8 ms·

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more

• jefftk 4y ago
  > Some people are losing their deposits and some are not No one has lost their deposits yet: I can't tell whether you are inaccurately describing the status quo, or making a prediction?
• harry8 4y ago
  > Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday. Big call. Huge. Got some data or similar to back it? Edit: If there's clear picking of winners, or even plausibly so it's gonna look pretty bad. [1] [1] https://www.theguardian.com/business/2021/jan/01/janet-yellen-speaking-fees-us-treasury-secretary https://www.theguardian.com/business/2021/jan/01/janet-yelle...
  • csomar 4y ago
    You don't need a direct financial kickback to define corruption. From: https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-yellen-says-us-banking-system-is-stable-and-deposits-remain-safe.html https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-... > Treasury Secretary Janet Yellen told senators that government refunds of uninsured deposits will not be extended to every bank that fails, only those that pose systemic risk to the financial system.
    • christophilus 4y ago
      If you’re too big to fail, you’re too big to exist. We should either let them fail (my preference, despite the pain) or bail them all out. But I also think that if we’re going to insist that there is a private entity that is too big to fail, it should be broken up until the pieces are not too big to fail.
      • piva00 4y ago
        Or it shouldn't be a private entity.
        • robertlagrant 4y ago
          Better a private entity that needs bailing out with taxpayer money than one that is normally funded by taxpayers.
          • hutzlibu 4y ago
            Socialise the risks, privatise profit.
            • robertlagrant 4y ago
              To be clear: I think we shouldn't socialise the risks either. Just saying it's better than fully running it on taxpayer money.
• 1vuio0pswjnm7 4y ago
  "The upside of MMT and 0% interest rates is that it allows a whole set of businesses to become viable. Businesses with a 1% yield are not viable with a high interest rate as it makes more sense to just buy bonds. People who can generate yield will thrive, since the expected market yield is zero. It's still a question whether this will benefit mainstream; or a bunch of tech companies that have a monopoly of tech and innovation. In this kinda world, tech and innovation are the only possible venues to generate yield, since money is widely available for anything else."
  • hgomersall 4y ago
    It's almost like we should be optimising people getting stuff for creating actual value.
    • bryanrasmussen 4y ago
      A decade ago I had lunch with a friend through kindergarten (our daughters were friends) he was a financial advisor and things were going good for him. I complained, as people who 'make' stuff often do, that finance was unbalancing everything and taking too big a share of profits (not to be annoying to him, just sharing a viewpoint) and he replied that the reason why finance was getting more of the share was because finance was where the innovation was nowadays. He later got charges for corruption and there was a big investment scandal where some people who had done well with him before ended up loosing money later.
      • nly 4y ago
        He is probably right. So many businesses have become financialized now. In the UK, John Lewis, which is/was an upmarket department store (and also owns Waitrose, a grocery store), is a mutual, owned by it's employees, but is now in the built-to-rent property market. Its literally burning the reputation and diversifying in to all kinds of gimmicks as it dies. Sainsbury's, one of the biggest supermarket chains in the UK, has been in to lending (credit cards, loans) for decades now.
• mnd999 4y ago
  Interest rate swaps exist to manage this risk no?
  • harry8 4y ago
    No. You /can/ manage short term liability mismatch against long term assets in one sense but it's actually useless when you think about why you have long term assets at all. Just like you can manage the risk by selling your long term assets and buy short term to make the mismatch not exist. The cost of managing using swaps will be about the same as selling your long term assets and buying t-bills. If it isn't, you hit it as hard as you can knowing it won't last and it's free money.
    • NhanH 4y ago
      You hedge the existential risk away, while taking on the smaller risk for potential profits. SVB shouldn’t need to hedge the interest rate increasing by .5 or 1%, but they definitely should have hedge the risk of it jumping 4% and more.
      • harry8 4y ago
        Take on /less/ long term assets (sell them and buy t-bills) to remove the existential risk. It's not going to be much different in cost. You see it? Derivatives aren't magic pixie-dust insurance. They will cost about the same as a rebalance on that scale or you hit them as hard as you can because they're mispriced and represent free money.
