into its liquidity management.

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

#213

Post by beezle »

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?

Not all of the capital was in a HTM portfolio. SVB I'm sure had a good handle on the typical flow of funds and based off of that with some margin of error (that was obviously not everyone wants everything today).

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

#214

Post by fidgewidge »

miguelazo wrote: post #62
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…

Putting aside the glut of misallocated cheap money, isn't the deregulation that allowed this (which SVB pushed for, along with many other banks/Wall Street parasites) precisely the type of policy that Libertarians advocate?

Definitely not. Most libertarians I've encountered want hard money i.e. full reserve banking with no central bank money printing. In FRB you cannot have bank runs and with a restricted central bank which can't print more money you can't have ZIRP and the wild swings all over the financial system that it had caused. Instead you have a system in which bank accounts don't pay interest but that's acceptable in many cases because there also isn't any inflation, and if you want a return you invest in a fund that exposes the liquidity constraints in its terms.

The above scheme requires far less government regulation as well, but it does need some, mostly an extension of the idea of theft to encompass fractional reserve banking.

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

#215

Post by nerdponx »

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…

And to the original point about libertarians, this would only ever not happen in the face of regulation.

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

#216

Post by JohnFen »

seanw444 wrote: post #200
JohnFen wrote: post #91

Earlier quoted context omitted.

> 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.

Is it not a libertarian position that it is preferable that things be done in the private sector than in the public sector?

In the narrow statement that I replied to, a proposal was made to have the federal government enact a kind of insurance that has long been available in the private sector. My understanding of libertarian perspectives (based purely on hearing what libertarians say) is that doing it in the private sector would be preferable.

Particularly considering that the problem for the depositors was that they weren't availing themselves of private-sector solutions, not that those solutions failed.

I may be complete wrong on this, though, as I am not a libertarian.

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

#217

Post by elliotto »

zac23or wrote: post #192

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…

There's a lot wrong with everything revolving around money, such as this bank failure for one.

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

#218

Post by fosk »

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…

Our deposits are liabilities for the bank (the bank needs the infra to secure the money, make it available everywhere at every ATM, bank tellers and so on). Banks invest the money (and give loans) to both pay for these costs and also make a small return on top.

It is possible to have a bank that just stores the money without touching it, but this bank would charge us for the costs of doing so, and it won’t be free, and it won’t be popular vs free options (which once every 10-20 years blow up).

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

#219

Post by garyfirestorm »

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…

Just saying not all other banks are collapsing like SVB. They were over leveraged and played a risky game. That came to bite them. So it’s important to point blame at the issue and if 98% of other banks didn’t engage in this behavior then it’s not fed issue or systemic issue.

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

#220

Post by yunwal »

juve1996 wrote: post #101
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. The fact that many other banks were prescient disproves this point handily.

This is obviously also stupid, but no other bank has the vast majority of their clientele clued into a single group chat discussion
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