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>> By all accounts, SVB's banking was boring. They borrowed short and lent long, and their long bets were very safe. Clearly not safe. IMHO anyone buying 10 ye

>> By all accounts, SVB's banking was boring. They borrowed short and lent long, and their long bets were very safe. Clearly not safe. IMHO anyone buying 10 year treasuries in the last several years is an idiot. Those rates were guaranteed to rise, as they could not fall below zero. Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So far it's mostly sales volume dropping near zero, but soon... And then when people are broke, many will raid their retirement investments. The stock market has benefitted for decades from people blindly (via 401k funds) dumping money into the market. More buyers than sellers equals rising prices. Guess what a jump in sellers causes... And then after the market drops, people with money elsewhere will want to buy, resulting in one more shift of money from here to there.

tptacek 4y ago
Safe, as in they're going to be paid back dollar for dollar. People are talking about SVB's assets as if they were toxic, rather than just not as attractive as other available bonds.
- phkahler 4y ago
  The problem with SVBs bonds is that they're long term, so if they need the money early they have to sell them at a loss.
jandrese 4y ago
> Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So far it's mostly sales volume dropping near zero, but soon... People who bought a house as an investment might be in trouble, but people who bought a home to live in are making out like bandits with their 30 year fixed mortgages.
- debacle 4y ago
  In a down economy, fewer people sell their houses, so housing prices haven't fallen as much as they would if interest rates were raised in a vacuum.
- blackoil 4y ago
  Also people who bought house borrowing money from friend on promising to return it whenever asked for. This is what SVB did.
opportune 4y ago
Agreed in general but I don’t think there is anything structurally preventing <0% yields on treasuries. The ECB has already set a central bank rate as low as -0.50% before. It would of course be deeply unintuive to a regular person and likely very unpopular if rates went negative enough to require it to be reflected in consumer banking (eg negative rates on a checking/savings account). But I don’t think it’s impossible and we may see it in our lifetimes. That is just a nitpick though because I think the US public as-is would throw a fit if it happened, making it unlikely. Fully agreed that purchasing a 10y bond at 1% was boneheaded given plenty of people predicted interest rates to need to increase to fight inflation (come on, just because the fed said it was transitory for a while, doesn’t give professionals an excuse to blindly take that at face value). The effective yields could have been so much higher just keeping the cash uninvested or in short term treasuries, then purchasing 10y bonds after the rate hikes started or stabilized. Yeah that is much more obvious in hindsight but it’s not like it was a fringe position even in 2021
ericd 4y ago
There were some proposals from the treasury for ways to make below zero rates work.

tptacek 4y ago

Safe, as in they're going to be paid back dollar for dollar. People are talking about SVB's assets as if they were toxic, rather than just not as attractive as other available bonds.

phkahler 4y ago
The problem with SVBs bonds is that they're long term, so if they need the money early they have to sell them at a loss.

jandrese 4y ago

> Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So far it's mostly sales volume dropping near zero, but soon... People who bought a house as an investment might be in trouble, but people who bought a home to live in are making out like bandits with their 30 year fixed mortgages.

debacle 4y ago
In a down economy, fewer people sell their houses, so housing prices haven't fallen as much as they would if interest rates were raised in a vacuum.
blackoil 4y ago
Also people who bought house borrowing money from friend on promising to return it whenever asked for. This is what SVB did.

opportune 4y ago

Agreed in general but I don’t think there is anything structurally preventing <0% yields on treasuries. The ECB has already set a central bank rate as low as -0.50% before. It would of course be deeply unintuive to a regular person and likely very unpopular if rates went negative enough to require it to be reflected in consumer banking (eg negative rates on a checking/savings account). But I don’t think it’s impossible and we may see it in our lifetimes. That is just a nitpick though because I think the US public as-is would throw a fit if it happened, making it unlikely. Fully agreed that purchasing a 10y bond at 1% was boneheaded given plenty of people predicted interest rates to need to increase to fight inflation (come on, just because the fed said it was transitory for a while, doesn’t give professionals an excuse to blindly take that at face value). The effective yields could have been so much higher just keeping the cash uninvested or in short term treasuries, then purchasing 10y bonds after the rate hikes started or stabilized. Yeah that is much more obvious in hindsight but it’s not like it was a fringe position even in 2021

ericd 4y ago

There were some proposals from the treasury for ways to make below zero rates work.