Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

SVB shows that there are few libertarians in a financial foxhole

ft.com

Post reply on HN
Print view View original

41–50 of 493 posts

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

#41

Post by olivermarks »

mhb wrote: post #34
olivermarks wrote: post #21

Earlier quoted context omitted.

It was their unwise bet on ten year T bonds that got SVB into difficulties, a far larger societal economic issue than is being acknowledged. 'This decade’s learning: bonds aren’t a universally safe asset class.' ...the US federal reserve are playing a dangerous game battling the inflation they enabled with rate hikes http://www.brooock.com/a/svb-collapse-exposes-cracks-in-econ...

What is the larger issue? That people buying bonds don't understand that their value drops when interest rates go up and that if you might need the money from the bonds before the bond matures you need to hedge for that?

From the link I posted:

'What this means going forward

An unintended side effect of the Federal Reserve’s rate hikes is that many banks and institutions are holding an unfathomable amount of low-yield debt that is now worth far less than it was a year ago. We went from a world where 100-Year Austrian bonds would pay only 0.39% yields, to one where we’re now concerned about 8-9% annual inflation, in just two years.

If institutions rightfully start deeming long-dated bonds to be a risky asset that isn't safe to hold on sensitive balance sheets, we could see bond premiums rise for these longer-dated bonds, raising the cost of capital for companies and governments alike...'

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

#42

Post by Animats »

Right.

Without a bailout, each customer would have $250K today (if they had that much n deposit) and probably another 10-20% this week, as assets were sold off. The FDIC could have worked a deal so that depositors were paid off in a few weeks, but in Treasury bonds with 5-10 years to maturity, to match the maturities of SVB assets. Depositors who really had to could sell their bonds immediately at a discount. That would have given time to liquidate SVB's loan portfolio. Depositors probably would have lost 5%-20%.

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

#43

Post by [deleted] »

ajross wrote: post #28
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…

> Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. That's revisionist and silly[1]. Spending all your liquidity on long term bonds isn't "conservative" if you're a bank . It's not your money! It's your customer's money that you're just holding for them, and you just dropped it all in a vehicle that doesn't mature for 10 years. What if…

[deleted]

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

#44

Post by yardie »

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.

I was going to say neoliberal. But then I have to remember self-confessed neoliberals pushing for war in Iraq and basically giving a blank check to the military industrial complex. And needlessly expanding government on the war on terror. So that term isn't apt either.

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

#46

Post by Waterluvian »

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…

I appreciate you're just playing Devil's Arbalest here, but this feels like the least libertarian take possible. It's the government's fault that my customers are handing me so much money to manage and I managed it poorly?

Admittedly, I still don't fully understand the link between investing too cautiously and seeing poor returns and there being a run on the bank.

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

#47

Post by ralph84 »

fnordpiglet wrote: post #23
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…

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…

Why hedge when we privatize the profits and socialize the losses? SVB execs sold tens of $millions in stock before the failure. Are the execs going to be forced to return the compensation they received for showing higher profits by not hedging?

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

#48

Post by gorjusborg »

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.

I do not think there is a label that accurately represents even one individual person's views.

I would suggest you try not to think in labels and embrace the reality: no person is a democrat/republican/tory/labor/whatever. Those are political parties, sure, but what happens when a person disagrees with the platform of that party? Are they no longer a 'whatever'? No, they were never a part of the party to begin with, they just identified with the group that most closely aligned with their views.

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

#49

Post by khyryk »

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…

Loading up on bonds when rates are rock bottom instead of bills is asking for trouble. Sure, when yields are at averages or historic highs, back the truck up; otherwise, there's not much difference between yielding 0% and 1%, but a lot of difference in liquidity.

As an aside, I remember in recent times various institutions, either by law or voluntarily, loading up on long term bonds at 0% +/- 0.5% bonds. I'm sure that's going to be a fun situation should they face even a slight liquidity crisis of, say, more retirees pulling money out than there are young people depositing into pensions and whatnot.

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

#50

Post by sdfghswe »

fnordpiglet wrote: post #36
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…

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?

Post reply on HN