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> Why didn't banks liquidate their long-term bond holdings a year ago? Who do "the banks" sell them to? A bank can sell them to another bank. Someone is stil
by lamontcg 4y ago
> Why didn't banks liquidate their long-term bond holdings a year ago?
Who do "the banks" sell them to?
A bank can sell them to another bank. Someone is still sitting on it.
We can't sell mortgage bonds to space aliens yet AFAIK, and other banks in other countries can also see that they don't want to touch them in a rising rate environment, and they'll have their own problems back home.
Economics 101 is learning that "why doesn't everyone just X" usually doesn't work when it comes to macroeconomics.
- Dylan16807 4y agoSpecifically the issue was certain banks having much too high a ratio of long-term bonds, and they could have sold those to less concentrated investors without upending the market.
- lamontcg 4y agoThe US Banking system as a whole is sitting on $620B of underwater bonds. https://fortune.com/2023/03/10/svb-collapse-fdic-takeover-martin-gruenberg-620-billion-hole-banks-balance-sheet/ https://fortune.com/2023/03/10/svb-collapse-fdic-takeover-ma... I doubt anyone wants more than they already have.
- Dylan16807 4y agoThe market thought they were fine at the time. If only the banks with the most rate risk were selling, the price would have been stable. It's too late now, but there was a big period of time where the rate risk was obvious but the price was still good because institutions were comfortable with that bet. And it was okay for 95% of them to make that bet, just not the ones going too hard on it.