MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes

The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.

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Realtor · Longmont, CO · Member since 2021 · 577 posts · 631 votes
3y

If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 

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  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:
    Quote from @Carlos Ptriawan:
    Quote from @Jason Malabute:

    The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

    Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

    When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

    Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

    In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

    As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

    In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.


     Hello, the SVB doesnt make risky investment, they only purchase MBS bonds in 2020, but the gov. choose to crash those bonds.
    I bet it's Powell intended consequence to rise the rate that high that fast for nothing. 

    nobody questioning powell LOL

    But they did make risky bets. They were heavily invested in longer dated maturities which forced them in a box they could not get out of. If they were Investing in 3 months instead of 5-10 year tbills they wouldn’t have had so much exposure. They were gambling that the yield curve wouldn’t invert like it did, but then it did, and hard. Can’t blame Powell for bad risk management by the banks when he telegraphed what he was going to do in advance. This is like a patient eating fast food every day and a doctor telling them they will get diabetes, then it finally happens. 

    SVB had no Chief Risk officer from April 2022 - January 2023 ... the role was not backfilled until 2 months ago.   No one was managing the systemic risk created by rising rates and their asset allocations.   People that say they weren't managing their asset portfolio in a risky way many not understand what they were doing.   No Chief Risk Officer Backfill

    - Heavily weighted asset portfolio on long term debt
    - As interest rates rose, these because unrealized losses if they had to be sold.  Dodd Frank let them hide the losses in a footnote as they didn't have to be realized unless sold.
    - Poor liquidity made them realize the losses and created the run


    SVB had an extremely risky set of positions in a rising rate environment and had no one at the wheel to manage it for them.   They built a poor business trying to capture slightly higher yield and got burned.

    Now ... did the Fed pack barrels full of gun powder, roll it under them and light it on fire?  Sure.   However, if they managed their asset allocation better they would have been able to manage it better.   Eventually the Fed was going to wreck the economy again with their policies, but SVB built a house of cards to be blown over. 


    next is Schwabb, Ally Bank, First Republic , Signature Bank and what else, it's just the circumstances would be slightly different. 

    but theoretically, a country can't have 30 Y Fixed Mortgage products and then the private banking sector is the baggage holder.... 

    it's known in any country, any gov. action could make a bank/lender gone in second if the gov. changes the interest rate in another way around. Bank run in other countries happened because of currency devaluation and/or tightening monetary condition as well, so it's not really a unique issue but a well predictable outcome. 

    The fact that Fed is able to save CreditSuisse but not SiliconValley bank (and Ukrainian people) , that's beyond me LOL

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:
    Quote from @Carlos Ptriawan:
    Quote from @Jason Malabute:

    The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

    Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

    When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

    Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

    In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

    As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

    In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.


     Hello, the SVB doesnt make risky investment, they only purchase MBS bonds in 2020, but the gov. choose to crash those bonds.
    I bet it's Powell intended consequence to rise the rate that high that fast for nothing. 

    nobody questioning powell LOL

    But they did make risky bets. They were heavily invested in longer dated maturities which forced them in a box they could not get out of. If they were Investing in 3 months instead of 5-10 year tbills they wouldn’t have had so much exposure. They were gambling that the yield curve wouldn’t invert like it did, but then it did, and hard. Can’t blame Powell for bad risk management by the banks when he telegraphed what he was going to do in advance. This is like a patient eating fast food every day and a doctor telling them they will get diabetes, then it finally happens. 

    SVB had no Chief Risk officer from April 2022 - January 2023 ... the role was not backfilled until 2 months ago.   No one was managing the systemic risk created by rising rates and their asset allocations.   People that say they weren't managing their asset portfolio in a risky way many not understand what they were doing.   No Chief Risk Officer Backfill

    - Heavily weighted asset portfolio on long term debt
    - As interest rates rose, these because unrealized losses if they had to be sold.  Dodd Frank let them hide the losses in a footnote as they didn't have to be realized unless sold.
    - Poor liquidity made them realize the losses and created the run


    SVB had an extremely risky set of positions in a rising rate environment and had no one at the wheel to manage it for them.   They built a poor business trying to capture slightly higher yield and got burned.

