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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

#411

Post by rashkov »

yunwal wrote: post #118
ummonk wrote: post #102

Earlier quoted context omitted.

What gains? Depositors weren't getting gains, they were storing money in very low interest (far below inflation or money market yields) checking and savings accounts.

Depositors were getting gains (4.5% interest rate which is very high compared to similar banks, and for something that’s supposed to be risk-free). The reason these rates were achievable is because SVB lobbied to remove regulations and allow them to engage in risky behavior.

What specific risky behavior are you referring to? Everything I’ve read points to the fact that they bought a ton of long term US treasury bonds at a low interest rate. Obviously this worked out very poorly for them, but I wouldn’t call this risk seeking behavior.

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

#412

Post by MrMan »

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…

[flagged]

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

#413

Post by braingenious »

refurb wrote: post #381
braingenious wrote: post #15

This reminds me of one of my favorite books from the past couple years, A Libertarian Walks Into a Bear. It’s a fascinating deep dive into an attempt to create a sort of libertarian utopia in a small town called Grafton, New Hampshire. The speed at which they arrive at “we need government services” after they eviscerate government services is… unsurprising. 10/10 I highly recommend it for anyone that’s interested in…

Libertarianism isn't "no government". Sounds like a strawman?

I recommend reading the book! There is considerably more substance than my single-sentence opinion about how I remember one event in it!

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

#415

Post by fisherjeff »

yunwal wrote: post #386
fisherjeff wrote: post #318

Earlier quoted context omitted.

The only risk for other banks is opportunity cost: right now, there are much more productive uses of their money than buying old agencies at par. If you had $200b or whatever laying around, you could buy their portfolio and make about the lowest risk $10b there is. But if you just bought new agencies at the same durations instead, you could easily double that. EDIT: To clarify, this is the primary risk at large banks…

> The only risk for other banks is opportunity cost To be clear, if banks can improve their risk profile for free, they will do that (because it frees them to invest in other risky stuff). A no-risk 5% return while the fed is giving out sub-5% interest rates is a no-brainer. The reason no banks are coming in to help is because it would be a bad investment.

They are 5-10% total return, not annual. My point is that it is not a bad investment, it’s just a less-good investment than equivalent bonds with the exact same (extremely low!) risk profile at today’s rates. They were a perfectly fine investment in 2021-22, they just aren’t as attractive in 2023. Could very well be good again in 2024 though, who knows.

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

#416

Post by ralph84 »

tripletao wrote: post #272
fnordpiglet wrote: post #108

Earlier quoted context omitted.

Yes. It’s called clawback provisions. They were summarily fired and their compensation was clawed back. And how are the losses being socialized? The assets of the bank are collateralizing the lines of credit they’re getting to stay solvent. It won’t cost anyone a thin penny, other than bank management and shareholders.

The FDIC is guaranteeing all SVB deposits, including deposits above $250k. Any deficit will be paid from the FDIC's insurance fund, which if necessary will be topped up by a special assessment on all participating banks. So the losses (if any) won't be socialized over taxpayers, but they will be socialized over some combination of bank owners and customers. https://www.federalreserve.gov/newsevents/pressreleases/mone…

Exactly, the banks that practiced sound risk management get to subsidize the banks that didn’t. Textbook moral hazard.

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

#417

Post by fisherjeff »

yunwal wrote: post #382
wstuartcl wrote: post #358

Earlier quoted context omitted.

SVB was a bank that mostly served corporate operations accounts for tehc nad healthcare startups and small businesses. People were not banking there for high returns. This is not at all about risky investments (ffs the bank liquidity crunch came from long term bonds being too illiquid -- not exactly exotic asset management). The accounts impacted are mostly payroll, daily operating accounts (for expenses/manufacturin…

> This is not at all about risky investments Please stop repeating this. It is 100% about risky investments. https://www.theguardian.com/business/2023/mar/11/silicon-val... Also, if your entire clientbase is in a single groupchat, you should be much more prepared for a bank run. This is like common-sense stuff. The fact that this is a bad business model isn't really my concern. > The bank managers and investors are n…

It is not at all about risky investments! It’s about poorly managing risk, which is entirely different. The underlying instruments are among the lowest-risk securities on the planet, the risk that killed SVB was in the investment strategy.

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

#418

Post by ralph84 »

fnordpiglet wrote: post #108
ralph84 wrote: post #47

Earlier quoted context omitted.

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?

Yes. It’s called clawback provisions. They were summarily fired and their compensation was clawed back. And how are the losses being socialized? The assets of the bank are collateralizing the lines of credit they’re getting to stay solvent. It won’t cost anyone a thin penny, other than bank management and shareholders.

Do you have a link that supports your assertion that all of the proceeds from stock sales by SVB execs while they were mismanaging risk in 2022-23 are being clawed back?

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

#419

Post by lmm »

tracker1 wrote: post #271
ramesh31 wrote: post #100

Earlier quoted context omitted.

>If you step past that and look at the government role, that’s a fine starting point for discussion about systemic issues in our society, but doesn’t absolve SVB of being the most proximate “root cause” of their own problems. I think it's time we stop imagining that financial institutions will ever do anything that they are not legally required to do. This was a failure of regulation. Calling it personal responsibili…

I think the failure, in terms of regulation, is holding accountability in the first place when they violate existing laws and SEC regulations. Not to mention, ever actually holding executives and boards to account in terms of liability against their personal wealth.

It used to be that the likes of accountants and lawyers weren't allowed to be limited liability corporations - they had to be run as partnerships, with unlimited personal liability. (Sadly, this rule was done away with, and shortly after that we got Enron). Maybe the same should apply to banks.

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

#420

Post by lmm »

yunwal wrote: post #211
machina_ex_deus wrote: post #126

Earlier quoted context omitted.

"It turned out that one of the biggest risks to our business model was catering to a very tightly knit group of investors who exhibit herd-like mentalities" And I kind of agree. Yes, the mistake was not hedging MBS and treasuries interest rates. But are they really the only bank in the world doing that mistake? What truly made it fatal is the VCs. That's also why nobody is coming to buy them. The speed at which the b…

> But are they really the only bank in the world doing that mistake? I’m not sure that looking to the financial sector for examples of fiscal responsibility is actually reasonable, but I’d guess that they’re the only bank that’s “too-big-to-fail” that could possibly fail because of a single slack discussion.

Meh. Larry Fink could probably kill a non-big-four bank single-handedly if he really wanted to. Wealth is concentrated right now, and power even more so.
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