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Federal Reserve Path Is Murkier After Bank Blowup
- analognoise 4y agoIt was fine when it hurts regular people, but if the investor class is going to be hurt, we need to do something!
- EntropyDenied 4y agoThe FED did what it did because they know they have to keep hiking rates to reign in inflation and deflate the asset bubble. Allowing banks to go under and take depositors with them would generate far too much pressure to lower rates to salvage the poor investments these banks chose to make.
- jgilias 4y agohttps://archive.is/oy2eT https://archive.is/oy2eT
- webXL 4y agoI don't know who said it first, but it was something to the effect "the Fed will raise rates until they break something." The rapid move away from ZIRP might be the real culprit here.
- ballenf 4y agoMore like they're raising rates until the damage from artificially low rates becomes visible. Rates returning to normal is just the flood waters receding and letting us see the carnage below.
- deleted 4y ago[deleted]
- starkd 4y agoThey ignored inflation as being "transitory" for too long. That gave permission to keep rates low, so the administration could do massive influx of spending. Now they have to catch up, and its much harder because they are behind.
- ren_engineer 4y agoeconomists are the dumbest creatures on earth, inflation is happening because the entire economy became less efficient for various reasons related to the pandemic and foreign policy, plus the money the Fed itself printed. Hence fewer goods being produced with more money available and increased prices as a result. These people think they can print money and adjust interest rates and make the economy magically do what they want when in reality the economy is driven by technological advancements that improve productivity, not financial trickery these people don't live in the real world and now we are going to be stuck with stagflation for years most likely
- spaceman_2020 4y agoeconomy might be driven by technological advancements, but inflation is certainly driven greatly by money supply and availability.
- fock 4y ago+ the apparent belief that it's ok that we bail out people who took the wrong bet (i.e. bought long-running treasury bonds and overvalued mortgage-packages AND the people who saw this and then crashed their own bank...) and now still want their returns, because they are special... Socialism for the 0.01% v2. First one was a smash.
- Msw242 4y agoNobody is calling for bailing out the shareholders in SVB dude. Only depositors. You're going after a strawman.
- fock 4y agoWell, I'd say everyone with more than 250k deposit didn't do their due diligence. And they might have asked the question, why the SVB-conditions were better than elsewhere. I would argue that's the idea of a free market, no?
- 4y ago
- freitzkriesler2 4y agoHow is it murkier? They're going to fund bank bailouts by making other banks and US pay for it via inflation and passed on fees to those of us who don't store our money in financial institutions run by idiots. And they will keep raising rates because the consequence of letting inflation run even higher is a populist revolt. And the worst part is the majority of this country and the world are too stupid to realize it. Gotta slow boil that frog.
- jgwil2 4y agoPer the article, they are now expected to raise rates much more slowly than they otherwise would have.
- throw_m239339 4y ago"expected". At some point, the FED is going to run out of instruments to tamper with to prop up a fake economy. It's going to crash, that's inevitable. The whole narrative behind the creation of the FED was that private bankers would enact more rigorous economic policies than politicians and it would lead to more economic stability. It's clearly not the case now. The very existence of the FED will be questioned.
- zadler 4y agoEh, this is par for the course in democratic decline… same situation in Argentina for example, central bank is supposed to be independent but in reality the government controls fiscal policy. It’s true that the US has a long way to fall though.
- theGnuMe 4y agoIt'd be way worse without the Fed, we'd have a collapse of everything...
- onlyrealcuzzo 4y agoUntil recently - wage gains were beating inflation by more than usual - obviously not everyone is affected equally. The main people who should've been fuming about inflation are retirees on defined benefit pensions.
- ellisv 4y agoSilvergate, SVB, and Signature were cooking for some time and I imagine a few others are too – but would foregoing an expected 25bps rate hike really change anything?
- bombcar 4y agoFrom this I can deduce that banks with names starting with S go bankrupt.
- rayrey 4y agoSchwab is next?
- tracker1 4y agoOne can hope.
- ellisv 4y agoMaybe. What's the conditional probability a bank's name starts with S?
- bombcar 4y agohttps://www.bestcashcow.com/banks/S https://www.bestcashcow.com/banks/S has 24 on a page it seems, and 15 pages, so 360 out of 4778 apparently. 7%, which is higher than the expected 3%.
- machina_ex_deus 4y agoWell played VCs. Triggered bank run, destroyed a whole bank and your reward is getting what you wanted the most: stopping rate hikes. And as a cherry on top, no depositors lost anything. I guess the losers are everyone else who get to eat inflation with nowhere to escape it.
- deleted 4y ago[deleted]
- amluto 4y agoCan we quit with the blaming of VCs, especially without explanation? The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut, and if rates went higher they would have been even more insolvent, on account of being massively short interest rates.
- endisneigh 4y agoAren't VCs the ones who told people to pull money out of SVB, there by causing this?
- rogerkirkness 4y agoThe earnings call where they said they needed billions of dollars stat didn't help.
