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.
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.
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.
Thanks for the kind words Christopher. My previous post centered more around how the business that bank at SVB should have operated and not SVB itself.
When you say "that their assets were primarily long bonds, while their liabilities were subject to daily withdrawals. A pretty terrible mismatch." you have defined the business model of a bank. Take in demand deposits and make long term loans, usually in the form of mortgages/ loans to RE developers, small business debt ect, but if you can't make loans yourself buy some other loans you didn't make that counter balance the volatility of your deposits in terms of credit, rate, and term. Every single bank in the US and the world does what you described.
I don't have a research analyst level of understanding when it comes to banking, but working in adjacent an adjacent industry leads me to think what hurt SVB the most was their degree of customer concentration and how that relates to their deposit base. A lot of banks have massive losses sitting on their balance sheets (BoA is at something like $100b in their HTM book) however this doesn't matter all that much bc their deposit base doesn't contract at high rates. That's due to the fact that the ppl that have accounts at BoA on the commercial and personal side, come from all over the country and tons of different industries. Some are RE Agents who are getting crushed, others are dental practices who keep getting money in from clients and paying their bills like normal. Rising rates aren't great, but all in all they keep on chugging along.
SVB had both geographic and industry concentration and that made their deposit base shrink super fast, (VCs stopped pumping $ into startups, but those start ups still had to pay rent and make payroll). The operative word in demand deposits is demand and that's what happened, at a faster rate than their HTM securities could mature/ pay their coupons. Thus they liquated their AFS securities, but that wasn't enough, so they tried to go to the markets for debt/ equity, that spooked everyone and boom, 2d largest bank failure.
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.
HE didn’t just tell his portfolio to pul out. he told some of the other firms too who also told his portfoilio to pull out. There are emails all around the tech industry about how to handle explaining to customers that they got out before the closure. It’s amazing how all of them pulled out on thursday…..
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.
Thanks for the kind words Christopher. My previous post centered more around how the business that bank at SVB should have operated and not SVB itself.
When you say "that their assets were primarily long bonds, while their liabilities were subject to daily withdrawals. A pretty terrible mismatch." you have defined the business model of a bank. Take in demand deposits and make long term loans, usually in the form of mortgages/ loans to RE developers, small business debt ect, but if you can't make loans yourself buy some other loans you didn't make that counter balance the volatility of your deposits in terms of credit, rate, and term. Every single bank in the US and the world does what you described.
I don't have a research analyst level of understanding when it comes to banking, but working in adjacent an adjacent industry leads me to think what hurt SVB the most was their degree of customer concentration and how that relates to their deposit base. A lot of banks have massive losses sitting on their balance sheets (BoA is at something like $100b in their HTM book) however this doesn't matter all that much bc their deposit base doesn't contract at high rates. That's due to the fact that the ppl that have accounts at BoA on the commercial and personal side, come from all over the country and tons of different industries. Some are RE Agents who are getting crushed, others are dental practices who keep getting money in from clients and paying their bills like normal. Rising rates aren't great, but all in all they keep on chugging along.
SVB had both geographic and industry concentration and that made their deposit base shrink super fast, (VCs stopped pumping $ into startups, but those start ups still had to pay rent and make payroll). The operative word in demand deposits is demand and that's what happened, at a faster rate than their HTM securities could mature/ pay their coupons. Thus they liquated their AFS securities, but that wasn't enough, so they tried to go to the markets for debt/ equity, that spooked everyone and boom, 2d largest bank failure.
Serious question: how do you hedge that position if you already purchase the bond and one year later Fed raised rate by 200 bps ? I can only think of long TBT :-)
Seriously I don't know how to hedge long position of gov. bond. I used to hedge future but if I have to manage this I confuse as well.
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.
HE didn’t just tell his portfolio to pul out. he told some of the other firms too who also told his portfoilio to pull out. There are emails all around the tech industry about how to handle explaining to customers that they got out before the closure. It’s amazing how all of them pulled out on thursday…..
VC, tech startup, crypto, market maker they are all acting the same way. Everyone is a FOMO, they are all long position at the same time and short at the same time and it causes a crash everywhere. This is the only reason why FANGT guy got really rich. LOL
The Peter Thiel phenomenon is the same with BP investors that invests in Airbnb en masses , and everyone is now losing money as result of an imbalance of supply and demand.
@Carlos Ptriawan I know you were just joking about being long TBT (Proshares x2 Bear 20 Yr Treasury), but you're not far off.