    Now ... did the Fed pack barrels full of gun powder, roll it under them and light it on fire?  Sure.   However, if they managed their asset allocation better they would have been able to manage it better.   Eventually the Fed was going to wreck the economy again with their policies, but SVB built a house of cards to be blown over. 


    next is Schwabb, Ally Bank, First Republic , Signature Bank and what else, it's just the circumstances would be slightly different. 

    but theoretically, a country can't have 30 Y Fixed Mortgage products and then the private banking sector is the baggage holder.... 

    it's known in any country, any gov. action could make a bank/lender gone in second if the gov. changes the interest rate in another way around. Bank run in other countries happened because of currency devaluation and/or tightening monetary condition as well, so it's not really a unique issue but a well predictable outcome. 

    The fact that Fed is able to save CreditSuisse but not SiliconValley bank (and Ukrainian people) , that's beyond me LOL

    And this right here is the problem. People hoping for the crash of Citi, Wells, BOA, JPMC - are crazy. Any of those banks would pull the entire financial system down. 

    Now on top of the banks crashing all the systemic issues from SMB (people seem to forget it’s half of employers in this country and believe me they need credit) to insurance industry and other products. It’s not just the US that would fall apart but the globe. 

    On top of that. Where do people think housing values are going to go? Every single one of us on this board would be devastatingly impacted.

    It might be fun to ask for it (i guess although odd) but nobody here would like the results.

    On top of that people are little Thiel off too easy. Already PE / VC are jumping to buy up SVB. Why? Well one reason govt was so happy to jump in is because they actually have the assets to cover everythign. It might take 9-15 months but the money is there. 

    Which begs the question why everybody is ok with Thiel. BTW it wasn’t just his companies to pull out he told more than a few of the big PE/VC in tech. I know of more than a few that got phone calls and Wed/Thursday money got out.

    Sorry but I’m not cool with playing with fire like this. It’s one thing to short stocks but this is downright dangerous. Schwab is actually fairly conservative / well capitalized. Meanwhile massive hit initially to their stock. Was nice buying at the 18% drop though….. 



     

  • Investor · CT · Member since 2022 · 53 posts · 24 votes
    3y

    People who think that this bank did not take on risk do not understand risk. I can only assume they don't understand that treasuries still have risk. The Federal Reserve communicated well in advance that they would stop buying assest, reducing money supply and raising rates. SVB had plenty of time to mitigate the risk they had but they largely ignored the writing on the wall. 

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:
    Quote from @Carlos Ptriawan:
    Quote from @Jason Malabute:

    The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

    Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

    When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

    Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

    In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

    As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

    In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.


     Hello, the SVB doesnt make risky investment, they only purchase MBS bonds in 2020, but the gov. choose to crash those bonds.
    I bet it's Powell intended consequence to rise the rate that high that fast for nothing. 

    nobody questioning powell LOL

    But they did make risky bets. They were heavily invested in longer dated maturities which forced them in a box they could not get out of. If they were Investing in 3 months instead of 5-10 year tbills they wouldn’t have had so much exposure. They were gambling that the yield curve wouldn’t invert like it did, but then it did, and hard. Can’t blame Powell for bad risk management by the banks when he telegraphed what he was going to do in advance. This is like a patient eating fast food every day and a doctor telling them they will get diabetes, then it finally happens. 

    SVB had no Chief Risk officer from April 2022 - January 2023 ... the role was not backfilled until 2 months ago.   No one was managing the systemic risk created by rising rates and their asset allocations.   People that say they weren't managing their asset portfolio in a risky way many not understand what they were doing.   No Chief Risk Officer Backfill

    - Heavily weighted asset portfolio on long term debt
    - As interest rates rose, these because unrealized losses if they had to be sold.  Dodd Frank let them hide the losses in a footnote as they didn't have to be realized unless sold.
    - Poor liquidity made them realize the losses and created the run


    SVB had an extremely risky set of positions in a rising rate environment and had no one at the wheel to manage it for them.   They built a poor business trying to capture slightly higher yield and got burned.

    Now ... did the Fed pack barrels full of gun powder, roll it under them and light it on fire?  Sure.   However, if they managed their asset allocation better they would have been able to manage it better.   Eventually the Fed was going to wreck the economy again with their policies, but SVB built a house of cards to be blown over. 


    next is Schwabb, Ally Bank, First Republic , Signature Bank and what else, it's just the circumstances would be slightly different. 

    but theoretically, a country can't have 30 Y Fixed Mortgage products and then the private banking sector is the baggage holder.... 

    it's known in any country, any gov. action could make a bank/lender gone in second if the gov. changes the interest rate in another way around. Bank run in other countries happened because of currency devaluation and/or tightening monetary condition as well, so it's not really a unique issue but a well predictable outcome. 

