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> not raising short rates would increase inflation Proxy war in eastern Europe, with USA dumping big $ there, is causing price rises.
How does that domestic impact service sector wages
Pardon my ignorance, but why would VC backed companies not have CFOs and general VC advice against putting all or even a majority of their funds in a single bank? Why would they not split it among several mid to large sized banks? [Edited for typo]
HN'rs love to criticize financial analysts, but this is precisely the thing that they would typically look at (whether they actually did on Roku is another question) when analyzing the overall value of a business. Meaning, they don't just look at the company's financials, but also the management team, their performance, their controls, processes, etc. (and arguably their treasury management). We also love to criticize MBAs and finance people, but this is exactly the type of thing that is optimized with experienced business/finance professionals.
You might be thinking "how on earth does X big company operate this way?". The same way a company like Equifax who literally provides all of its FICO scoring via computers, was running outdated Java components that led to a serious ransomware hack.
[0] - https://www.cnn.com/2023/03/10/business/roku-svb-cash/index....
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I agree with the sentiment, but it's not correct that price dumping is illegal for physical products. Trade treaties and WTO rules cover dumping in international trade for obvious reasons, but to my knowledge, there's no law in the major western jurisdictions covering domestic dumping.
Domestic dumping may be prohibited as predatory pricing under anti-trust, depending on the circumstances, including the pricer needing to have market power.
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I agree with the sentiment, but it's not correct that price dumping is illegal for physical products. Trade treaties and WTO rules cover dumping in international trade for obvious reasons, but to my knowledge, there's no law in the major western jurisdictions covering domestic dumping.
https://www.ftc.gov/advice-guidance/competition-guidance/gui... notes that there are dumping restrictions, but that courts rarely find firms in violation. Asking ChatGPT "What is the case law around single-firm predatory pricing?" provides a number of examples, including the tests used by various Western court systems. (Though do note that ChatGPT is not a lawyer, and this is not legal advice!)
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Inflation was surging well before the Ukraine invasion.
The virus lockdowns ended and manufacturing supply chains have been clearing. Please tell us why price increases are continuing, instead of dramatically dropping.
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IMO? Overnight term rates should have been zero from 2020 to about July of 2021, then allowed to rise by 0.25 per month to perhaps about 3.5%. Long-term rates should have been left to float with the market, pricing in the expected risk of inflation. Not that my opinion matters, since I wasn't in charge.
That still leads to losses on long term treasuries. That's what it means to raise rates.
The whole idea of venture capital comes from the broken taxation model. The people who actually produce things, you know doing the work and have knowledge how to do something are burdened with heavy taxation, because years ago, when companies had high headcount, it was a way to make companies pay taxes. Now that everything gets offshored, including work, that model doesn't work anymore, but politicians for known reas…
> because years ago, when companies had high headcount, it was a way to make companies pay taxes. What does this mean? Assuming you are referring to earned income tax, I do not understand how income tax is a way to make companies pay tax.
“There are enough zombie companies with frothy valuations that need restructuring, price discovery and of course re-tooling of their business models to a world of tighter credit, subdued revenue and higher rates,” SVB has nothing to do with that problem. It's about higher interest rates. The end of free money for stupid stuff. Now companies have to make money. So who's going down? TSLA, UBER, and RBLX already made it…
Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…
...really this was a bank run pure and simple I've been around and around on this question. Insolvent or illiquid, illiquid or Insolvent... etc. It was solvent on paper, by what it had to record on it's books. But it was insolvent by mark-to-market (which it didn't have to use but which the sophisticated but not-that-sophisticated investors, say venture capitalists, would assume is the reality). But hey, you could sa…
It seems like you're implying that a truly sophisticated investor would view this differently, but I don't see how. By all indications, the MTM price was economically correct--bid/ask spreads and trading volumes were normal, and the price was very close to what a simple NPV model would predict. There are cases where the market price is economically wrong (in a "liquidity crisis", "fire sale", etc.), but there's no evidence of that here.
Managers and shareholders of the SVB and other banks with similar losses have strong self-interest in arguing otherwise, and they're doing so quite successfully. It's particularly easy to confuse people about interest rate risk, since it's so abstract--you're still getting the same future cash flows, and it's hard to explain why they're less valuable without a concept of NPV or other bond math, which relatively few people understand. The economic loss is just as real as with any other risk though, regardless of what the accounting says.
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> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.
People keep saying this, but I don't understand why they don't see the issue. Yes, shareholders got zeroed out of their SVB shares. But since there was no risk to playing with depositors money besides losing the business, which can fail in any number of other ways as well, there is no deterrent to taking on the large risk. The optimal strategy to beat the competition is to edge toward more risk. And since you can get…