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I'm seeing a lot of comments along the lines of "What should SVB have done? They bought the best bonds they could have for the time, and then the Fed screwed th

I'm seeing a lot of comments along the lines of "What should SVB have done? They bought the best bonds they could have for the time, and then the Fed screwed them over." Maybe I'm just naive when it comes to how these systems work, but couldn't SVB have just... done nothing? Nobody was compelling them to purchase any bonds at the time. Sure they have pressure from stockholders to make money, but if the deck was so stacked against them as everyone seems to think it was, it seems like a financially-literate management (which I would expect out of a bank) would have had the idea to merely wait a bit to see what the Fed was going to do. (Everyone and their mother was predicting a crash from 2020 to 2022, so it seems reasonable that a bank of all institutions could have made the call to be patient and see which way the wind blows...) Again, maybe this is me just being naive, but "They should have just been patient" seems like a mantra applicable to a lot of companies lately. Car companies cancelling all their chip orders at the start of the pandemic, only to scramble and re-place them as demand surged; tech companies hiring like crazy in the face of a supposed talent crunch, only to have massive layoffs a year later. It seems like companies keep making "impulsive" decisions to try and capitalize on short-term trends without any eye for the long term strategic view. Yes, "being patient" might mean they don't make as much money as they could have if they jumped at the first sign of a change, but... Do they have to? SVB could have continued making money hand over fist in the long run, but now they no longer exist. Google and Microsoft and all these corps could have saved a lot of corporate face and internal morale, had they just waited out the supposed hiring crisis that never quite seemed to materialize: now they have a pile of irritated employees and everyone I know at a major brand seems to be holding their breath for the next round of layoffs. There's a trend of hyper-efficiency in the name of maximum profit that I feel like I've been seeing kind of everywhere, and that seems fine until the moment the music stops. Maybe I'm just the kind of person who naturally hedges their bets, but I'm constantly blown away by how rickety entire companies appear to be sometimes. What am I missing? Are there just insufficient incentives to be conservative with resources and decision making?

cableshaft 4y ago
As the saying goes, 'Make hay while the sun shines'. If you don't take advantage of a good opportunity while it's there, it'll eventually go away and you won't have benefitted from it, while others have. Not saying that to justify SVB or anything, as they're in the business of securing people's money long-term, and they made bad decisions that they had plenty of time to course correct for (rates have been continuously rising for well over a year, with a clear goal of lowering inflation to around 2%, and you can see how slowly that was lowering and predict roughly how high that would get). Car companies also had a big faceplant moment with cancelling chip orders, but we were in the midst of a novel global pandemic that no one really knew how people were going to react to, or how big or how long it would last. Health officials were predicting around 100k total deaths in the US, and we blew way past that. But for tech hiring I can clearly see why they were like 'let's take all this zero interest cash, get a bunch of people, use them to get a competitive advantage, and then when everything starts to unwind we'll just lay people off'. It's a shitty thing to do to people, but I get the reasoning. I know they all claim they didn't see this coming and 'take full responsibility' or whatever in their layoff announcement/apology letters, but behind closed doors I bet they knew exactly what they were doing, at least the vast majority of them. I've had quite a few opportunities in my life that I didn't really leap on 100% like I should have, and as a result those opportunities slipped by, and I didn't end up making that hay at all as a result, the opportunities passed and I'll have to find some other way to make that hay.
- modeless 4y ago
  It wasn't a good opportunity though. Their mortgage-backed securities were making 1.56%. All that risk for 1.56%? I understand that it was hard to find good investments at the time, but that doesn't mean you have to run out and buy bad ones.
modeless 4y ago
Doing nothing wasn't the best strategy. They could and should have bought short duration bonds instead of long duration bonds and mortgage-backed securities. That would have been fine. If you ask me, the real problem is the fact that 30 year fixed rate mortgages with super low rates were being handed out like candy. Who in their right mind would seriously hand out a 30 year loan with a fixed 2.6% interest rate? It didn't cross their mind that just maybe sometime in the next 30 years interest rates would go higher? It was completely obvious to me that whoever owned those loans was going to be sorry sooner or later. Turns out it was sooner. And in the meantime we got ridiculous house price inflation to boot. Why did those loans exist? Not because they make sense, but because of government policies intended to promote homeownership and pump up property values.
- dboreham 4y ago
  US mortgage market is within the political sphere, decoupled from financial reality. Other countries don't do this.

cableshaft 4y ago

As the saying goes, 'Make hay while the sun shines'. If you don't take advantage of a good opportunity while it's there, it'll eventually go away and you won't have benefitted from it, while others have. Not saying that to justify SVB or anything, as they're in the business of securing people's money long-term, and they made bad decisions that they had plenty of time to course correct for (rates have been continuously rising for well over a year, with a clear goal of lowering inflation to around 2%, and you can see how slowly that was lowering and predict roughly how high that would get). Car companies also had a big faceplant moment with cancelling chip orders, but we were in the midst of a novel global pandemic that no one really knew how people were going to react to, or how big or how long it would last. Health officials were predicting around 100k total deaths in the US, and we blew way past that. But for tech hiring I can clearly see why they were like 'let's take all this zero interest cash, get a bunch of people, use them to get a competitive advantage, and then when everything starts to unwind we'll just lay people off'. It's a shitty thing to do to people, but I get the reasoning. I know they all claim they didn't see this coming and 'take full responsibility' or whatever in their layoff announcement/apology letters, but behind closed doors I bet they knew exactly what they were doing, at least the vast majority of them. I've had quite a few opportunities in my life that I didn't really leap on 100% like I should have, and as a result those opportunities slipped by, and I didn't end up making that hay at all as a result, the opportunities passed and I'll have to find some other way to make that hay.

modeless 4y ago
It wasn't a good opportunity though. Their mortgage-backed securities were making 1.56%. All that risk for 1.56%? I understand that it was hard to find good investments at the time, but that doesn't mean you have to run out and buy bad ones.

modeless 4y ago

Doing nothing wasn't the best strategy. They could and should have bought short duration bonds instead of long duration bonds and mortgage-backed securities. That would have been fine. If you ask me, the real problem is the fact that 30 year fixed rate mortgages with super low rates were being handed out like candy. Who in their right mind would seriously hand out a 30 year loan with a fixed 2.6% interest rate? It didn't cross their mind that just maybe sometime in the next 30 years interest rates would go higher? It was completely obvious to me that whoever owned those loans was going to be sorry sooner or later. Turns out it was sooner. And in the meantime we got ridiculous house price inflation to boot. Why did those loans exist? Not because they make sense, but because of government policies intended to promote homeownership and pump up property values.

dboreham 4y ago
US mortgage market is within the political sphere, decoupled from financial reality. Other countries don't do this.