    The fact that Fed is able to save CreditSuisse but not SiliconValley bank (and Ukrainian people) , that's beyond me LOL

    And this right here is the problem. People hoping for the crash of Citi, Wells, BOA, JPMC - are crazy. Any of those banks would pull the entire financial system down. 

    Now on top of the banks crashing all the systemic issues from SMB (people seem to forget it’s half of employers in this country and believe me they need credit) to insurance industry and other products. It’s not just the US that would fall apart but the globe. 

    On top of that. Where do people think housing values are going to go? Every single one of us on this board would be devastatingly impacted.

    It might be fun to ask for it (i guess although odd) but nobody here would like the results.

    On top of that people are little Thiel off too easy. Already PE / VC are jumping to buy up SVB. Why? Well one reason govt was so happy to jump in is because they actually have the assets to cover everythign. It might take 9-15 months but the money is there. 

    Which begs the question why everybody is ok with Thiel. BTW it wasn’t just his companies to pull out he told more than a few of the big PE/VC in tech. I know of more than a few that got phone calls and Wed/Thursday money got out.

    Sorry but I’m not cool with playing with fire like this. It’s one thing to short stocks but this is downright dangerous. Schwab is actually fairly conservative / well capitalized. Meanwhile massive hit initially to their stock. Was nice buying at the 18% drop though….. 



     


     Every time the Government steps in and inserts artificial support for a PRIVATE BUSINESS, they are feeding the beast of BAD actions. 

    The U.S. Economic system is DESIGNED for business's, ALL businesses, to FAIL if actions come of such. 

    This is THEFT plain and simple, Gov. sanctioned theft as they have said don't worry tax payer you won't pay for it, no other banks who DIDN'T screw up, who DIDN'T take the risks, they will pay. T-H-E-F-T. 

    Again, YES, LET IT BURN! The system is SUPPOSED to have a few good burns now and then, just like forest management. You want healthy growth, you must let the old diseased over-grown suffer there own undoing and BURN. 

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:
    Quote from @Carlos Ptriawan:
    Quote from @Jason Malabute:

    The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

    Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

    When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

    Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

    In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

    As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

    In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.


     Hello, the SVB doesnt make risky investment, they only purchase MBS bonds in 2020, but the gov. choose to crash those bonds.
    I bet it's Powell intended consequence to rise the rate that high that fast for nothing. 

    nobody questioning powell LOL

    But they did make risky bets. They were heavily invested in longer dated maturities which forced them in a box they could not get out of. If they were Investing in 3 months instead of 5-10 year tbills they wouldn’t have had so much exposure. They were gambling that the yield curve wouldn’t invert like it did, but then it did, and hard. Can’t blame Powell for bad risk management by the banks when he telegraphed what he was going to do in advance. This is like a patient eating fast food every day and a doctor telling them they will get diabetes, then it finally happens. 

    SVB had no Chief Risk officer from April 2022 - January 2023 ... the role was not backfilled until 2 months ago.   No one was managing the systemic risk created by rising rates and their asset allocations.   People that say they weren't managing their asset portfolio in a risky way many not understand what they were doing.   No Chief Risk Officer Backfill

    - Heavily weighted asset portfolio on long term debt
    - As interest rates rose, these because unrealized losses if they had to be sold.  Dodd Frank let them hide the losses in a footnote as they didn't have to be realized unless sold.
    - Poor liquidity made them realize the losses and created the run


    SVB had an extremely risky set of positions in a rising rate environment and had no one at the wheel to manage it for them.   They built a poor business trying to capture slightly higher yield and got burned.

    Now ... did the Fed pack barrels full of gun powder, roll it under them and light it on fire?  Sure.   However, if they managed their asset allocation better they would have been able to manage it better.   Eventually the Fed was going to wreck the economy again with their policies, but SVB built a house of cards to be blown over. 


    next is Schwabb, Ally Bank, First Republic , Signature Bank and what else, it's just the circumstances would be slightly different. 

    but theoretically, a country can't have 30 Y Fixed Mortgage products and then the private banking sector is the baggage holder.... 

    it's known in any country, any gov. action could make a bank/lender gone in second if the gov. changes the interest rate in another way around. Bank run in other countries happened because of currency devaluation and/or tightening monetary condition as well, so it's not really a unique issue but a well predictable outcome. 

    The fact that Fed is able to save CreditSuisse but not SiliconValley bank (and Ukrainian people) , that's beyond me LOL

    And this right here is the problem. People hoping for the crash of Citi, Wells, BOA, JPMC - are crazy. Any of those banks would pull the entire financial system down. 

