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SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC
- vpastore 4y agoI can’t stand another post on svb please stop
- joemazerino 4y agoSure SVB used lobbyists but that's not the crux of the issue. The issue is our governments tax and spend policies are driving up rates to an unsustainable amount. SVB is totally at fault, don't get me wrong, but this is the house of cards we have built.
- hedora 4y agoWhat? Low interest rates are literally the government printing money. High interest rates are the opposite of government spending. Also, this is one of the few places where the government can add / remove money to the economy without spending taxpayer dollars.
- ZachPruckowski 4y agoInterest rates are where they were in the mid/late 90s (https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS). The idea that these interest rates are unsustainable/dangerous is just silly. If anything, the 2009-2016 and 2020-2021 periods at an interest rate of 0% are the anomalies.
- InTheArena 4y agoThe problem is is that the amount of debt is percentage of GDP, and therefore the interest rates that we need to pay are significantly higher now. This kind of analysis is hopelessly naïve without taking into account overall macro situation.
- makestuff 4y agoI always see people say the national debt doesn’t matter because it isn’t like household debt. However, I just fail to see how that is true. At some point the can won’t be able to be kicked down the road anymore. I guess everyone is hoping that it won’t be during their lifetime.
- InTheArena 4y agoPeople still hold to Soviet style, Socialism/communism, why would you be surprised if they’re still holding on to modern monetary theory?
- admax88qqq 4y agoBecause fundamentally the US government can print money to pay US debt. You can't print money to pay off your household debt. It's a different beast altogether subject to entirely different rules and incentives than household debt.
- fwungy 4y agoYes, and we the taxpayers get the privilege of paying interest on the money that is printed based on our nation's creditworthiness. The debt can never be paid. It's by design.
- fundad 4y agoWith tax revenue on growing wages.
- joemazerino 4y agoPrinting money results in inflation. That was my original point.
- admax88qqq 4y agoMy point is just that national debt is more complicated than household debt. And every attempt to reduce it to household debt is flawed. They are fundamentally different.
- fallingknife 4y agoToo bad debt/GDP isn't https://fred.stlouisfed.org/series/GFDGDPA188S https://fred.stlouisfed.org/series/GFDGDPA188S
- andrewstuart 4y agoWeaken regulations, trains and banks crash, but hey small government, slash the red tape.
- hedora 4y agoIn fairness, the train crash had bipartisan support.
- andrewstuart 4y ago[flagged]
- aaomidi 4y agoAnd Biden killed the strikes. Both parties hate the non-rich. One just hates it more and is way more obvious about it.
- themitigating 4y agoClaiming politicans hate the vast majority of people is so insane I can't believe I'm seeing it here.
- caoilte 4y agoPolitical parties aren't people so assigning feelings to them is of questionable value, but no more so than calling someone insane for doing so. The underlying fact is that the Republican and Democratic Party are both constituted to represent their donors and that certain parties (rich individuals being the largest such party) enjoy the benefit of giving bi-partisan patronage.
- zmgsabst 4y agoCalling an argument “insane” isn’t a constructive comment. Perhaps you could explain why you don’t think that’s a reasonable interpretation..?
- 4y ago
- tikkun 4y agoWhich groups are working to reduce the impact of $ on laws? One I've seen is https://represent.us https://represent.us, who else?
- whitemary 4y agoThe capitalist class will always leverage its capital for its own interests. It's an inherent fact of capitalism. The American socialist movement was mostly wiped out during the Red Scare.
- olalonde 4y agoWhat is capitalist about modern banking? It's probably the most regulated industry in existence. Where a practice that would normally be regarded as fraudulent anywhere else (fractional reserve banking) is not only legal but encouraged by government. There's nothing capitalist about it[0]. [0] https://mises.org/power-market/central-banking-socialism https://mises.org/power-market/central-banking-socialism
- whitemary 4y agoA sovereign state in a capitalist society is a capitalist state. A capitalist state always serves, in aggregate, the interests of the capitalist class. Karl Marx showed us how this works 150 years ago and nobody has challenged this part of his analysis to my knowledge. I am familiar with the delusional American libertarian fantasies, but that's just ideological denial. They haven't done any actual analysis of how a government or state works, or who influences it.