Banks don't hedge using that ETF, but they will hedge using a variety of different options, swaps, and derivatives. For example, they may pledge securities in a repo or reverse repo for purposes of trading short term liquidity for cash - or vice versa. Similarly, if they have primarily fixed rate instruments (as I understand SVB did), then they can enter into an interest rate swap, whereby they will trade their fixed rate for a lower floating rate. But the good-catch is, that if that the [currently] lower floating rate's benchmark starts to rise [as it did], then so too will their payment, and they can actually demand further collateral from their counterparty (an investment bank).
Also remember, banks are not forced to buy fixed income treasuries or agency bullets. They can invest in floaters and step-ups. They can buy whole loans of floating rate assets. There are many, many ways to skin this cat.
I agree entirely with @Bill F. that all bank portfolios are comprised of assets that are greater in duration than their cash liabilities. But tools do exist that allow them to bridge that gap. These tools are fairly sophisticated, but if used properly (as a hedge and not a gamble) they work fine.
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.
Thanks for the kind words Christopher. My previous post centered more around how the business that bank at SVB should have operated and not SVB itself.
When you say "that their assets were primarily long bonds, while their liabilities were subject to daily withdrawals. A pretty terrible mismatch." you have defined the business model of a bank. Take in demand deposits and make long term loans, usually in the form of mortgages/ loans to RE developers, small business debt ect, but if you can't make loans yourself buy some other loans you didn't make that counter balance the volatility of your deposits in terms of credit, rate, and term. Every single bank in the US and the world does what you described.
I don't have a research analyst level of understanding when it comes to banking, but working in adjacent an adjacent industry leads me to think what hurt SVB the most was their degree of customer concentration and how that relates to their deposit base. A lot of banks have massive losses sitting on their balance sheets (BoA is at something like $100b in their HTM book) however this doesn't matter all that much bc their deposit base doesn't contract at high rates. That's due to the fact that the ppl that have accounts at BoA on the commercial and personal side, come from all over the country and tons of different industries. Some are RE Agents who are getting crushed, others are dental practices who keep getting money in from clients and paying their bills like normal. Rising rates aren't great, but all in all they keep on chugging along.
SVB had both geographic and industry concentration and that made their deposit base shrink super fast, (VCs stopped pumping $ into startups, but those start ups still had to pay rent and make payroll). The operative word in demand deposits is demand and that's what happened, at a faster rate than their HTM securities could mature/ pay their coupons. Thus they liquated their AFS securities, but that wasn't enough, so they tried to go to the markets for debt/ equity, that spooked everyone and boom, 2d largest bank failure.
Serious question: how do you hedge that position if you already purchase the bond and one year later Fed raised rate by 200 bps ? I can only think of long TBT :-)
Seriously I don't know how to hedge long position of gov. bond. I used to hedge future but if I have to manage this I confuse as well.
If you come up with a way to hedge that issue at an acceptable price you'd have every bank in the US knocking down your door for that trade lol. The thing is that everyone knew rates could only go up so no one would take the other side of that trade except for insane terms.
The question cuts to the core of the issue. If SVB/any of the banks could have hedged this away 100%, they would have. In lieu of that, SVB took a risk on duration and to insulate themselves from the market to market loss that would inevitably come they rolled the dice and put 80% of their book in HTM to manage earnings.
Hindsight being 20/20 that turned out to be a sub optimal decision based of the sensitive of their clients base to rate increases.
@Carlos Ptriawan I know you were just joking about being long TBT (Proshares x2 Bear 20 Yr Treasury), but you're not far off.
Banks don't hedge using that ETF, but they will hedge using a variety of different options, swaps, and derivatives. For example, they may pledge securities in a repo or reverse repo for purposes of trading short term liquidity for cash - or vice versa. Similarly, if they have primarily fixed rate instruments (as I understand SVB did), then they can enter into an interest rate swap, whereby they will trade their fixed rate for a lower floating rate. But the good-catch is, that if that the [currently] lower floating rate's benchmark starts to rise [as it did], then so too will their payment, and they can actually demand further collateral from their counterparty (an investment bank).
Also remember, banks are not forced to buy fixed income treasuries or agency bullets. They can invest in floaters and step-ups. They can buy whole loans of floating rate assets. There are many, many ways to skin this cat.
I agree entirely with @Bill F. that all bank portfolios are comprised of assets that are greater in duration than their cash liabilities. But tools do exist that allow them to bridge that gap. These tools are fairly sophisticated, but if used properly (as a hedge and not a gamble) they work fine.