    Now on top of the banks crashing all the systemic issues from SMB (people seem to forget it’s half of employers in this country and believe me they need credit) to insurance industry and other products. It’s not just the US that would fall apart but the globe. 

    On top of that. Where do people think housing values are going to go? Every single one of us on this board would be devastatingly impacted.

    It might be fun to ask for it (i guess although odd) but nobody here would like the results.

    On top of that people are little Thiel off too easy. Already PE / VC are jumping to buy up SVB. Why? Well one reason govt was so happy to jump in is because they actually have the assets to cover everythign. It might take 9-15 months but the money is there. 

    Which begs the question why everybody is ok with Thiel. BTW it wasn’t just his companies to pull out he told more than a few of the big PE/VC in tech. I know of more than a few that got phone calls and Wed/Thursday money got out.

    Sorry but I’m not cool with playing with fire like this. It’s one thing to short stocks but this is downright dangerous. Schwab is actually fairly conservative / well capitalized. Meanwhile massive hit initially to their stock. Was nice buying at the 18% drop though….. 



     


     Every time the Government steps in and inserts artificial support for a PRIVATE BUSINESS, they are feeding the beast of BAD actions. 

    The U.S. Economic system is DESIGNED for business's, ALL businesses, to FAIL if actions come of such. 

    This is THEFT plain and simple, Gov. sanctioned theft as they have said don't worry tax payer you won't pay for it, no other banks who DIDN'T screw up, who DIDN'T take the risks, they will pay. T-H-E-F-T. 

    Again, YES, LET IT BURN! The system is SUPPOSED to have a few good burns now and then, just like forest management. You want healthy growth, you must let the old diseased over-grown suffer there own undoing and BURN. 

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     


    What's funny is if Citi,wells,JPM falls then the middle-eastern shayk or Chinese mogul would come to bid and rescue the institution, but the institution would not allow it because the politicians can't bash them anymore in CNN lol....it's just yesterday news some Dubai princess would rescue SVB lol 

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     


    What's funny is if Citi,wells,JPM falls then the middle-eastern shayk or Chinese mogul would come to bid and rescue the institution, but the institution would not allow it because the politicians can't bash them anymore in CNN lol....it's just yesterday news some Dubai princess would rescue SVB lol 

    So SVB is a good buy because it actually has the assets to cover this. It wa sa timing issue. 

    That said SVB had something like 220billion in assets. JPMC has:
    $2,690.905B

    Not comparable and nobody is saving it except maybe the Federal govt. but probably not even them.  If they go under it rill ripple across the globe. And that’s sort of the problem the ripple will be tsunami. Not the dinky little wave we saw this past week.
     

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     


    What's funny is if Citi,wells,JPM falls then the middle-eastern shayk or Chinese mogul would come to bid and rescue the institution, but the institution would not allow it because the politicians can't bash them anymore in CNN lol....it's just yesterday news some Dubai princess would rescue SVB lol 

    So SVB is a good buy because it actually has the assets to cover this. It wa sa timing issue. 

    That said SVB had something like 220billion in assets. JPMC has:
    $2,690.905B

    Not comparable and nobody is saving it except maybe the Federal govt. but probably not even them.  If they go under it rill ripple across the globe. And that’s sort of the problem the ripple will be tsunami. Not the dinky little wave we saw this past week.
     


     The SVB is really good buy because the bank it's the epicenter of world's innovation, 15 years from today whoever purchased SVB would make money 15 times than today especially if the bid 60 cents to a dollar. I would buy this bank if I have money because I have the list of the depositor in this bank LOL, not some average Joe literally LOL

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     


    What's funny is if Citi,wells,JPM falls then the middle-eastern shayk or Chinese mogul would come to bid and rescue the institution, but the institution would not allow it because the politicians can't bash them anymore in CNN lol....it's just yesterday news some Dubai princess would rescue SVB lol 

    So SVB is a good buy because it actually has the assets to cover this. It wa sa timing issue. 

    That said SVB had something like 220billion in assets. JPMC has:
    $2,690.905B

    Not comparable and nobody is saving it except maybe the Federal govt. but probably not even them.  If they go under it rill ripple across the globe. And that’s sort of the problem the ripple will be tsunami. Not the dinky little wave we saw this past week.
     