- olalonde 4y agoI was referring to capitalism as in "free enterprise" (not as in "anything that happens in a mostly capitalist society"). Many of Marx' central theories were shown to be incorrect (e.g. labor theory of value) and personally, I don't buy the theory of class struggle (it is probably not even a falsifiable theory).
- guntreepo 4y agoAhh, the schadenfreude. I'm rubbing my hands together in glee at the thought of these parasites getting what's coming to them.
- hedora 4y agoWhat’s coming to them, exactly? A new yacht and 12 months off? Serious question: Is there any chance of any repercussions for the lobbyists, the execs that hired them, or even the people that moved the balance sheet into the previously “Illegal! Danger! Dragons will eat you!” corner of the risk quadrant?
- jimt1234 4y agoRepercussions? That's their jobs!
- robswc 4y agoYes, I too hate Californians. (do I need an /s?)
- themitigating 4y agoRegular people will suffer more than anyone rich
- FooBarBizBazz 4y agoWhen a bank fails, it's the depositors who get screwed, not the CEO. Why would you cheer for that? I understand why you're out for blood, but you're not getting the blood you want.
- deleted 4y ago[deleted]
- InTheArena 4y agoThis seems pretty knee-jerk, especially given, that the current glances that the business was probably too conservatively managed. The problem here was not holding safe assets - but the value of the government bonds depreciating dramatically because of the rising interest rates and a flush supply of higher interest rates due to massive government deficit spending. It’s also a reflection of the extremely aggressive mark to market rules that have been put in place. You can make a very solid argument at the risk here is actually risk that was forced into these companies by the government.
- Telemakhos 4y agoI'd not consider that argument solid at all, considering that SVIB and Silvergate are the only ones bankrupt, while the other banks are solvent. Instead, I'd look at the concentration of depositors within narrow geographic and professional areas and their connections to one another, which allows panic to spread faster and enables a bank run; other banks have a much broader and diverse set of depositors. I'd also look at the foolishness of some of those depositors who deposited far too much in one bank instead of distributing funds across many banks. Both are errors of over-concentration. Retail banking only made up 7% of deposits at SVIB; the rest was VC/tech money. That's not by any stretch of the imagination like other banks, and that's what caused this unique failure, not the same interest rate hikes that all banks are exposed to (and which they all account for regularly in internal exercises and stress tests like responsible banks do).
- daveguy 4y agoThe business got in trouble with long term mortgage backed securities, not government bonds. "The government did it" is a bad take on this one. It was the business that chose excessive long term illiquid mortgage backed securities vs short to mid term government bonds which would have been a better choice.
- InTheArena 4y agoThis does not appear to be the case with the numbers coming out this morning. It’s really the government bonds that have the dramatic drop in value, relatively. The write down of the government bond assets are significantly higher than the write down of the MBS assets.
- fspeech 4y agoOther than the focus on governmental regulation we should also look at the glaring principal-agent risk. Large shareholders (such as the Swedish pension fund) should have asked questions about the concentration risks and AOCI losses. Management could be loathe to realize the losses earlier due to profit targets. Their risk/reward calculation on addressing a mistake could be misaligned from the shareholders'.
- jacquesm 4y agoPension funds - and municipalities - have no business to take the funds that they have been entrusted with outside of the country where they reside. The same kind of nonsense led to the Icesave debacle.
- henrydark 4y agoIs this possible for all countries? Surely the lowest gdp (maybe per capita) country in the world that has pension funds should be eligible to invest these funds outside of the country. A priori, without knowing anything about world economies, we shouldn't expect every country with pensions to even have local possibilities of investment. There's possibly a country where every single tax payer works remotely, or in local administration.
- hindsightbias 4y agoFreedom-oriented low-service states would seem to be too good a deal to pass up: https://www.nbcdfw.com/news/local/spanish-company-signs-50-year-for-profit-toll-road-deal/1934822/ https://www.nbcdfw.com/news/local/spanish-company-signs-50-y...
