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I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great! The issue is with using government money to repay dep

by ptero 4y ago

I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great! The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.

thephyber 4y ago
You’re missing the point. There’s no need to liquidate the bank or do a fire sale. Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale. Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.
- ptero 4y ago
  The source of the problem is liquidity, not the problem assets. But providing this liquidity when needed has costs. That money should not have been spent by government. Here is a simpler example: A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan. But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.

by ptero 4y ago

thephyber 4y ago

You’re missing the point. There’s no need to liquidate the bank or do a fire sale. Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale. Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.

ptero 4y ago
The source of the problem is liquidity, not the problem assets. But providing this liquidity when needed has costs. That money should not have been spent by government. Here is a simpler example: A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan. But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.