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> "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer" Technically, this is of course correct. If there are $100 of
by acchow 4y ago
> "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer"
Technically, this is of course correct. If there are $100 of deposits backed by $100 of bonds which will mature in 5 years, the treasury can of course satisfy all withdrawal demands on that $100 because it has infinite money, and the treasury will with 99% certainty get back all $100 because these are AAA bonds which will almost never default.
Unless they do.
But regardless, even if they DON'T default, the treasury will be made full and the taxpayer will bear no cost, technically.
But this par $100 bond is actually worth $87 today, so the treasury could have actually bought it up on the open markets instead for $87 and pocketed the $13 difference as profit for the taxpayer. That that are foregoing this possible profit is omitted in the quote above... I'm not saying they should do this, I just think that the fed is being a bit abusive with terms here.
In any case, buying up distressed assets to provide liquidity is just Quantitative Easing. Which we all know doesn't have any weird secondary or tertiary effects, right?
- DubiousPusher 4y agoThe joint statement has made it clear they are not paying for this through FED/Treasury muckery. It will be paid for by a "special assessment" of the FDIC on banks "which is required by law".
- acchow 4y agoAnd what of this BTFP facility? The fed is willing to lend out full par value against high quality assets. Because AAA high quality assets never default and always return full par value, right? How is this not kicking the can down the road? This is like a new almost-QE product. For now, it’s just a collateralized loan. But if there is some system shock and a lot of these high quality bonds start defaulting, you bet your ass the fed will buy up these distressed assets and then we’ll have QE again. I do hope we don’t have such a shock. But they’re like a once in a lifetime event, and we already got one in 2008, so we’re probably fine.
- DubiousPusher 4y agoI didn't dive into this part. Looks like this is their real game for preventing spill-over. My understanding is that the government actually made a lot of money off the toxic assets it bought post 2008. Maybe they can pull off the same trick? I was sceptical that this was indeed systemic before but I'm reassessing that opinion.