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The collapse of SVB exposes the largest crack in the economy

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Re: The collapse of SVB exposes the largest crack in the economy

#61

Post by JohnFen »

cplusplusfellow wrote: post #21
dragontamer wrote: post #5

Earlier quoted context omitted.

Why? My money at VMFXX is almost entirely composed of safe Fed Repos with average maturity of 2-weeks. VUSXX is mostly Treasury Bills, again of maturity averaging like 2-weeks. My money at SWVXX is composed of AAA-rated bank notes, of similar 2-weeks-ish maturity average. The idea of a bank, like SIVB, being composed of largely 30-year mortgages and 10Y or 30Y Treasury Bonds is insane. The bank deserves to die after…

I couldn’t give two shits about banks that go under. The businesses that concern me are the ones who lose deposits.

They won't lose deposits except insofar as they decided it was OK to exceed the 250k limit for FDIC insurance. And in deciding to do that, they were deciding to take a risk and got burned by it -- but it was a risk they willingly took on.

Re: The collapse of SVB exposes the largest crack in the economy

#62

Post by qqqwerty »

dragontamer wrote: post #5
m348e912 wrote: post #3

https://twitter.com/DavidSacks/status/1634292056821764099 Looking at the comments here, it's possible that this may trigger a run on banks.

Why? My money at VMFXX is almost entirely composed of safe Fed Repos with average maturity of 2-weeks. VUSXX is mostly Treasury Bills, again of maturity averaging like 2-weeks. My money at SWVXX is composed of AAA-rated bank notes, of similar 2-weeks-ish maturity average. The idea of a bank, like SIVB, being composed of largely 30-year mortgages and 10Y or 30Y Treasury Bonds is insane. The bank deserves to die after…

He is suggesting that the Fed/FDIC make depositors whole, not necessarily bail out the bank.

There is a good chance that depositors will be made whole regardless, but even if it does require some intervention it is probably worth it to prevent this from spreading to other banks. There are very valid reasons why certain organizations would need to keep more than $250k in an account, and if everyone of them started transferring their money to a handful of the safest institutions, then things could quickly get out of control.

Re: The collapse of SVB exposes the largest crack in the economy

#63

Post by nostromo »

arez wrote: post #44
phkahler wrote: post #32

Earlier quoted context omitted.

Taxes fund the government. Bonds are just a way to avoid managing a budget.

government doesn't need taxes to fund anything, it can just create money and sell bonds. Taxes are just for steering money flows

Inflation would like a word.

Re: The collapse of SVB exposes the largest crack in the economy

#64

Post by jandrese »

yalogin wrote: post #31

As someone that is not following this as closely as I would like, does the collapse of this bank have nothing to do with FTX and Crypto?

Only indirectly. They released a statement after the FTX collapse saying effectively "don't worry, no problem here", which caused a bank run that they couldn't manage and forced the collapse.

Re: The collapse of SVB exposes the largest crack in the economy

#65

Post by nordsieck »

bequanna wrote: post #43
layer8 wrote: post #37

Earlier quoted context omitted.

> The exemptees just need to be fucking careful You mean “need to have sheer luck in their gambling”.

Head, we get bonuses Tails, taxpayers bail us out

> Head, we get bonuses

> Tails, taxpayers bail us out

You're doing to have to define "bail us out".

SVB's shareholders got wiped out.

Re: The collapse of SVB exposes the largest crack in the economy

#66

Post by worik »

nodesocket wrote: post #9

> A 10Y T-Bill purchased on the first trading day of 2021 is now worth less than $0.80 on the dollar Just one note for those that aren't fully aware, the treasuries were only down approx 20% because they were forced to sell before the 10yr maturity. If they could have held the entire term they would get back 100%.

> If they could have held the entire term they would get back 100%.

What counts is the real, not nominal, value

Re: The collapse of SVB exposes the largest crack in the economy

#67

Post by candiodari »

JohnFen wrote: post #45
dougmwne wrote: post #17

Earlier quoted context omitted.

Yes, another way to think about this is that if you bought an .80 t-bill today it would have the return on investment equivalent to a 1.00 bill bought last year. That’s because the new t-bill has a much higher interest rate. So in effect, as the fed raises interest rates, they are destroying the principle of every existing bond on the market. That’s a big problem for anyone owning bonds, especially if they are using…

> they are destroying the principle of every existing bond on the market What principle are they destroying? Bonds are not, and never were, immune to economic changes. They're just less volatile and react differently than stocks and, if you hold them to maturity, will pay what what they promised. It seems to me that the problem is that a whole bunch of people made investments assuming that there was effectively no ri…

These bonds are not held as investments, but as collateral for getting other things (like money to buy mortgages with).

If your collateral gets worse ...

Re: The collapse of SVB exposes the largest crack in the economy

#68

Post by projektfu »

nodesocket wrote: post #9

> A 10Y T-Bill purchased on the first trading day of 2021 is now worth less than $0.80 on the dollar Just one note for those that aren't fully aware, the treasuries were only down approx 20% because they were forced to sell before the 10yr maturity. If they could have held the entire term they would get back 100%.

I noticed that he conflated the safety of a T-note* with the asset price. US Treasuries are AAA-rated super safe guaranteed returns because they're not expected to default or miss a coupon payment, and they'll be redeemed for the full value when they mature. That doesn't mean they don't have market prices that fluctuate.

*T-bills are up to 52 weeks maturity.

Re: The collapse of SVB exposes the largest crack in the economy

#69

Post by sseagull »

cplusplusfellow wrote: post #41
fshbbdssbbgdd wrote: post #8

Earlier quoted context omitted.

The subtext here is David Sacks and his friends are investors in Silicon Valley companies. Lots of Silicon Valley companies are depositors of SVB and could lose money if there is a haircut on assets over $250k, or at least will lose temporary access to their cash. David Sacks wants SVB to be bailed out by a major bank so those deposits are made good. He’s talking about a wider economic impact because that’s an argume…

I don’t understand the disgust I’m reading for VCs and startups. Bailing out the bank doesn’t mean we let the bank CEO get richer off this transaction (like we did in 2008). It means the startup companies making payroll are going to survive and continue building the future of technology and healthcare. What am I missing?

There’s disgust for a few reasons. One is that the wealthy (including VCs) have an undue influence on society and the economy just due to being wealthy. It’s always nice to see them take a hit sometimes.

Silicon Valley is “building the future”, but at the same time can be very disconnected from the lives of many people around the country. That leads to mistrust and lack of empathy when these kinds of things happen.

Re: The collapse of SVB exposes the largest crack in the economy

#70

Post by morelisp »

bequanna wrote: post #54
xwdv wrote: post #11

Earlier quoted context omitted.

The exemption should still be allowed, as it led to great banking innovations for startups. The exemptees just need to be fucking careful with this advanced mode of operation.

Please name one “banking innovation” the banking industry has implemented in the last decade which has benefitted consumers.

VCs and founders must believe SVB offers at least one, or why not go with a normal bank?
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