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Re: your duration point, these loans can be sold, either on the open market or a private exchange. Calling it a duration mismatch is a bit misleading. They too

Re: your duration point, these loans can be sold, either on the open market or a private exchange. Calling it a duration mismatch is a bit misleading. They took on duration risk and their loans lost value is more accurate. Otherwise they would just sell the loans (which they stated they did, but clearly it wasn’t enough thus the equity raise)

dkrich 4y ago
Wasn’t enough for what, though? To pay out money deposited with them on a short term basis.
- adam_arthur 4y ago
  They invested in bonds which lost value, thus they don’t have the money. Nothing to do with duration. Calling it duration driven obscures this pretty simple fact
chollida1 4y ago
I'd say it was a duration mismatch. Remember my point was it was a 1-2 punch. 1) their duration mismatch their long term assets lost value, this isn't a problem if you can hold to maturity as you'll get all your money back. 2) people flocked to the bank to pull money out as tech went down, their deposits really fell as those companies needed the cash to fund operations and layoffs. When the demand deposits were required back before the duration of their assets this required them to sell when the assets were already marked down. Does this make my point clearer?
- adam_arthur 4y ago
  Bonds carry risk. The value declined, thus they don’t have the money. If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading. More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
  - chollida1 4y ago
    I think you are misunderstanding what happened. Their portfolio only had an unrealized loss, if they held they would have been whole. They were forced to sell long duration assets before they matured. This is the very definition of a duration mismatch. Short duration money got called back while the long duration money was below par. if they could hold the long duration to maturity they would be whole with no losses. Not sure what I'm failing to explain. Can you better explain why you disagree?

dkrich 4y ago

Wasn’t enough for what, though? To pay out money deposited with them on a short term basis.

adam_arthur 4y ago
They invested in bonds which lost value, thus they don’t have the money. Nothing to do with duration. Calling it duration driven obscures this pretty simple fact

chollida1 4y ago

I'd say it was a duration mismatch. Remember my point was it was a 1-2 punch. 1) their duration mismatch their long term assets lost value, this isn't a problem if you can hold to maturity as you'll get all your money back. 2) people flocked to the bank to pull money out as tech went down, their deposits really fell as those companies needed the cash to fund operations and layoffs. When the demand deposits were required back before the duration of their assets this required them to sell when the assets were already marked down. Does this make my point clearer?

adam_arthur 4y ago
Bonds carry risk. The value declined, thus they don’t have the money. If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading. More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
- chollida1 4y ago
  I think you are misunderstanding what happened. Their portfolio only had an unrealized loss, if they held they would have been whole. They were forced to sell long duration assets before they matured. This is the very definition of a duration mismatch. Short duration money got called back while the long duration money was below par. if they could hold the long duration to maturity they would be whole with no losses. Not sure what I'm failing to explain. Can you better explain why you disagree?