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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

#51

Post by NovemberWhiskey »

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…

>decided to go the conservative way and buy bonds.

Just because government bonds are unlikely to default, that doesn't make acquiring them "conservative". If you're a bank, with an entire function dedicated to making sure that assets match liabilities ("treasury"), and that ought to be aware of things like "DV01" and "duration risk", then you're supposed to know this.

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

#52

Post by mhb »

olivermarks wrote: post #41
mhb wrote: post #34

Earlier quoted context omitted.

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…

Safe is doing a lot of work here. Government bonds are safe from default. Not from changing value when interest rates change.

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

#53

Post by worksonmine »

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…

SVB locking money they might need access to is the FEDS fault do I understand you correctly? Did they hold a gun to their head? I'm not saying they're doing anything different than their competitors, but that's a stupid excuse.

The only thing that's broken is the financial system. A customer should be aware when depositing money that that money might be locked away, and agree to those terms, and get a cut.

This is SVB gambling and losing the bet, simple as. Everything else is just a pathetic excuse, don't enable it.

Just look at the term "excess liquidity", that's newspeak. I expect the bank to have my 100$ the day I ask for it. I'm not a using bank because I want to, but if I store it under my bed I get to deal with the IRS. They make themselves necessary to live, then expect my deposits to work for them.

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

#54

Post by swatcoder »

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…

You say it takes a run, but all it really takes is an aggregate change in deposit behavior.

Like, for instance, your disproportionate share of startup clients easing off the cheap loans you had been offering them, because they’re no longer so cheap, and instead drawing down on (or moving) the balances that you had insisted they keep with you as collateral. Trouble was brewing on both sides of the business, not just on the asset position.

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

#55

Post by cypherpunks01 »

nemothekid wrote: post #19
somewhereoutth wrote: post #4

Somewhat mangling what I believe is the commonly accepted phrase: 'No atheists in a foxhole, no libertarians in a bank run'

> commonly accepted phrase I can't find any source for the "no libertarians in a bank run" part before this weekend.

Probably transformed from this article:

https://www.belfercenter.org/publication/no-atheists-foxhole...

2008 pub date

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

#56

Post by psychlops »

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…

> just don’t have good risk managers

They had no chief risk officer for 8 months. They argued publicly against stress testing banks. Their complete absence of hedging guaranteed that time bomb that would have gone off now or later.

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

#57

Post by Waterluvian »

Animats wrote: post #42

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 wo…

> Depositors who really had to could sell their bonds immediately at a discount.

How does this kind of thing function? I assume the bank pools all the money and buys various investment products. Is there just another wild level of abstraction where"you own X% of this investment product. Feel free to sell your share to someone else" ?

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

#58

Post by lotsofpulp »

spaceman_2020 wrote: post #3

A while back, a small regional coop bank defaulted here in India and could not pay its depositors. The depositors had to protest and camp outside the bank for several days. Most of these were ordinary folks, many retirees, who were just trying to keep their savings in a neighborhood bank. Of course, since this was a political issue and the depositors were innocent, the government stepped in and promised to make them…

The question is, now that we have computers and money is just an entry in a database, why are banks even necessary for storing and moving money?

The whole small bank and big bank issue is moot. Technology has long solved this problem so the government could roll out a solution where no one ever risks any deposits, no FDIC is needed, and no bailouts are ever needed.

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

#59

Post by doodlesdev »

sdfghswe wrote: post #35
anon291 wrote: post #30

I mean... I'm fine with less regulation so long as we actually let large businesses and investors fail.

Which is exactly what is happening here. A large business is failing and its investors are losing their investment.

Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?

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

#60

Post by avn2109 »

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…

>> "... decided to go the conservative way and buy bonds."

Sure but they could have bought shorter bonds instead of a bunch of ten years, there's no reason to take so much duration risk.

Every intro to financial engineering class includes a "build a Treasury ladder" exercise, it's not rocket science.

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