[HN Gopher] SVB shows that there are few libertarians in a finan...
___________________________________________________________________
SVB shows that there are few libertarians in a financial foxhole
Author : CaliforniaKarl
Score : 247 points
Date : 2023-03-13 16:46 UTC (6 hours ago)
(HTM) web link (www.ft.com)
(TXT) w3m dump (www.ft.com)
| jmeister wrote:
| Prominent libertarians who opposed intervention:
|
| https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba...
|
| https://twitter.com/CliffordAsness/status/163512097142539468...
|
| https://twitter.com/RepThomasMassie/status/16350699533753425...
| viggity wrote:
| I consider myself to be pretty libertarian but the idea that an
| intervention was going to cost the government any amount of
| money that didn't equate to a rounding error is ridiculous.
| Coupled the contagion it could have caused, this was an easy
| decision. They had enough in assets to cover 95% of deposits.
| They weren't just super liquid.
| yunwal wrote:
| Socialize the losses, privatize the gains, nice
| ummonk wrote:
| What gains? Depositors weren't getting gains, they were
| storing money in very low interest (far below inflation or
| money market yields) checking and savings accounts.
| yunwal wrote:
| Depositors were getting gains (4.5% interest rate which
| is very high compared to similar banks, and for something
| that's supposed to be risk-free). The reason these rates
| were achievable is because SVB lobbied to remove
| regulations and allow them to engage in risky behavior.
| postalrat wrote:
| Not liquid like trying to buy a house with a Pokemon card you
| guarantee will be worth $300k in 10 years but is only worth
| $50 now.
| strbean wrote:
| Are we really comparing treasury bonds to pokemon cards
| now?
|
| Treasury bonds are guaranteed by the government with the
| worlds largest economy. US treasuries are pretty much the
| safest investment instrument in the history of mankind.
|
| In 10 years, they WILL pay out at face value, unless the
| USA suffers complete collapse. In which case your dollars
| in the bank are worthless anyways.
| npmaile wrote:
| Ahh, the pro-fractional reserve banking system libertarians. A
| group that is well known as much as it is not contradictory.
| supernova87a wrote:
| "Libertarian reluctantly calls fire department"
|
| -- The Onion
| malchow wrote:
| Central gov't making statements to quell a bank run is one of the
| few things most libertarians will always say is properly in the
| federal toolkit.
| jacktribe wrote:
| Is there a term for someone that is libertarian inclined, but
| does believe in a minimal level of government regulation and
| intervention? A "Lite-Libertarian" of sorts.
| kodah wrote:
| Plenty of Libertarians do. It's an umbrella term that
| encompasses everyone from anti-capitalists and Libertarian
| Socialists to classical liberals.
| SSLy wrote:
| On a spectrum, minarchists, classical liberals, and so on.
| wnevets wrote:
| a neoliberal?
| over_bridge wrote:
| Yes, this is the definition of neoliberals. In their view the
| government should only ever operate and enforce market rules
| (which includes protecting the market from external threats
| via military). The government should have no opinion on
| anything and just let the world unfold as the market
| dictates.
|
| Of course there are no pure neoliberal politicians as such a
| being would have no policies except cutting popular things
| and privatizing them. Hard to get elected. So we have
| neoliberalism with left or right characteristics as the
| mainstream ideologies.
| Apocryphon wrote:
| A good video that examines neoliberalism's tendency to be
| hypocritical on arguing against government action:
|
| https://www.youtube.com/watch?v=_1nqvDH-oag
| unpopularopp wrote:
| [flagged]
| checkcircuits wrote:
| "Libertarian" is a sliding scale from basically anarcho-
| capitalism to traditional Republicanism.
|
| While it has been humorous to see these faux-libertarians say
| in one breath they want small government, but in the very next
| breath demand to be saved, tankies and other far-left extremes
| have used this as an opportunity to lump all libertarians into
| the same boat.
|
| There's no such thing as a "true" libertarian as most
| libertarians believe in small government, but what that
| government can do, is generally up to interpretation in all but
| the most extreme cases. A major central belief the non-
| aggression principle. However social issues tend to be more
| wishy-washy.
|
| Prior to the balkanization of America Libertarian-lite could
| probably be approximated by a classical liberal.
| throwaway6734 wrote:
| A liberal
| NovemberWhiskey wrote:
| In countries other than the U.S., this is called "liberalism".
| AdrianB1 wrote:
| Classic liberal. That was at peak around 100 years ago, when
| there was more freedom and way less tax in the countries that
| lived it (Europe). One can argue that in a very limited way it
| was similar in US in the period of 1800 to 1900, but that is a
| bit different.
|
| The more modern way (still in Europe) is seen as reasonably
| minimal level of government regulation, but strongly applied.
| For example the libertarians I know are for minimal government
| (and associated taxes), but very strong consumer protections -
| this is because individuals have very little power against huge
| corporations, so it is just leveling the field.
| EdwardDiego wrote:
| I consider myself to be economically liberal in the "laissez
| faire, laissez passe" sense to a large extent. No government
| should pick winners or losers, no government should protect
| uncompetitive businesses.
|
| But I believe that the government must protect the free market
| against capitalism's inherent tendency towards monopoly, and
| that likewise, it must protect consumers against exploitative
| business practices (which arguably, a properly competitive free
| market could help achieve).
| seanw444 wrote:
| I'm pretty sure this is the standard belief of most
| libertarians. People just keep conflating libertarian with
| ancap.
| Apocryphon wrote:
| In theory libertarians might be into that, but I don't
| exactly see prominent libertarians calling for antitrust
| action. An actual political group that is ostensibly pro-
| market but also big on making sure rules are followed to
| keep the market in optimal condition are German
| ordoliberals.
| yardie wrote:
| I was going to say neoliberal. But then I have to remember
| self-confessed neoliberals pushing for war in Iraq and
| basically giving a blank check to the military industrial
| complex. And needlessly expanding government on the war on
| terror. So that term isn't apt either.
| gorjusborg wrote:
| I do not think there is a label that accurately represents even
| one individual person's views.
|
| I would suggest you try not to think in labels and embrace the
| reality: no person is a
| democrat/republican/tory/labor/whatever. Those are political
| parties, sure, but what happens when a person disagrees with
| the platform of that party? Are they no longer a 'whatever'?
| No, they were never a part of the party to begin with, they
| just identified with the group that most closely aligned with
| their views.
| kodah wrote:
| [flagged]
| gregw2 wrote:
| 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 the risks can
| easily find out about third-party insurance and (newer) banking
| services that bundle your capital to multiple banks. )
|
| 2) impose interest rate stress tests against banks with much
| smaller amounts of capital (not the current $250 billion
| threshold which must mean only the top 10 banks are subject to
| it?) (Something that SVB lobbied to keep itself exempt from
| having to do, and avoided the expense of keeping its interest
| rate hedges up to date the last ~18 months, leading to their
| collapse.)
|
| If you don't like one of those, then why not address a bit more
| of the root cause why businesses only do business with one bank:
|
| 3) require banks legally to not impose exclusive deposit
| conditions or benefits as a condition of granting loans (ie banks
| pressuring in any way their lendees to use their deposit
| services)
|
| The recently revealed sort of moral-hazard/grey-area "backstop-
| all-deposits-but-only-for-critical-situations" is really anti-
| competitive if we don't address it. It ensures that startup/SMB
| business owners, unclear of whether their >250/500k deposits are
| fully protected or not, will want to move cash to the very
| biggest "too-big-to-fail" banks just so they don't have to
| financially architect around the cash flow risks. (Cash flow
| risks are the #1 cause of failure of small businesses.)
|
| I would much rather have 1000+ banks in our ecosystem than 10;
| surely that is a more robust system.
|
| To me, guaranteeing all deposits (not just 250/500k or even 10
| million) is another form of moral hazard where banks "privatize
| the gains, socialize the losses"; But I think the payroll risk is
| a systemic societal risk that makes sense for us to develop a
| societal framework to protect.
|
| [1] 250 employees at 250k each is a monthly payroll of $5
| million. 6 months payroll is 30 million. If you're bigger than
| that, you have enough time/resources to put your eggs in more
| baskets and manage the complexity. I think I am being very
| generous here.
| tyrrvk wrote:
| From a Libertarian perspective why would we not:
|
| 1) have Congress+FDIC...
|
| This made me chuckle. I thought Libertarians want gov _out_ of
| their lives. :)
| smackeyacky wrote:
| Libertarians, like Trotskyites before them suffer from the
| logical dead end of purity tests.
|
| https://en.wikipedia.org/wiki/No_true_Scotsman#:~:text=The%2.
| ..
| JohnFen wrote:
| > 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?
| johnbellone wrote:
| The government needs new regulations to force depositors and
| banks to purchase this insurance. Otherwise, we're looking at
| one grift after another.
| beezle wrote:
| No, the answer is let the SVB depositors take a hair cut
| and then you will see far better management of free cash.
| tracker1 wrote:
| +1 ... Until poor investment decisions have real
| ramifications, from personal liability on executives and
| boards even levelled to bankrupt and possibly including
| criminal conviction, things won't change.
|
| I wish the US Govt had done closer to what Iceland and a
| handful of others did in 2008... No, we aren't bailing
| you out, you pay out domestic deposits first, and then if
| there's anything left, the rest. And no, you don't get to
| take/keep bonuses for it.
|
| Modern corporate structure and liability shields to the
| level they exist in the US is anything but libertarian.
| You make bad choices, you live with the consequences.
| seanw444 wrote:
| Why does everyone conflate libertarians with ancaps? It's not
| the same thing. Libertarians accept that there is a degree of
| government that is necessary.
| sangnoir wrote:
| There is no conflation: parent very clearly pits private
| deposit insurance (which exists today) vs. a hypothetical
| government insurance for amounts >$250,0000 (which doesn't
| exist, proposed by gp).
|
| Perhaps I misunderstand the different strands of
| libertarianism, but what kind of libertarian prefers
| _mandatory_ government insurance over voluntary private
| insurance?
| JohnFen wrote:
| Is it not a libertarian position that it is preferable that
| things be done in the private sector than in the public
| sector?
|
| In the narrow statement that I replied to, a proposal was
| made to have the federal government enact a kind of
| insurance that has long been available in the private
| sector. My understanding of libertarian perspectives (based
| purely on hearing what libertarians say) is that doing it
| in the private sector would be preferable.
|
| Particularly considering that the problem for the
| depositors was that they weren't availing themselves of
| private-sector solutions, not that those solutions failed.
|
| I may be complete wrong on this, though, as I am not a
| libertarian.
| [deleted]
| convolvatron wrote:
| I'll give you (3), but isn't the regulation you're proposing in
| (1) and (2) counter to a libertarian position?
| worksonmine wrote:
| Instead of all these complicated hoops, wouldn't a true
| libertarian expect his money in the deposits to be no-go for
| gambling. And a separate account for stocks. If the bank want's
| to gamble they would need the customers approval for that, IE
| lock your money with us for 10 years and get this interest.
| Insurance is socialist, even if it packaged as capitalism.
|
| The bank has to cover it, but not today. And it's an agreement
| and not a surprise when it happens.
|
| No, lets create a complicated mess, fractional reserves, excess
| liquidity and having money costs money, growth and more growth
| and ... and .. and. You're all falling for it because you're
| greedy and don't want to be left behind.
|
| When is anyone going to realize the actual problem? How many
| times does it have to happen? I'll see you guys again in 10-15
| years as we have the exact same discussion.
| wins32767 wrote:
| You think there is complaining now, what do you think would
| happen if you lost 1-3% of your principal each year forever.
| And what do you think would happen to society of all that
| capital was sitting around doing literally nothing instead of
| being available for others to borrow and use on productive
| activities?
| worksonmine wrote:
| I think interest rates would increase and I would be
| incentivized to put it up for lending and create a healthy
| economy with our savings being safe while still being able
| to gamble. Money would get value again. If the banks
| themselves won't act as the middle-man the gig economy will
| fill that space in no time.
|
| Would the execs get million dollar bonuses and fly jets?
| No, and I'm fine with that, I don't have to count on a
| financial crash once every decade or two.
|
| What do you think would happen?
| gtop3 wrote:
| > Insurance is socialist, even if it packaged as capitalism.
|
| What? Insurance companies (in general) are some of the most
| capitalistic. They teams of actuaries calculating risk to
| leverage a large capital pool to generate more capital.
| tracker1 wrote:
| Should probably clarify as "Government (mandated)
| Insurance"
| worksonmine wrote:
| Yes, I'm being hyperbole. But my point still stands, the
| view that risk should be risk-free and someone should bail
| you out when shit hits the fan instead of sucking it up and
| writing it off as a bad bet is closer to socialism than
| capitalism.
|
| In the US you have low taxes but have to insure against
| everything. In the EU we have high taxes but insurance is
| not a thing unless mandatory (car/home). I don't even have
| the latter, stupid yes, but I would suck it up and not
| blame it on the FED.
| fosk wrote:
| Our deposits are liabilities for the bank (the bank needs the
| infra to secure the money, make it available everywhere at
| every ATM, bank tellers and so on). Banks invest the money
| (and give loans) to both pay for these costs and also make a
| small return on top.
