261–270 of 493 posts
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> Serious question. Because criminals/tax evaders do that.
That doesn't answer my question. The IRS taxes income, not assets. They don't care where your money is.
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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.
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I don’t care about what political party they belong to. Do they regularly argue to slash regulations on the basis of government=bad? Do they routinely try to convince people that technology companies should be in charge of social organization rather than the government? This is the type of shit that gets talked about at VC conferences all the time: https://youtu.be/K8JIzP8HmjQ
Great, so sounds like we've found the actual culprit then. Technology companies and investors, despite their political affiliations, actually like a hands off environment. Do you understand how that's a little different from your Libertarian strawman?
There are plenty of communists out there voting for democrats but that doesn’t make them not communists.
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> 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?
The government needs new regulations to force depositors and banks to purchase this insurance. Otherwise, we're looking at one grift after another.
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> 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…
Which, if you are being at all honest, means you calculate its present value by applying a discount rate in line with current risk free returns over the relevant time horizon, which will be a number suspiciously similar to the Treasury yield curve, and you will end up with something quite close to the mark-to-market value.
(And it has to be this way. Otherwise you could go buy two-year-old long dated bonds at a discount on the secondary market and make a killing, because the transaction would have an immediate NPV gain of 30% or more.)
Banks are a bit unique in that they can generally borrow at a cost much lower than the risk free rate due to the existence of non-interest-bearing and low-interest accounts, but IMO those should be thought of as a variable source of future profits, not as a reduction in the risk-free rate to be used for financial projections.
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…
Well, I’d argue that they should have hedged their rates risk especially as inflation started to tick up. They just don’t have good risk managers. But that said, if there hadn’t been a run the causal issues would have been a foot note in a quarterly filing. Everyone is acting as if SVB were Lehman or Bear Sterns. They just got caught with their pants down and everyone ran over to take a picture and post it on Twitter…
Housecats are convinced that they are fully independent and do not need "you" for anything.
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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.
The problem is they bought a bunch of long dates securities yielding 1.5-2% and when the deposits flooded in they started paying more than 1.5-2%.
They have been better off buying T bills or something else without duration risk and paying something less than Fed Funds. This is what most banks do.
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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.
it's good then that the funds to support the deposits are coming from the bank funded fdic fund not taxes then.
The FDIC is a government owned business and shouldn’t be acting outside of it’s financial interests and obligations.