     The SVB is really good buy because the bank it's the epicenter of world's innovation, 15 years from today whoever purchased SVB would make money 15 times than today especially if the bid 60 cents to a dollar. I would buy this bank if I have money because I have the list of the depositor in this bank LOL, not some average Joe literally LOL


     And thats the problem with it. already hearing rumblings in VC/PE world that a lot of them would like to step up. Some of them tied to Thiel crashing it. It’s a joke. I’d rather see govt hold it then do that or give it to a traditional big bank.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y

    A few of my smartest friend in the startup world has their company payroll 100% in SVB. Imagine if they lost their job because the company can't pay them but because their bank went bankrupt, this is actually total humiliation for Mr. Powell and Yellen. They care so much about Ukraine and whatnot but they can't take care of their own biggest taxpayer in their own backyard LOL.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     


    What's funny is if Citi,wells,JPM falls then the middle-eastern shayk or Chinese mogul would come to bid and rescue the institution, but the institution would not allow it because the politicians can't bash them anymore in CNN lol....it's just yesterday news some Dubai princess would rescue SVB lol 

    So SVB is a good buy because it actually has the assets to cover this. It wa sa timing issue. 

    That said SVB had something like 220billion in assets. JPMC has:
    $2,690.905B

    Not comparable and nobody is saving it except maybe the Federal govt. but probably not even them.  If they go under it rill ripple across the globe. And that’s sort of the problem the ripple will be tsunami. Not the dinky little wave we saw this past week.
     


     The SVB is really good buy because the bank it's the epicenter of world's innovation, 15 years from today whoever purchased SVB would make money 15 times than today especially if the bid 60 cents to a dollar. I would buy this bank if I have money because I have the list of the depositor in this bank LOL, not some average Joe literally LOL


     And thats the problem with it. already hearing rumblings in VC/PE world that a lot of them would like to step up. Some of them tied to Thiel crashing it. It’s a joke. I’d rather see govt hold it then do that or give it to a traditional big bank.


     most people don't understand the value of SVB business, it's way way way in niche business than traditional retail banking.
    The way I see it buying SVB today is like buying coal miner when commodity price crashes, but in the next decade when commodity explodes, it would be the money maker.

    All these startup and tech innovation is going to bounce back after 5-10 years anyway so it's good time to invest at bottom price. I would buy SVB now.
    Actually yesterday I bought KRE when all you guys shorted it :-) LOL

  • Member since 2023 · 97 posts · 60 votes
    3y

    I am reading a lot about "unintended consequences" and "safe" investments in Treasuries (and, ostensibly, agency bullets).

    In the world of bond sales and trading this is called "Interest Rate Risk," and every bond salesman and CIO/Treasurer of a bank knows exactly what it is and how it works.  It is defined through a metric called "duration" of a bond.  A bond's duration tells you EXACTLY what will happen to the value of your bond for every change in the yield curve.

    Many of you are cutting way too much slack for this "unfortunate" "unintended" "accident."  There was a sh*tload of risk in their portfolio.  It wasn't credit risk, it was interest rate risk.  And that can destroy a portfolio, especially one with only 12% reserves to meet their liquidity liabilities.  

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y

    Since the  banking business is not my strong suit, would someone please explain something to me?

    The Govt (specifically Biden and Yellen) is saying that all deposits will be covered. ALL. That means even those above the $250,000 limit right? "All depositors will be made whole" they say.....

    Then they say that taxpayer dollars will not be used and that the Banks will pay this. "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks"

    Who do they think will actually pay this 'special assessment'? The banks or their customers...businesses will always pass down extra costs to their customers as far as my lifetime experience is concerned.

    Am I missing something here?

  • Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Bruce Woodruff:

    Since the  banking business is not my strong suit, would someone please explain something to me?

    The Govt (specifically Biden and Yellen) is saying that all deposits will be covered. ALL. That means even those above the $250,000 limit right? "All depositors will be made whole" they say.....

    Then they say that taxpayer dollars will not be used and that the Banks will pay this. "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks"

    Who do they think will actually pay this 'special assessment'? The banks or their customers...businesses will always pass down extra costs to their customers as far as my lifetime experience is concerned.

    Am I missing something here?


    FDIC has assets to cover something like 2% of the total US deposits, but they guaranteed all of them for the short run. FDIC is funded by bank fees, not taxpayers. Of course, the banks will just charge customers more fees ... but I guess that doesn't count in the eyes of Biden/Yellen. The goal was to prevent additional bank runs, but no they don't have the money to cover it. The only way that I know where the government can keep that promise will be another QE.

    Good news is that I don't think it will be needed IMO.   The losses on these bonds are more like 10-15% on the dollar if a bank goes under, not 100%.  Also, if rates come down slightly then the losses go down as well.  The Fed is in control of the balance sheet now it appears.

    Now, how do you unwind the new moral hazard created is the next question along with what is the action of the Fed regarding rates?   

