3 ms·
They had massive asset / liability duration mismatch. That’s gambling on low rates for an extended period of time. It’d be like a traditional bank not resellin
by koolba 4y ago
They had massive asset / liability duration mismatch. That’s gambling on low rates for an extended period of time.
It’d be like a traditional bank not reselling mortgages to Fannie Mae. You can’t have $1B of demand deposit liability and $1B of 10-year treasuries because a rate hike will wipe you out immediately if you need liquidity.
- onlyrealcuzzo 4y agoWhy can't a bank borrow for liquidity so it doesn't need to sell at a discount?
- lisper 4y agoIt can, and when rates are low, many do. But interest rates are rising, so borrowing is getting expensive.
- borski 4y agoEvery bank had this, especially during the last two years. They were not the only one. The difference was bad PR and a panic run.
- hd95489 4y agoIf that’s your theory then buy some puts because anyone that did this will absolutely get ripped a new one
- nostrebored 4y agoThey won’t in the short term. Even the GFC had a multi year slow roll. Markets can remain irrational longer than you can stay solvent and all that