        • NhanH 4y ago
          I understand your point, and your first sentence is the point I (and probably others) are making too: they either take on less long term assets, or bar that, have to hedge them properly (which is equivalent to taking less assets). The hedge was meant to be done at the same time of taking such a massive risk.
          • 4y ago
• ackbar03 4y ago
  > Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday. No no no, that's not how financial markets work. It's the stuff that happens after dinner over drinks that makes the difference
• misja111 4y ago
  > I honestly was thinking we will stay in this zero-rate regime for the next decade or more. I suspect the people at SVB thought in a similar fashion and plan accordingly I have been working in several trading companies, both as trader and in IT, and the first thing they teach you when trading, is that the market always knows better than you. So hedge your risks and don't trust that you have some kind of vision that knows better than the markets. Actually 'vision' was used jokingly when someone accidentally made a profit by not hedging and ending up on the right side of the market. Bankers know this. In this case, SVB could have hedged their risk with interest rate swaps, for instance. But for those they would have to pay a premium. Why? Because the market believed there was a real chance the rates would go up. If at SVB they really planned on zero rates to stay for a decade or more, they have simply been gambling.
  • ianai 4y ago
    Imagine how different the calculus would have been through the pandemic had the Fed been raising rates in 17-19? They would have had runway to lower interest rates before going to zero. In hindsight, the zero interest rate regime was aberrant-unprecedented and forced the market to magic up lots of “accommodations.” Anyway, the problem with svb was exactly that they decided to not hedge against the possibility of raising interest rates. And for much of the market, that was a bad call. So anyone defending them needs to explain the rational of keeping the zero interest rate regime post-Covid. And it’s got to be better than “line goes up and to the right” for your chosen asset
  • Dwolb 4y ago
    There’s interest rate risk, credit risk, and prepayment risk with the securities they buy. On a Treasury or guaranteed bond, there is no credit risk. On a Treasury there is no prepayment risk. Therefore if you hedge out the interest rate risk, you’re essentially left with 0 risk. 0 risk = 0 or near 0 premium. e.g. there’s no point in doing the trade if you hedge.
    • misja111 4y ago
      You don't need to hedge out all the risk. You can for instance hedge the risk that rates go up more than one percent and take the risk when it changes less, in return for a moderate yield. This way you limit your losses when things go wrong and probably you'll avoid bankruptcy. Besides that, financial institutions don't only make money on re-investing deposits. They charge all kinds of fees as well, which make for a steady income.
• moremetadata 4y ago
  [dead]
• miles 4y ago
  > makes it look like it's the Fed fault all along. Bingo. https://www.youtube.com/watch?v=d0nERTFo-Sk&t=267s https://www.youtube.com/watch?v=d0nERTFo-Sk&t=267s
• eloff 4y ago
  Who is losing their deposits?
• DSingularity 4y ago
  Finally! People calling it what it is. Corruption. And the domestic angle isn’t even the worst. Breton-Woods put America in a sort of custodianship which they have betrayed. Raising and lowering rates to promote your domestic economy without even considering the global impact is fucked up if you promised the world that your currency can serve as a trusted foundation. World order is still fluctuating all as a result of these betrayals.
  • itsoktocry 4y ago
    >if you promised the world that your currency can serve as a trusted foundation. How do people get this backwards? The US didn't say, "use our currency as the global reserve currency!" Countries chose and continue to choose to use the USD for global commerce. No one is forcing them, the USD really is valuable. >World order is still fluctuating all as a result of these betrayals. So raising rates is a betrayal, but allowing inflation to eat away at savings of those with USD holdings is not betrayal?
    • BurningFrog 4y ago
      Yeah, USD is pretty badly managed, but still better than most other currencies.
    • justincormack 4y ago
      Also the US runs a deficit so there are lots of opportunities to own dollars abroad.
    • scotty79 4y ago
      And all the 'democracy spreading' in countries that considered selling resources for something else than dollars is just encouragement for other countries to make the right decission?
    • llampx 4y ago
      You know what the US does to country leaders who even talk about trading oil in currency other than USD? Hint: kill with impunity.