  • Member since 2023 · 97 posts · 60 votes
    3y
    Quote from @Bruce Woodruff:

    Since the  banking business is not my strong suit, would someone please explain something to me?

    The Govt (specifically Biden and Yellen) is saying that all deposits will be covered. ALL. That means even those above the $250,000 limit right? "All depositors will be made whole" they say.....

    Then they say that taxpayer dollars will not be used and that the Banks will pay this. "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks"

    Who do they think will actually pay this 'special assessment'? The banks or their customers...businesses will always pass down extra costs to their customers as far as my lifetime experience is concerned.

    Am I missing something here?

     Hi Bruce,

    Here is the announcement from the Fed/Treasury/FDIC:

    Federal Reserve Board - Joint Statement by Treasury, Federal Reserve, and FDIC

    There is nothing federal about the Federal Reserve.  The Federal Reserve is comprised of "Member Banks."  The Fed, as one of its core functions, is the lender of last resort for banks experiencing a run.  That is precisely what took SVB under - a bank run hastened/initiated by Founders Fund's Peter Theil.  Why did the Fed not step in and provide liquidity in the form of loans BEFORE the FDIC shut them down?  That's a question I have not heard anyone ask.

    Keep in mind, SVB put themselves into this situation by matching long term assets to short term liabilities.  That was entirely their fault, and it was a foolish, amateur decision.  You, as a real estate investor, know better.  Would you invest money you need to use for a down payment in 3 weeks in the equity market?  No way!  It is way too volatile and you may not have the cash needed for that short term requirement.  

    Now who is going to pay for it?  The Treasury says they are not putting in cash in.  That's good.  As I previously pondered, why did the Fed fail to act? They should have been putting cash in.

    As the announcement states, the FDIC will absorb the losses and will charge their member banks a special assessment to pay for SVB gross mismanagement. Now who pays for the FDIC? It is supposed to self funded. It is at this point, but they are their own house of cards. Like SVB, they also have scant reserves. Now this situation with SVB and Signature they can clear, but if this spreads, it could hypothetically get to the point that the FDIC needs a bailout. I don't see that as likely at this point. But if it did happen, the person that would bail out the FDIC ... YOU, the US taxpayer. Assisted by the Fed, as they will print more money to buy bonds issued by the Treasury.

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @John Carbone:

    Nobody is talking about the countless masses of banks who DIDN'T screw up, and are just fine. No, all that matters is a handout for the F'd ones because God forbid there be any negative consequences ever. THIS IS INSANE! 


    IF any one of the big banks - Citi, Wells, JPMC, or BOA fail. You and I both know it won’t end there. And NO the system is not designed for that. 

    Any one of them would likely collapse the us financial system. So it’s not that simple and you shouldn’t be acting like it is. 

     


    What's funny is if Citi,wells,JPM falls then the middle-eastern shayk or Chinese mogul would come to bid and rescue the institution, but the institution would not allow it because the politicians can't bash them anymore in CNN lol....it's just yesterday news some Dubai princess would rescue SVB lol 

    So SVB is a good buy because it actually has the assets to cover this. It wa sa timing issue. 

    That said SVB had something like 220billion in assets. JPMC has:
    $2,690.905B

    Not comparable and nobody is saving it except maybe the Federal govt. but probably not even them.  If they go under it rill ripple across the globe. And that’s sort of the problem the ripple will be tsunami. Not the dinky little wave we saw this past week.
     


     The SVB is really good buy because the bank it's the epicenter of world's innovation, 15 years from today whoever purchased SVB would make money 15 times than today especially if the bid 60 cents to a dollar. I would buy this bank if I have money because I have the list of the depositor in this bank LOL, not some average Joe literally LOL


     And thats the problem with it. already hearing rumblings in VC/PE world that a lot of them would like to step up. Some of them tied to Thiel crashing it. It’s a joke. I’d rather see govt hold it then do that or give it to a traditional big bank.


     most people don't understand the value of SVB business, it's way way way in niche business than traditional retail banking.
    The way I see it buying SVB today is like buying coal miner when commodity price crashes, but in the next decade when commodity explodes, it would be the money maker.

    All these startup and tech innovation is going to bounce back after 5-10 years anyway so it's good time to invest at bottom price. I would buy SVB now.
    Actually yesterday I bought KRE when all you guys shorted it :-) LOL


     So Not arguing on the long term benefit. What I’m saying is a buyer is getting a bank that has assets to cover debts (about 12 months to get there) so even the traditional side doesn’t matter.