- colinmorelli 4y agoSVBs liquidity issues predate VCs telling portfolio companies to take cash out. They already had to liquidate securities at a $1.8B and sell equity to fill the hole in the balance sheet on Wednesday, which was the announcement that led to the run. SVB likely would have made it through the immediate term if companies did not pull out money en-masse. However, they were in fairly dangerous territory no matter what, and highly susceptible to the ongoing pattern of declining deposits (as burn rates remain high but new capital is not being injected at the same rates it was 18 months ago). All that said, there were companies (not VCs) flagging SVBs risk on the weeks and months prior to this incident. Some were already pulling money out, albeit much more slowly. The very nature of bank runs is that as soon as the fundamental trust that we can withdraw tomorrow is gone, everyone wants to withdraw today. That can, as we just saw, happen in a very short period of time. Once that happens, it is objectively in each individual party's best interests to get money out. So sure, you could say that everyone should have just stayed put and not reacted. But in doing so, you'd be asking depositors in a bank that just announced they were unable to meet liquidity obligations to keep their money where it is, and that as long as everyone else did the same, then we'd all be fine, knowing that: 1. We would still likely have faced problems in the months and quarters ahead, and 2. That if enough of them did not heed the advice, you'd be caught holding the bag and unable to pay employees or vendors So I'm not quite sure what those blaming VCs were expecting here. Would you leave your money in a bank with demonstrable liquidity issues?
- mupuff1234 4y agoI hope the fed doesn't get spooked. If anything as long as this doesn't get out of hand this seems like what should be happening in an environment of raising rates - more speculative investments/companies get killed and we return back to normalcy.
- hellcow 4y agoWhere in this case the “speculative investments” are bank deposits and T-bills.
- yabones 4y agoThe "speculation" was that rates would stay low forever.
- drexlspivey 4y agoSVB didn’t buy T-bills though, they would be fine if they did. They bought 10-year bonds that dropped 20-25% in value since 2021 so yeah pretty speculative.
- nerdponx 4y agoThe "speculative" part was that interest rates would stay low.
- deleted 4y ago[deleted]
- fnordpiglet 4y agoThe old saying goes: the federal reserve raises rates until something breaks People seem to think the backstop is some sort of moral hazard. But they’re ignoring the decision making principals, equity holders, and unsecured bond holders are all being left holding the bag on the bailouts and they’re not faced with a moral hazard. The only ones being protected are the customers of the bank, who had absolutely no say in the management of the bank. So, yeah. Not impressed with the moral hazard and “let them fail” argument.
- nerdponx 4y agoI agree with this, except that just losing your job and investments probably isn't a material punishment for many of the people involved.
- fnordpiglet 4y ago“Destroyed my last bank” isn’t great resume fodder. I would imagine they’re doing the jobs they do because they either can’t afford to retire, or do not want to retire. I think no one wants to destroy their careers. I do find it fascinating that bankers are one of the few professions that if you go bankrupt the public opinion is no torture is sufficient for the principals.
- nerdponx 4y agoI think it's any career in which your bad decisions have the potential to harm millions of people, whether you're a bank executive or a rail freight executive hauling huge amounts of poisonous chemicals through residential neighborhoods. The difference is that in banking specifically, the regulations seem to have some amount of teeth, so it's tantalizing to see executives receiving any material consequences at all. Meanwhile I don't see the Norfolk Southern shareholders losing money or their executives losing their jobs. The incident is barely visible in Norfolk Southern stock prices.
- fnordpiglet 4y ago
- partiallypro 4y agoIf the Fed blinks we'll have solved absolutely nothing and people will put money back into nonsensical asset classes creating and perpetuating more economic inefficiency. Just look at how crypto is behaving this morning, it's not up because it's a safe haven, it's up because people think the Fed will blink and we'll go back to an age of people spending $100k on a JPEG.
- mister_tee 4y agoRecognizing these are some unique circumstances, over the last week, expectations for next week's FOMC meeting swung from a near-certain +25bp, to 75% +50bp / 25% +25bp, to 60% +25bp / 40% 0bp. Tomorrow, February's CPI data will be released which might help collapse this wave function. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/markets/interest-rates/cme-fedwatch... 2-year US treasury rate has moved from 5% to 4% over the last few days: https://www.cnbc.com/quotes/US2Y https://www.cnbc.com/quotes/US2Y
- MrMan 4y agotech / venture capital and other models that rely on ZIRP need to naturally die back and then re-emerge when the environment is more favorable for them.
- nerdponx 4y agoI agree with this, but it's also possible that the Fed moved a bit too quickly, overcompensating for moving too slowly last year.
- elwebmaster 4y agoWhy can’t they just set the rate to 0 and be done with it? What does the interest rate have to do with inflation? The inflation is caused by the printing of money during the pandemic, the supply/productivity issues, environmental related inefficiencies and deglobalization. The FED does not have any control over any of these issues and is creating more issues.
- bigtex88 4y agoSince when did comments on HN become this ignorant?
- blurbleblurble 4y agoLow rates are the mechanism by which money is printed.
- nerdponx 4y agoHow does that follow? Money gets "printed" no matter what due to fractional-reserve banking.
- blurbleblurble 4y agoWell, my understanding is: Money is loaned into existence and the Fed's funding rate affects how easy or difficult it is for banks to get that money when they need it. The banks are turning around and using that money to pay interest, to make their own loans and financial products, etc. Those products' rates will always be compared to the rate the Fed lends at. A higher Fed rate make new money more scarce, a lower rate makes it less scarce. The market behavior follows that. So it controls the rate at which money flows into the economy. It also indirectly affects the cost effectiveness of other loans that aren't directly connected to the Fed, and also how risky people and institutions are willing to be with their money. That's a crucial piece here, not only does the Fed's rate control how much "new" money flows into the economy, it also influences the ways people behave with existing money. In the beginning of COVID times, the Fed lowered rates to near 0%, which meant people/institutions were getting money much more easily than before. A whole host of zero interest loans meant it was easier for people to buy cars and houses and all kinds of stuff.