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How does that change fundamentals? The banks get free money from the Fed which gives them more money which they can use to pass on the interest payments to thei

How does that change fundamentals? The banks get free money from the Fed which gives them more money which they can use to pass on the interest payments to their own rich depositors. It also allows wealthy people to borrow more money against their substantial collateral to further prop up the value of their assets. Then when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt, their failure and fat severance packages have been paid for by the people through cost of living increases. Let's not forget that some of these bankrupt startups were basically tossing suitcases of advertising money at big tech prior to their bankruptcies. This is the people's money they were tossing at Big Tech. Then if they avoid jail (common), the founders of these failed startups will go on to get more funding 'a second chance', then a 'third chance', etc.. from the big VCs as a thank you for propping up their corporate stocks with 'borrowed' money which was never repaid.

JumpCrisscross 4y ago
> does that change fundamentals Because with IOER, the Fed creates the market. No Fed, no IOER. In reverse repos, the Fed participates in an existing market. There are plenty of people willing to make overnight loans against Treasuries. That's what a repo is. The Fed is currently participating in that market to raise the cost of borrowing. If it's helping the rich one way, it's hurting them the other. (I'm not arguing the Fed is an egalitarian institution. But it's inaccurate to describe its operations, particularly reverse repos, as "printing citizens' money and giving it to rich people just for being rich.") > when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt This is a non sequitur. (Also, if you borrow money from a bank, they don't go away if the bank goes under.)
- jongjong 4y ago
  >> There are plenty of people willing to make overnight loans against Treasuries. It misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it. A risk-free (and literally free) return paid for by citizens. It artificially props up the entire system and all of its zombie companies. Not to mention the anti-competitive forces it creates. >> Also, if you borrow money from a bank, they don't go away if the bank goes under They do if you go bankrupt. Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. That's literally what 'subprime mortgages' entail. They literally assume that some percentage of the loans will never be repaid. But in any case, the main issue I have is that the flaws of the system are hidden under layer upon layer of complexity; seemingly designed precisely to avoid scrutiny.
  - OrvalWintermute 4y ago
    > Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. I read into the SVB as fundamentally different from the traditional borrowers bankrupt issue. > But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation. When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported. > At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth....While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. That set off panic among customers, who withdrew their money in large numbers. From [1] Instead, lock in $ at extremely low rates on bonds improperly laddered, then firesales turned theoretical losses into actual losses, which then triggered a loss of faith and a liquidity crisis simultaneous to startup cash withdrawals just for payroll. The bank run on it meant there was no way to make customers whole. [1] https://www.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html https://www.cnn.com/2023/03/13/investing/silicon-valley-bank...
    - topranks 4y ago
      They messed up from what I read. Most banks would have a variety of bonds, long and short term, with varying yeilds. Esp. given the rise of inflation took a little while and it wasn’t unlikely rates would rise. SVB putting so much into long-term, low-yield treasuries was a major failure of its risk management.
  - JumpCrisscross 4y ago
    > misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it The history is more complicated [1]. Modern repos are also all about finding non-bank channels through which the Fed can influence the economy. (When done with banks, it's to induce them to not lend their reserves to each other.) Again, your complaint is much more apt for interest on reserves. Repos aren't unique to the Fed. IOER pays banks for parking money in an account at the Fed. > seemingly designed precisely to avoid scrutiny I'd argue it's more about competing interests and anachronisms. (The Fed is, almost to a fault, tremendously transparent.) Why does the Fed have private bank shareholders? Because of irrelevant details from a hundred years ago. Is it confusing? Yes. Is it a priority to fix? No. [1] https://www.richmondfed.org/publications/research/economic_brief/2021/eb_21-31 https://www.richmondfed.org/publications/research/economic_b...
- latchkey 4y ago
  > if you borrow money from a bank, they don't go away if the bank goes under. Saylor just got a nice 22% discount on repaying his loan when his bank went away... https://twitter.com/saylor/status/1640325496654143488 https://twitter.com/saylor/status/1640325496654143488
  - jongjong 4y ago
    Exactly, they can buy their own bonds back at a discount using a portion of the money they borrowed.

JumpCrisscross 4y ago

> does that change fundamentals Because with IOER, the Fed creates the market. No Fed, no IOER. In reverse repos, the Fed participates in an existing market. There are plenty of people willing to make overnight loans against Treasuries. That's what a repo is. The Fed is currently participating in that market to raise the cost of borrowing. If it's helping the rich one way, it's hurting them the other. (I'm not arguing the Fed is an egalitarian institution. But it's inaccurate to describe its operations, particularly reverse repos, as "printing citizens' money and giving it to rich people just for being rich.") > when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt This is a non sequitur. (Also, if you borrow money from a bank, they don't go away if the bank goes under.)

jongjong 4y ago
>> There are plenty of people willing to make overnight loans against Treasuries. It misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it. A risk-free (and literally free) return paid for by citizens. It artificially props up the entire system and all of its zombie companies. Not to mention the anti-competitive forces it creates. >> Also, if you borrow money from a bank, they don't go away if the bank goes under They do if you go bankrupt. Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. That's literally what 'subprime mortgages' entail. They literally assume that some percentage of the loans will never be repaid. But in any case, the main issue I have is that the flaws of the system are hidden under layer upon layer of complexity; seemingly designed precisely to avoid scrutiny.
- OrvalWintermute 4y ago
  > Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. I read into the SVB as fundamentally different from the traditional borrowers bankrupt issue. > But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation. When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported. > At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth....While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. That set off panic among customers, who withdrew their money in large numbers. From [1] Instead, lock in $ at extremely low rates on bonds improperly laddered, then firesales turned theoretical losses into actual losses, which then triggered a loss of faith and a liquidity crisis simultaneous to startup cash withdrawals just for payroll. The bank run on it meant there was no way to make customers whole. [1] https://www.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html https://www.cnn.com/2023/03/13/investing/silicon-valley-bank...
  - topranks 4y ago
    They messed up from what I read. Most banks would have a variety of bonds, long and short term, with varying yeilds. Esp. given the rise of inflation took a little while and it wasn’t unlikely rates would rise. SVB putting so much into long-term, low-yield treasuries was a major failure of its risk management.
- JumpCrisscross 4y ago
  > misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it The history is more complicated [1]. Modern repos are also all about finding non-bank channels through which the Fed can influence the economy. (When done with banks, it's to induce them to not lend their reserves to each other.) Again, your complaint is much more apt for interest on reserves. Repos aren't unique to the Fed. IOER pays banks for parking money in an account at the Fed. > seemingly designed precisely to avoid scrutiny I'd argue it's more about competing interests and anachronisms. (The Fed is, almost to a fault, tremendously transparent.) Why does the Fed have private bank shareholders? Because of irrelevant details from a hundred years ago. Is it confusing? Yes. Is it a priority to fix? No. [1] https://www.richmondfed.org/publications/research/economic_brief/2021/eb_21-31 https://www.richmondfed.org/publications/research/economic_b...
latchkey 4y ago
> if you borrow money from a bank, they don't go away if the bank goes under. Saylor just got a nice 22% discount on repaying his loan when his bank went away... https://twitter.com/saylor/status/1640325496654143488 https://twitter.com/saylor/status/1640325496654143488
- jongjong 4y ago
  Exactly, they can buy their own bonds back at a discount using a portion of the money they borrowed.