In short they are like experiencing a margin call but my question is that.... isn't the Fed know this position in real-time and with all 2008 regulations they should know this, a bank run is nothing new and very predictable. The Fed should just facilitate the bank that needs cash infusion thru the back channel before crashes happen, every third country central bank is doing this ; exactly like the backstop in BTFD program that they're just created they shld create it earlier.
The way the Fed works only after a crash happened is really lousy.
ps: if you have a specific book sample of how to hedge MBS notes, I would buy it, but needs to be specific, which swap to buy, etc,etc.....I'm getting lost when it comes to swap :-)
Hi @Michael Wooldridge, the two start-ups that I personally know also pulled their money on that exact Thursday you are describing. What a coincidence! They actually had a rep visit, in person, with a power of attorney, with wire instructions in-hand. That was the state of affairs on Thursday. To be there in their branch must have really been something to see.
I saw something similar up close with Lehman Brothers. On one day, everyone, and I mean everyone, refused to "face them." Liquidity was gone, and so were they.
@Bill F., I respectfully do not fully agree with you. Hedging does cost money, but it is the job of the Treasurer to manage that risk. The Treasurer is not supposed to be a profit center. He will spend money to hedge if he has to. Profit motives belong to the Chief Credit Officer. Both of them report to the Chief Risk Officer, and he's supposed to thread that needle.
But I suppose the most important part is that no bank can survive a run. It doesn't matter how well you are hedged when your fractional reserves are only 10-15%.
I still think that the Fed should have stepped in sooner and provided their bank with liquidity.
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.
No, you are wrong, I get where it comes from, fear, but your wrong.
The U.S. Economic System, FULL-STOP, is DESIGNED for business's to F-A-I-L if the consequences of there actions OR INACTIONS so dictate. There is NO exclusion to this FUNDAMENTAL law, LAW not rule, of the U.S. economic system.
Actions taken by Government to SUBVERT this FUNDAMENTAL mechanic of the system has ALWAYS, in EVERY instance resulted in creation of BIGGER problems. Why? Because it's subverting the very "machine" itself, a destruction of how it's designed to operate. And in EVERY case these actions are (a)Politically Motivated, (b) Politically Implemented, and (c) Done to PROTECT Political Structures/ Allies/ Donors etc..
And no, this REDICULOUSNESS that ALL banks would be whiped out is complete HOG-WASH. Actually it would IMPROVE MOST banks, because MOST banks did NOT undertake such risky actions, and those taking $ out of banks, will seek the new ones to place it with, to diversify into, to get away from risk and REWARD those good operators.
This CORRUPTION happening in front of our face, yet AGAIN is Gov. Persons perverting there power to protect there selected organizations, it is Plutocratic-Socialism plain and simple. This is elites protecting elites, full-stop.
LET-IT-BURN!
Every instance of such meddling makes WORSE outcomes, just take todays inflation as proof, because it is, and yet the masses are proving there sheeple status yet again drunkenly swilling the propaganda without an ounce of self-thought.
Your local credit union, they don't have these issue but now there going to get taxed to pay for it. And this LIE that these are some small or mid sized business's there protecting is LAUGHABLE! These are EPIC sized corporate entities, main donors and supporters with very close relations to a specific political group.
?Q? - Who has heard of any of the bank executives forking up there pay in this yet? Any investigations on that? No, just Gov. kicking out OUR $ to cover there buddies butt's.
LET IT BURN!
#1 "cure" for inflation is a capital BURN-OFF, that's mathematical fact. This could be GOOD for most people. Yes, that talking box is going to tell you for a few weeks how they sky is falling but Gus the butcher will still butcher, Ted the landscaper will still landscape, Aman the IT pro will still IT his heart away because LIFE WILL CONTINUE. Handfuls of Elitists will suffer, YES, 100%, and I will throw a party to celebrate. Good riddance!
We are at WAR, wake-up! I know my side, I am a proud card carrying member of the Middle-Class "Army" and I will not shed 1 tear for the Elitist. They have 0 care for us, they seek our genocide. Yes, GENOCIDE of the middle-class is what they are vying for.
Middle class would THRIVE from such "collapse" so please, light that candle! LET IT BURN!
Like many described bailouts I suspect there will be no loss and over long time frame when collecting return on all investments loans etc it will turn out to make money. People decry TARP because they just read and remember the headlines but taxpayers ended up net positive. Same with Fannie/Freddie, and before my time but suspect even the S&l crisis. Doesn’t mean they were good business practice but tough in the moment for media and observers to get past the fact that illiquid assets do still have value, but not if you have to sell off or mark to market rather than have as held for investment to term on your balance sheet.
