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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

#71

Post by olivermarks »

cal5k wrote: post #63
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?

At the time they were purchased, central banks around the world were going out of their way to assure people that rates would not be going up for a long time. Not excusing their failure to properly account for duration risk, but regulators didn't see this coming either - what they were doing was considered to be not only wholly acceptable, but downright "safe".

It was naive, lazy and dangerous of SVB to assume in a 10 year window nothing would change IMO

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

#72

Post by fnordpiglet »

sdfghswe wrote: post #50
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…

> 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?

That’s literally the purpose of a bank my friend. Welcome, yes, the emperor has no clothes and never has.

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

#73

Post by yunwal »

viggity wrote: post #18
jmeister wrote: post #6

Prominent libertarians who opposed intervention: https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba... https://twitter.com/CliffordAsness/status/163512097142539468... https://twitter.com/RepThomasMassie/status/16350699533753425...

I consider myself to be pretty libertarian but the idea that an intervention was going to cost the government any amount of money that didn't equate to a rounding error is ridiculous. Coupled the contagion it could have caused, this was an easy decision. They had enough in assets to cover 95% of deposits. They weren't just super liquid.

Socialize the losses, privatize the gains, nice

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

#74

Post by JohnFen »

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…

Don't see how that means it's the fed's fault, though. Anyone who has even halfway paid attention to markets over the just the past few decades should be acutely aware that markets can change very quickly. Expecting current conditions to last forever, or that you will always have notice that change is afoot, is just insanity or incompetence.

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

#75

Post by sdfghswe »

nomay wrote: post #65
sdfghswe wrote: post #50

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. 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?

You just explained the businness model of banking.

Wrong. The business model of banking is managing the money to an appropriate duration. Locking it up isn't a business model.

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

#76

Post by originalcopying »

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…

> Being called a libertarian would be an enormous source of shame and disgust for my mom.

But you are not your mom. you don't have to share on the disgust and shame, however you may chose to do so if you want.

the points being: the disgust is your mom's not necessarily yours. whether to partake on your parent's shame of being called a libertarian is a choice.

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

#77

Post by Animats »

Waterluvian wrote: post #57
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" ?

The normal FDIC procedure would be that depositors get receivership certificates which represent a share of SVB's assets. Those are hard to trade, though. Somebody would offer to buy them, but at a deep discount.

A better offer from the FDIC would be to offer Treasury bonds instead to those who want them, at a discount based on the FDIC's valuation of SVB's assets. The FDIC is well placed to sell off illiquid assets slowly. That's what they do after a bank failure. Depositors would have quick liquidity if they wanted, but it would cost them something.

Is SVB's balance sheet, from the FDIC, out yet?

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

#78

Post by yunwal »

kodah wrote: post #70
yunwal wrote: post #64

Earlier quoted context omitted.

[flagged]

To conflate political alignment with investor opportunism is astonishing.

Oh ok so they’re only libertarian when it benefits them financially. I actually don’t think anyone disagrees with that.

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

#79

Post by postalrat »

viggity wrote: post #18
jmeister wrote: post #6

Prominent libertarians who opposed intervention: https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba... https://twitter.com/CliffordAsness/status/163512097142539468... https://twitter.com/RepThomasMassie/status/16350699533753425...

I consider myself to be pretty libertarian but the idea that an intervention was going to cost the government any amount of money that didn't equate to a rounding error is ridiculous. Coupled the contagion it could have caused, this was an easy decision. They had enough in assets to cover 95% of deposits. They weren't just super liquid.

Not liquid like trying to buy a house with a Pokemon card you guarantee will be worth $300k in 10 years but is only worth $50 now.

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

#80

Post by jurassic »

khyryk wrote: post #49
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 tha…

Can you explain the difference between bills and bonds and why the difference was significant in this case? For myself and probably a lot of engineers reading this comment, it seems like inside baseball.
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