- realityking 4y agoIcesave was a very different problem. Iceland’s banks, trough the countries membership in the EEA, were able to offer their services in the UK and Netherlands. However when not just Icesave but 3 of their big banks collapsed around the same time their depositor guarantee mechanism lacked the funds to actually guarantee deposits. At the same time Iceland was in a credit crisis that prevented it from issuing more debt to refinance the deposit guarantee mechanism. This is a very different problem from a pension fund investing money abroad. An investment can always go to 0, which would hurt Swedish pensions but has no ramification outside Sweden. On the other hand the 2006 Icelandic bank sector was flush with foreign deposits that not even the Iclendic government could credibly guarantee deposits at the legal level. Quick side note, the Icelandic deposit guarantee at the time was only ~20k USD. Not a lot.
- wnevets 4y agoMy favorite quote that I've seen about this entire ordeal is "there are no libertarians in a bank run".
- Bloating 4y agoLibertarians would prefer not to be subjected to the current banking system
- egberts1 4y agoBut the ultimate crux is done by the Federal Reserve Board for allowing $50+B --> non-bank <-- to skimp on the stress test. (emphasis is mine but the key crux). This was done on March 14. 2014, which is 4 years earlier. "Finally, the Board has determined not to impose enhanced prudential standards on nonbank financial companies supervised by the Board through this final ($50B stress test) rule." Not seeing any partisan hacks there, unless you count the financial ones. https://www.govinfo.gov/content/pkg/FR-2014-03-27/html/2014-05699.htm https://www.govinfo.gov/content/pkg/FR-2014-03-27/html/2014-...
- samirillian 4y agoELI5?
- LandoCalrissian 4y agoI can't remember all the specifics, but after the 2008 crash banks with a certain levels of holding have to pass stress test showing they can survive scenarios like this. I think the old limit was 50 billion but go changed to I think 150 billion which puts SVB below the threshold for the stress test.
- CalChris 4y agoTrump increased this to $250B in 2018. SVB as the 16th largest bank in the US at $209B didn’t trip this wire because the wire was moved.
- egberts1 4y agoYou missed the part about "non-bank" exempted from ANY limit on March 14, 2014 in the FR Notice.
- CalChris 4y ago“I think the old limit was 50 billion but go changed to I think 150 billion which puts SVB below the threshold for the stress test.” Maybe the parent post missed that but I was responding to that post.
- ursuscamp 4y agoThe entire system is a house of cards. The collateral of the system itself is debt (USTs). There is no firm ground to stand on after decades of low interest rates. Marginal tweaks to banking regulations neither caused nor can fix this. The Fed is raising rates and we are taking our medicine.
- fwungy 4y agoThe Fed, creates magic money from thin air then lends it to the government at interest to sell as T bills. Guess who is on the hook for the interest? The US taxpayer. The Fed is owned by its member banks which are for-profit corporations. Imagine paying interest to a third party to access your own wealth! That's the USA. There is no technical need for the Fed. We were fine without it till 1913. It just makes a lot of insiders rich.
- coliveira 4y agoThere is no technical need for any bank, at least in the way they operate now. When you get a house loan, you're not getting any money, you're transferring the property lien to the bank in exchange for cash. It is just a value exchange not a real loan, and this could be done by the government. This is true for pretty much anything a bank does nowadays, they're just exchanging one type of value for cash and getting interest on the top of this transaction that takes a few minutes to process.
- dmix 4y ago> The Fed is raising rates and we are taking our medicine. Taking our medicine would imply there are market consequences. It seems the typical gov reaction is some form of bailouts to the high end of the market combined with regulation to further limit the market to a few giant monopolies. All the matters to people is not ruffling feathers, a sense of security, not about actually solving the root problems that SVB took a massive gamble on mortgages and no one seemed to care. Gov focusing on helping the depositors is fine. But it sounds like the vast, vast majority of SVBs depositors will be made whole. So that's probably not even necessary. The Yallen stuff is most likely about calming the market, not direct intervention.