|
| It is possible to have a bank that just stores the money
| without touching it, but this bank would charge us for the
| costs of doing so, and it won't be free, and it won't be
| popular vs free options (which once every 10-20 years blow
| up).
| worksonmine wrote:
| Yes and I'm happy to pay, I'm actually paying 50$ a year as
| it is for my personal account only. They call it online-
| banking fee.And still they gamble with my money. I also
| have 2 company accounts where they charge even higher fees,
| just for deposits. It's not that I'm not willing to pay,
| but I was never asked to put my savings as collateral.
|
| Meanwhile they're closing offices to save money, and making
| billions every year. They can make it work, we just have to
| demand it.
| fidgewidge wrote:
| Such banks would be highly popular if paired with the other
| half of the proposal which is to not bail out depositors at
| collapsed banks.
| doktrin wrote:
| "Libertarians are like house cats: absolutely convinced of their
| fierce independence while utterly dependent on a system they
| don't appreciate or understand."
| CatWChainsaw wrote:
| Judging by the downvotes you struck a few nerves.
|
| Just like cats will let you pet them but only exactly three
| times and then _non-aggression principle suddenly violated_
| sdfghswe wrote:
| Wow that's beautiful.
| elzbardico wrote:
| 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, along with the supply
| chain issues, would eventually lead to inflationary pressures and
| that once inflation has shown its ugly face, those bond's market
| value would be discounted, and that they could become vulnerable
| to a bank run.
|
| But in the end, even if we could argue that SVB should have been
| more prescient, it is clear that the root cause of the problems
| is the actions of the government and the FED.
|
| That said, please don't confuse me with a libertarian; I am just
| raising a somewhat contrarian point. Being called a libertarian
| would be an enormous source of shame and disgust for my mom.
| worksonmine wrote:
| SVB locking money they might need access to is the FEDS fault
| do I understand you correctly? Did they hold a gun to their
| head? I'm not saying they're doing anything different than
| their competitors, but that's a stupid excuse.
|
| The only thing that's broken is the financial system. A
| customer should be aware when depositing money that that money
| might be locked away, and agree to those terms, and get a cut.
|
| This is SVB gambling and losing the bet, simple as. Everything
| else is just a pathetic excuse, don't enable it.
|
| Just look at the term "excess liquidity", that's newspeak. I
| expect the bank to have my 100$ the day I ask for it. I'm not a
| using bank because I want to, but if I store it under my bed I
| get to deal with the IRS. They make themselves necessary to
| live, then expect my deposits to work for them.
| scrozier wrote:
| Why/how does the IRS care if you store it under your bed?
| Serious question.
| dboreham wrote:
| > Serious question.
|
| Because criminals/tax evaders do that.
| scrozier wrote:
| That doesn't answer my question. The IRS taxes income,
| not assets. They don't care where your money is.
| worksonmine wrote:
| They do care where it comes from though. And you have to
| prove it with a bullet-proof paper trail or it's assumed
| to be criminal gains. I didn't claim I couldn't prove it,
| but I'll still have to deal with the headache and make my
| case.
| [deleted]
| notch898a wrote:
| CTR and/or SAR and/or form 8300 and/or Fincen 105 when you
| actually spend it, either directly or they investigate and
| find you're the second link back.
|
| And if you escape civil action by IRS, the fed or local
| government can simply take it as civil asset forfeiture
| without accusing you of wrongdoing.
|
| .gov really really hates big piles of printed currency and
| if they find out you have it the temptation for them to
| take it can become overwhelming to various entities that
| survive off of the taking.
| worksonmine wrote:
| Others have already answered but the proof of guilt is the
| inverse, I have to prove my money is legit, or it will be
| confiscated. Then when I deposit it in a bank the bank
| gambles and looses the money anyways, because excess
| liquidity.
|
| The game is rigged. Give me a bank where I just deposit my
| funds, and nobody touches it and I'm happy to pay for the
| service. Maybe I want a portion of it to grow and I'll
| allow it to be lended, for interest.
|
| The bank should work in my interest, not their investors.
| strbean wrote:
| Those darned reckless treasury bond buyers. How dare they
| recklessly gamble on the conventionally safest investment in
| the history of mankind!
| reducesuffering wrote:
| They didn't buy treasury bonds, they bought mortgage-backed
| securities with average duration of ~10 years (risky), why
| are people still wrongly repeating this?
| opportune wrote:
| Bonds of any kind are not safe if you need the capital
| before they mature (which SVB did) in the face of interest
| rate increases. The longer duration the bond, the harder it
| hurts when interest rates increase.
|
| There are financial instruments like interest rate swaps
| specifically for banks to hedge against this exact
| scenario.
|
| Let's not extrapolate some simplified personal finance
| advice to financial professionals who should have known
| better
| eep_social wrote:
| Your personal inability to understand the risk SVB took
| isn't universal.
| anigbrowl wrote:
| You understand the fundamental problems here and have chosen to
| share your insights for free. Banks have professional employees
| who are paid decent money to make these kind of risk
| assessments even more rigorously. Why would we accept the idea
| that they can get by with being less objective? I am not an
| investor at all and even I understand that when the Fed is
| raising rates to control inflation portfolio owners need to
| rebalance their asset mix as the financial environment changes.
|
| Stop giving these guys a pass just because of your residual
| (and justifiable) skepticism about fiscal/monetary policy. I
| have similar doubts about how government manages public
| finances, but I also know that depending on a low-yield bond
| purchased before a pattern of graduated interest rate hikes is
| gonna leave you with a cash flow problem.
| kqvamxurcagg wrote:
| You fail to understand the actual reason for their insolvency.
| Their risk team chose to buy 10 year treasury bonds instead of
| 1 year treasury bonds. This is because 10 year bonds offered a
| higher interest rate (more profit for SVB) but at a much much
| higher risk. The losses were then unrecognised, hoping the
| market would turn. Only when it was too late did SVB admit
| defeat. With their equity gone, they attempted a band aid with
| an equity raise but the market quite rightly recognised the
| bank's shares were worthless.
|
| Anyone working in risk management will tell you SVB's risk team
| and executive team should be in jail.
|
| Don't blame SVB's failure on a bank run. SVB caused their own
| failure with their own risk management policies and it's
| insolvency was probably inevitable for months.
| concordDance wrote:
| > Anyone working in risk management will tell you SVB's risk
| team and executive team should be in jail.
|
| Jail seems extreme for an error in judgement that neither
| killed nor maimed anyone.
| [deleted]
| colinsane wrote:
| that might (or might not) be arguable from a moral
| viewpoint, but it _definitely_ isn't arguable from the
| actual statistics. about half of the US state prison
| population is there for non-violent crimes.
|
| https://en.wikipedia.org/wiki/Incarceration_in_the_United_S
| t...
| anigbrowl wrote:
| Directly, nobody was injured. Proximately, we really have
| no idea. I am in favor of strict liability for a broader
| variety of negligent behavior. Losing one's career over bad
| judgment is of course a kind of deterrent, but
| realistically lots of people fuck up and then go on to have
| moderately profitable second careers by writing a book and
| giving talks with titles like 'Learning Hard Lessons'. If
| they're entrepreneurial they can become stars of the MBA
| circuit.
| geysersam wrote:
| Yes people make mistakes. That's legal and it should be.
|
| Especially in a business such as finance where the job
| literally is to estimate risk, someone will make the (in
| hindsight) wrong decision.
| _rm wrote:
| Strict liability for negligence would just mean sending
| business overseas where that rule isn't in play, and
| chilling it domestically.
|
| No one is interested in the deal "if you get it right,
| you make some money; if you get it wrong, we obliterate
| you".
|
| The move from caveat emptor to caveat venditor has
| coincided with everyone legally ringfencing things with
| corps & LLCs. People find ways back to a fair deal.
| watwut wrote:
| People go to jail for all kinds of frauds and all kinds
| issues they cause to other people.
| nerdponx wrote:
| It nearly killed billions of dollars in real value and
| required untold thousands of taxpayer-funded employees
| working through the weekend to unfuck the situation.
|
| If I drive recklessly, I am still guilty of reckless
| driving even though I didn't hit anyone or anything.
| tracker1 wrote:
| They could be jailed for insider trading for selling all
| their stocks within the past few months. And the funds from
| those sales should absolutely, at least, be clawed back and
| then some for their responsibility for their decision
| making.
|
| I'd, for a change, like to see those responsible for
| massive business failures held to account personally and
| financially. The limitations on corporate liability are
| meant for investors, not executives or board members. And
| TBH, those accounts with over 100MM in deposit should
| probably lose the 10% or so under normal rules for this
| kind of thing, not be bailed out by the Fed, who will in
| turn likely need to be bailed out by taxpayers, or worse if
| this happens another couple times in the next couple years.
| nerdponx wrote:
| And to the original point about libertarians, this would only
| ever _not_ happen in the face of regulation.
| tracker1 wrote:
| As a libertarian, I'm perfectly fine with letting a
| business fail, and holding the management and board to
| personally account/liability for their actions.
| watwut wrote:
| The actual "letting it fail" would be to pay up looses
| only for those insured. Those who did not insured would
| not be paid looses in "let it fail world".
| tracker1 wrote:
| Exactly... they liquidate the bank's assets, payout the
| FDIC insured, and most of the depositors only lose about
| 10%... the shareholders would lose more... and the
| executives and board potentially lose everything to pay
| shareholders. That's how this is supposed to work under
| existing rules.
| geysersam wrote:
| Why didn't the fed decide that course of action in this
| case?
|
| Seems the difference is small. Shareholders still lost
| everything, depositors lost nothing instead of 10% but
| that's a minor difference.
|
| Guess one difference is how long it'll take before
| depositors can access their money. Now they'll get it
| immediately. If they were waiting for liquidation of the
| banks assets, that would probably take longer.
| beezle wrote:
| Your understanding of the HTM portfolio (and reasons for it)
| are clearly not complete and no, not anyone in risk
| management will say their risk team should be in jail
| (excepting the case of documents proving the failure to hedge
| was done specifically to increase executive
| compenstation/bonuses). Calling into question the lack of
| hedging or use of MBS is fair game and not something most
| other institutions would have done.
|
| For the record, "1 year treasury bonds" are 52 week Treasury
| Bills. They would not be buying off the run old debt.
| [deleted]
| reducesuffering wrote:
| > Now, SVB, loaded with money, could have tried loaning it like
| crazy, but instead, decided to go the conservative way and buy
| bonds.
|
| No, they bought MBS, yielding 1.6% at the time, which aren't
| conservative. What they should have done is bought 1 month - 1
| year Treasuries, yielding 0.10%. Then they couldn't give out
| above-market interest returns, in excess of 0.5% compared to
| other banks, which SVB depositors pocketed during the upside,
| and then failed to realize the risk during the downside, being
| bailed out by the government.
| machina_ex_deus wrote:
| "It turned out that one of the biggest risks to our business
| model was catering to a very tightly knit group of investors
| who exhibit herd-like mentalities"
|
| And I kind of agree. Yes, the mistake was not hedging MBS and
| treasuries interest rates.
|
| But are they really the only bank in the world doing that
| mistake?
|
| What truly made it fatal is the VCs. That's also why nobody is
| coming to buy them. The speed at which the bank run happened,
| showed exactly how much they valued the bank.
|
| If you're swimming with sharks, it's a big mistake to bleed.
| But let's not pretend the sharks are innocents. Bleeding isn't
| usually so fatal.
|
| Which is why I don't think the sharks deserve a bailout.
| yunwal wrote:
| > But are they really the only bank in the world doing that
| mistake?
|
| I'm not sure that looking to the financial sector for
| examples of fiscal responsibility is actually reasonable, but
| I'd guess that they're the only bank that's "too-big-to-fail"
| that could possibly fail because of a single slack
| discussion.
| avn2109 wrote:
| >> "... decided to go the conservative way and buy bonds."
|
| Sure but they could have bought shorter bonds instead of a
| bunch of ten years, there's no reason to take so much duration
| risk.
|
| Every intro to financial engineering class includes a "build a
| Treasury ladder" exercise, it's not rocket science.
| miguelazo wrote:
| Putting aside the glut of misallocated cheap money, isn't the
| deregulation that allowed this (which SVB pushed for, along
| with many other banks/Wall Street parasites) precisely the type
| of policy that Libertarians advocate?
| convolvatron wrote:
| like always, the market is still insufficiently free to work
| its true magic. woulda been fine if the fed hadn't been
| screwing around and ruining things
| fidgewidge wrote:
| Definitely not. Most libertarians I've encountered want hard
| money i.e. full reserve banking with no central bank money
| printing. In FRB you cannot have bank runs and with a
| restricted central bank which can't print more money you
| can't have ZIRP and the wild swings all over the financial
| system that it had caused. Instead you have a system in which
| bank accounts don't pay interest but that's acceptable in
| many cases because there also isn't any inflation, and if you
| want a return you invest in a fund that exposes the liquidity
| constraints in its terms.
