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

#251

Post by beezle » Mon, Mar 13, 2023, 9:32 PM UTC

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…

Your understanding of the HTM portfolio (and reasons for it) are clearly not complete and no, not anyone in risk management will say their risk team should be in jail (excepting the case of documents proving the failure to hedge was done specifically to increase executive compenstation/bonuses). Calling into question the lack of hedging or use of MBS is fair game and not something most other institutions would have done.

For the record, "1 year treasury bonds" are 52 week Treasury Bills. They would not be buying off the run old debt.

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

#252

Post by fisherjeff » Mon, Mar 13, 2023, 9:32 PM UTC

yunwal wrote: post #193

fisherjeff wrote: post #149

Earlier quoted context omitted.

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.

Exactly right. I do think the speed of deposit growth in a low rate environment made that challenging though.

Like if it were me, I'd grudgingly buy long-dated assets to keep the doors open, but also look toward reducing maturity as rates increase and start acquiring customers. Problem is that, very roughly speaking, those things only work if rates increase more slowly than you can acquire new customers.

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

#253

Post by trilobyte » Mon, Mar 13, 2023, 9:32 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…

Any investment strategy will require addressing various forms of risk and making tradeoffs, but it is a choice. SVB did not properly hedge against this risk which, as soon as interest rates started rising, should have been a priority for their leadership to have a plan to address.

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

#254

Post by jmyeet » Mon, Mar 13, 2023, 9:35 PM UTC

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 is clear that the root cause of the problems is the actions of the government and the FED.

No it's not.

SVB bought 10 year MBS a couple of years ago to hold capital. They could've instead just rolled 90 day Fed debt and thus have been largely immune to interest rate changes. What they did was they took a risk with custodial assets. This is 100% the bank's fault.

Why did they do that? Because 10 year MBS had a higher yield than 90 day debt. So they took a risk. Why? For the benefit of executives and shareholders.

SVB did this to themselves, possibly with Thiel instigating a bank run for whatever reason.

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

#255

Post by dools » Mon, Mar 13, 2023, 9:35 PM UTC

storf45 wrote: post #158

I'm proudly libertarian - in fact, we have an explanation for these boom/bust business cycles via https://en.wikipedia.org/wiki/Austrian_business_cycle_theory . Libertarians have criticized cheap/free money for a very long time so it's not surprising that an institution that had to invest excess deposits into 'safe' treasuries is in trouble once interest rates started to rise. There are likely many other banks, compa…

The natural rate of interest is zero for money with a floating exchange rate. Governments interfere to increase the interest rate, not lower it.

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

#256

Post by over_bridge » Mon, Mar 13, 2023, 9:35 PM UTC

wnevets wrote: post #16

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.

a neoliberal?

Yes, this is the definition of neoliberals. In their view the government should only ever operate and enforce market rules (which includes protecting the market from external threats via military). The government should have no opinion on anything and just let the world unfold as the market dictates.

Of course there are no pure neoliberal politicians as such a being would have no policies except cutting popular things and privatizing them. Hard to get elected. So we have neoliberalism with left or right characteristics as the mainstream ideologies.

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

#257

Post by GavinMcG » Mon, Mar 13, 2023, 9:36 PM UTC

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 all their eggs in an illiquid basket was not “conservative” and the interest rate exposure they had for some time was not unforeseeable.

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

#258

Post by tracker1 » Mon, Mar 13, 2023, 9:36 PM UTC

concordDance wrote: post #208

kqvamxurcagg wrote: post #119

Earlier quoted context omitted.

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.

They could be jailed for insider trading for selling all their stocks within the past few months. And the funds from those sales should absolutely, at least, be clawed back and then some for their responsibility for their decision making.

I'd, for a change, like to see those responsible for massive business failures held to account personally and financially. The limitations on corporate liability are meant for investors, not executives or board members. And TBH, those accounts with over 100MM in deposit should probably lose the 10% or so under normal rules for this kind of thing, not be bailed out by the Fed, who will in turn likely need to be bailed out by taxpayers, or worse if this happens another couple times in the next couple years.

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

#259

Post by fisherjeff » Mon, Mar 13, 2023, 9:37 PM UTC

benlivengood wrote: post #169

fisherjeff wrote: post #149

Earlier quoted context omitted.

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.

You offer customers CDs if they want higher interest rates. Isn't that how it's been done for decades?

Yes, that would narrow the maturity gap and pass some rate risk on to customers. In SVB’s case, though, they would’ve needed to sell a lot of CDs relatively quickly, which means their rates (i.e., borrowing cost) would have to be high.

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

#260

Post by beezle » Mon, Mar 13, 2023, 9:37 PM UTC

smugma wrote: post #223

The key line says it all about how the US (in agreement with tech tycoons) does things: "Just like many of the banking titans after the global financial crisis of 2008, tech tycoons appear to favour the privatisation of profits and the socialisation of losses. There are few libertarians in a financial foxhole."

Indeed. This entire Fed action has been a bailout of uninsured depositors who really should have known better. So now "uninsured by FDIC" has the implicit meaning "insured by the Federal Reserve".

I'm not suggesting that corps should have managed every last penny to prevent an uninsured balance but the vast majority of their free cash should have been and sadly easily could have been insured and still readily available.