4 ms·

That's the risk you take when you lend money. It's why you get paid interest.

s1artibartfast 4y ago
I don't think that is a fair take. When you lend you expect to be paid back unless there is bankruptcy, and then you expect get a place in line for the assets. The situation where someone else gets to buy the assets out, leaving behind the debt seems unorthodox.
- jsemrau 4y ago
  While it might not be fair this is commonly referred to as Market Risk for investors. Failures like SVB or CS are rare which makes them so much more painful.
  - NotYourLawyer 4y ago
    This buyout is not a normal market transaction.
- blitzar 4y ago
  > When you lend you expect to be paid back unless there is bankruptcy, and then you expect get a place in line for the assets. They speedran the bankruptcy, hand wringing and liquidation. The line was formed and all the money has already been handed out.
  - s1artibartfast 4y ago
    Surely you see how that might be concerning from the perspective of the parties that would normally be involved in the bankruptcy. It seems like some liquidity lenders to the bank are being pulled through on the deal and some are not
    - blitzar 4y ago
      > lenders to the bank are being pulled through on the deal and some are not No lenders or shareholders are in the room at all - shareholders dont get a say on if they want to sell their shares that were worth 7 billion on friday for 2 billion either.
      - s1artibartfast 4y ago
        I'm pretty sure that governmental loans are being respected. Would you be upset if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours?
        paganel 4y ago
        The issue is that neither you, nor Bob, are government entities, morals/ethics work differently for them (for the governments, that is).
        blitzar 4y ago
        Interbank loans, which will be far larger than the government or shareholder or bondholder liabilities, will almost certainly be respected as well. > if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours In your example, Bob is getting back 2bn of his 10bn and I am getting back 0. The term of neither agreement are being respected, people are just being told you get what you get and if you dont like it you can have less. Everyone has been served up a shit sandwich for dinner.
        s1artibartfast 4y ago
        My reading is that Bob also happens to be the bankruptcy judge aka the state. Bob says that he is still owed $10 billion dollars but everyone else takes their lumps. In plain terms, money lent from the government is not discharged in bankruptcy. It all has to get paid back with interest. Private lenders of emergency liquidity and get zeroed out.
- fancyfredbot 4y ago
  Yes I agree it's unorthodox. Something big must have happened. Possibly CS became undercapitalised or was about to, in a way which would have taken out shareholders and forced bondholders to take a haircut, which is why the central bank have to indemnify UBS against future losses? but I don't know. The details will come out.
- fancyfredbot 4y ago
  Looks like the bonds were contingent convertbiles and designed to get wiped out in the case the bank is short of capital: https://www.washingtonpost.com/business/2023/03/19/why-credit-suisse-coco-bonds-are-causing-anxiety-quicktake/945ef2fe-c69c-11ed-9cc5-a58a4f6d84cd_story.html https://www.washingtonpost.com/business/2023/03/19/why-credi...
CamouflagedKiwi 4y ago
No, you get paid interest because money now has less value than money in the future. Hence why you pay interest to a bank on a loan or mortgage, but if you fail to repay they don't just write it off saying "oh at least we got some interest!"
- bidirectional 4y ago
  The US government gets to pay x% interest because they can theoretically always service a debt denominated in USD. Every other borrower in USD pays (x+y)%, where y amongst other things represents the risk that they will default.
NotYourLawyer 4y ago
Credit risk is one thing. This is… something else.

I don't think that is a fair take. When you lend you expect to be paid back unless there is bankruptcy, and then you expect get a place in line for the assets. The situation where someone else gets to buy the assets out, leaving behind the debt seems unorthodox.

jsemrau 4y ago
While it might not be fair this is commonly referred to as Market Risk for investors. Failures like SVB or CS are rare which makes them so much more painful.
- NotYourLawyer 4y ago
  This buyout is not a normal market transaction.
blitzar 4y ago
> When you lend you expect to be paid back unless there is bankruptcy, and then you expect get a place in line for the assets. They speedran the bankruptcy, hand wringing and liquidation. The line was formed and all the money has already been handed out.
- s1artibartfast 4y ago
  Surely you see how that might be concerning from the perspective of the parties that would normally be involved in the bankruptcy. It seems like some liquidity lenders to the bank are being pulled through on the deal and some are not
  - blitzar 4y ago
    > lenders to the bank are being pulled through on the deal and some are not No lenders or shareholders are in the room at all - shareholders dont get a say on if they want to sell their shares that were worth 7 billion on friday for 2 billion either.
    - s1artibartfast 4y ago
      I'm pretty sure that governmental loans are being respected. Would you be upset if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours?
      - paganel 4y ago
        The issue is that neither you, nor Bob, are government entities, morals/ethics work differently for them (for the governments, that is).
      - blitzar 4y ago
        Interbank loans, which will be far larger than the government or shareholder or bondholder liabilities, will almost certainly be respected as well. > if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours In your example, Bob is getting back 2bn of his 10bn and I am getting back 0. The term of neither agreement are being respected, people are just being told you get what you get and if you dont like it you can have less. Everyone has been served up a shit sandwich for dinner.
        s1artibartfast 4y ago
        My reading is that Bob also happens to be the bankruptcy judge aka the state. Bob says that he is still owed $10 billion dollars but everyone else takes their lumps. In plain terms, money lent from the government is not discharged in bankruptcy. It all has to get paid back with interest. Private lenders of emergency liquidity and get zeroed out.
fancyfredbot 4y ago
Yes I agree it's unorthodox. Something big must have happened. Possibly CS became undercapitalised or was about to, in a way which would have taken out shareholders and forced bondholders to take a haircut, which is why the central bank have to indemnify UBS against future losses? but I don't know. The details will come out.
fancyfredbot 4y ago
Looks like the bonds were contingent convertbiles and designed to get wiped out in the case the bank is short of capital: https://www.washingtonpost.com/business/2023/03/19/why-credit-suisse-coco-bonds-are-causing-anxiety-quicktake/945ef2fe-c69c-11ed-9cc5-a58a4f6d84cd_story.html https://www.washingtonpost.com/business/2023/03/19/why-credi...

CamouflagedKiwi 4y ago

No, you get paid interest because money now has less value than money in the future. Hence why you pay interest to a bank on a loan or mortgage, but if you fail to repay they don't just write it off saying "oh at least we got some interest!"

bidirectional 4y ago
The US government gets to pay x% interest because they can theoretically always service a debt denominated in USD. Every other borrower in USD pays (x+y)%, where y amongst other things represents the risk that they will default.

NotYourLawyer 4y ago

Credit risk is one thing. This is… something else.