|
| The above scheme requires far less government regulation as
| well, but it does need some, mostly an extension of the idea
| of theft to encompass fractional reserve banking.
| miguelazo wrote:
| I suppose some or even most libertarians would agree with
| that, although that system is just rigidly regulated in a
| different way. I think the classic Libertarian model would
| be private banks, totally disassociated from government.
| Further, full reserve banking and fixed supply monetary
| systems are the stuff of fantasies. Totally infeasible in
| the real world.
| wunderland wrote:
| Whenever a contradiction of capitalism arrises like this, the
| problem is always too much interference in the markets, and the
| solution is always more unfettered capitalism.
| UncleOxidant wrote:
| > But in the end, even if we could argue that SVB should have
| been more prescient, it is clear that the root cause of the
| problems is the actions of the government and the FED.
|
| Yes, the FED did leave interest rates too low for much too
| long. Rates should probably have been in the 3 to 4% range
| prior to the pandemic which means they should've been
| tightening more since about 2015. But lowering to essentially 0
| during the early stage of the pandemic in order to keep us out
| of another great depression seems like the right decision.
|
| As for the SVB downfall: there's plenty of blame to go around.
| Yes, SVB should have diversified their bond buys (more shorter
| term durations mixed in). And as mentioned above, the Fed bears
| _some_ blame. But so do the VCs who panicked startups into a
| bank run last week - the VCs who probably strongly recommended
| that their startups put their money in SVB in the first place.
| And the startups themselves could have been doing a better job
| spreading their money around to other banks in order to
| minimize their risk in case of bank failure (admittedly, most
| startups probably don 't have this top of mind as they're busy
| with other things).
|
| Ultimately, the entire idea of a Silicon Valley Bank that was
| essentially just serving VC funded startups was probably a bad
| one from the start. Diversification of customer base,
| geography, industry served, etc. was absent. It's like monocrop
| farming: A pest that comes in and attacks your one crop can
| wipe you out more easily than if you grow a variety of crops.
| exmicrosoldier wrote:
| They had other choices - they could have lowered the interest
| rate they return to account holders as more and more deposits
| came in. They could have lowered their profit guidance to
| shareholders instead of taking actions that wiped them out.
|
| As I understand it, the reason they failed is because they
| gambled on interest rates staying low and chased returns to
| maximize profits to shareholders.
|
| Shareholders deserve to lose money when they are pushing - or
| even remaining silent on - increasingly risky corporate
| behaviors as absentee owners.
| originalcopying wrote:
| > _Being called a libertarian would be an enormous source of
| shame and disgust for my mom._
|
| But you are not your mom. you don't have to share on the
| disgust and shame, however you may chose to do so if you want.
|
| the points being: the disgust is your mom's not necessarily
| yours. whether to partake on your parent's shame of being
| called a libertarian _is a choice_.
| elzbardico wrote:
| A choice that I deliberately made years ago.
| originalcopying wrote:
| good for you!
|
| therapy for me has been about finding subconscious choices
| like those
|
| on the other hand, sorry for you... why would one choose to
| feel negative emotions like shame?
| AustinDev wrote:
| > Now, SVB, loaded with money, could have tried loaning it like
| crazy, but instead, decided to go the conservative way and buy
| bonds.
|
| They could have taken a look at inflation and the glut of
| liquidity and bought shorter dated bonds but instead they
| locked them money up for 3-10 years at paltry interest rates.
| olivermarks wrote:
| 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...
| mhb wrote:
| What is the larger issue? That people buying bonds don't
| understand that their value drops when interest rates go up
| and that if you might need the money from the bonds before
| the bond matures you need to hedge for that?
| cal5k wrote:
| At the time they were purchased, central banks around the
| world were going out of their way to assure people that
| rates would not be going up for a long time.
|
| Not excusing their failure to properly account for duration
| risk, but regulators didn't see this coming either - what
| they were doing was considered to be not only wholly
| acceptable, but downright "safe".
| eep_social wrote:
| Central banks have been telegraphing rate increases for
| over a year. Your statement might have been true on the
| day of the purchase but SVB had an entire year to fix
| their mistake and failed to do so.
| olivermarks wrote:
| It was naive, lazy and dangerous of SVB to assume in a 10
| year window nothing would change IMO
| mhb wrote:
| Don't forget greedy. Not hedging saves money.
| olivermarks wrote:
| From the link I posted:
|
| 'What this means going forward
|
| An unintended side effect of the Federal Reserve's rate
| hikes is that many banks and institutions are holding an
| unfathomable amount of low-yield debt that is now worth far
| less than it was a year ago. We went from a world where
| 100-Year Austrian bonds would pay only 0.39% yields, to one
| where we're now concerned about 8-9% annual inflation, in
| just two years.
|
| If institutions rightfully start deeming long-dated bonds
| to be a risky asset that isn't safe to hold on sensitive
| balance sheets, we could see bond premiums rise for these
| longer-dated bonds, raising the cost of capital for
| companies and governments alike...'
| JohnFen wrote:
| Don't see how that means it's the fed's fault, though.
| Anyone who has even halfway paid attention to markets
| over the just the past few decades should be acutely
| aware that markets can change very quickly. Expecting
| current conditions to last forever, or that you will
| always have notice that change is afoot, is just insanity
| or incompetence.
| mhb wrote:
| Safe is doing a lot of work here. Government bonds are
| safe from default. Not from changing value when interest
| rates change.
| shagie wrote:
| 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.
| pg314 wrote:
| > The bonds are worth exactly what they thought they'd be
| worth if held.
|
| That's wrong. A 10 year treasury bond with a .60% you
| bought in august 2020 is now worth significantly less.
| Whether you hold it or not is irrelevant. If you disagree,
| I'm willing to give you one, if you give me a 7 year
| treasury bond at the current interest rate of 3.86%.
| shagie wrote:
| Has the amount that it pays when it reaches maturity
| changed?
|
| The yield curve has gone negative - the shorter term
| bonds are worth more than the longer term ones (and
| certainly the longer term ones bought back in 2021).
|
| And if you were trying to sell me a 10 year note at 0.6%
| I'd want a serious discount because even your 7 year note
| at 3.86%, I can do better with a 3 month note at 4.794%
| or a 6 month note at 5.086%. https://www.marketwatch.com/
| investing/bond/tmubmusd03m?count...
|
| But that's if you were trying to sell it _now_. The
| amount it will pay at maturity remains unchanged and in
| 10 years it will be worth exactly the same no matter what
| the financial history that brought it to that point was.
| lordfrito wrote:
| > But that's if you were trying to sell it _now_. The
| amount it will pay at maturity remains unchanged and in
| 10 years
|
| This point is lost on everyone. They will get their money
| back, in 10 years. That's why it's a called 10 year note.
|
| They messed up not considering they'd need the money
| sooner, and failed to seriously consider that no one
| would want to buy their notes if interest rates went up,
| because there would be much better deals out there.
|
| They made a 10 year bet that interest rates wouldn't go
| up significantly. They bet wrong.
| shagie wrote:
| A Planet Money episode on bonds as turtles and the impact
| of changing rates.
| https://www.npr.org/2022/10/06/1127357539/why-are-stocks-
| and...
|
| Note that Planet Money is intended more for accessibility
| and entertainment than hard hitting economic news... but
| they still get their facts right.
| fnordpiglet wrote:
| Well, I'd argue that they should have hedged their rates risk
| especially as inflation started to tick up. They just don't
| have good risk managers. But that said, if there hadn't been a
| run the causal issues would have been a foot note in a
| quarterly filing. Everyone is acting as if SVB were Lehman or
| Bear Sterns. They just got caught with their pants down and
| everyone ran over to take a picture and post it on Twitter.
| psychlops wrote:
| > just don't have good risk managers
|
| They had _no_ chief risk officer for 8 months. They argued
| publicly against stress testing banks. Their complete absence
| of hedging guaranteed that time bomb that would have gone off
| now or later.
| fnordpiglet wrote:
| I agree 100% up to the point of the necessity of a bank
| run. I think they faced some serious quarterly losses for
| some time to come, but many banks see that without a run on
| the bank. That's why I suspect someone large and
| influential in the startup world operated a bank run
| whisper campaign for their personal benefit. I've no proof,
| but I'll wager $5 on it.
| psychlops wrote:
| It's entirely possible, but they wouldn't have been a
| random target. They put themselves into a very precarious
| position with the unhedged bets they made and the very
| selective client base they held. Consider that (nearly)
| all other banks weathered the storm just fine so far
| through correct risk management.
| tracker1 wrote:
| I think it's rather telling that they were run on, and pushed
| over the ledge instead of bolstered by those now calling for
| bailout. And now they get what they really wanted, a
| crosspoint to the Fed rate hikes, and cover under the "too
| big to fail" umbrella... This won't lead to better practices
| until people are jailed and or bankrupted over these kinds of
| actions.
| cronix wrote:
| > They just don't have good risk managers.
|
| It was worse than not having good risk managers... They
| didn't have a CRO _at all_ for 8 months, until 2 months ago.
|
| > In the run-up to all this, SVB's proxy statement, filed
| earlier this month, reveals that the firm's chief risk
| officer stepped away from her role early last year, and the
| bank did not hire a replacement until this past January.
|
| https://fortune.com/2023/03/10/silicon-valley-bank-chief-
| ris...
| el_nahual wrote:
| I saw on another HN thread that when a bank has bonds
| designated as "hold to maturity" they are not allowed to
| hedge against rate risk--because there isn't any! The bonds
| will be held til expiration for purposes of the coupon, not
| to trade.
| ralph84 wrote:
| Why hedge when we privatize the profits and socialize the
| losses? SVB execs sold tens of $millions in stock before the
| failure. Are the execs going to be forced to return the
| compensation they received for showing higher profits by not
| hedging?
| psychlops wrote:
| Don't forget they also paid bonuses the morning they
| failed.
| fnordpiglet wrote:
| This is the time of the year when banks pay bonuses for
| the prior years work. My understanding is it was
| scheduled annually at the same time and happened to occur
| the day they went insolvent. Frankly I'm down with Nancy
| in client confirm generation getting her bonus. The
| senior managers all got fired and their comp clawed back,
| so seems legit.
| psychlops wrote:
| I've no problems with Nancy, she's pretty cool. Firing
| isn't really enough, loss of license and industry bans
| should be on the table as well as criminal investigations
| for fraud and negligence of custodial funds.
| jgon wrote:
| You seem pretty emphatic that senior managers have had
| their compensation clawed back but have posted absolutely
| zero proof that this is the case. Care to show any reason
| we should believe you?
| fnordpiglet wrote:
| Yes. It's called clawback provisions. They were summarily
| fired and their compensation was clawed back.
|
| And how are the losses being socialized? The assets of the
| bank are collateralizing the lines of credit they're
| getting to stay solvent. It won't cost anyone a thin penny,
| other than bank management and shareholders.
| nerdponx wrote:
| I imagine taxpayers did pay at least something in the
| form of treasury and fed employees working over the
| weekend and getting paid overtime. Or is that not how it
| works?
| ip26 wrote:
| Are police wages "socializing the cost of crime"? I
| consider enforcement necessary overhead.
| nerdponx wrote:
| I'd say they are. And I agree with you that it's
| necessary overhead. The action is what "cost the
| taxpayers money" because it required enforcement action.
| Crime is actually a great example: we _all_ pay when
| crimes are committed, so we should all take interest in
| preventing crime rather than just reacting whenever it
| happens. The same is true for things like rail freight
| safety, air travel safety, and banking.
| tripletao wrote:
| The FDIC is guaranteeing all SVB deposits, including
| deposits above $250k. Any deficit will be paid from the
| FDIC's insurance fund, which if necessary will be topped
| up by a special assessment on all participating banks. So
| the losses (if any) won't be socialized over taxpayers,
| but they will be socialized over some combination of bank
| owners and customers.
|
| https://www.federalreserve.gov/newsevents/pressreleases/m
| one...
| dragonwriter wrote:
| > So the losses (if any) won't be socialized over
| taxpayers,
|
| I mean, a "special assessment" is just a different word
| for a one-time tax, and it being directly on all banks
| and indirectly on everyone who banks, or does business
| with entities who bank, makes distinguishing the payers
| of _this_ tax and "taxpayers" ludicrous hair-splitting.
| sdfghswe wrote:
| > But in the end, even if we could argue that SVB should have
| been more prescient, it is clear that the root cause of the
| problems is the actions of the government and the FED.
|
| No. SVB hid market to market losses by saying "these securities
| are held to maturity so I don't have to realize losses". THAT
| is the source of the problem. Not all banks did this. Sure
| excess liquidity was necessary for this behavior to be
| possible, but it wasn't the cause.
|
| That's like saying the person who leaves their car unlocked is
| the root cause of the theft. No, the thief is. "Your honour...
| I plead not guilty, the car was unlocked."
| pookha wrote:
| Here's another source of the problem...Pumping trillions of
| active currency into the economy, over heating the CPI, and
| ignoring demand-side inflation (hey it's "transitory") for
| ideological reasons.
