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The second bank has just bought - because it has enough money to do so selling its NFT or whatever - the same bonds that SVB has. There is no difference at all
by kgwgk 4y ago
The second bank has just bought - because it has enough money to do so selling its NFT or whatever - the same bonds that SVB has.
There is no difference at all between the assets of liabilities and the two banks in this example. I don’t mean just that the amounts are the same: every asset is identical.
Can both use the “I have the money but just not right now” excuse or not?
- unmole 4y ago> every asset is identical. You lost me there. > Can both use the “I have the money but just not right now” excuse or not? No.
- kgwgk 4y agoBank 1 starts with $1000 in t-bills and $1000 in t-bonds (face value $1000) The bonds lose 20% (for simplicity the t-bills gain 0%) Bank 1 ends with $1000 in t-bills and $800 in t-bonds (face value $1000) According to some people Bank 1 can say “I have $2000 it’s just that I don’t have them right now” Bank 2 starts with $1800 in t-bills and $200 in NFTs In the same period the NFTs lose 100% Bank 2 still has $1800 in t-bills, sells $800 and buys $800 of those t-bonds which are trading at a 20% discount to par Bank 2 ends with $1000 in t-bills and $800 in t-bonds (face value $1000) Bank 1 and Bank 2 are in the same exact situation Bank 1 can say “I have $2000 it’s just that I don’t have them right now” but Bank 2 cannot do the same?