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> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors
by kypro 4y ago
> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield.
Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dollars of QE.
Over the last few years the Fed has basically done a pump and dump on the bond market, and SVB being a bank was basically forced by regulation to buy long-dated bonds for yield.
I've seen a lot of people speak critically of SVB and I get it, but I think people should take a minute to ask why the hell bonds were yielding such a low amount in 2021. I just wonder how much longer we're going to blame, banks, crypto investors, bond investors, equity investors, home buyers, etc for what's happening to the value of their assets. When central bankers make government bonds trade like meme stocks this is what happens. Perhaps if we didn't do that, SVB and many others wouldn't be in this position.
- highwaylights 4y agoNah, the bank is responsible for their decisions. They bought $80b of fixed-rate bonds at historically and artificially low interest rates in a time of massive QE. Even based on the information available at the time, this is not a surprising outcome at all.
- abfan1127 4y agothat doesn't excuse the Fed's behaviors.
- nerdponx 4y agoTwo wrongs don't make a right!
- danielmarkbruce 4y agoIt's easy to criticize the fed, but they did a pretty good job during COVID and they did a pretty good job during 2008. The charge of "manipulating bond markets" is pretty absurd - their mandate is to influence inflation and employment via interest rates. Of course it has an impact on bond markets.
- yterdy 4y agoNot to let the banks off the hook, but >They did a pretty good job during COVID One word: "transitory".
- danielmarkbruce 4y agoIt was surprisingly accurate.... mom inflation has been reasonable for several months now
- nervlord 4y agoThat's.. Delusional. It's barely budged.
- danielmarkbruce 4y agohttps://www.bls.gov/news.release/pdf/cpi.pdf https://www.bls.gov/news.release/pdf/cpi.pdf Note all the months since July 2022. It's good to read the source material rather than hyperventilating news articles.
- anon20230311 4y agoMean MoM % change in CPI-U from January to preceding July, 2016-2023: * 2016: 0.01 * 2017: 0.20 * 2018: 0.27 * 2019: 0.10 * 2020: 0.21 * 2021: 0.30 * 2022: 0.61 * 2023: 0.27 Raw monthly data: https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_1mth https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_... I was skeptical that month-over-month CPI had come down to reasonable levels over a wider time window, but it is much lower than the same period a year ago, and close to recent historical norms outside that inflationary spike. I am eager to see Tuesday's numbers for February inflation.
- yterdy 4y agoBy that metric, and it took quite a bit longer to get there than ideal. It's also still elevated historically and compared to FFR, all of which is a roundabout way of saying that inflation has and continues to destabilize the outlook. Stability historically comes after an n-month lag of the FFR and core inflation meeting, right? Well, banks are failing now, and 4Q24 is a ways off. I just don't know if I'd call it a "pretty good job," is all. They were caught-off guard and didn't move quickly enough.
- freejazz 4y agoWhat's the fed's obligation to that bank that you are making this point?
- eschaton 4y agoDollars to donuts they’re a “sound money” kook who wants the Federal Reserve not to be able to manipulate the money supply to achieve societal objectives like “low unemployment” and “inflation that closely tracks growth in economic activity and population” and “preventing a deflationary spiral because economic activity shut down due to a global pandemic” because all of that is interference with the Holy Free Market. Because after all the purpose of society is to serve the market, not the other way around, right?
- reso 4y agoThe fed wasn't buying bonds for lulz, they were doing it to carry out their primary function.
- SantalBlush 4y agoWhether or not the Fed's behaviors are excused is not the topic of conversation.
- danielmarkbruce 4y agoAnd the $80 bill was about 40% of their assets. And their depositors are all businesses who will move the money out fast because it's not insured over 250k.
- disgruntledphd2 4y agoYeah, this is all very odd. What the hell happened there? In retrospect, the Chief Risk Officer leaving and not being replaced immediately was a bad sign: https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/ https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
- danielmarkbruce 4y agoThat's a good find... 100% speculation: the CRO told them loading up on long term bonds was crazy, and that they'd just have to eat lower earnings. The CEO/CFO disagreed, and the CRO didn't want to have any part of it. Hindsight is 20/20, but... this really was a disaster waiting to happen.
- james_barton 4y agoNot completely sure about that: "A risk officer typically anticipates and manages regulatory, operational, competitive or other risks faced by a firm." That looks like _non-financial_ risks. If that was the role of the CRO at SVB, the risk for this event probably should have been with the CFO?
- kortilla 4y ago“Operational” at a bank includes financial risks.
- james_barton 4y agoI know of at least one large European bank where it explicitly doesn't.