| kurthr wrote:
| And they wouldn't have been able to do that, if not for the
| regulations being rolled back (from $50B to $250B by a friend
| of Thiel and lobbying by SVB). Lots of sowing and reaping
| going on.
|
| https://www.reuters.com/article/us-usa-trump-dodd-
| frank/trum...
| tyre wrote:
| > No. SVB hid market to market losses by saying "these
| securities are held to maturity so I don't have to realize
| losses".
|
| It did not hide them. This was in their financial statements
| (https://s201.q4cdn.com/589201576/files/doc_financials/2022/q
| ... at page 15):
|
| > Held-to-maturity securities, at amortized cost and net of
| allowance for credit losses of $6, $6 and $7 (fair value of
| $76,169, $77,370 and $97,227), respectively
|
| > December 31, 2022 | September 30, 2022 | December 31, 2021
|
| > 91,321 93,286 98,195
|
| This shows that they had assets on 12/31/22 with an amortized
| value of $91bn and a fair value of $76bn
| tfehring wrote:
| > _No. SVB hid market to market losses by saying "these
| securities are held to maturity so I don't have to realize
| losses". THAT is the source of the problem. Not all banks did
| this._
|
| All major US banks - and all or virtually all US banks in
| general - have assets that are designated as held to
| maturity. Continuously marking all assets to market would
| create massive swings in banks' income and obscure the real
| gains and losses from their operations.
|
| SVB probably had a somewhat longer asset duration and
| somewhat lower book yield than US banks on average, since its
| deposit base grew so quickly in a low interest rate
| environment in 2020-2021. It also had a higher share of
| uninsured deposits. But nothing that SVB did was
| categorically different than other banks, and in the absence
| of a government backstop, I'm not convinced that any US bank
| would fare much better if faced with a similar volume of
| deposit outflows. "Magically" transforming long-dated assets
| into short-dated liabilities wasn't any kind of malfeasance
| on SVB's part - it's just how banking works.
| trilobyte wrote:
| Any investment strategy will require addressing various
| forms of risk and making tradeoffs, but it is a choice. SVB
| did not properly hedge against this risk which, as soon as
| interest rates started rising, should have been a priority
| for their leadership to have a plan to address.
| beezle wrote:
| Well, I'll take issue with your post as you captured the
| problem with the others. Where SVB was different than other
| banks is the absence of hedging. SVB's tier 1 capital was
| basically wiped out by a mark of the HTM portfolio, unlike
| other banks who suffered hits but far, far smaller.
| [deleted]
| fnordpiglet wrote:
| 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 inflation
| became even a whisper, but if it hadn't devolved into a run
| this whole story would be a foot note in a quarterly filing.
| Rather I suspect there was a bit of market manipulation by
| some wealthy valley insiders that took a relatively routine
| asset management event and turned it into a crisis. For
| profit.
| swatcoder wrote:
| 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 on the
| asset position.
| fnordpiglet wrote:
| 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.
| at-fates-hands wrote:
| >> But the cause of the run is the suspicious part to my
| mind.
|
| I've heard multiple reports that one of their large
| investors got wind of their attempts to get a $2B loan so
| they wouldn't lose that money in their bond investments
| and thought it was a huge red flag and was the first to
| take out all of their money. The theory goes it was a
| large SV company, and news travelled on social media and
| the SV financial circles about they did and their belief
| that the bank was about to implode.
|
| This created a long line forming on Friday morning of
| companies wanting to get their money out as well.
|
| I agree, I'm not sure if the rumor was enough to spook
| people, or an orchestrated move by several companies,
| once one company found out what they were doing - but its
| very suspicious. Add in the founders were busy taking
| money at the same time they were liquidating their
| positions, which I'm sure the SEC will have something to
| say about as well.
|
| Add in all the people who may have found out early and
| took out short positions as well who are now poised to
| possibly make a good chunk of money in all this chaos.
| tripletao wrote:
| > They were never, even MTM, under water.
|
| This is completely false. If the SVB (or any other bank)
| had been adequately capitalized on a MTM basis, then they
| could have borrowed from the Fed to withstand any bank
| run. The SVB was not:
|
| https://www.bloomberg.com/news/articles/2023-03-10/the-
| balan...
|
| The hold-to-maturity accounting allowed them to pretend
| otherwise, disregarding losses on long-term bonds when
| interest rates increased. They--and their regulators,
| since such accounting is perfectly legal--hoped this
| would let them ignore the problem until they could earn
| their way out of the hole. Instead interest rates
| increased further, the hole got deeper, and the SVB blew
| up.
|
| It's not impossible that Thiel somehow benefitted from
| the collapse, though I'm not aware of any evidence for
| that yet. It's also possible that he simply didn't want
| his money in an insolvent bank.
| amluto wrote:
| > If you hold a bond to maturity you get it's NPV.
|
| Which, if you are being at all honest, means you calculate
| its present value by applying a discount rate in line with
| current risk free returns over the relevant time horizon,
| which will be a number suspiciously similar to the Treasury
| yield curve, and you will end up with something quite close
| to the mark-to-market value.
|
| (And it has to be this way. Otherwise you could go buy two-
| year-old long dated bonds at a discount on the secondary
| market and make a killing, because the transaction would
| have an immediate NPV gain of 30% or more.)
|
| Banks are a bit unique in that they can generally borrow at
| a cost much lower than the risk free rate due to the
| existence of non-interest-bearing and low-interest
| accounts, but IMO those should be thought of as a variable
| source of future profits, not as a reduction in the risk-
| free rate to be used for financial projections.
| pg314 wrote:
| > If you hold a bond to maturity you get it's NPV. Valuing
| it at NPV vs mark to market
|
| The NPV calculation should use the market intrest rate. If
| you use that, it should be pretty much the same thing: an
| efficient market should value a bond at its NPV.
|
| However, they were allowed to value HTM (hold to maturity)
| bonds at face value. That is just non-sensical from an
| economics perspective and just hides losses.
| lordnacho wrote:
| This is the right answer. Everything that has a market
| should be marked to market. This should be the default
| decision until some kind of good reason it's given to do
| otherwise.
| fach wrote:
| Aren't the order of operations here incorrect? They were
| experiencing a lack of deposits due to VC pullback due to
| the interest rate rise, while depositors did not cut
| spending. This led to a liquidity crunch where they needed
| to sell discounted bonds to fill the gap. When the gap was
| conveyed to shareholders, the run began. If this is true,
| isn't marking to market providing feedback about a
| potential liquidity crunch much earlier, ideally before the
| crunch even begins?
| fnordpiglet wrote:
| The "when the gap" bit is the piece that's suspect to me.
| This isn't an irregular occurrence in the world. The
| events are a little fishy to me because this isn't crisis
| material. Banks go public _precisely_ for the purpose of
| having access to additional liquidity in situations like
| this. The balance sheet hole was _tiny_ compared to their
| assets.
|
| Liquidity calculations for banks definitely include mark
| to market for HTM portfolios. But even then they were
| legally deemed sufficiently liquid. The run on the bank
| wasn't expected or normal behavior.
| wstuartcl wrote:
| this is why imho I see the pull out of the clients
| especially those that happened before the sale offer even
| came to term as an orchestrated ploy to tank the bank and
| then be in a position to offer shark bridge loans to
| those impacted. These were not naive clients making the
| move early -- and to me it seems less to do about the
| actual bank asset state and more to do with wanting blood
| in the water for wringing out equity and loan shark rates
| on those bridge offers.
| beezle wrote:
| If you hold a bond to maturity you get the par value of the
| bond, typically "100"
|
| They were not holding sufficient tier 1 capital against a
| run or they would still be here today. The did, on the
| other hand, have enough to exceed regulatory requirements.
|
| They apparently did not hedge at all and additionally, they
| invested heavily in mortgages which are well known to
| decline more in value in rising rate environments due to
| extension risk.
|
| As an earlier poster noted, the primary reason to have a
| HTM portfolio is to avoid wild swings in reported earnings
| each quarter from a mark to market as their is no counter
| on the balance sheet that rises/falls in a similar manner.
|
| You are probably correct in that if there was not a run it
| likely would be rear view. They would have done their
| capital raise and probably taken additional measures to
| improve their ability to withstand such an event. Of
| course, this all was trigger by a ratings agency and a few
| bloggers calling into question the unrealized losses in the
| HTM portfolio.
|
| Then again, had the stress tests still be in place it is
| unlikely to have even gotten to the capital raise point.
| toast0 wrote:
| > 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.
|
| If you hold a bond to maturity, you get it's Net Present
| Value _at maturity_ which is actually Net Future Value.
| Mark to market of treasury bonds is essentially the NPV of
| the bond, considering current interest rates. When interest
| rates are near zero, sure, a dollar today and a dollar
| tomorrow are the same, with significant interest rates,
| they aren 't. And there's the problem.
|
| You can't give a depositor a $100 treasury bond, due in
| 2028, when they want $100 now. That's only worth $85 today
| (or whatever the value is, I dunno).
| sdfghswe wrote:
| > 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.
|
| Correct. So, if you have customers and you put THEIR money
| into a bond and say you're holding it to maturity, but then
| your customers want their money, what exactly was the plan?
| jmvoodoo wrote:
| So, your plan is to do away with fractional reserve
| banking entirely ? How do you think that would impact GDP
| and the overall functioning of the economy?
| nomay wrote:
| You just explained the businness model of banking.
| sdfghswe wrote:
| Wrong. The business model of banking is managing the
| money to an appropriate duration. Locking it up isn't a
| business model.
| vkou wrote:
| The whole point of banking is that you borrow money from
| your depositors at low interest rates, but at a variable
| term length (The depositor can always withdraw), and you
| lend money to borrowers at high interest rates, but at a
| fixed term length (The bank can't just call in your
| mortgage tomorrow.)
|
| Borrow short, lend long. The latter necessitates 'locking
| money up'.
|
| A well-managed bank will properly manage the risk of the
| short loans getting called.
|
| A poorly-managed bank will go all-in on getting short
| loans from people who are likely all going to call them
| in at the same time (startups), while putting their
| entire lending portfolio into lending long in an
| environment where long-term loans are dropping in value.
| beezle wrote:
| I know you are generalizing but there are times the yield
| curve is the other way and it is better to lend short and
| borrow long. But a well managed bank takes care to
| duration(not maturity) match their assets and liabilities
| while also taking into account liquidity needs and
| buffers. Also, the above applies to use of their own
| capital as well.
| notch898a wrote:
| Demand deposits can be immediately be recalled, so where
| exactly do you suggest they park it? In the central bank
| -- no bueno they've denied banking license for narrow
| banking. Margin lending that allows recall at any moment?
| I can think of some options but frankly I'd rather have
| my money in a bank that over-extends themselves on
| treasuries than most the alternatives. At least I'd most
| likely get 90+% of my money back eventually.
|
| Only retroactively in a bank run are you really able to
| see just what duration and what amounts were the limit.
| sdfghswe wrote:
| > Only retroactively in a bank run are you really able to
| see just what duration and what amounts were the limit.
|
| Exactly, so don't lock it up. Glad you agree with me.
| notch898a wrote:
| So put it where? Narrow banking is illegal by virtue of
| denying the banking license. You're basically left with
| what, something like recallable loans/margin? What are
| the other options?
| tripletao wrote:
| Put it in bonds of whatever duration the bank chooses,
| but require sufficient equity that the shareholders will
| bear the loss and not the depositors?
|
| Interest rates didn't increase in a single step. If the
| SVB had been forced to recognize their losses on a
| continuous MTM basis, then they'd have been forced to
| raise capital (or liquidate if they couldn't) by late
| 2022, when they were undercapitalized but not insolvent.
| The shareholders might still have been zeroed, but the
| depositors would have been fine.
|
| In fact, the SVB designated those bonds as held-to-
| maturity, which allowed them to avoid reporting the loss,
| leaving them adequately capitalized for regulatory
| purposes despite being MTM insolvent. That accounting
| treatment doesn't change the actual economics though, so
| they still blew up.
| selectodude wrote:
| >Put it in bonds of whatever duration the bank chooses,
| but require sufficient equity that the shareholders will
| bear the loss and not the depositors?
|
| But that's literally what they did. They put it in 10
| year treasuries that they had to sell for 87 cents on the
| dollar because every "thought leader" in Silicon Valley
| had the same idea at the same time and triggered a bank
| run on their own bank.
|
| Everybody who has deposits will get 100 percent of their
| money back and everybody who holds equity in SVB will be
| (mostly) wiped out.
| maxbond wrote:
| It's not that they shouldn't have bought treasuries, it's
| that they shouldn't have bought such long dated
| treasuries, and if they did, they should have hedged
| against interest rates, and if they didn't, they should
| have realized the loss when it was smaller. But they did
| none of those things and it was fatal to them.
|
| The Fed kept making it clear that it was raising rates,
| and it seems like SVB just slipped quietly into that good
| night without lifting a finger to save itself. Which is
| bizarre and confusing and there must be more to the story
| (and details are coming out, like the risk manager role
| remaining open for nine months), but it does seem like
| crazy risks were taken. But not in pursuit of additional
| gains, like we are used to seeing, but it's looking more
| like negligence or a misunderstanding of their position.