    And the investments - yes it will bounce and i don’t see it taking 5-12 years. There are plenty of data/ai/security start-ups that are still growing nicely. INdustyr may be down but some key areas are donig very well. Even a few that are ready to IPO but held off due to the macro conditions. So there are tons of assets. 


    Which makes me more annoyed everybody is ok with PE/VC buying this. Especially since they crashed it on purpose.

  • Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    3y
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


    The idea that business have only the choice of using a single account or opening a bazillion accounts to get FDIC insurance is a false dichotomy.

    Three options come to mind. 

    1. Roll all funds out of their main op account every night and move them back in the the morning. I know this seems odd, especially to RE investors, but this is treasury mgmt 101. Super simple stuff. With the amount of GSB, Haas, other top MBA grads between the VC funds and Startups they have the brain power to figure this out. 

    2.  ICS Account. Insured Cash Sweep. Keep excess liquidity in an insured cash sweep account.  Not a new product or idea. Banks and brokerages offer them. I haven't read the SVB loan docs in detail, but I know they are cov light and not sure what minimum level of funds needed to be kept in the bank.  

    3. Match your investments to your cash outflows via short duration treasuries, repos, CDs ect. Granted this is more work, but it is done every day outside of the VC world. We figured out asset liability matching awhile ago

    Real finance/treasury professionals will have have more/ better suggestions. None of this is sexy stuff, which is part of the problem methinks. 

    Apropos of nothing, I greatly enjoy how this SFR centric RE forum has so many banking experts hiding in plain sight. Wonder why their expertise hasn't come up before?

  • Member since 2023 · 97 posts · 60 votes
    3y

    I'm going back about 30 years here, so some of the details may be close but not precise.  Right before I got into the bond business, Orange County California had to declare bankruptcy.  The reason?  A change in interest rates.

    The treasurer for Orange County leveraged their balance sheet using interest rate swaps.  He would pay the counter-party (an investment bank) a floating rate tied to a benchmark rate (like LIBOR), and they would pay him (Orange County) a fixed rate.  This is called a "floating for fixed swap."  

    The fixed rate he was getting was higher than the floating rate he was [currently] paying. Think of a floating rate as an Adjustable Rate Mortgage (ARM). Same concept. Everything was delightful, so long as interest rates never increased. But, as you already know, and SVB learned, interest rates go up. In the case of Orange County, suddenly the Treasurer was paying more on his floating rate than he was receiving on his fixed payment. Why not cancel the contract? Sure, for a 20% haircut the bank will relieve you of obligations. When entering into a swap contract, you are required to post cash collateral. As the trade went upside down on him, he was required to post additional collateral. Where do you get that? You get it from selling your bonds into a falling market.

    Does this sound almost exactly like SVB, with a few twists and turns?

    So, the point here is:  Many people are talking about the "low risk" aspect of the SVB portfolio.  It was, indeed, low counter-party risk, i.e. Credit Risk.  However, Interest Rate risk can absolutely destroy a portfolio if there is any sort of liquidity requirement that is not properly hedged.  SVB - Nothing new to see here.  Been there. Done that.  Old game.  New losers.

  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    The Federal Reserve must take action to prevent further economic collapse. Real Estate investors, in particular, are feeling the brunt of this crisis as banks struggle to remain liquid. If the banking system collapses and liquidity is not restored quickly, homeowners could potentially face foreclosure and rental prices could skyrocket. This would be devastating for RE investors who rely on stable rents and steady cash flow from their properties. The Fed must intervene to provide more liquidity and restore stability to the banking system so that Real Estate investors can continue relying on their investments for income. Without intervention, Real Estate investors may suffer great losses--which could have an even wider and longer-reaching effect on our economy in the long term. It is imperative that appropriate actions are taken now before it's too late.

  • Member since 2023 · 97 posts · 60 votes
    3y

    @Jay Thomas The Fed has been AWOL so far.  The tightening liquidity is no surprise to them.  Check out page 16...

    First Glance 12L - Fourth Quarter 2022 (frbsf.org)
    This is from the San Francisco Federal Reserve Bank. SVB is right there, but they missed it. Why didn't they float them loans to keep them liquid? As I've stated before, this is ultimately the fault of the SVB Chief Risk Officer or Chief Investment Officer (different banks have different titles for nuanced roles). But the Fed chose to let the FDIC pick up this ball, along with Signature Bank.

    Now you and I have different views of the sky falling.  I do not think most banks are going to struggle to remain liquid.  Just the poorly managed ones.  But we do agree that the Fed needs to show up before the cops crash the party.  

  • Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 738 votes
    3y

    FYI Peter Thiel did not start this. He was a responsible VC and investor who advised his founders to pull and move their money. Their money came from his fund. 

    He was not shorting anything. Peter Thiel is not a short seller. 

  • Member since 2023 · 97 posts · 60 votes
    3y

    Hi @Bill F., I particularly like your point #3.   It is my understanding that this is exactly what SVB failed to do.  I understand that their assets were primarily long bonds, while their liabilities were subject to daily withdrawals.  A pretty terrible mismatch.

    It's interesting that this is coming to light here in the United States, again (see my post on Orange County, SVB part 1).  In Britian, their pension plans invest according to LDI - Liability Driven Investment strategy.  Their liabilities are primarily long-term, unlike a bank.  However, rising interest rates in Britian forced down the value of their investment portfolio fixed income investments (they call their treasuries "gilts.")  This triggered collateral/margin calls.  They were forced to scramble for cash liquidity, selling falling bonds into a falling market.  

    This was just 6 months ago.  Not 30 years ago like Orange County.  

    Boy - a whole 6 months ago!  I can see how our central bank (Federal Reserve) missed this, since it such ancient history.  

  • Member since 2023 · 97 posts · 60 votes
    3y

    Hi @Nate Marshall, regarding Peter Thiel, I do not have enough information to definitively state whether or not he started this, but from what I do see, if looks like he did.  And you and I disagree on the typification "responsible."  But that's just our differing opinion.

    Thiel was perhaps the first VC that started advising his portfolio companies to move their cash out of SVB.  The VC community is pretty well networked.  Before long - hours - the word was spread to move cash out of SVB.  I know two small ventures, and they are not Founders Fund companies, that followed suit immediately.   

    That is exactly what a bank run is.  The logic is simple - panic.  No bank in the US can survive a run, no matter how well their portfolio is structured.  A bank run has nothing to do with short selling.  

  • Jason MalabuteBusiness Member
    OP
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes
    3y
    Quote from @Nate Marshall:
    Quote from @Ben Zimmerman:

    There are roughly 4800 FDIC banks in the United States. A billion dollars is a lot of money to regular folks like me and you, but in Corporate America a billion dollars is a drop in the bucket. At the limit of 250k per bank, in order to get FDIC insurance on a billion dollars, the company would need to spread its money across virtually every single bank in the nation, and it becomes physically impossible to do if you have 1.2 billion dollars.

    When you have a billion dollars, its not just as easy as 'diversify and buy some real estate'. With no leverage that means buying over 3300 SFR homes at 300k each, or 6600 with a meagre 50% LTV. At that scale we aren't talking about just buying some real estate, we are talking about forming a major corporation to procure and manage that many rentals. And once again, remember that a billion dollars is a small number in the corporate world. What do you do when you need to spend 10 billion, or 100 billion?

    You mention that markets like this can be beneficial for real estate investors who have preexisting relationships with people who have cash...but where do those people with cash keep their cash?  Answer:  In the bank. 

    Banks follow strict regulations when it comes to what they can and can not do with deposits, and how much reserves they are required to keep.  These regulations are put in place to prevent risky behavior.  If the federal government puts in place rules that say that "X is safe to do", and then completely and dramatically changes the financial landscape by changing from QE to QT virtually overnight, and dramatically jacking up interest rates sending the entire global financial industry into a tailspin is that really the banks problem, or is it the government themselves the problem?

    And lastly lets not forget that this bank is failing because it invested its money in the absolute safest investments possible.  Treasuries.  So if playing it safe leads to a bankruptcy then what does that tell you about the government changing the rules mid game?

    A functioning economy requires a safe place to store your money.  Until crypto takes over and people are able to self custody their wealth, banks are the only option that we have.


     Crypto will never take over! CryptoBois need to go back to their Mom;s basement and reinsate their Pornhub subscription. 


     lol

    Malabute & Company CPAs525 Reviews
  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Bill F.:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.

    Apropos of nothing, I greatly enjoy how this SFR centric RE forum has so many banking experts hiding in plain sight. Wonder why their expertise hasn't come up before?


     we don't get paid by Powell that's why.

    but personally I've experienced bank run in 1980s and 1990s , these are always happened when gov. suddenly changed to "tightening monetary" condition, it was very predictable. 

    What's interesting is Turkey, this country doesnt give a sht about inflation, their currency collapse but their people is living well enough with 50% inflation, and their stock market is bouncing back after 3 years low. 

    Sometimes the leader need to ditched their 1930s old school economic book.

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