The Looming Bank Collapse • Hacker News Board

Re: The Looming Bank Collapse

#91

Post by Diederich » Wed, Jun 10, 2020, 10:15 PM UTC

baxtr wrote: post #86

Diederich wrote: post #81

Earlier quoted context omitted.

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?

I don't think anybody knows how much money the US can 'safely' print. My guess is that we can print quite a bit more, but who knows.

So to answer your question: it's likely that the future probability of safely printing money goes down as more money is printed, thus making that ability a scarce resource.

My intuition is that the federal government giving additional money to the wealthy (as it has done since 2016) is of less marginal value to society than retaining the future ability to print equivalent additional debt.

I could be wrong of course.

Re: The Looming Bank Collapse

#92

Post by jfengel » Wed, Jun 10, 2020, 10:16 PM UTC

throwaway_jobs wrote: post #49

jfengel wrote: post #37

Earlier quoted context omitted.

It is rather astonishing that rational people continue to believe that there is enough future tax revenue to justify this. It's entering dotcom-boom territory, where even the most optimistic future profitability can't justify this level of backing. Part of it, I imagine, is that the US government is likely to benefit from future tech booms, as it has in the past (despite tax shenanigans from the tech companies themse…

It’s never getting paid back, there is so much number fudging to hide the reality of debt and guaranteed payments for future liabilities...we pretend we are $26T in debt (but when you add in the future liabilities We are over $148T in debt). To your point being rational doesn’t really give insights into these issues, but talk to any government budget officer and the can give you a sobering reality of the situation.

I wouldn't expect to pay it back in the sense of reducing the debt to zero. A government is (nominally) eternal, and can continue to revolve its debt indefinitely. It doesn't retire or die the way a person does. As long as it pays its interest, it can just borrow again every time a debt comes due.

But it's not reasonable for that debt to grow without limit. It has to be able to pay the interest on the debt, for which it requires revenue. We take in only around $3T a year in total. That's still a large fraction of that $26T debt, but we're also supposed to pay our actual obligations out of that -- which at the moment are over $4T. Eventually the debt service is going to be larger than our revenue, and I just don't see investors being willing to just let that amount ride as new debt.

And yet people will loan us money for 10 years at well under 1% interest. That keeps the interest burden down -- and yet with the debt growing at over $1T per year it can't last forever.

Re: The Looming Bank Collapse

#93

Post by whatok » Wed, Jun 10, 2020, 10:18 PM UTC

rmrfstar wrote: post #87

whatok wrote: post #79

Earlier quoted context omitted.

> 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

VaR is a fake number for way too many reasons to get into and anyone who paid attention to VaR these past few months would have lost a ridiculous amount of money. I only have experience working for hedge funds and how risk is managed greatly differs from fund/strategy/assets traded. Banks no doubt manage to VaR but banks also supposedly don't have prop trading desks anymore so they function much differently now.

Re: The Looming Bank Collapse

#94

Post by thephyber » Wed, Jun 10, 2020, 10:18 PM UTC

linuxftw wrote: post #85

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.

> We've been shutout of the good money, we only get to pick up the crumbs

Yeah, I think my biggest complaint of the private market / public market is the accessibility gap and the face that the actual valuation of a private company is extremely skewed because there is such little public info for due diligence and the company is so rarely re-evaluated.

Re: The Looming Bank Collapse

#95

Post by clairity » Wed, Jun 10, 2020, 10:21 PM UTC

thephyber wrote: post #83

clairity wrote: post #43

Earlier quoted context omitted.

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.

it does work that way far too often, and that's exactly the problem. financiers are no smarter than other kinds of market participants, and that's what this shows.

markets require relative participant independence for pricing and allocation to function properly, otherwise we get bubbles. and now, we get constant bailouts (of capital, not labor), so on top of that, there's no downside risk to provide any counterbalance. it's corrupt.

Re: The Looming Bank Collapse

#96

Post by pgwhalen » Wed, Jun 10, 2020, 10:24 PM UTC

rmrfstar wrote: post #39

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.

They aren't actually complex at all. People in finance like to jargon up the work they do. Back in '08 we heard about how "complex" CDS are. There is nothing complex about a CDS. Whenever something bad happens in the financial sector, there is always a simple story behind it. Usually a combination of fraud and leverage.

Bingo. Finance is just about allocating risk. When it goes wrong, it's either because 1) the risk taken was misunderstood, and/or 2) too much risk was taken.

Fraud falls into category 1 (as do many other things, like correlation of loan defaults), and leverage into category 2.

The mechanisms by which risk is allocated are generally quite simple.

Re: The Looming Bank Collapse

#97

Post by mrep » Wed, Jun 10, 2020, 10:26 PM UTC

vsareto wrote: post #84

itsoktocry wrote: post #60

Earlier quoted context omitted.

> 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…

The only companies the government is propping up are the airlines and small businesses by mainly paying for their payroll to keep people employed through the CARES act [0]. In what way is the government protecting large companies?

[0]: https://en.wikipedia.org/wiki/CARES_Act

Re: The Looming Bank Collapse

#98

Post by nine_zeros » Wed, Jun 10, 2020, 10:28 PM UTC

So what? There is only one game out there and its called printing money.

We have bad loans on the books? Oops, nothing we can do here and can't have so many foreclosed lower valued assets. Print.

If anyone looked at billionaire net worths, they would know that hyperinflation is rampant. The only reason it doesn't show up in the cost of Milk is because the peasants (we the people) fight for scraps and are willing to take smaller slice of the pie.

In other words, the Bernanke trick of inflating assets in 2008 did its job. It inflated assets and the size of the pie increased. But 90% of the participants still have a lower share of the pie.

Re: The Looming Bank Collapse

#99

Post by gridlockd » Wed, Jun 10, 2020, 10:28 PM UTC

thephyber wrote: post #90

gridlockd wrote: post #32

Earlier quoted context omitted.

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 p…

It's a bubble if investors are irrationally speculating on the future value of the assets, relative to the dollar.

It's price inflation if investors are rationally speculating on the future value of the dollar, relative to the assets.

It is hard to conceive that the dollar is not going to depreciate as a result of monetary policy, or that the monetary policy is going to change. I consider the latter scenario to be more plausible.

> "Fairly priced" is strange because every transaction is "fairly priced" in the moment

To be clear, I'm saying that the price represents fair value.

Re: The Looming Bank Collapse

#100

Post by rmrfstar » Wed, Jun 10, 2020, 10:39 PM UTC

whatok wrote: post #93

rmrfstar wrote: post #87

Earlier quoted context omitted.

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

VaR is a fake number for way too many reasons to get into and anyone who paid attention to VaR these past few months would have lost a ridiculous amount of money. I only have experience working for hedge funds and how risk is managed greatly differs from fund/strategy/assets traded. Banks no doubt manage to VaR but banks also supposedly don't have prop trading desks anymore so they function much differently now.

The discussion seems to have shifted to argument for argument's sake.

But for the sake of argument: large bank VaR models affect hedge funds because hedge funds get their leverage through their prime brokers which are... large investment banks.