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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

#91

Post by JohnFen »

gregw2 wrote: post #61

From a Libertarian perspective why would we not: 1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about…

> have Congress+FDIC create a new form of deposit insurance

Such insurance exists on the private market already and is commonly used by businesses who have large sums of cash on deposits. Presumably, the depositors at SVB didn't do that because they didn't want to pay for it.

Wouldn't a libertarian prefer that over having the government do it?

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

#92

Post by ummonk »

doodlesdev wrote: post #59
sdfghswe wrote: post #35

Earlier quoted context omitted.

Which is exactly what is happening here. A large business is failing and its investors are losing their investment.

Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?

The banks get their money from their profits. Same as how they would have taken an even bigger loss to their profits if this contagion had been allowed to spread.

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

#93

Post by fnordpiglet »

swatcoder wrote: post #54
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…

You say it takes a run, but all it really takes is an aggregate change in deposit behavior. Like, for instance, your disproportionate share of startup clients easing off the cheap loans you had been offering them, because they’re no longer so cheap, and instead drawing down on (or moving) the balances that you had insisted they keep with you as collateral. Trouble was brewing on both sides of the business, not just o…

That’s what led up to the need to create more liquidity. The run happened after that when depositors spooked and drew down faster than the bank could liquidate assets. They were never, even MTM, under water. They just couldn’t raise enough cash in a single day to pay out all the withdrawals. But the cause of the run is the suspicious part to my mind. It feels orchestrated, and I have heard rumblings that Theils founders fund was spreading a whisper campaign against SVB while shorting.

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

#94

Post by shagie »

olivermarks wrote: post #21
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…

It was their unwise bet on ten year T bonds that got SVB into difficulties, a far larger societal economic issue than is being acknowledged. 'This decade’s learning: bonds aren’t a universally safe asset class.' ...the US federal reserve are playing a dangerous game battling the inflation they enabled with rate hikes http://www.brooock.com/a/svb-collapse-exposes-cracks-in-econ...

The bonds are worth exactly what they thought they'd be worth if held. There is no bet on that part.

The purchase of 10 year bonds also implied a bet that faster maturing bonds won't be more valuable.

As shown in https://fred.stlouisfed.org/series/T10Y3M that is no longer a true statement and that bet failed. It was a true statement for about 15 years with one flirtation in August of 2019. It appears that this is is more than a flirtation and more of a dip than past events have been.

The bonds are as secure as ever - just that more money can be made faster in something other than the 10 year bonds.

If (and that's two letters with a lot of weight) we had continued the tech growth seen in the early part of the pandemic and money flowing into SVB, their plan would have worked (or worked better at least), but they failed to account for the possibility that interest rates would go up and that people would be hesitant to fund startups and the startups would be taking money out for payroll faster than they put it in from new rounds of funding.

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

#95

Post by JohnFen »

ummonk wrote: post #82

Libertarians invested in FTX and other crypto banks. They haven't demanded government bail them out. Businesses putting their deposits in reputable regulated banks is a different matter. Nothing libertarian about that. They're following standard practice as expected by the government and the government rightly decided to make them whole and maintain confidence in the system to ensure businesses would continue to enga…

> They're following standard practice

They weren't mitigating the risk of how they were using their deposit accounts. That's not following standard practice.

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

#97

Post by doodlesdev »

sdfghswe wrote: post #68
doodlesdev wrote: post #59

Earlier quoted context omitted.

Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?

That's like saying that any time any one makes a loss, it's everyone _else's_ loss, because guess where their money comes from. What do you suggest should happen here?

I suggest that the FDIC does what it should do and cover all losses that were insured, and let the uninsured losses be realized, as they should be normally. There's a gigantic moral risk in the FDIC covering uninsured losses, because that's a value judgement, and if next week my bank fails why shouldn't the FDIC cover all of my uninsured losses too?

The value judgement that was done here is that if they didn't do it this bank collapse would generate contagion, which I believe is understandable, however if that is the case there should be other ways to prevent this kind of thing such as regulation that prevents banks from putting customer deposits into mortgage-backed securities (what the actual fuck, I still can't believe they've done this, it's like the world has learned nothing from 2008).

Specifically I note that around 2018 there was regulation passed that reduced the amount of scrutiny banks such as Sillicon Valley Bank would receive [0], which we all know now how well that worked. Everyone needs to be taken accountable to the same degree, there should be no special cases or "exceptions". And if a need for those appears that should indicate a systemic problem instead of simply a isolated one-time event.

[0]: https://www.forbes.com/sites/mayrarodriguezvalladares/2023/0...

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

#98

Post by Waterluvian »

Animats wrote: post #77
Waterluvian wrote: post #57

Earlier quoted context omitted.

> 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…

Ahh okay. So the FDIC is doing that big government thing of acting collectively in everyone's interest, I suppose?

Instead of everyone getting their piece of the frozen pie, starving as it thaws (possibly having to sell it at a steep loss of degrees to the radian), the FDIC just says, "I'll hold on to the whole pie and hand out slices from my backup pie stash. Then once it thaws, I'll add it to my backup pie stash."

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

#99

Post by convolvatron »

gregw2 wrote: post #61

From a Libertarian perspective why would we not: 1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about…

I'll give you (3), but isn't the regulation you're proposing in (1) and (2) counter to a libertarian position?

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

#100

Post by ramesh31 »

swatcoder wrote: post #29
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…

You can chase root causes all the way back to some Roman prelate if you want. But at some point, there was a cause very close to the material problem you’re looking at. In this case, that’s the compounded risk that SVB took on in courting a concentrated clientele and trying to balance their books with unusually long-term purchases. If you step past that and look at the government role, that’s a fine starting point fo…

>If you step past that and look at the government role, that’s a fine starting point for discussion about systemic issues in our society, but doesn’t absolve SVB of being the most proximate “root cause” of their own problems.

I think it's time we stop imagining that financial institutions will ever do anything that they are not legally required to do. This was a failure of regulation. Calling it personal responsibility is about the same as getting mad at the dog for getting into the garbage. It's our fault for not taking out the trash.

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