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Too much money is only a problem if you are greedy for returns, like all the investors who lost money when yields were unsustainably low the last few years. The
by pishpash 4y ago
Too much money is only a problem if you are greedy for returns, like all the investors who lost money when yields were unsustainably low the last few years. They could have deposited it with the Fed and have been totally fine.
Individual investors don't even have that option and also have inflation to deal with. Banks don't.
- duxup 4y agoI think there is a limit. The bank costs money to run, customers expect interest (even if little). That money isn’t doing anything to cover those expenses if some of it isn’t “working” to produce returns.
- pishpash 4y agoBanks don't pay the Fed rate on deposits so they already have that to pay expenses. In fact more deposits = more money on the interest differential but expenses don't scale with money.
- coredog64 4y ago6 month T-bills were yielding 0.7% last year at this time. Inflation for 2022 was over 6%. It’s not that people are greedily chasing returns, it’s that they don’t want to lose significant chunks of their capital due to loss of value.
- pishpash 4y agoNo, they were greedy. They were going to lose it one way or another, either through inflation or through asset depreciation. There was no way around it. Going to a riskier asset doesn't help because all assets have the same interest-rate risk embedded. They just took on more risk in addition to that. Real rates were negative for 10+ years (and still are on the short end!). That's everyone paying for trillions of dollars of wars, speculation and bad investments. The bill has to be paid. But as mentioned, none of this applies to intermediaries like banks. They aren't forced to take on any risk.
- duxup 4y agoI think coredog64 is speaking more generally. The bank in the article was foolish. Other banks can still encounter real problems with too much cash on hand... granted they don't have to go hog wild on MBS or anything like that.
- pishpash 4y agoYes, why did they invest in MBS, with negative convexity, at historically low rates!
- disgruntledphd2 4y ago> Real rates were negative for 10+ years (and still are on the short end!). That's everyone paying for trillions of dollars of wars, speculation and bad investments. The bill has to be paid. They sure were, and fortunately humanity took that free money and invested it in sustainable energy technology so that at least we got a bunch of infrastructure out of it. Oh actually wait we just had austerity for some reason.
- HDThoreaun 4y agoIt's not theirs, it's the depositors. And it's the depositors choice to leave it in the bank.