• chironjit 4y ago
  Its hard to overstate how true your point is re-bankers responsibility. The very basic thing you learn when studying banking is durations and how your primary job is balancing that for your debts and assets. Bankers also have various tools to short circuit any issues, inclusing raising rates on deposits, getting wholesale funding, matching various duration bonds, etc. Also, while historical data is not an indicator of future data, the average long term interest rates in the US have always been higher than what it was in the past decade. Yes, hindsight might be 2020, and this applies to even my comments. But we literally are paying these bankers exorbitant sums to know these and do better than the average Joe
• chiefalchemist 4y ago
  The characterization might be incomplete, but it's wrong to say it's wrong. The key being, SVB, etc are symptoms. And while we should certain chat about it the focus should be on The Fed. Again. Just like it played a key role circa 2007/2008. Given The Fed's mandate, how is it once again missing the mark? And where has Congress been? They're mandated with overseeing The Fed, yes? Yet we're led to believe this is a banking problem? With little of no legitimate dicussion of foundational problems?
• FollowingTheDao 4y ago
  > I honestly was thinking we will stay in this zero-rate regime for the next decade or more. =^\ Until when? Until there were only billionaires left and all the poors died off? This is delusional thinking and it was the same thoughts the banks and the Fed had which is really why we are in this situation. It is also why I left Economics behind.
• nemo44x 4y ago
  Except that interest rates aren’t the market. They are controlled by the Fed who decides. The Fed was guiding for no raises in interest rates up until they decided to start jacking them at the fastest rate in decades. This would not have been an issue if the Fed raised rates gradually over years and kept the bonds more or less even because of time value. But they panicked and very possibly because they have been politicized. They should have started raising rates in 2021 but with the election and the Fed seat up for appointment they sat on their hands. There’s blame to spread around but there’s a reason 100s of banks are in this situation right now. They were all following the Feds regulations and guidance. And now they’re holding all these lousy bonds and the deposits that back them want to be moved into high interest accounts now. Whoops. Had they guided for this then banks would have went shorter term.
  • AnimalMuppet 4y ago
    The Fed controls one[1] specific, very short term interest rate. The other rates are determined by the market, though they do take the Fed rate into account. [1] Normally. Sometimes the Fed does something like Operation Twist or QE or something, where they intervene in the markets of other rates. But that is not the normal way this works.
    • nemo44x 4y ago
      > ...though they do take the Fed rate into account. Understatement of the year. It's based entirely on what they think the Fed will do in the future.
    • opportune 4y ago
      Fed open market operations are entirely to adjust the market conditions regarding rates to what they want them to be. The Fed is participating in these transactions to the tune of trillions of dollars
• api 4y ago
  I thought we would be trapped at near zero interest rates for even longer, possibly forever, and that the future was in general like Japan. I’m a bit surprised. Of course I could still be right. These higher interest rates could be a blip.
• complianceowl 4y ago
  > This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. The government controls interest rates, therefore the fact remains: it has in-fact been the feds fault all along. When you lower the cost of money (interest rates) so, so low, you send a signal to the market that says, "Hey, everyone -- invest, invest, invest!". That signal makes it look as if a lot of things are a good investment, thereby causing malinvestments all over the economy that eventually go bust. > Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday. When the government sets up a borrowing program and immediately shells out 300+ billion to banks, and when they bailout the 16th largest bank in the US to the tune of 100+ billion, Janet is certainly picking winners and losers, but at that scale, I think an argument could be made that fiscal policy is loosening, just like it was loosening when Bush and Obama handed out their bailouts. Politicians are addicted to cheap money.
• bequanna 4y ago
  > This is a wrong characterization and makes it look like it's the Fed fault all along. Rates were far too low for far too long. Why was the Fed still aggressively expanding their balance sheet into 2022 when inflation was obviously happening? This is a problem created by monetary theory academics with access to too powerful of tools. If you have it, you're going to use it. Imagine if we gave generals the same kind of unrestricted access to weapons and allowed them to wage war at will with no oversight. That is the Fed.