| reducesuffering wrote:
| They didn't buy treasuries, they bought mortgage-backed
| securities.
| maxbond wrote:
| You can `s/treasuries/mortgage-backed securities/g` into
| my comment and it doesn't change much, but my
| understanding is that they had a lot of treasuries (not
| to the exclusion of having MBSs).
|
| > To fund the redemptions, on Wednesday Silicon Valley
| Bank sold a $21bn bond portfolio consisting mostly of US
| Treasuries.
|
| https://www.theguardian.com/us-news/2023/mar/10/silicon-
| vall...
| refulgentis wrote:
| Correct. And they failed at it. Swap bonds for magic
| beans and see if it's defensible. We know the bonds were
| worth less, but it doesn't obviate failing to manage the
| half of the business that isn't people handing you money
| wolfendin wrote:
| Magic beans could be anything. So I'm not sure that works
| refulgentis wrote:
| Correct. I think you are being blinded by the word
| "bonds" when evaluating the proportions you assign to
| mismanagement vs. being blindsided. I feel inviting
| swapping in a word that is anything except bonds may be a
| way to continue this interesting conversation
| hypothesis wrote:
| Sounds exactly like "held-to-mortality" plan! It does
| appear to work in at least some cases. The rest is
| getting bailed out.
|
| [0] https://news.ycombinator.com/item?id=35130979
| fnordpiglet wrote:
| That's literally the purpose of a bank my friend.
| Welcome, yes, the emperor has no clothes and never has.
| sdfghswe wrote:
| No you didn't answer my question.
|
| You made the case that how you value it depends on the
| plan. So what was the plan?
|
| The answer, of course, was that these people didn't have
| a plan because they're incompetent, and that has nothing
| to do with the "purpose of a bank". It's just
| incompetence, nothing more.
| fnordpiglet wrote:
| The plan in a normal bank operations is to hold a mixture
| of long, medium, short, and liquid assets proportionate
| to a normal heavy withdrawal of funds. No bank stays
| liquid enough to survive the drawdowns they saw, because
| they're not required to by law. They operate within the
| regulatory construct they exist in. The way they pay
| interest on deposits is by investing them to begin with,
| and if they're invested in anything other than cash or
| treasuries, they face liquidity risk. That risk is not
| zero. It's actually not even insubstantial. And risks are
| what the word implies, a risk. In an unlikely situation,
| they are insolvent while they liquidate assets - and
| often their long terms assets must be liquidated at a
| loss. This is literally how every bank operates. This is
| also why the government was able to step in and restore
| bank operations in a few days. They know how banks work
| too, they wrote the rules. So they know _exactly_ what to
| do in this situation - because since it's a risk of
| banking business, it can and will happen.
|
| You seem to understand the concepts enough, where is the
| disconnect? It's genuinely confusing. This isn't a novel
| take on how a bank works.
| fisherjeff wrote:
| I mean, it's a balancing act, right? If you plan to be
| able to accommodate 20% redemption in _a single day_ ,
| you're left with a portfolio maturity of 5 days. You will
| be almost unavoidably marked to market but your yield,
| even when rates are high, is going to be roughly zero and
| you're going out of business anyway.
| yunwal wrote:
| If your customers actions are all highly correlated, you
| need to be planning for things like this. The fact that
| having your whole customer base in a single group chat is
| a bad business model for a bank should not be the
| taxpayers' problem.
| fisherjeff wrote:
| Exactly right. I do think the speed of deposit growth in
| a low rate environment made that challenging though.
|
| Like if it were me, I'd grudgingly buy long-dated assets
| to keep the doors open, but also look toward reducing
| maturity as rates increase and start acquiring customers.
| Problem is that, very roughly speaking, those things only
| work if rates increase more slowly than you can acquire
| new customers.
| wstuartcl wrote:
| it's good then that the funds to support the deposits are
| coming from the bank funded fdic fund not taxes then.
| yunwal wrote:
| The whole argument is whether uninsured deposits should
| be provided by the FDIC. I have no problems with the
| insured amount being returned to customers.
|
| The FDIC is a government owned business and shouldn't be
| acting outside of it's financial interests and
| obligations.
| wstuartcl wrote:
| The other good news is that it will probably net out to
| costing little to nothing in the long term as they had
| enough assets to cover liabilities -- it was a liquidity
| crunch. Seems very much relevant to what the FDIC was
| created for -- to make depositors whole and stop
| contagion. It would be different if the bank was not
| properly asset backed.
| yunwal wrote:
| > The other good news is that it will probably net out to
| costing little to nothing in the long term
|
| If it cost nothing with no risk, surely a larger banking
| institution would have been willing to step in to solve
| it.
|
| > Seems very much relevant to what the FDIC was created
| for
|
| The FDIC was created to be an insurance corporation, not
| to bail out banks at their discretion.
| fisherjeff wrote:
| The only risk for other banks is opportunity cost: right
| now, there are much more productive uses of their money
| than buying old agencies at par. If you had $200b or
| whatever laying around, you could buy their portfolio and
| make about the lowest risk $10b there is. But if you just
| bought new agencies at the same durations instead, you
| could easily double that.
|
| EDIT: To clarify, this is the primary risk at large
| banks, where they could absorb a chunk of the bonds
| without significantly affecting their average maturity.
| Smaller banks obviously risk replaying the SVB run.
| actually_a_dog wrote:
| Banks are not being "bailed out." Depositors are. SVB _no
| longer exists._ Now, you can certainly argue over the
| merits of bailing out depositors, but disingenuously
| framing it as a "bank bailout" is not the position to
| start from.
|
| On that point, the government does have an obligation to
| "provide for the common defense and the general welfare
| of the United States," and that is clearly one of the
| overarching purposes of the Constitution itself. I find
| it hard to argue that saving tens of thousands of jobs[0]
| but by making the depositors whole, when the assets of
| SVB, illiquid though they may be, can cover 60-90% of the
| cost, is at all the wrong thing to do. _This is literally
| part of why we have a government, and why markets are
| regulated at all._
|
| [0]: I couldn't find a good source on the number of jobs,
| but that seems like the correct order of magnitude,
| anyway.
| benlivengood wrote:
| You offer customers CDs if they want higher interest
| rates. Isn't that how it's been done for decades?
| fisherjeff wrote:
| Yes, that would narrow the maturity gap and pass some
| rate risk on to customers. In SVB's case, though, they
| would've needed to sell a _lot_ of CDs relatively
| quickly, which means their rates (i.e., borrowing cost)
| would have to be high.
| wstuartcl wrote:
| They had 13b in cash going into this year and other
| highly liquid assets, those evaporated as the draw downs
| happened. Its not like they tucked away all assets into
| 10 year lockups (or higher risk loans). Even the bonds
| they did lock up -- in what would be considered 99%
| "normal" markets given the last few decades a sell off of
| those bonds would not have been highly problematic. It
| became problematic when they were so low return needing
| to be sold to reblalance the 10/90 rule when market rates
| were much better and they needed to be discounted due to
| the huge rate hikes.
|
| SVB was pretty much considered the "boyscouts" of the
| industry and in normal circumstances they took a super
| conservative placement of the deposits. The only thing
| they could have done better was to (what would have
| normally been considered) overly hedge the bonds reducing
| their return even more.
|
| I personally think they were too transparent with the
| liquidity crunch, and the investors and their companies
| that pulled out 20-30b before they even could execute the
| sell probably saw the ability to crash the bank and offer
| shark hooked bridge funding to the competitive companies
| left in the lurch. Its not like these folks were naive
| clients -- imho they were looking to do damage and get
| blood returns/equity on those bridge funding after the
| fall.
| matthewdgreen wrote:
| They had a customer base that would knife them at the
| first hint of a liquidity issue, then they had a
| liquidity issue. Of course a different approach would
| have reduced their returns, but then they'd still be in
| business.
| beezle wrote:
| Not all of the capital was in a HTM portfolio. SVB I'm
| sure had a good handle on the typical flow of funds and
| based off of that with some margin of error (that was
| obviously not everyone wants everything today).
| cowuser666 wrote:
| this is inherent to fractional reserve banks and maturity
| transformation. any bank would be vulnerable if there's a
| bank run. this is a basic thing to understand before
| making claims on this issue imho.
| ren_engineer wrote:
| at the time they bought them the Fed was saying they had no
| plans to increase rates. You can blame SVB somewhat for not
| hedging but they took the Fed at their word and got burned
| for it, not exactly something that builds confidence in the
| financial system. The Fed bowed to political pressure related
| to high inflation rather than following the plan they laid
| out
| beezle wrote:
| They did not buy everything in one day long before the Fed
| moved. The moves by the Fed were well telegraphed in
| advance and once the initial hike was done it was off to
| the races so to speak.
|
| SVB had many opportunities to do hedge and honestly, why on
| earth should bank or anyone else "take the Fed at their
| word". People make mistakes, institutions make mistakes,
| people misunderstand and on and on.
| sdfghswe wrote:
| > The Fed bowed to political pressure related to high
| inflation rather than following the plan they laid out
|
| When circumstances changed, they changed their plan. What
| do you normally do?
| watwut wrote:
| They had no plans, things changed, plans changed. It is
| completely valid to blame SVB for not hedging. It is valid
| to blame them for lobbying to loose up regulation over how
| much risk they can take too.
|
| If anything is damaging trust, it is banks and investors
| lobbying to loosen up regulations, claiming the banks are
| too small to pose systemic risks and then ask for special
| exceptions the moment it does not work out.
| reducesuffering wrote:
| The Fed never said they wouldn't raise rates for 10 years,
| which is the duration that SVB bought mortgage-backed
| securities for. The Fed didn't bow to political pressure,
| they _are_ following the plan which is their dual-mandate
| for 2% inflation and maximum employment. They had rates at
| 0 while employment numbers were bad, now that employment #
| 's are good and inflation is bad, it was time to raise
| rates. It's a balancing act.
| twblalock wrote:
| It's also very unlikely that SVB is the only bank that made
| those kind of investments back when rates were low.
| ajross wrote:
| > Now, SVB, loaded with money, could have tried loaning it like
| crazy, but instead, decided to go the conservative way and buy
| bonds.
|
| That's revisionist and silly[1]. Spending all your liquidity on
| long term bonds isn't "conservative" _if you 're a bank_. It's
| not your money! It's your customer's money that you're just
| holding for them, and you just dropped it all in a vehicle that
| doesn't mature for 10 years. What if the customers want their
| money back? Yeah, we just found out.
|
| No, the conservative option if you can't invest it is just to
| sit on it. That's what banks do. They sit on other people's
| money. That they are _allowed_ to spend some of that money on
| speculation is a reasonable optimization, but it 's just that.
| Obviously just sitting on it wasn't going to get the returns
| they'd promised to investors though. So they placed bets
| instead.
|
| [1] And I'm not going to touch the idea that the "authorities"
| somehow forced them into this. No. Just no.
| wins32767 wrote:
| Do you really think putting it out as mortgages would lock
| the money up for a shorter duration? SVB had a reasonable
| amount of liquidity for normal stresses. They'd gotten close
| to breaching their regulatory cushion for spare capital which
| was why they were trying to recapitalize.
|
| However once the VCs panicked started a bank run, they
| folded. Just like literally any bank would. ~45b of net
| withdrawals in a single day is going to cause any bank
| significant trouble.
| lscharen wrote:
| If SVB were _originating_ mortgages then, yes, that should
| have helped because then, like every other originator, they
| would have immediately sold the mortgage into the secondary
| market where it would be turned into a Mortgage-Backed
| Security and SVB would have cash on-hand and unloaded the
| long-duration risk.
|
| Instead, they were the ones _buying_ the MBSs and _taking
| on_ the long-duration risk.
| initplus wrote:
| The government actually wants banks to speculate with
| customer funds. You might think that the safest bank would be
| one that doesn't do anything with customer deposits, just
| sits on them.
|
| Well this "safe bank" actually falls foul of US banking
| regulation - there are regulatory requirements for minimum
| levels of "speculation" as a bank.
|
| Now clearly SVB got in over their heads here with risk. But
| just sit on all the money isn't a legal alternative.
| [deleted]
| swatcoder wrote:
| 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 for discussion about systemic issues in our
| society, but doesn't absolve SVB of being the most proximate
| "root cause" of their own problems.
| ramesh31 wrote:
| >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.
| tracker1 wrote:
| I think the failure, in terms of regulation, is holding
| accountability in the first place when they violate
| existing laws and SEC regulations. Not to mention, ever
| actually holding executives and boards to account in terms
| of liability against their personal wealth.
| rufus_foreman wrote:
| >> even if we could argue that SVB should have been more
| prescient, it is clear that the root cause of the problems is
| the actions of the government and the FED
|
| From SVB's bio of President and CEO Greg Becker at
| https://www.svb.com/profile/greg-becker:
|
| "He is a Class A Director for the Federal Reserve Bank of San
| Francisco"
| tppiotrowski wrote:
| I don't know much about finance and have never worked in
| banking but anyone more than 40 years old should know that fed
| rates can go into double digits. It's not like a black swan.
