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I'm not an expert or a bank examiner but have read a number of explanations for SVB over the past week or so. All of them seem to paint the same picture of SVB
by ElevenLathe 4y ago
I'm not an expert or a bank examiner but have read a number of explanations for SVB over the past week or so. All of them seem to paint the same picture of SVB owning a lot of "safe" but long-dated government bonds, with the long-datedness actually being pretty risky because it exposed them to risk of interest rates rising suddenly, which then happened. Is there some nuance I'm missing where the "safeness" of the bonds caused the problem rather than the "long-datedness?"
- eloff 4y agoNo, it was the long dated part that was the issue. It magnifies the losses when interest rates go up.
- retrocryptid 4y agoI think they bought the "boring" investments as a risk hedge against the corporate paper they were buying. If they weren't so heavy in channeling cheap QE-esqe fed cash to small caps that were selling paper to buy back stock, the down-side of mid-term fed notes wouldn't have been as large a percentage of their risk budget. Other institutions bought the exact same fed securities and are not going insolvent. Either that means they have better risk management strategies or the corporate paper bubble hasn't caught up with them yet. I've been hearing about a corporate paper bubble for at least a decade, yet it never seems to pop. What do you call a bubble that doesn't pop?
- ElevenLathe 4y ago> What do you call a bubble that doesn't pop? Capitalism!