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They are actually worth that amount if they hold them though. If they weren’t forced to sell, they could collect coupons and make the exact amount of money the

They are actually worth that amount if they hold them though. If they weren’t forced to sell, they could collect coupons and make the exact amount of money they claim to have. It’s not a matter of “actual” vs “paper”. Their books were correct until the run happened.

cperciva 4y ago
A ten year 1% bond is worth about 70 cents on the dollar. Ten years from now it will be worth 100 cents on the dollar, but you can buy or sell it at 70 cents on the dollar, so that's what it's worth.
- comte7092 4y ago
  >Ten years from now it will be worth 100 cents on the dollar Yes… so if you hold it, that is exactly what it is worth. The issue is that they are forced to sell. We’re literally talking in circles. If you are forced to sell on most assets, you are going to take a hit on your books, that doesn’t suddenly mean that the asset was valued incorrectly.
  - istjohn 4y ago
    If you don't value an asset for what you can get on the open market, then you are valuing it incorrectly.
    - comte7092 4y ago
      I can see how you might have that opinion, but it isn’t in like with generally accepted accounting practices on multiple levels.
      - deleted 4y ago
        [deleted]
  - cperciva 4y ago
    If they had held 3-month treasuries instead of 10-year bonds, the bank run would have been a non-issue since they could have liquidated the treasuries at the same price as they were listed on SVB's books. They didn't become insolvent because of the bank run. The bank run exposed the fact that they were already insolvent.
- rocqua 4y ago
  Do remember that the SVB wasn't paying much interest on their deposits. They were making profits on those bonds. The only real problem was a maturity mismatch that happened to matter.
renonce 4y ago
They are actually worth that amount if they hold them though. They are worth one 2033 dollar or 0.7 2023 dollar. 2033 dollar and 2023 dollar should be considered two different currencies. The bonds are pegged to 2033 dollars but customers want 2023 dollars, and when dominated in 2023 dollars the bonds are devaluing like shit.
- comte7092 4y ago
  The book value was predicated on holding the assets to maturity. A bank run is a bank run, it doesn’t matter what you hold if all your customers demand their money back at once.
  - SantalBlush 4y ago
    >The book value was predicated on holding the assets to maturity. That is an accounting practice; it has no bearing on the actual value of the asset. The same is true with calculating cost of goods sold; you can actually choose to use LIFO or FIFO costing to alter the accounting value of your inventory for tax purposes and such. Look up "LIFO liquidation" to see an example of what I mean. Using generally accepted accounting principles, you have some room to conceal extra value or loss on your balance sheet. But the cash flows don't lie.
flangola7 4y ago
The people with money in their bank account are not going to wait 10 years to withdraw it, so that's a moot point. If they wanted those funds to be locked in for so long there are much better vehicles they would have chosen.
- comte7092 4y ago
  Banks are predicated on the idea that a limited percentage of depositors are going to want their deposits at any given time. Insinuating that all assets must be liquid enough for all deposits to be withdrawn simultaneously basically requires that the bank only hold cash, which makes the entire concept of a bank fall apart.
  - flangola7 4y ago
    From what I read banks must always have funds than liabilities and must immediately liquidate if that isn't true. If someone pays me to hold onto a box of cash for them I should obviously have it available when they ask for it back. We may use fiat instead of gold now but that doesn't mean a bank can float itself by hoping no one opens the box and breaks their superposition.
    - comte7092 4y ago
      Gold itself is quite volatile, you would have the same issue even on the gold standard. It was in fact an extremely common problem on the gold standard. A bank is expected to be able to float itself as long as a sufficiently low number of customers demand their money at any given time, a bank run will collapse a bank no matter what monetary standard you’re on.

cperciva 4y ago

A ten year 1% bond is worth about 70 cents on the dollar. Ten years from now it will be worth 100 cents on the dollar, but you can buy or sell it at 70 cents on the dollar, so that's what it's worth.

comte7092 4y ago
>Ten years from now it will be worth 100 cents on the dollar Yes… so if you hold it, that is exactly what it is worth. The issue is that they are forced to sell. We’re literally talking in circles. If you are forced to sell on most assets, you are going to take a hit on your books, that doesn’t suddenly mean that the asset was valued incorrectly.
- istjohn 4y ago
  If you don't value an asset for what you can get on the open market, then you are valuing it incorrectly.
  - comte7092 4y ago
    I can see how you might have that opinion, but it isn’t in like with generally accepted accounting practices on multiple levels.
    - deleted 4y ago
      [deleted]
- cperciva 4y ago
  If they had held 3-month treasuries instead of 10-year bonds, the bank run would have been a non-issue since they could have liquidated the treasuries at the same price as they were listed on SVB's books. They didn't become insolvent because of the bank run. The bank run exposed the fact that they were already insolvent.
rocqua 4y ago
Do remember that the SVB wasn't paying much interest on their deposits. They were making profits on those bonds. The only real problem was a maturity mismatch that happened to matter.

renonce 4y ago

They are actually worth that amount if they hold them though. They are worth one 2033 dollar or 0.7 2023 dollar. 2033 dollar and 2023 dollar should be considered two different currencies. The bonds are pegged to 2033 dollars but customers want 2023 dollars, and when dominated in 2023 dollars the bonds are devaluing like shit.

comte7092 4y ago
The book value was predicated on holding the assets to maturity. A bank run is a bank run, it doesn’t matter what you hold if all your customers demand their money back at once.
- SantalBlush 4y ago
  >The book value was predicated on holding the assets to maturity. That is an accounting practice; it has no bearing on the actual value of the asset. The same is true with calculating cost of goods sold; you can actually choose to use LIFO or FIFO costing to alter the accounting value of your inventory for tax purposes and such. Look up "LIFO liquidation" to see an example of what I mean. Using generally accepted accounting principles, you have some room to conceal extra value or loss on your balance sheet. But the cash flows don't lie.

flangola7 4y ago

The people with money in their bank account are not going to wait 10 years to withdraw it, so that's a moot point. If they wanted those funds to be locked in for so long there are much better vehicles they would have chosen.

comte7092 4y ago
Banks are predicated on the idea that a limited percentage of depositors are going to want their deposits at any given time. Insinuating that all assets must be liquid enough for all deposits to be withdrawn simultaneously basically requires that the bank only hold cash, which makes the entire concept of a bank fall apart.
- flangola7 4y ago
  From what I read banks must always have funds than liabilities and must immediately liquidate if that isn't true. If someone pays me to hold onto a box of cash for them I should obviously have it available when they ask for it back. We may use fiat instead of gold now but that doesn't mean a bank can float itself by hoping no one opens the box and breaks their superposition.
  - comte7092 4y ago
    Gold itself is quite volatile, you would have the same issue even on the gold standard. It was in fact an extremely common problem on the gold standard. A bank is expected to be able to float itself as long as a sufficiently low number of customers demand their money at any given time, a bank run will collapse a bank no matter what monetary standard you’re on.