| It's happened before so I'm a bit surprised people are so
| shocked by the feds moves.
| psychlops wrote:
| Not taking the side, but there is a strong belief that the
| fed can't raise rates much more as it needs to inflate away a
| large portion of debt to get the economy back on track. It's
| unlikely we will see a volcker economy halting maneuver
| anytime soon.
| jmull wrote:
| > it is clear that the root cause of the problems is the
| actions of the government and the FED
|
| That's not clear to me.
|
| I think the purpose of banks is to handle funds well. If a bank
| is "made" to "see itself with a glut of funds" it's needs to be
| able to figure out how to handle that.
|
| I'm not endorsing the last several decades of federal monetary
| policy, but regardless, it doesn't make senses that it should
| necessarily focus on making things simple for regional banks.
| jonnycomputer wrote:
| Always want someone else to blame, and why not the Fed. Nobody
| likes them.
| Workaccount2 wrote:
| >decided to go the conservative way and buy bonds.
|
| While strictly true, they did decide to go with long dated
| bonds that would tie up those funds for years potentially.
| Typically banks will buy bonds of shorter duration.
|
| SVB however couldn't resist the higher interest rates of those
| long dated bonds. IIRC they had an average maturity of six
| years, whereas most banks are typically under one year.
| garyfirestorm wrote:
| Just saying not all other banks are collapsing like SVB. They
| were over leveraged and played a risky game. That came to bite
| them. So it's important to point blame at the issue and if 98%
| of other banks didn't engage in this behavior then it's not fed
| issue or systemic issue.
| juve1996 wrote:
| > But in the end, even if we could argue that SVB should have
| been more prescient, it is clear that the root cause of the
| problems is the actions of the government and the FED.
|
| The fact that many other banks were prescient disproves this
| point handily.
| yunwal wrote:
| This is obviously also stupid, but no other bank has the vast
| majority of their clientele clued into a single group chat
| discussion
| dpweb wrote:
| Glut yes, but that not the cause - nor was the bank run.
| Simply, hubris.
|
| They bet billions on zero interest rate policy and didn't hedge
| that bet.
|
| Glut or no glut, would have failed just like LTCM or any other
| huge bets that failed to consider tail risk.
| Waterluvian wrote:
| I appreciate you're just playing Devil's Arbalest here, but
| this feels like the least libertarian take possible. It's the
| government's fault that my customers are handing me so much
| money to manage and I managed it poorly?
|
| Admittedly, I still don't fully understand the link between
| investing too cautiously and seeing poor returns and there
| being a run on the bank.
| Swenrekcah wrote:
| The link is that the investments went down in value and so
| the bank couldn't sell enough of them when they suddenly
| needed a lot of money to pay out deposits.
|
| I agree it's peculiar to phrase it as the government is to
| blame. Except perhaps to the degree that the government in
| 2018 relaxed risk test requirements that would otherwise have
| included SVB, those requirements were originally set after
| and in response to the 2008 collapse.
|
| But ultimately the blame lies with the bank executives.
| jmyeet wrote:
| > it is clear that the root cause of the problems is the
| actions of the government and the FED.
|
| No it's not.
|
| SVB bought 10 year MBS a couple of years ago to hold capital.
| They could've instead just rolled 90 day Fed debt and thus have
| been largely immune to interest rate changes. What they did was
| they took a risk with custodial assets. This is 100% the bank's
| fault.
|
| Why did they do that? Because 10 year MBS had a higher yield
| than 90 day debt. So they took a risk. Why? For the benefit of
| executives and shareholders.
|
| SVB did this to themselves, possibly with Thiel instigating a
| bank run for whatever reason.
| WinstonSmith84 wrote:
| Reasonably, the least we could expect from a bank is to keep
| the money we give to them, instead of gambling it. But even
| that, despite all the audits, is not a given, as a matter of
| fact.
|
| I wish to see the proof of reserve implemented for traditional
| banks, or the trust will just keep eroding...
| khyryk wrote:
| Loading up on bonds when rates are rock bottom instead of bills
| is asking for trouble. Sure, when yields are at averages or
| historic highs, back the truck up; otherwise, there's not much
| difference between yielding 0% and 1%, but a lot of difference
| in liquidity.
|
| As an aside, I remember in recent times various institutions,
| either by law or voluntarily, loading up on long term bonds at
| 0% +/- 0.5% bonds. I'm sure that's going to be a fun situation
| should they face even a slight liquidity crisis of, say, more
| retirees pulling money out than there are young people
| depositing into pensions and whatnot.
| jurassic wrote:
| Can you explain the difference between bills and bonds and
| why the difference was significant in this case? For myself
| and probably a lot of engineers reading this comment, it
| seems like inside baseball.
| khyryk wrote:
| Bills are shorter duration, bonds are longer duration. You
| can look up the terms to get exact time ranges. When the
| yields for both are very low, there's next to no upside to
| holding onto the low yield for longer. The downside is that
| if one is in critical need of cash immediately, nobody
| wants the old low-yield (compared to current yields) bonds
| and will only buy them at a discount. For bills, due to the
| shorter duration, extra liquidity is built-in.
| TuringNYC wrote:
| >> But in the end, even if we could argue that SVB should have
| been more prescient, it is clear that the root cause of the
| problems is the actions of the government and the FED.
|
| Once the losses on their bonds approached the totality of the
| SVB equity tier, they should have either accepted the loss, or
| they should have hedged it away (with an interest rate swap,
| and locked in a loss.) At that point they would have had to
| declare the loss (not hide behind AFS accounting treatment) --
| and taken a massive equity hit. However, in the above case, the
| depositors would not have been at risk.
|
| SVB would have lost equity value, but would be a going concern.
| Instead, once SVB's unrealized losses piled up, SVB rolled the
| dice hoping things would turn and effectively bet depositor
| money.
|
| This is not the customers/depositors' fault.
|
| This is not the government's fault.
|
| This is not the Fed's fault.
|
| This is the fault of bank management, specifically
| risk+accounting+exec teams.
| GavinMcG wrote:
| Putting all their eggs in an illiquid basket was not
| "conservative" and the interest rate exposure they had for some
| time was not unforeseeable.
| dools wrote:
| > Now, SVB, loaded with money, could have tried loaning it like
| crazy, but instead, decided to go the conservative way and buy
| bonds.
|
| They did try to originate more credit, but couldn't.
|
| But you don't "loan out deposits". Having deposits makes your
| credit creation more profitable because the cost of that
| capital is zero, but you only need reserves sufficient to
| satisfy net flows of funds.
|
| EDIT: Also note that if the bank buys government bonds, the
| central bank will always buy them back (or at the very least
| lend you money against them very inexpensively). Government
| securities satisfy liquidity requirements.
| NovemberWhiskey wrote:
| > _decided to go the conservative way and buy bonds._
|
| Just because government bonds are unlikely to default, that
| doesn't make acquiring them "conservative". If you're a bank,
| with an entire function dedicated to making sure that assets
| match liabilities ("treasury"), and that ought to be aware of
| things like "DV01" and "duration risk", then you're supposed to
| know this.
| mathattack wrote:
| It's not a matter of being prescient. They made an explicit
| bet. "Rates won't go down, so let's get as much yield as
| possible via long term securities"
|
| They could have just as easily done what most other financial
| institutions do: match the duration of their liabilities with
| the duration of their bonds. If people can quickly pull their
| money, then keep the money in short term bonds and money market
| funds.
|
| The problem with that is it's harder to make big bonuses when
| you're being fiscally conservative.
| dboreham wrote:
| They also had to pay out significant interest to depositors.
| The graph of those outflows looks like a hockey stick. So
| seeking a high return on their assets wasn't unreasonable.
| Presumably if they had paid low interest on deposits,
| depositors would have moved their money to some other
| institution, leading to the same outcome.
| mathattack wrote:
| They chose to. They didn't need to. If they were getting
| too many deposits, they could lower the interest they paid
| on them.
|
| The problem is they bought a bunch of long dates securities
| yielding 1.5-2% and when the deposits flooded in they
| started paying more than 1.5-2%.
|
| They have been better off buying T bills or something else
| without duration risk and paying something less than Fed
| Funds. This is what most banks do.
| jojobas wrote:
| A typical libertarian response is "I've been robbed with taxes
| for so long, might as well use the help". They'd still prefer to
| not pay the taxes.
| olivermarks wrote:
| A few libertarians are no match for the California supermajority
| and their pals, which of course includes the @FT...
|
| https://openthebooks.substack.com/p/the-silicon-valley-bank-...
| newman314 wrote:
| I once read somewhere that "Libertarians are like Republican
| housecats" and I suppose that sounds about right.
|
| Housecats are convinced that they are fully independent and do
| not need "you" for anything.
| braingenious wrote:
| This reminds me of one of my favorite books from the past couple
| years, A Libertarian Walks Into a Bear.
|
| It's a fascinating deep dive into an attempt to create a sort of
| libertarian utopia in a small town called Grafton, New Hampshire.
| The speed at which they arrive at "we need government services"
| after they eviscerate government services is... unsurprising.
|
| 10/10 I highly recommend it for anyone that's interested in real-
| life examples of libertarianism as applied to real populations in
| the real world.
|
| https://www.goodreads.com/book/show/50358538-a-libertarian-w...
| mtlmtlmtlmtl wrote:
| I'm probably wrong more often than I'm right when it comes to
| politics on average.
|
| But libertarianism has been obviously illogical to me since I
| was about 15, half my lifetime ago. Since then I've spoken to
| some very intelligent libertarians at length and... nope, it
| still doesn't make any sense. It makes less sense than ever, in
| fact. At least when I was 15 I just thought they must be
| stupid, but no, not necessarily. Now my operating theory is
| that it's similar to how some people become completely
| engrossed in a fictional universe and wish it was the real
| world.
| dools wrote:
| Check out the Dave Troy podcast Dave Troy Presents
| mtlmtlmtlmtl wrote:
| Looks very interesting. Thanks for the recommendation!
| bigtex88 wrote:
| That's because it is illogical.
|
| "There are two novels that can change a bookish fourteen-year
| old's life: The Lord of the Rings and Atlas Shrugged. One is
| a childish fantasy that often engenders a lifelong obsession
| with its unbelievable heroes, leading to an emotionally
| stunted, socially crippled adulthood, unable to deal with the
| real world. The other, of course, involves orcs."
|
| Libertarians are stuck in a pubescent state-of-mind and are
| wholly incapable of viewing the real world as it is. Hence
| their absolutely insane "political leanings".
| mtlmtlmtlmtl wrote:
| Who's that quote from? It's funny you should use that one,
| I happen to be an avid Tolkien nerd, starting around that
| age :D
|
| Bit of a tangent, but it continues to amaze how relevant
| Tolkien continues to be to this day considering he started
| developing his legendarium almost a century ago now. Gender
| issues, sexism, addiction, free will, the allure of power
| and wealth, all explored in an amazingly prescient way that
| still stands up to scrutiny today.
| JabavuAdams wrote:
| It hasn't aged well in some other ways. I was a die-hard
| Tolkien fan from an early age -- I think I read LotR at
| around age 10 or so. But ... it's kind of hard to read to
| your beautiful brown daughter when you constantly have to
| stop and do teaching moments because Tolkien goes on and
| on about how fair and beautiful all the good guys are,
| and how swarthy etc. the nasty Southrons are.
| vxNsr wrote:
| Or you could just explain that fair and beautiful refer
| to the content of their character and swarthy is a
| synonym for smarmy, or evil and has nothing to do with
| skin color at all.
| oblio wrote:
| But that's not what he meant and we both know it.
| mtlmtlmtlmtl wrote:
| True, it hasn't held up in that sense.
|
| Although diving deeper into the legendarium, there is the
| fact that the southrons and easterlings were corrupted by
| Sauron to worship him as a god. So you could choose to
| view those descriptions as consequences of that rather
| than perceived racial or cultural inferiority. And indeed
| the "fair and beautiful" Numenoreans were at one point
| corrupted by Sauron in very much the same way.
|
| But yeah, you definitely have to give Tolkien a lot of
| help on this one, and it's not terribly helpful in the
| context of reading to your children :/
| vxNsr wrote:
| Cool, now do socialism.
|
| Anything in the extreme is bad. Can any system work if
| everyone acts perfectly rationally and and the same time with
| full empathy? Sure, but such people in reality are few and
| far between so instead we need to account for the edge cases
| of which there are many. And as any good software engineer
| knows you end up spending 80% of your time chasing down the
| last 1% of your edge cases.
| fidgewidge wrote:
| This book isn't about libertarians. It's about anarchists.
|
| "Once upon a time, a group of libertarians got together and
| hatched the Free Town Project, a plan to take over an American
| town and completely eliminate its government ... They built a
| tent city in an effort to get off the grid. The bears smelled
| food and opportunity."
|
| Nobody who knows anything about libertarians and is trying to
| accurately represent it would write that, because the whole
| reason it exists as an independent thing from anarchism is that
| libertarians do _not_ want to eliminate the government. They
| have very clear ideas about what exactly the government should
| do and that role is much less expansive than in a socialist
| country or even in America of today, but it 's not literally
| nothing and it certainly doesn't involve living in tents.
