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A fundamental component of finance valuations and rules is time. Saying that the fed should stretch out the timeline of asset sales so as to ensure they mature

by Edmond 4y ago

A fundamental component of finance valuations and rules is time. Saying that the fed should stretch out the timeline of asset sales so as to ensure they mature into their valuations doesn't align with how things work. Time value of money is a thing, if we consider even moderate inflation for instance, the cash you can get today is worth less in the future. In order words if SVB assets are worth $100 today, it makes no sense for me to hand them $100 in cash today while I wait a decade for their bonds to mature, just so I can sell them for $100 again. That is before we get to the fact that the fed is not in the business of managing investments for random failed businesses. If some knight in shinning armor takes a look at SVB assets and deem them worth some future value that would justify the current need for cash, they'll buy the bank. So far it appears no such knight has emerged.

madamelic 4y ago
> it makes no sense for me to hand them $100 in cash today while I wait a decade for their bonds to mature, just so I can sell them for $100 again. I know the Fed and Treasury are different entities but holding a bunch of bonds to essentially themselves is the best case scenario. They would hold both ends of the transaction: the money from the bonds and the bonds themselves (obviously ignoring the fact the liquid money is likely 'at work' somewhere else). The risk at that point to the Fed is limited to only the US financial system failing entirely. 'They' can afford to hold the bonds even in perpetuity because they have no real responsibilities to anyone beyond providing stability. I am not an economist but the risk of either asking for the cash from the Treasury or otherwise doing 'money-magic' to transform the bonds into liquid cash should be basically zero. They would just be fronting themselves money at a 0% interest rate, no one else would be exposed to that 'loan'. Someone else smarter in economics may have to step into explain why this is wrong or bad.

by Edmond 4y ago

madamelic 4y ago

> it makes no sense for me to hand them $100 in cash today while I wait a decade for their bonds to mature, just so I can sell them for $100 again. I know the Fed and Treasury are different entities but holding a bunch of bonds to essentially themselves is the best case scenario. They would hold both ends of the transaction: the money from the bonds and the bonds themselves (obviously ignoring the fact the liquid money is likely 'at work' somewhere else). The risk at that point to the Fed is limited to only the US financial system failing entirely. 'They' can afford to hold the bonds even in perpetuity because they have no real responsibilities to anyone beyond providing stability. I am not an economist but the risk of either asking for the cash from the Treasury or otherwise doing 'money-magic' to transform the bonds into liquid cash should be basically zero. They would just be fronting themselves money at a 0% interest rate, no one else would be exposed to that 'loan'. Someone else smarter in economics may have to step into explain why this is wrong or bad.