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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

#391

Post by actually_a_dog »

gdy wrote: post #374
actually_a_dog wrote: post #352

Earlier quoted context omitted.

Be honest: have you ever asked an employer what bank they use when you were interviewing? Is this your general policy? 10:1 says it's not, and you haven't. Even if you're the exception, I'm sure 99% of employees have literally never asked this question. Think about why that might be.

When I cared about stability I picked a big employer from which one would expect prudency. When I worked at a small company, I expected it to get ruined at any moment and planned accordingly. Since I became self-employed, I care a great deal about which bank I use and never put all eggs in one basket. As I said: maybe they should.

But, you didn't actually ask. And that is literally my point.

I care about stability in my employment situation as much as the next canine. I've worked at 4 startups, each with under 150 employees apiece. I've asked questions about funding, client base, growth plans, etc. All the normal "hard" questions you have to ask as a prospective startup employee. Not once have I ever asked where they banked. Not once has anyone I know asked where their employer banked.

I would submit that if the banking system becomes fragile enough that asking about such a thing is actually a good idea, we have bigger problems as a whole, which would make a prospective employer's answer to any such question irrelevant. And if that's the case, why ask?

Another way to put it: it's not employees and consumers putting "all eggs in one basket." It's the economy as a whole. If there's one thing that the 2008 financial crisis proved, it's that if the banking system gets gummed up, second and third order effects very quickly begin to set in and ruin things for everybody.

Now, if you know how to reconstruct the banking system to avoid this, I'd like to hear it. But as long as my employer's payroll funds aren't stored under the CEO's mattress, I think I'm good with that.

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

#392

Post by yunwal »

mturmon wrote: post #335
anigbrowl wrote: post #309

Earlier quoted context omitted.

You understand the fundamental problems here and have chosen to share your insights for free. Banks have professional employees who are paid decent money to make these kind of risk assessments even more rigorously. Why would we accept the idea that they can get by with being less objective? I am not an investor at all and even I understand that when the Fed is raising rates to control inflation portfolio owners need…

> Stop giving these [bank] guys a pass... Indeed. Greg Becker, the CEO of SVB, was a member of the Board of Directors of the San Francisco Fed, up until last Friday. If anyone had some insight about what federal monetary policy was doing, he should have.

> Greg Becker, the CEO of SVB, was a member of the Board of Directors of the San Francisco Fed

Isn't this like a massive conflict of interest? How is this legal?

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

#393

Post by yunwal »

TuringNYC wrote: post #225
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. Once the losses on their bonds approached the totality of the SVB equity tier, they should have either accepted the loss, or they should have hedged it away (with an interest rate swap, and locked in a loss.) At that point they would have had…

> This is not the customers/depositors' fault.

To be clear, it's not the customers' fault, but they also shouldn't expect FDIC insurance to cover any of their deposits beyond $250k. Whatever happens to their personal money is their responsibility

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

#395

Post by pas »

cm2187 wrote: post #354
matthewdgreen wrote: post #242

Earlier quoted context omitted.

They had a customer base that would knife them at the first hint of a liquidity issue, then they had a liquidity issue. Of course a different approach would have reduced their returns, but then they’d still be in business.

Deposits from financials are treated as disappearing at the first opportunity from a regulatory point of view. Corporate deposits are considered volatile but less volatile. So the behaviour we have seen isn’t entirely unexpected. It seems SVB has VC deposits and corporate deposits from startups that were effectively controlled by VC and behaved like financials in term of deposit outflows.

what does financials mean in this? can you explain this term, please?

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

#396

Post by pas »

fisherjeff wrote: post #252
yunwal wrote: post #193

Earlier quoted context omitted.

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.

but ... they could have charged customers to hold their money. or put it into money market funds. sure, less glamorous, but also less risky. of course they were also a startup, so making money was a bit more important than safety. it's just valley things.

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

#397

Post by varispeed »

UncleSlacky wrote: post #276
varispeed wrote: post #140

Libertarianism, socialism, capitalism etc. all fail to take into account human nature and that's where all the conflicts come from. Regulation is necessary to ensure that people who manage to get into position of power, who have certain kinds of personality disorders and other issues won't be able to game the system to their own personal advantage or satisfaction. In most cases whether it is socialism or capitalism,…

"To look at people in capitalist society and conclude that human nature is egoism, is like looking at people in a factory where pollution is destroying their lungs and saying that it is human nature to cough." - Andrew Collier

That's catchy simplification of how complex human nature is, borders on ignorant.

In every culture and political system you will have people climbing to power using universally unethical means and then use their position to inflict suffering on the people they see as beneath them or use that power for other types of personal gain or gain for the group they represent at the expense of others. It does not mean that every person is like this. It is a spectrum. Majority of people just want to live their lives in peace, but they have to navigate their lives through the whatever system has been created for them.

You will have corrupt civil servants in a communist country just as in capitalist country and the elites are very much the same. I have lived in both systems and each system exploits slightly different groups of people. Sometimes it is hard to tell the difference.

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

#399

Post by _ktx2 »

yunwal wrote: post #263
_ktx2 wrote: post #185

Earlier quoted context omitted.

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?

Libertarian is not just a political party. It’s a set of ideas and beliefs. VCs and founders in SV routinely espouse these beliefs and try to pull both major parties in their direction. There are plenty of communists out there voting for democrats but that doesn’t make them not communists.

> Libertarian is not just a political party.

Libertarian - a political party

libertarian - an ideology

I'm pretty unwilling to say that both a journalist and yunwal don't understand capitalization.

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

#400

Post by fnordpiglet »

pg314 wrote: post #135
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…

> If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market The NPV calculation should use the market intrest rate. If you use that, it should be pretty much the same thing: an efficient market should value a bond at its NPV. However, they were allowed to value HTM (hold to maturity) bonds at face value. That is just non-sensical from an economics perspective and just hides losses.

This is only true for treasuries which are risk free. Any other bond includes other confounding risk factors impacting price which come out in MTM. These were agency bonds so would include duration/prepayment risks. But you also can face substantial liquidity risks in a fire sale, if you mark your assets to the full liquidation value, you need to mark against an order book to the depth of your holdings. Simple HTM NPV assumes you don’t face these pricing risks because you are holding for par+interest, discounted at risk free rates.
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