| That's much closer to the Occupy Wall Street crowd in behaviour
| than libertarians.
| tracker1 wrote:
| I think that government should exist to implicitly ensure
| essential infrastructure. What is essential is up for debate,
| but generally can include, common defense, upholding contract
| law and enabling transportation, trade and commerce. In this
| day and age, I think internet, telephone and radio
| communications would be included as well.
|
| Anarchists will often identify as Libertarians, as there are
| also left-leaning Libertarians that I don't really get as
| well. I'm a bit more pragmatic in terms of a from where we
| are standpoint in that I think there are less intrusive
| solutions to many problems than full regulation or more
| government. I think the crux is starting by holding those
| that are responsible for these things (corporate or banking
| execs and boards) liable for their decisions and actions,
| which doesn't happen currently, and most Libertarians I know
| would celebrate.
| doctor_eval wrote:
| OK, but US style right-libertarianism is also known as
| anarcho-capitalism [0], and the line between that and anarchy
| - which resists hierarchy, not organisation - is pretty thin.
| The main difference is that anarcho-capitalism,
| unsurprisingly, deeply favours those who own property.
|
| [0] https://en.m.wikipedia.org/wiki/Anarcho-capitalism
| fidgewidge wrote:
| Libertarianism isn't the same as anarcho-capitalism. If
| some people are claiming they're the same thing then, well,
| see above.
| wnevets wrote:
| A more recent example is the water crisis taking place in
| Cochise county.
|
| https://grist.org/regulation/arizona-groundwater-cochise-cou...
| karaterobot wrote:
| I know a few libertarians, and I've never heard of them "we
| don't need government services". I think that's the straw man
| version of libertarianism, the one that's easiest to dismiss.
|
| It's always a question of which services are best provided by
| the government, and which are best provided by private
| entities, or partnership of the two. Different libertarians
| arrive at different definitions of "state capacity".
|
| I really don't think of that philosophically as being quite as
| simple as it's portrayed a lot of the time. In fact, I'd say
| it's harder to predict what a libertarian believes, since that
| group has more than its share of contrarians.
| varispeed wrote:
| Libertarianism, socialism, capitalism etc. all fail to take into
| account human nature and that's where all the conflicts come
| from.
|
| Regulation is necessary to ensure that people who manage to get
| into position of power, who have certain kinds of personality
| disorders and other issues won't be able to game the system to
| their own personal advantage or satisfaction.
|
| In most cases whether it is socialism or capitalism, while they
| have good intentions, they are always ruined by corruption and
| other other undesirable behaviours that typically people climbing
| to the top have.
| UncleSlacky wrote:
| "To look at people in capitalist society and conclude that
| human nature is egoism, is like looking at people in a factory
| where pollution is destroying their lungs and saying that it is
| human nature to cough." - Andrew Collier
| balderdash wrote:
| While libertarian tendencies may be more prevalent in the VC
| community, they seem to still be a small minority (or at least
| that's my perception).
|
| I for one undoubtedly think the treasuries actions create real
| moral hazard, but also am grateful that the depositors
| potentially affected by this won't be harmed...
| kodah wrote:
| Other than Peter Thiel there's not a lot of Libertarians on
| this list:
| https://www.opensecrets.org/industries/contrib.php?cycle=202...
|
| This conjecture about Libertarians in tech is dated. Might've
| been true in the 90s, but the industry has been captured since
| then.
| yunwal wrote:
| To say this when crypto-currency has been hailed as
| disrupting the dollar by half of Silicon Valley is
| astonishing.
| kodah wrote:
| To conflate political alignment with investor opportunism
| is astonishing.
| yunwal wrote:
| Oh ok so they're only libertarian when it benefits them
| financially. I actually don't think anyone disagrees with
| that.
| kodah wrote:
| You should probably look at the link my guy. 13/20 of
| those definitely aren't Libertarians.
| yunwal wrote:
| I don't care about what political party they belong to.
| Do they regularly argue to slash regulations on the basis
| of government=bad? Do they routinely try to convince
| people that technology companies should be in charge of
| social organization rather than the government?
|
| This is the type of shit that gets talked about at VC
| conferences all the time: https://youtu.be/K8JIzP8HmjQ
| [deleted]
| kodah wrote:
| Great, so sounds like we've found the actual culprit
| then. Technology companies and investors, despite their
| political affiliations, actually like a hands off
| environment.
|
| Do you understand how that's a little different from your
| Libertarian strawman?
| yunwal wrote:
| Libertarian is not just a political party. It's a set of
| ideas and beliefs. VCs and founders in SV routinely
| espouse these beliefs and try to pull both major parties
| in their direction.
|
| There are plenty of communists out there voting for
| democrats but that doesn't make them not communists.
| Apocryphon wrote:
| Wanting a hands off business environment automatically
| puts one and the same tendency as libertarianism, as a
| fellow traveller. Neoliberals, deregulator
| Reaganites/Thatcherites, Grover Norquist "starve the
| beast" types, etc. they're all adjacent to libertarians.
| Even Bill Clinton and the New Democrats are not that far
| from libertarianism, as they were comparatively fiscally
| conservative than earlier versions of the Democratic
| Party and pushed for financial deregulation and
| championed market-based solutions!
|
| And even a cursory glance at the OpenSecrets list shows
| that the two party dichotomy is a false one. For
| instance, Marc Andreessen at least nominally supported
| Romney in 2012, then Carly Fiorina in 2016. Does that
| sound like a far leftist who is against libertarian
| ideals?
| malermeister wrote:
| Libertarianism is opportunism as a political alignment.
| kodah wrote:
| [flagged]
| malermeister wrote:
| Is there anything factually wrong with that statement or
| is this just a cheap attempt at an ad hominem?
| ummonk wrote:
| Nobody asked for bailouts to crypto banks / exchanges
| though.
| yunwal wrote:
| How is this relevant?
|
| The comment I was responding to stated that there's no
| underlying libertarian streak in Silicon Valley. That's
| clearly false.
| ummonk wrote:
| 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
| engage in normal banking behavior as desired by the government
| instead of trying to adhere to 250k limits on deposit sizes.
| JohnFen wrote:
| > 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.
| initplus wrote:
| Splitting deposits to stay under the 250k limit is artificial
| behaviour that doesn't change the overall risk profile for
| FDIC. The total amount of money covered by insurance is the
| same regardless of how it's subdivided.
|
| Splitting up deposits isn't the intended outcome by
| regulators here. It doesn't actually achieve anything
| meaningful.
| em500 wrote:
| Splitting deposits to stay under the 250k limit would have
| reduced funding for this specific, narrow focused bank with
| an exceptionally high duration risk. It's less likely that
| the customers would try to pull 250k from 4 bank accounts
| at once because they believe all of them are unsafe than 1M
| from a single account. How could that not change the
| overall risk profile for the FDIC?
| JohnFen wrote:
| Splitting deposits isn't the only option and is often not
| the best one. There are a number of other solutions
| available, including buying your own insurance. FDIC
| insurance isn't the only insurance available (and isn't
| even intended primarily for businesses). It's just the free
| one.
| initplus wrote:
| There isn't enough money in the world to insure the bank
| deposits of every business. Think about how big insurers
| would have to be if they needed to insure all the
| deposits of every business. "Every business should have
| private deposit insurance" isn't the goal of regulators
| because it's not a workable solution.
|
| So instead the government acts as a sort of "insurer of
| last resort" by promising they will do everything they
| can to protect depositors in the case of banking
| instability.
| anon291 wrote:
| I mean... I'm fine with less regulation so long as we actually
| let large businesses and investors fail.
| sdfghswe wrote:
| Which is exactly what is happening here. A large business is
| failing and its investors are losing their investment.
| doodlesdev wrote:
| 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?
| thereddaikon wrote:
| They are getting it from liquidating the assets of the
| Bank. There are three parties who are "owed" here. The
| depositors, holders of debt and investors. Depositors are
| being made whole. Anyone who holds secured debt will get
| what's left. Owners of unsecured debt and investors are
| left out. Which is fine by me.
| johnbellone wrote:
| Those assets may take years to liquidate. Nobody wants to
| be in the business of holding the bag on an interest free
| loan for that length of time. Especially when that totals
| to >$150B.
| doodlesdev wrote:
| > Owners of unsecured debt and investors are left out.
| Which is fine by me.
|
| Also fine by me.
|
| The distinction I attempted to make in my comment was
| that there are actually something like four parties in
| this case: Holders of debt, investors, insured deposits
| and uninsured deposits. I find it absurd the FDIC is
| going to realize a loss to cover uninsured deposits,
| because that's simply not what they should do if they
| followed their own standard. Remember, even though it's
| state-owned the FDIC is a company, Americans should be
| worried if the FDIC takes actions that could ultimately
| put in risk money that _is_ actually insured. If they run
| dry, they will have to tap into the government's pockets
| and that's when shit truly hits the fan.
| sdfghswe wrote:
| 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?
| johnbellone wrote:
| So, what's the point of having an explicit insurance
| limit?
|
| Any account used for business operating expenses needs to
| be mandated to have premium insurance on it. That same
| insurance should be available for all depositors.
|
| The next time this happens if you do not have that
| insurance you receive your receivership certificate and
| wait for your dividends. Like everyone else.
| doodlesdev wrote:
| 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/mayrarodriguezvalladare
| s/2023/0...
| senko wrote:
| > 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.
|
| And then a bunch of small business fail, then everyone
| else looks at 20 other small and middle-tier banks and
| realizes they don't want to end up the same way and pull
| their money out, then they fail, per your suggestion FDIC
| still does nothing, then another couple dozen banks and
| couple thousand business fail ...and next week you're
| back in 2008.
| eep_social wrote:
| You are echoing bullshit driven by the VC freak out over
| the weekend. There are literally hundreds of ways that
| actual small businesses could have bridged this
| disruption. Those that failed this basic risk-management
| exercise would have richly deserved what they got. How
| else are they going to learn?
| Gwypaas wrote:
| > And then a bunch of small business fail, then everyone
| else looks at 20 other small and middle-tier banks and
| realizes they don't want to end up the same way and pull
| their money out, then they fail, per your suggestion FDIC
| still does nothing, then another couple dozen banks and
| couple thousand business fail ...and next week you're
| back in 2008.
|
| That is already in motion. Every company that had yet to
| do it is now looking into its liquidity management.
| doodlesdev wrote:
| > And then a bunch of small business fail, then everyone
| else looks at 20 other small and middle-tier banks and
| realizes they don't want to end up the same way and pull
| their money out, then they fail
|
| Why the hell should a bank fail if people take their
| money out of it? THAT's the problem. It's just not a
| thing in other parts of the world _even with fractional
| banking_. The fact a "bank run" can generate losses for
| depositors is simply a consequence of a lack of
| regulation. The further fact this can generate a
| "contagion" is a consequence of the banking system simply
| not hedging their investments correctly and not applying
| simple risk-management mechanisms, and they do it for the
| same reason: lack of regulation that keeps the
| accountable.
|
| Again, this kind of problem simply doesn't exist
| elsewhere. Just look outside the United States and the
| solution is simple: either you deregulate or you
| regulate, you can't have your cake and eat it too.
| sdfghswe wrote:
| > 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
|
| To which someone like would you say "but who's paying for
| that? the other banks? and guess where their money comes
| from?
| doodlesdev wrote:
| That is ok as long everyone plays by the same rules. The
| problem I have specifically is the fact they are making a
| "special exception" for Silicon Valley bank, but haven't
| done for other bank collapses. This case of course had
| the potential to generate contagion, but if that's a
| thing that happens too often, then there is a systemic
| issue with how banks are regulated in the United States.
| I should note this is my point of view as an outsider.
| Outside the United States issues such as the one we are
| discussing simply aren't a thing because banks are held
| to much larger scrutiny, and thus spending depositors
| money into MBS is not really a thing.
|
| Again, regardless of your political stance or economical,
| I recommend you read the linked Forbes article about the
| "Reform Act" I linked to previously [0].
|
| [0]: https://www.forbes.com/sites/mayrarodriguezvalladare
| s/2023/0...
| tracker1 wrote:
| I'm inside the US and generally agree. Those that had
| deposits over 250k should be prepared to lose the
| estimated ~10% or so... as for the shareholders, they
| should be prepared to lose all... and the executives and
| board members who drew fat bonuses or sold stock in the
| past few months should see it clawed back and be held
| personally liable for the losses, and if that bankrupts
| them, so be it.
|
| That also doesn't count possible insider trading for
| recent stock sales.
| ummonk wrote:
| 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.
| doodlesdev wrote:
| That would all be ideal and ok if fractional banking
| wasn't a thing. Your bank makes money out of investing
| your money. That's just how it works. But for some
| reason, some banks are more privileged than others.
| Citibank can't stop receiving bailouts every 50
| microseconds because their management sucks. Silicon
| Valley Bank depositors receive back money from
| _uninsured_ deposits. Ultimately, someone has to pay the
| bill.
