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If people followed this reasoning, then they would keep everything in cash or money market mutual funds. The mark to market will always be 1=1 and have no liqui
by sroussey 4y ago
If people followed this reasoning, then they would keep everything in cash or money market mutual funds. The mark to market will always be 1=1 and have no liquidity problems. Of course, all banks would fail.
These “unrealized losses” don’t include “unrealized hedges” either. Of course, SPV let those go. Oops.
- amluto 4y agoI don’t really know what you’re trying to say. There are many things one can invest in. And indeed cash and money market funds are not strongly exposed to interest rate risk, and a rate change does not affect their present value to any substantial extent. And banks can absolutely make money without taking on interest rate risk. They can hedge, or they can invest in things that produce earnings at a rate that varies with interest rate (short term bonds, adjustable rate mortgages, etc). Or both. Or take on a limited amount of interest rate risk such that they are okay if they bet wrong.