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I'm guessing the FDIC can just hold them to maturity. The FDIC also has immediate access to a $100 billion loan from the treasury via statute if they needed cas
by eclipticplane 4y ago
I'm guessing the FDIC can just hold them to maturity. The FDIC also has immediate access to a $100 billion loan from the treasury via statute if they needed cash.
Over the lifetime of the bonds/loans, they might even make money like what happened in the TARP program.
- simmerup 4y agoSurely inflation adjusted they’ll be massively out of pocket if they hold the bonds to maturity. That’s why they’re worth so little in the first place.
- drexlspivey 4y agoInflation does not affect a bond’s value
- zzleeper 4y agoExpected inflation definitely affects bond values today
- NotYourLawyer 4y agoAs a matter of opportunity cost then. You’ll lose money if you hold these to maturity, which is why their value has fallen in the first place.
- itake 4y agonot to be pedantic, but my understanding is their value dropped because the treasury is selling higher interest bonds. Why would anyone buy a low interest bond at face value when for the same-price purchase a high interest bond?
- curiousgal 4y agoIt's not just that. A bond's price is simply the sum of its discounted future cash flows. i.e. the coupon value divided by (1+) the interest rate. When interest rates rise, the price goes down.
- AdamN 4y agoThe Fed will accept treasuries as collateral for face value loans to banks for 1 year as part of the announcement. The losers here will be bank shareholders (of underwater banks) because they will need to dilute themselves to make up the difference when the loan gets called unless they can find other ways to make money in the meantime.
- NotYourLawyer 4y agoYou wouldn’t buy it at face value. That’s what it means to say that its value has fallen.