|
| I'm not saying prevent the contagion is a bad thing. We
| all know what happens when contagion becomes a systemic
| problem (2008). What I'm suggesting is that the fact a
| bank like this can even fail in a way like this is
| absurd. I'm mostly someone who defends less regulation
| over more, but if we are going to regulate banks we need
| to hold everyone to the same standards, and make sure
| everyone is accountable for their mistakes and risks
| taken. If that requires the FDIC raising the amount of
| deposits that are insured, sure, go with it, but creating
| "exceptions" every time a medium-sized bank fails is sure
| to create moral problems, corruption and increase
| inequality systematically.
|
| What I'm talking about is thing such as the "Reform Act"
| from 2018, which was basically what allowed this Silicon
| Valley Bank disaster to happen [0].
|
| [0]: https://www.forbes.com/sites/mayrarodriguezvalladare
| s/2023/0...
| breck wrote:
| > but guess from where the banks get money from?
|
| Oh, I know this one! https://breckyunits.com/the-great-
| bank-robbery.html
| anon291 wrote:
| Well no it's not. Depositors,especially large ones, are
| creditors.
|
| What's going on here is the fed is deciding that certain
| creditors are too big to fail.
| cypherpunks01 wrote:
| https://t.co/kw7ykC3763
|
| Without paywall courtesy of FT twitter post
| colpabar wrote:
| So I'm assuming that's a link posted on twitter that includes
| some flag that prevents the site from paywalling the article?
| Neat.
|
| I'll still post a humble archive link as well.
|
| https://archive.is/6MBEL
| cypherpunks01 wrote:
| Yes, FT's article links posted on twitter have a cool
| behavior where it bypasses paywall if you enter through the
| right Referer (I assume)
|
| Garnered from
| https://twitter.com/FT/status/1635265357048082435
|
| I like them for this, but I don't see a lot of other news
| outlets doing this. Most other places simply post links to
| their paywalled articles.
| doodlesdev wrote:
| It's just Google Tag Manager, that's also why if you have
| JavaScript disabled or ClearURLs (or similar) it won't work
| as they won't be able to see the UTM tag.
| shagie wrote:
| Chasing links... https://t.co/kw7ykC3763
| returns a 301 to https://on.ft.com/3Jy8UBY
| https://on.ft.com/3Jy8UBY returns a 301 to
| https://ft.trib.al/b2FR72U https://ft.trib.al/b2FR72U
| returns a 301 to https://www.ft.com/content/ebba73d9-d319-463
| 4-aa09-bbf09ee4a03b
|
| There's certainly some magic with going from the t.co link -
| going to the other two direct hit the paywall.
| :method: GET :scheme: https :authority:
| www.ft.com :path:
| /content/ebba73d9-d319-4634-aa09-bbf09ee4a03b {cookie
| with lots of stuff in it redacted} Accept: text/html,
| application/xhtml+xml,application/xml;q=0.9,*/*;q=0.8
| Accept-Encoding: gzip, deflate, br Host: www.ft.com
| User-Agent: Mozilla/5.0 (Macintosh; Intel Mac OS X 10_15_7)
| AppleWebKit/605.1.15 (KHTML, like Gecko) Version/16.3
| Safari/605.1.15 Accept-Language: en-US,en;q=0.9
| Referer: https://t.co/ Connection: keep-alive
|
| Yep, there's a referer in there.
|
| Curling the page gets the trial text (ghads that's verbose
| html). curl --referer https://t.co/ https:/
| /www.ft.com/content/ebba73d9-d319-4634-aa09-bbf09ee4a03b |
| less
|
| And that returns the expected trial-less text.
| tus666 wrote:
| Is there any evidence they were libertarians to begin with? Peter
| Thiel might be, but he isn't asking for a bailout - he got
| himself out.
| Analemma_ wrote:
| Yes, lots. There's a fun meme going around where you take any
| random VC ""thoughtleader"" demanding a complete backstop for
| SVB depositors and search "bailout until:2023-03-09" on their
| Twitter account to see what they thought about bailouts and
| moral hazard before last Thursday.
| BurningFrog wrote:
| I don't have any polls to support this, but I'd be very
| surprised if the median VC thoughtleader is particularly
| libertarian.
|
| There are a few outspoken ones, sure. But just a few.
| storf45 wrote:
| I'm proudly libertarian - in fact, we have an explanation for
| these boom/bust business cycles via
| https://en.wikipedia.org/wiki/Austrian_business_cycle_theory.
| Libertarians have criticized cheap/free money for a very long
| time so it's not surprising that an institution that had to
| invest excess deposits into 'safe' treasuries is in trouble once
| interest rates started to rise. There are likely many other
| banks, company's, and institutions in trouble right now because
| of operating assumptions build on free/cheap money are invalid.
| dools wrote:
| The natural rate of interest is zero for money with a floating
| exchange rate. Governments interfere to increase the interest
| rate, not lower it.
| Animats wrote:
| Right.
|
| Without a bailout, each customer would have $250K today (if they
| had that much n deposit) and probably another 10-20% this week,
| as assets were sold off. The FDIC could have worked a deal so
| that depositors were paid off in a few weeks, but in Treasury
| bonds with 5-10 years to maturity, to match the maturities of SVB
| assets. Depositors who really had to could sell their bonds
| immediately at a discount. That would have given time to
| liquidate SVB's loan portfolio. Depositors probably would have
| lost 5%-20%.
| Waterluvian wrote:
| > 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" ?
| Animats wrote:
| 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 slowly. That's what they do after a
| bank failure. Depositors would have quick liquidity if they
| wanted, but it would cost them something.
|
| Is SVB's balance sheet, from the FDIC, out yet?
| Waterluvian wrote:
| 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."
| nerdponx wrote:
| I think they are also rebuilding the backup pie stash by
| charging everyone a slightly bigger slice of pie than
| before.
| steve76 wrote:
| [dead]
| FormerBandmate wrote:
| There would have also been massive bank runs. Check out
| regional bank stocks, tons of them were down 30% this morning
| for no reason and a lot are still down. The rich panicked,
| which destroyed Washington Mutual and Wachovia in 08 and caused
| both the Great Recession and Great Depression
| david927 wrote:
| > for no reason
|
| For reason. This is far from over.
| epistasis wrote:
| The only thing we have to fear is fear itself!
|
| Bank runs are quite often a crisis of unreason, and I think
| this one is mostly caused by poor communication. The
| contagion effect is as much a mental virus as it is an
| assessment of liquidity.
| anon291 wrote:
| Okay well banks are not owed existence. If the banks went out
| of business give the deposit holders the choice of holding
| the underlying assets or the choice of selling them on the
| market.
|
| If you held the same portfolio as the bond, you too would not
| be able to withdraw at full face value.
|
| You are believing a lie if you think a ten million dollar
| deposit can be immediately withdrawn anywhere in its
| entirety.
| thepasswordis wrote:
| Why on earth would libertarians give up tens of billions of
| dollars to a bank which the government could decide to
| nationalize?
| alchemist1e9 wrote:
| Exactly there isn't lots of libertarian depositors at SVB,
| quite the opposite most likely. It seems because of Thiel
| involvement the FT author decided it was enough to write a
| propaganda article.
| smugma wrote:
| The key line says it all about how the US (in agreement with tech
| tycoons) does things:
|
| "Just like many of the banking titans after the global financial
| crisis of 2008, tech tycoons appear to favour the privatisation
| of profits and the socialisation of losses. There are few
| libertarians in a financial foxhole."
| vxNsr wrote:
| Didn't they announce HSBC is buying SVB. And they specifically
| said that no tax payer funds would be used here. The only loses
| here are for the shareholders of SVB. Did the gov broker the
| deal, sure, but it sounds like most of that brokering happened
| on the other side of the ocean. Basically it sounds like
| exactly the sort of thing a libertarian would support.
| beezle wrote:
| Indeed. This entire Fed action has been a bailout of uninsured
| depositors who really should have known better. So now
| "uninsured by FDIC" has the implicit meaning "insured by the
| Federal Reserve".
|
| I'm not suggesting that corps should have managed every last
| penny to prevent an uninsured balance but the vast majority of
| their free cash should have been and sadly easily could have
| been insured and still readily available.
| spaceman_2020 wrote:
| A while back, a small regional coop bank defaulted here in India
| and could not pay its depositors. The depositors had to protest
| and camp outside the bank for several days. Most of these were
| ordinary folks, many retirees, who were just trying to keep their
| savings in a neighborhood bank.
|
| Of course, since this was a political issue and the depositors
| were innocent, the government stepped in and promised to make
| them whole.
|
| While this move was welcomed, even in a country with deeply
| entrenched socialist values like India, there were quite a few
| voices asking: "why did you keep your money in a tiny bank like
| that and not a major national bank?"
|
| I understand that SVB was doing a lot for Silicon Valley, but
| when it was one of the few (perhaps _only_ ) that allowed anyone
| to open a bank account without visiting the country (it was also
| a part of Stripe Atlas), one should have asked if they were
| practicing proper risk management. If _no_ other bank does this,
| but you do, it does indicate that there 's a certain approach to
| risk in your entire business operations. And that approach can
| eventually manifest in making some very poor bets without
| adequate hedging.
| lotsofpulp wrote:
| The question is, now that we have computers and money is just
| an entry in a database, why are banks even necessary for
| storing and moving money?
|
| The whole small bank and big bank issue is moot. Technology has
| long solved this problem so the government could roll out a
| solution where no one ever risks any deposits, no FDIC is
| needed, and no bailouts are ever needed.
| em500 wrote:
| It's not a technological problem. The Fed doesn't want narrow
| banks that only only keeps deposits safe and are deliberately
| blocking their formation. John Cochrane speculated that the
| Fed is forcing deposits into risk taking lenders in the
| believe that it makes lending to businesses and consumers
| cheaper:
|
| https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-
| ban...
| frankreyes wrote:
| This is the argument for CBDC. the Fed taking over deposits.
|
| The issue comes when you want to get a loan or mortgage. How
| does the Fed know if you're financially stable? How on earth
| can the Fed know how to centrally decide?
|
| In general the answer is: split the savings and investments
| in two different entities. One entity that saves but has
| forbidden to invest, and an independent entity that invests.
| lotsofpulp wrote:
| If you want to borrow money, you can go to a lender, just
| like you do now. Lenders do not have to be banks that take
| deposits.
| oblio wrote:
| Where do the lenders get their money from?
| somewhereoutth wrote:
| Somewhat mangling what I believe is the commonly accepted phrase:
| 'No atheists in a foxhole, no libertarians in a bank run'
| nemothekid wrote:
| > _commonly accepted phrase_
|
| I can't find any source for the "no libertarians in a bank run"
| part before this weekend.
| cypherpunks01 wrote:
| Probably transformed from this article:
|
| https://www.belfercenter.org/publication/no-atheists-
| foxhole...
|
| 2008 pub date
| Grimburger wrote:
| Which is incredibly strange because I remember libertarians
| screaming to the hills against bailouts back then. Plenty
| of people who weren't in that camp were against it too. The
| 2008 bailouts directly led to Occupy Wallstreet which was a
| big tent of political affiliations.
|
| Satoshi Nakamoto released bitcoin with "The Times
| 03/Jan/2009 Chancellor on brink of second bailout for
| banks" recorded in the first block which is clearly a
| political statement against them.
| cypherpunks01 wrote:
| I think the "phrase" in question has a more limited
| meaning than you are trying to ascribe to it.
|
| It means that people who are in a situation where they
| stand to directly benefit from a bailout (depositors,
| bondholders, shareholders) will lean away from
| libertarian views, based on their own needs at the time.
| It doesn't claim that libertarians are for/against
| bailouts in general.
|
| People who would not be directly helped, or who might
| even be harmed by a bailout (taxpayers), rail against
| them as being unfair, as in the examples you point out.
| [deleted]
| zac23or wrote:
| I read a lot of hackernews, for the technical part. But I never
| liked or believed in the VC/Startup bullshit. If HN had a filter
| just for technical stories, that would be great.
|
| I never believed in the talk of "let the market decide", "we
| invested in that startup to change the world", "disruption",
| "good product will win" and other nonsense.
|
| Everything revolves around money, money and money. And there's
| nothing wrong with that, the problem is the bulshit not to assume
| it.
|
| For now, every time someone starts with this kind of bullshit, I
| will submit the YCombinator petition to the government.
| masklinn wrote:
| > I read a lot of hackernews, for the technical part. But I
| never liked or believed in the VC/Startup bullshit.
|
| VC/Startup bullshit is literally hn's business daddy though,
| that's what the domain it lives on does.
| zac23or wrote:
| True. In launch batches of YC startups, this becomes
| unusable.
| ElfinTrousers wrote:
| > If HN had a filter just for technical stories, that would be
| great.
|
| You might be ready for https://lobste.rs.
| elliotto wrote:
| There's a lot wrong with everything revolving around money,
| such as this bank failure for one.
| atleastoptimal wrote:
| There are always few (people who subscribe to an ideology that if
| applied universally would benefit their usual circumstances) in a
| (circumstance where applying that ideology would not benefit
| them)
___________________________________________________________________
(page generated 2023-03-13 23:01 UTC)