231–240 of 311 posts
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Aren't we talking about hundreds of millions/billions of dollars? At that scale, not a lot of baskets available.
Could a tech company have split their accounts into separate $250k accounts? I'm not sure if the bank would offer that.
This can be done manually, with some logistical challenges.
This can also be done automatically, e.g. via CDARS.
Just because the tech community is just now discovering interest rate risk and maturity matching problems doesn't mean any of this is new to the rest of us.
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>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
I disagree with the overall learning from SVB’s collapse. Bonds are safe. The learning, to me, is that keeping interest rates at zero for too long distorts expectations in an unsafe way. What did SVB do wrong, exactly? They took in a lot of money, i.e. they ran a successful business. And they bought safe assets with that money. Who at the time would have disagreed with their strategy? The issue is that the Fed create…
So I would say it's safe in one way (if you hold it to the end, you'll get your money back plus interest), unsafe in another (its value on the market before then is not guaranteed). I disagree that the Fed set an expectation for indeterminate 0% interest. I'm sure that's what sugar addicts in the market told themselves, but I think the Fed was clearly, if gingerly, trying to dig themselves out of a 0% hole, having st…
And yeah as a bank it's an extremely stupid move to put 40% of your money into an entirely unhedged bet that interest rates will not go up for 10 straight years. Maybe the Fed didn't handle things as well as they could, and similarly maybe VCs exacerbated the problem unnecessarily, but I don't see how the lion's share of the blame doesn't go to SVB here.
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They took deposits from depositors who would blow up if interest rates went up, and then used those deposits to buy assets that would blow up if interest rates went up. Interest rates went up, so their assets crashed at the same time that deposits plummeted and withdrawals skyrocketed. If you want to standardly hedge against interest rate risk, that's what swaps are for. If you want to take on a comparatively less ra…
> They yield less, but surely that's better than "the FDIC seizes your bank and your equity goes to zero." For the individual banker, perhaps it's not? If rates stay low they get a fat bonus, if they go up they just get a new job somewhere else.
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.
Just something to consider… A casual look at the regional bank index ETF will show that starting about two weeks ago, the price started to steadily decline and then a sudden drop with SVB. I’m not sure if this decline is well correlated with the total market index over the same period, but if not, it suggests that some people “saw this coming” a couple of weeks ago and the other shoe may still need to drop. Was it ju…
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Na, taxes create demand for currency, which maintains the currency's value. Then you just print or borrow the currency into existence to fund the government. People are forced to acquire the currency to pay their taxes or risk being assaulted by the violence of state and dispossessed of a lot of their stuff and/or freedom.
This is complete bullshit. There’s no model with explanatory power.
Fiscal Theory of Price Level seems to be inspired by Fiscal Theory of Money.
"The literature on the fiscal theory of the price level (FTPL) integrates discussion of monetary and fiscal policy, recognizing that fiscal policy can be a determinant, or even the sole determinant, of the price level"
Christopher A Sims: Paper Money
https://scholar.google.com/citations?view_op=view_citation&h...
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They would have gotten their principal back but missing out on interest for 10 years is a huge cost, particularly if you have to pay out interest in the interim to your depositors.
That's just another way of saying "that's why its price is down 20%".
What they actually did was put 40% of their deposits into a long term bond that would start paying a shit rate if interest rates went up. The invested money is borrowed from depositors so the only thing they really "own" is the interest. In order to keep depositors in a high interest environment it will require paying out some amount of interest too. But they have locked themselves in to gains at a now small interest rate.
This was a risky bet for the bank from the start and there's absolutely no way they would make the trade they did if they knew interest rates would go up, even if they also had a guarantee that there would not be a bank run. This isn't a simple liquidity crisis or even somebody trying to stay solvent until their GameStop puts pay off.
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Just so we are all fully aware: SVB bet in ~2020 that interest rates they offer could be well below 1% (given their operating costs and what not) for 10 years. Obviously, by 2023 already, depositors were expecting much more. So, yeah, these MBS will probably pay out when held to maturity, but their customers didn't buy MBS, they deposited their money in a bank.
Let us hope that the bank did not "bet" and instead had a decision making process.
I hope the bank thought it was betting, because if they didn't realize they were betting on interest rates staying low then that is a shocking level of incompetence. They probably thought it was a safe bet, but it was a bet nonetheless with obvious risk if they were wrong.
The author myopically tries to extrapolate this incident to "the economy" and "other industries". SVB's customers panicked. But who are SVB's customers. For the most part, VC, PE and non-profitable "tech" startups. Not surprising they would panic. They produce nothing themselves, conduct surveillance, sell advertising services, pay employees from funding rounds and call this a "business model". This is not "the econo…
Hey can we save this kind of comment for Reddit? Literally the majority the tech you use today was born from companies that were unprofitable and leveraged VC funds at some point. I don’t know about you, but I come to HN for discourse that I could not get on race-to-the-bottom social media sites.