- jimt1234 4y agoMore/stricter regulation is definitely needed...on drag shows! /s
- skwirl 4y agoIf SVB collapsed because of corruption in the federal government, then that just makes a stronger case for federal institutions doing whatever they need to do to make the depositors whole. The solution to failing to protect depositors is not to snuff them out, it's to make things right.
- ajross 4y agoWhere on earth do you get "corruption in the federal government" from that article? It's explicitly saying that they were lobbying to weaken regulation. That's transparently circular. You're saying government oversight is bad because the government can be convinced not to oversee, in which case we get bad results from the lack of oversight! In this particular case, it's unclear exactly what oversight could have prevented the mistakes. We just won't know for a while. But... yeah, it seems very much not unreasonable that the 2018 Dodd-Frank rollback may be part of the problem.
- skwirl 4y agoI don't see where you get "government oversight is bad" from anything I said. I strongly believe that we should have strict government oversight of deposit accounts and that people should be able to have faith in the banking system. I don't think it's depositors fault that banks lobby to weaken this regulation and that the government goes along with it. I agree that we don't know if the weakened regulations caused this - it's possible the regulators already had the tools in their belt they needed to prevent this and were asleep at the wheel. We will find out eventually.
- ajross 4y agoOK, I see what you meant now. FWIW: employing the phrase "corruption in the federal government" to refer to what was clearly lawfully drafted and correctly passed legislation marks you as kind of a wingnut, so I interpreted your point to be "see? we can't trust the government!" and not "the government did something bad". The fact that the 2018 bill was a bad bill with bad effects doesn't make it "corrupt". Congress debated it, congress passed it, the president signed it. All that happens in public; it's the opposite of "corrupt".
- theFletch 4y agoThe article lost credibility at the beginning of the second paragraph for me. "..second-largest bank collapse in American history and the first since the 2008 financial crisis."
- szundi 4y agoFirst here means the largest probably
- cratermoon 4y agoIt appears the emerging consensus among the apologists is that SVB failed because the federal government, or the Fed specifically, over-regulated them by making them take certain positions, then pulled the rug out from under the by raising interest rates. In short, it wasn't the fault of the people running the bank. In other news: https://www.nbcnews.com/business/business-news/etsy-delays-payments-sellers-due-silicon-valley-bank-collapse-rcna74475 https://www.nbcnews.com/business/business-news/etsy-delays-p...
- OrvalWintermute 4y agoI don't think there is any consensus on this issue. They clearly mismanaged their portfolio, since the Fixed Income approach towards interest rate risk is to hedge, and to use Bond Laddering, and utilize diversification. They did the exact opposite at the same time they permitted deposits to flow into the bank unchecked. This is a crisis of their own making 100%
- downrightmike 4y agoThe Dude who ran SVB into the ground also ran Lehman Bros into the ground, just saying, he should not be held responsible at some point.
- lettergram 4y agoLol somehow always blaming “deregulation” and politicians I’ll tell you what, it’s not regulators that caused this. IMO Banks need less regulation (and more smaller banks) and need to fail more (and have more jail time). It’s the banking executives and business analysis team at fault here. Just like it’s the startups error for failing to have multiple bank accounts. Some advice, be robust and self reliant. Assume everywhere you keep money could / will be stolen. As an individual, I have 3 bank accounts - 1 large U.S. bank and 2 regional (in different regions). Each account has a minimum of 1 month living expenses, plus I keep 1 month expenses in cash on hand. I do the same with investments, particularly after the whole “we won’t let you short sell GameStop” on with firms (but not others). Be robust, that’s your job as an individual or founder.
- robswc 4y ago>Be robust, that’s your job as an individual or founder. 100% I learned the hard way not to "trust systems" when it comes to important aspects of your life. In college, I found some transfer requirements confusing. I utilized the college's guidance center. They told me they were sure that I needed class X, Y and Z. Of course, as it turned out, I didn't need _any_ of them. So an entire year and thousands wasted. I know mistakes can happen... I know I probably should have done the work to check for myself but I figured they would know more anyways. Maybe a priceless lesson in the long run though...
- arrosenberg 4y ago> IMO Banks need less regulation > and have more jail time Regulations are how you get jail time.
