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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

#91

Post by drstewart »

JohnFen wrote: post #55
cplusplusfellow wrote: post #41

Earlier quoted context omitted.

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?

It means that the bank was gambling, lost, and wants to externalize those losses onto the rest of us who weren't gambling.

Funny that in threads about crypto companies failing everyone cries about "this is why we have regulations and safety valves in the financial industry!" but now when these are in force people cry about the safety valves and regulations existing, and how the companies should just be allowed to fail

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

#92

Post by beezle »

cplusplusfellow wrote: post #12
Apocryphon wrote: post #10

So between the tech angle and the housing-related investment vehicles, are we remixing 2000 with 2008 now?

Self inflicted wounds this time, though. There is nothing wrong with a bank purchasing 80bln of MBS with their depositors money. The issue becomes when the fed suddenly raises rates faster than any time in their history while still failing to fight inflation (which is a result of having a stronger economy).

No, please do not even try to imply that this was the Fed's fault.

They did not raise "suddenly". The move away from ZIRP was well telegraphed. Once they did the first hike the only question was how fast and how far. Most in the market initially expected an end rate around 3% (ie, 100bp over their target inflation rate of 2%). As it became increasingly clear that the inflation was not just about supply chain disruptions that end rate target went to 4% and higher.

Further - every bank has a team with one responsibility - asset and liability management. They are responsible for not just the product choices (ie, MBS vs Treasuries, etc) but also matching durations. The Treasurer of the bank is also responsible for oversight, including whether or not any of these positions should be hedged and to what extent.

This is entirely on the bank staff and management.

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

#93

Post by jschveibinz »

rehitman wrote: post #80

Everyone says SVB had bad investment and they deserv it etc. However, I am worried about this being the first of many similar financial instutation failing. After all, bonds are supposed to be safe on paper. Increasintg interest rate fast can break many people who are not able to adjust.

Just something to consider…

A casual look at the regional bank index ETF will show that starting about two weeks ago, the price started to steadily decline and then a sudden drop with SVB. I’m not sure if this decline is well correlated with the total market index over the same period, but if not, it suggests that some people “saw this coming” a couple of weeks ago and the other shoe may still need to drop. Was it just good analysis? Was there some whispering going on? If so, I hope the SEC is watching.

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

#94

Post by snuxoll »

sseagull wrote: post #69
cplusplusfellow wrote: post #41

Earlier quoted context omitted.

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.

I'll add on an extra layer of disguist: cash management accounts exist. They've existed for a long time. They serve literally to hedge against the risks of bank failures by automatically sweeping funds in them between multiple FDIC member banks to:

1. Increase the amount of funds covered by FDIC insurance

2. Reduce the potential for loss of funds by a bank failure

I get that it's a pain in the ass to manage a bunch of accounts, but any business with >$1mm in cash reserves really should have everything but their operational float in a CMA or manually move it around themselves into multiple banks. When I see comments about a startup that had $x million in cash with SVB I have to wonder what the hell the founder and their investors were thinking keeping all of that in a single place.

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

#95

Post by UncleOxidant »

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?

Given the timing one wonders if Silvergate had more impact on SVB. SVB claimed to have minimal crypto exposure, but one wonders what might come out as the FDIC digs deep into their books.

But mostly this was because they bet the farm on long duration bonds just before a period of rising interest rates. It's not like nobody saw that rising rates were on the horizon.

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

#96

Post by UncleOxidant »

morelisp wrote: post #34
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; the tide is receding for the first time in many years, and it's exposing a variety of... issues.

naked swimmers.

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

#97

Post by kevin_thibedeau »

jandrese wrote: post #64
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.

Jedi mind trick only works if you're a Jedi.

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

#98

Post by UncleOxidant »

cplusplusfellow wrote: post #12
Apocryphon wrote: post #10

So between the tech angle and the housing-related investment vehicles, are we remixing 2000 with 2008 now?

Self inflicted wounds this time, though. There is nothing wrong with a bank purchasing 80bln of MBS with their depositors money. The issue becomes when the fed suddenly raises rates faster than any time in their history while still failing to fight inflation (which is a result of having a stronger economy).

Not the Fed's fault. SVB's fault for going all-in on 10year duration MBS. If they had mixed in a good amount of shorter duration tbonds/tbills they would've been fine.

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

#99

Post by beezle »

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%.

Responding more to the quote:

First off - it is not a 10Y T-bill. T-bills extend to 52 weeks. From that point through 10Y are "notes" and everything longer are bonds.

Second anyone involved professionally in the markets understands the duration (not maturity) of bonds and how coupon rate and market interest rate will effect the price of said bond. [those interested can google terms like 'modified duration']. So there is absolutely no shock that the price of 10yr paper with a 50bp coupon would be near 80 in the current rate environment.

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

#100

Post by mannerheim »

thepasswordis wrote: post #88
tekla wrote: post #51

Earlier quoted context omitted.

FTX was simple fraud. This isn't really related and is more standard bank taking on wayy too much risk.

FTX was because they took customer deposits and gambled with them, lost the gamble, and therefore lost the money.

Yes, but it was also fraud because they weren't supposed to gamble with that money because they were an exchange, not a bank.
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