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

The Looming Bank Collapse

theatlantic.com

Post reply on HN
Print view View original

81–90 of 135 posts

Re: The Looming Bank Collapse

#81

Post by Diederich »

baxtr wrote: post #73
Diederich wrote: post #67

Earlier quoted context omitted.

Yup, all true. I'm not necessarily defending past or present fiscal policy. I'm pretty concerned about this stuff as well.

What exactly are you concerned about?

I'm fine with the US Government printing money when it makes sense to, such as during an economic downturn. However, since 2016, generally regressive federal tax policies without commensurate spending cuts during an economic boom have un-necessarily increased the national debt.

(To be clear: I don't think we should have been cutting social spending. But we definitely should not have been giving huge tax breaks to the most wealthy.)

Re: The Looming Bank Collapse

#82

Post by rmrfstar »

jaredtn wrote: post #75
onion2k wrote: post #18

Earlier quoted context omitted.

for many years now I haven't understood how the financial instruments of USA work That's deliberate. If they're too complex for most people to understand then they're very hard to scrutinize.

I would say opaque rather than complex . The details of a CDS aren't complicated, nor is the Eurodollar system. But it can't be inspected from the outside, and even the Fed is reliant on running complex models in an attempt to model monetary policy impact.

Agreed, financial market structure is often intentionally obfuscated by incumbents. The worst public example is undocumented equity order types [1].

The Fed's monetary policy models are another story. If you drill down on the internal politics of the FOMC, you start to see the "research" as Kabuki theater which exists to justify whatever decision the big people upstairs want.

It is this political dynamic, rather than the reduced compensation, that deters most talented people from public service.

[1] https://www.wsj.com/articles/SB10000872396390443989204577599...

Re: The Looming Bank Collapse

#83

Post by thephyber »

clairity wrote: post #43
thephyber wrote: post #14

Earlier quoted context omitted.

Your appraisal seems fair... of the data you are working with. But how many other financial instruments they own are tied up in CLOs on the books of other banks? The whole point of The Big Short and Margin Call was that the banks aren't resilient, independent silos. When one bank shakes or falls, it can impact the neighboring bank which causes a domino effect. They all invest in slices of the things that the other ba…

that's literally herding behavior, which is the loss of independence among market participants, so that risks start to align, rather than cancel each other out. it's disgusting that we haven't learned anything from 2008.

To be fair, I think every financial instrument works this way (the transitive property of assets which own assets) all the time.

Having regulations which restrict which companies are allowed to trade specific classes of instruments/services (eg. Glass Steagall) helps mitigate this, but doesn't even approach eliminating it.

Re: The Looming Bank Collapse

#84

Post by vsareto »

itsoktocry wrote: post #60
rufusroflpunch wrote: post #52

We never "righted" the system after 2008 (or 2001). We just kicked the can down the road, making the problem worse for ourselves when we eventually do finally lose control. Our system is 100% entirely dependent upon ARTIFICIALLY low interest rates driven by Central Banks. It's the only still keeping this zombie of an economy moving, and it's the entire world, not just the United States. Central banks are doing everyt…

> Our system is 100% entirely dependent upon ARTIFICIALLY low interest rates There is no such thing as "artificial" or "natural" rates of interest. > Central banks are doing everything in their power to keep interest rates low because if they were to tick up even a little bit, the whole house of cards will come toppling down. Why would, or should, they "tick up"? Capital is abundant. If rates were higher, things woul…

>I love the idea that the entire global economy is fake, artificial and zombie-like, because it doesn't operate the way you think it should. A reasonable person would take a step back and question their premises and understanding.

The new part is the expectation that governments will prop up companies during bad economies.

This is bewildering to anyone with a naive view that believes America is a purely capitalistic economy. Surely if a company prepares enough for the storms, it's worthy of surviving them. Running thin savings is now more risky, but it means more profit. That's fair.

From another perspective, it's economic innovation where unpredictable disasters don't kill huge companies or industries. This can be a good thing, but it's not really capitalism any more.

So the person taking a step back will ask, "How far will the government go to protect large companies? How large do you have to be to get this protection? How does all of this work?" This is what we can't answer.

This is where people (rationally) start to believe things are fake, because the country's leadership gets to decide what happens to companies during these times.

Now this company knows the government is likely to bail them out, what reason do they have to plan for the worst any more? This gets even more uncomfortable when they get bailouts for causing the disaster themselves.

Re: The Looming Bank Collapse

#85

Post by linuxftw »

thephyber wrote: post #7

I've long read about the following still being a problem (post-2009): - CDOs (although a new generation of them have a new name/initialism) - Frank/Dodd was partially rolled back - The definition of bank size-classes was changed to reduce the regulatory burden over most regional banks that were previously more regulated - No significant adverse event happened after Standard & Poors was identified as having significan…

The stock market used to be a way to raise capital for profitable business ideas. Now, private equity has enough capital, they don't need to raise money from the general public. We've been shutout of the good money, we only get to pick up the crumbs, if we're lucky. The only businesses that IPO now are sure money-losers.