- lettergram 4y agoNo, laws (criminal codes) are how you get jail time. Regulations are rules passed by administrative bodies, those rarely, if ever, result in jail time. There’s a lot of reason for that, but administrative agencies often don’t have the full authority to send people to prison (I personally don’t think they should). Instead injured parties should be able to bring a suit, and I’m sure they will here.
- gutdcnow 4y ago[dead]
- cmsonger 4y agoI seriously hope that the people asking the government for a bailout revisit their past policy positions and offer the same empathy to others going forward that they are asking for themselves right now.
- Mountain_Skies 4y agoThe tech sector has made themselves one of the most hated groups in the country, behind Congress, telecom providers, and the media. Doubt they're going to find much sympathy from the folks in "flyover country" that the tech sector has gleefully been shitting all over for a decade. Perhaps the tech sector will have enough political capital to ensure they get to dump their losses on the public they loath, but it's going to come at a great political cost for those who go along with it.
- themitigating 4y agoNo. Foxnews made the tech sector the most hated groups.
- waynesonfire 4y agoyeah, had nothing to do with crypto.
- twblalock 4y agoHow does the tech sector shit all over “flyover country”? Show examples.
- indymike 4y ago> "flyover country" that the tech sector has gleefully been shitting all over for a decade I'm a founder of an Indiana based tech startup. What people in flyover states don't like is seeing stuff like Theranos. They also don't understand operating businesses for 10 years that lose billions. People here do not see the "tech sector" as evil: every flyover state has programs to attract and create tech sector companies. If anything there is a bit of envy combined with a simmering rage when we get bus-rolled for not having a great high-tech workforce, when Purdue, Notre Dame, IU, and other Midwest universities are cranking out fantastic engineering and business management talent that gets pulled to the coasts for big starting salaries. > Perhaps the tech sector will have enough political capital to ensure they get to dump their losses on the public they loath, I don't think that is what is being asked for at all. It's more of a "fix this before it hurts everyone". The Fed raising interest rates too quickly is the root cause of SVBs problems, and those rate changes may be doing the same thing with the small, community banks that flyover country agriculture and manufacturing relies on heavily. Hopefully SVB is the end of it... but this situation is not a "tech sector" issue. It's a banking problem caused by the Fed changing the rules to quickly. > it's going to come at a great political cost for those who go along with it. Not doing everything that can be done to fix this quickly will be politically un-affordable.
- BurningFrog 4y agoThere are hard tradeoffs here, and one failed bank doesn't mean the wrong choice was made. As I remember it, the reason for weakening these regulations was that Dodd-Frank is/was extremely expensive to comply with, and that created a banking sector where only the biggest banks could survive and it made no sense to start any new banks.
- themitigating 4y agoRegulations help but then too much prevents competition. You can't win when people are angry mostly due to manipulation
- PeterisP 4y agoThat is a reasonable reason, but on the other hand, that should not justify exempting the 18th largest bank in USA (the Silicon Valley Bank; as of 2022 https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_U...) from such regulation.
- BurningFrog 4y agoYeah, it may well be that the threshold wasn't calibrated properly.
- zainhoda 4y agoI conducted Dodd-Frank Act Stress Tests for one component of a large bank. For a $400B portfolio I was able to do it with a team of 4 people including myself plus a $100k/year license to Barra and it takes about a week of the whole team’s focus. The thing is, we were already employed by the bank to run risk management and the bank already had the subscription to the software. So from the bank’s perspective it was close to 0 marginal cost to conduct the stress tests because even if they weren’t required, we would be doing them anyway as good risk management practice. If a bank says that stress tests are too expensive to run, that means that absent regulatory requirements they would perform no risk management.
- 4y ago
- kernal 4y ago[flagged]
- FooBarBizBazz 4y agoSuppose they'd hedged away their interest rate risk. There'd just be another party on the other side of those swaps who'd have gotten wiped out instead, right?
- topaz0 4y agoThe point of risk management isn't that you never have any losses, it's that your losses won't be large enough to produce a crisis (e.g. where you can't honor withdrawal requests). If the other party is also managing their risk well, they may take a loss, but they won't be "wiped out".