Like many described bailouts I suspect there will be no loss and over long time frame when collecting return on all investments loans etc it will turn out to make money. People decry TARP because they just read and remember the headlines but taxpayers ended up net positive. Same with Fannie/Freddie, and before my time but suspect even the S&l crisis. Doesn’t mean they were good business practice but tough in the moment for media and observers to get past the fact that illiquid assets do still have value, but not if you have to sell off or mark to market rather than have as held for investment to term on your balance sheet.
Please remind us how many were held accountable for the rampant fraud that caused the 'o8' Financial Crisis? We know exactly whom orchestrated it, please, how many were held accountable?
Oh yeah, 0!
TARP was the biggest cover-up in financial history. Not only protecting those from account but paying them a bonus for doing it! Oh, but we should be "happy" because they paid us a few shekels for allowing them to rob the world.
Hi @Carlos Ptriawan, you said, "The Fed should just facilitate the bank that needs cash infusion thru the back channel before crashes happen, every third country central bank is doing this ; exactly like the backstop in BTFD program that they're just created they shld create it earlier. The way the Fed works only after a crash happened is really lousy."
I couldn't agree with you more. I've been repeatedly stating that I think the Fed should have acted in its capacity as a lender of last resort and provided liquidity to its bank.
The authority on Mortgage Backed Securities is the author Frank J. Fabozzi. Every bond salesman and trader has read one or more of his books. None of his books will tell you exactly how to hedge your portfolio, but they will explain how to hedge, i.e. products and strategies. A lot of the education for portfolio managers comes from the bond salesmen themselves. If they're a good salesman, they'll find out exactly what their client wants to do, and they will recommend a strategy. If the products for the strategy don't exist, their bank will make them. (Think of the movie The Big Short. You need an ISDA to have a bank make these products for you. The character played by Ryan Gosling was a bond salesman.)
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.
GOOD!
Look, your missing the entire accountability item.
If the whole system is such a frail little whisper than it NEEDS to come falling down, if that's it's gravity than it needs to hurry up and happen. A slow bleed is no better. It NEEDS to reap it's standing so something BETTER, stronger can take it's place.
But if you keep propping up a rotten structure, nothing new can grow in it's place.
Banking was NOT always like this. Take mortgages and '08', the result was a far better, stronger mortgage system so strong that this epic inflation run has had zero effect on those mortgage holders in most part because the system is far healthier today than in '07'.
Your entire argument is your so scared of the cleansing cycle, that no, let's just keep propping up this broken, corrupt broken thing because of fear for having any time of pain and change.
It NEEDS to come down so we can get back to health. This is a dangerous day and if continue down this path, in years to come this time will be looked back upon as when Pandoras Box was opened.
I do not agree that banks should be bailed out or that the Fed should have funded these last two to prevent the runs. You have to do business like a business....meaning that you make stupid mistakes, you fail. They all make stupid mistakes, they all fail. We'll rebuild it all in short time....
@Bill F., I respectfully do not fully agree with you. Hedging does cost money, but it is the job of the Treasurer to manage that risk. The Treasurer is not supposed to be a profit center. He will spend money to hedge if he has to. Profit motives belong to the Chief Credit Officer. Both of them report to the Chief Risk Officer, and he's supposed to thread that needle.
But I suppose the most important part is that no bank can survive a run. It doesn't matter how well you are hedged when your fractional reserves are only 10-15%.
I still think that the Fed should have stepped in sooner and provided their bank with liquidity.
Not going to get any disagreement from me there Christopher, that's how it SHOULD work, but I think SVB had an uphill battle operating in the way you should.
1. Quarterly earnings pressure. If the CEO says they will have $x of EPS and the profit centers miss some tgts, its not hard to envision a situation where they look to trim costs, risk being an attractive area since humans tend to miss weight fat tailed risk, especially in light of quantifiable certainty.
2. They didn't have a CRO for like 9 months or something silly. Maybe that led to an out of sight out of mind situation for the C Suite.
3, Maybe related to #1, but as Drucker says "culture eats strategy for breakfast" and the culture of SVB doesn't seem super conserative or long term oriented.
I'm going off my gut on the prices to hedges. I'm WFH today and am not important enough to have a remote Bloomberg license and I don't work in that space so I don't have an real knowledge on swap spreads so I could be way off on this.
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.
GOOD!
Look, your missing the entire accountability item.
If the whole system is such a frail little whisper than it NEEDS to come falling down, if that's it's gravity than it needs to hurry up and happen. A slow bleed is no better. It NEEDS to reap it's standing so something BETTER, stronger can take it's place.