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- NovemberWhiskey 4y ago>Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dollars of QE. One of the principle, statutory purposes of the Federal Reserve is to conduct monetary policy to achieve maximum employment and stable prices. That means it's the job of the Fed to manipulate interest rates.
- mattwad 4y agoActually, they are sacrificing employment to stabilize prices: https://time.com/6253699/federal-reserve-inflation-interest-rates-workers/ https://time.com/6253699/federal-reserve-inflation-interest-.... The interest rate hikes are designed to cause unemployment, and it's not even working.
- pkulak 4y agoWell, yeah, their "dual mandate" is contradictory. You're not the first to notice, trust me. And that means that sometimes they have to sacrifice one for the other. When one is doing historically well, and the other not so great, it's probably not a hard choice.
- goodluckchuck 4y agoYou’re inferring good faith, which - when dealing with humans - is an unsupported assumption. You don’t have to be an economist to draw the connection between printing money and a rise in nominal prices (irrespective of the interest rates and lending). The Fed knows that there is no real ongoing inflation. The devaluation of the dollar already occurred and the new price has to propagate through the market. Their actions have no effect on the cause or broader course of apparent inflation only on who “wins and loses.”
- oarabbus_ 4y ago>The Fed knows that there is no real ongoing inflation. Can you cite any metric showing there is "no real ongoing inflation"? CPI, PPI, PCE, and other less-commonly used metrics all indicate ongoing inflation. It would be interesting to understand how you've arrived at the conclusion there isn't ongoing inflation. >The devaluation of the dollar already occurred and the new price has to propagate through the market. The DXY has been uptrending for nearly a decade, even more rapidly so since mid-2021.
- KirillPanov 4y ago[flagged]
- nvr219 4y agoAnd because crypto is garbage.
- JoeJonathan 4y agoOr because it’s actually a huge scam.
- Gravey 4y ago“Crypto” is a technology that is functional and has proven utility. Those using it as a tool to skirt regulations, defraud others, or to commit outright theft are the scammers. I would agree that as a concept it is generally overhyped, usually by those who seek to profit from doing so. But I think it’s important to not conflate the unscrupulous gold miners looking to get rich quick with the utility of the precious metal itself.
- HyperSane 4y agobitcoin's main utility seems to be using an utterly absurd amount of joules per transaction.
- illiarian 4y ago> and has proven utility. It hasn't.
- concordDance 4y agoThe ability to have assets that can't be frozen by a bank or government beaurocratic fuckup is utility.
- nvr219 4y agoNot really because the assets can totally be frozen by the exchange. The people who have money in crypto that disappears don't care if that was due to a government action or due to whomever is in charge of enough servers.
- darkerside 4y agoIs there a reason they couldn't have just purchased shorter term bonds and securities instead?
- muzz 4y agoGreed. Those were yielding close to zero and they wanted the 1.x%
- polygamous_bat 4y agoIt's an interesting reward mechanic for the bankers, "heads I walk home with big bonuses, tails I go home with a big severance and our customers get screwed".
- muzz 4y agoThis is the essence of the moral hazard created by the bank bailouts in 2008
- sam345 4y agoThe yield has been inverted so short-term has been paying just as much or more than the long-term depending upon which securities you're looking at. 30 to 90 day treasuries have been yielding over 4%
- muzz 4y agoYes-- if they kept that cash until now they would be sitting pretty
- roguecoder 4y ago... housing prices have continued to rise at wildly unsustainable rates, leading to record homelessness. Which is the exact opposite of what happened with the crypto market, where the Ponzi scheme collapsed. When the assets haven't even moved in the same direction, I don't know how you are going to blame federal policy to counteracted the recessionary impact of covid for moving them. Whereas the fed has caused significant damage & also been ineffective at fighting the current supply-side inflation caused by Russia's war of aggression.
- harambae 4y agoThere's always degrees of speculation that are going to vary - cryptocurrencies, tech stocks, consumer staple stocks, gold, commodities, real estate, etc. No one expects that real estate will skyrocket and tank like shitcoins (even in 2008, the residential real estate market didn't bottom out until 2012). But that doesn't mean that Federal Reserve policy has been good. I'd highly recommend the book (or audiobook) "The Lords of Easy Money: How the Federal Reserve Broke the American Economy" for anyone who is interested in a historical summary of the FOMC.
- Aeolun 4y ago> When central bankers make government bonds trade like meme stocks this is what happens That’s what happens when people buy meme stock. I think the failure of the goverment and the bank are unrelated here.
- rib3ye 4y ago> SVB being a bank was basically forced by regulation to buy long-dated bonds for yield. Is this true?
- chii 4y agonope, there's no mandate to buy for yield - they do it to make money.