Re: The Looming Bank Collapse

#86

Post by baxtr »

Diederich wrote: post #81
baxtr wrote: post #73

Earlier quoted context omitted.

What exactly are you concerned about?

I'm fine with the US Government printing money when it makes sense to, such as during an economic downturn. However, since 2016, generally regressive federal tax policies without commensurate spending cuts during an economic boom have un-necessarily increased the national debt. (To be clear: I don't think we should have been cutting social spending. But we definitely should not have been giving huge tax breaks to the…

Got it thanks. And you think that’s something to be concerned about because the ability to print money is reduced by every bill printed and thus should be used modestly / wisely?

Re: The Looming Bank Collapse

#87

Post by rmrfstar »

whatok wrote: post #79
rmrfstar wrote: post #72

Earlier quoted context omitted.

If you step through the arithmetic, you see that a 5% haircut can take you to 20x leverage. It's a geometric series. That means that investors' internal risk limits are the binding constraint, not repo haircuts. It's another way of saying that the financial sector sets its own leverage. Historically, that has not turned out well. It's why Dodd-Frank included a leverage rule for large banks.

> That means that investors' internal risk limits are the binding constraint, not repo haircuts. While part of risk, expected return is a larger binding constraint in most cases over risk limits. I'm probably not going to lever up 20x for an tiny expected return. On the other hand, I may very well lever up 5-10x on something 50x more risky than treasuries if the 10yr is yielding 0.725%.

In practice most PM's have a VaR limit and a battery of dollar exposure limits, which are all set by the risk department.

There is some credible research which suggests that large financial institutions act as if they are optimizing mean return subject to a VaR constraint [1].

[1] https://www.nber.org/papers/w18943

Re: The Looming Bank Collapse

#88

Post by whatok »

cm2187 wrote: post #74

Idiotic article. First a CLO is essentially a portfolio of loans. You can call that gambling, and in a way, every financial risk is gambling, but it is the very job of a bank to take credit risk, and to lend. Then, I don't know about Wells specifically, but it is possible that these CLOs may not even be external transactions, that the bank securitised its own loans so that it stands ready to post them to the central…

Agree with a majority of this. US bank balance sheets are in a whole different universe than they were during the last crisis. CLOs are not only a minuscule portion of their holdings but they also hold a tiny percentage of outstanding CLOs.

Japanese co-op banks on the other hand have huge CLOs holdings and would be extremely exposed if these went sour.

Re: The Looming Bank Collapse

#89

Post by Diederich »

mumblemumble wrote: post #78
Diederich wrote: post #46

Earlier quoted context omitted.

The current US federal debt is roughly 110% of GDP. In a few weeks, I'm going to borrow about 350% of my yearly income in the form of a home loan. I'm currently paying about 30% of my pre-tax income on rent, and this future mortgage will be about 22% of my pre-tax income, so on that basis alone it makes a lot of sense. Less than 10% of the total federal budget goes into debt payments. The absolute numbers don't reall…

One interesting thing about the federal government's debt is that it behaves very little like an individual's debt. A pretty decent 10-year student loan right now is at 4% interest. And you generally have to pay it back with actual money that you earn. A 10-year treasury note is at more like 1%, and nobody bats an eye at the government covering payments by issuing more notes. Meaning that, in effect, the US governmen…

This is all true and on target. Comparing US federal debt to personal debt beyond anything but the most surface level is inappropriate.

Another class of entities that have a kind of 'forever debt' are large corporations. In general, they never want to be debt free. As I said elsewhere, it's about the percentages and trends.

To be clear: even this comparison has weaknesses. Indeed, US federal debt truly has no direct parallels.

Re: The Looming Bank Collapse

#90

Post by thephyber »

gridlockd wrote: post #32
thephyber wrote: post #7

I've long read about the following still being a problem (post-2009): - CDOs (although a new generation of them have a new name/initialism) - Frank/Dodd was partially rolled back - The definition of bank size-classes was changed to reduce the regulatory burden over most regional banks that were previously more regulated - No significant adverse event happened after Standard & Poors was identified as having significan…

It's not a bubble, it's price inflation. Assets are fairly priced with a looming collapse of the dollar value in mind.

I'm not sure I agree with the terms you are using.

I get the difference between what is usually called a "bubble" and what is usually called "inflation", but I don't think you can accurately identify a bubble until it has already burst and you do it in retrospect.

"Fairly priced" is strange because every transaction is "fairly priced" in the moment (given the knowledge at the time), but may turn out to be "unfairly priced" if in retrospect it appears to be fraudulent.

Post reply on HN