But if you keep propping up a rotten structure, nothing new can grow in it's place.
Banking was NOT always like this. Take mortgages and '08', the result was a far better, stronger mortgage system so strong that this epic inflation run has had zero effect on those mortgage holders in most part because the system is far healthier today than in '07'.
Your entire argument is your so scared of the cleansing cycle, that no, let's just keep propping up this broken, corrupt broken thing because of fear for having any time of pain and change.
It NEEDS to come down so we can get back to health. This is a dangerous day and if continue down this path, in years to come this time will be looked back upon as when Pandoras Box was opened.
For somebody so smart on certain things it’s a blind answer just because you don’t like the context/morality (or whatever word you want to use) of it. I could care less about right or wrong here. I also think people are overplaying the executives corruption in some cases (either way punish the executive with jail time and lifetime bans). I care about what keeps the economy functioning. Absolutely any bank can crumble on a bank run. They don’t have the cash to survive it.
Furthermore you would absolutely destroy property values in the US if the model changed like you are describing. We would be back to $200k median home prices in a heart beat. Credit markets and liquidity would dry up and the house of cards comes tumbling down.
There is no telling what the other side of depression would bring. And thats what it would be a Great Depression - total reset.
@Bruce Woodruff, I am not suggesting that the Fed could have prevented a run. Far from it. But a stated of mission of the Federal Reserve is to act as a lender of last resort to mitigate the destructive impact of a run. Remember, the amount of banks that can survive a run in the entire United States: Zero. No bank portfolio in the U.S. is structured to survive it. That's because they only have 10-15% reserves. The Fed is supposed to provide them additional reserves, for a fee, to get them through a liquidity crunch.
Your bank, where you have your money (if you have your money in a bank), is also entirely vulnerable to a run. If that were to happen, and it was not backstopped, would you shrug your shoulders and say, "Well, I guess I'll pick my business partners better next time, because I deserved to fail. I'm totally wiped out, but I'll rebuild, because the Fed didn't follow its charter."
The entire concept of a central bank in a fractional reserve banking system is to protect against this vulnerability.
Now, one may argue that the concept of fractional reserve banking is deeply flawed, but that's an entirely different argument.
And why is that a bad thing......? I know the short-term answer, blah, blah, blah. Give me the long-term answer....
That’s only one element of a collapse of that type.
The simple answer you’d have unemployment hitting Great Depression level. BTW the only thing that got us out of that was spending and the war. How do we get out of it this time around? Does the fed govt. have room for those programs this time around?
I seem to remember you being nearer to retirement age. Would you like having complete reset on everything? Retirement wiped out?
@Christopher Sandys Yeah, I think the Banking System is worse than flawed and probably needs a collapse. It's bloated and corrupt and doesn't serve the people it's supposed to - us. It serves and protects those in power only. Let's all pull out our money and put it under our mattresses today.....doesn't that sound kinda fun?
@Christopher Sandys Yeah, I think the Banking System is worse than flawed and probably needs a collapse. It's bloated and corrupt and doesn't serve the people it's supposed to - us. It serves and protects those in power only. Let's all pull out our money and put it under our mattresses today.....doesn't that sound kinda fun?
And you think currency would have value if that happened?
The simple answer you’d have unemployment hitting Great Depression level. BTW the only thing that got us out of that was spending and the war. How do we get out of it this time around? Does the fed govt. have room for those programs this time around?
I seem to remember you being nearer to retirement age. Would you like having complete reset on everything? Retirement wiped out?
The simple answer you’d have unemployment hitting Great Depression level. BTW the only thing that got us out of that was spending and the war. How do we get out of it this time around? Does the fed govt. have room for those programs this time around?
I seem to remember you being nearer to retirement age. Would you like having complete reset on everything? Retirement wiped out?
A) You're speculating, b) I'll be ok...
Everybody is speculating. The difference is I’m acknowledging the full country runs on the banking system. I’m acknowledging upending multiple massive industries (including property one of the biggest wealth creators in the US) is bad.
You’re speculating the country would bounce back almost immediately. GReat Depression shows thats unlikely which btw was some of the reasoning the Fed stepped in 08. There was an opportunity to stop it from happening again. And yes bringing the entire system to a halt - speculation but logical one. Some of you are stating we cna handle any company failing but haven’t answered how the country will magically bounce back when credit doesn’t exist and the banking system - granted a bloated and corrupt system - comes to a complex halt. That’s speculation without any history to back it up.
