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B] The bonds themselves aren't risky, they're just long term securities that don't fully appreciate in value for a long time. A very quick change in environmen

B] The bonds themselves aren't risky, they're just long term securities that don't fully appreciate in value for a long time. A very quick change in environment, much higher interest rates, result in immediate liquidation only at far less desired prices. A buyer can still hold them to term and get their full value; it's just there are better investments. A] I can't really speak to real-estate, but generally as a consumer I find the market incentives are misaligned to what should be socially desired results. There's too much darn rent seeking.

dragontamer 4y ago
B was also true in the Savings and Loan Crisis of 1980. The mark-to-market decline of long-term loans wiped out an entire category of financial services (the Savings and Loans service). Remember "A Wonderful Life??" George Bailey? That was "Savings and Loans". Gone, the entirety of the entire sector was wiped out, despite the 30+ year bonds still being "good on their money".
- dllthomas 4y ago
  > Remember "A Wonderful Life??" George Bailey? That was "Savings and Loans". Bailey ran a savings and loan. The run in the film was not a reference to the S&L crisis, seeing as the film predates it by decades. I assume you meant the right thing, but there's enough ambiguity that I could see a reader being confused.
skybrian 4y ago
While it’s true that the future cash flow from the bond hasn’t changed, it is quite literally worth less money now, because better investments are available. For a bank, these better investments are available to its depositors if they leave. The bank’s borrowing costs have gone up (or will soon) and that’s the difference between profits and losses. The losses will happen sometime (unless interest rates go down again), but when they get recognized is a matter of accounting. So the bonds were risky, as is any fixed-income investment when your borrowing costs are variable. (Though it’s clearly not as bad a loss as it would be if the bonds defaulted.)
onlyrealcuzzo 4y ago
> There's too much darn rent seeking. It's kind of hard for the American Dream to be a rent seeker, and for their not to be a lot of rent seeking...
thefounder 4y ago
Well..imagine if you as a trader would never get the "margin-call" and you would be able to defer the currebt payments until you cash in your future bets. Here we have the banks simply bailed out by the gov(i.e the tax payer gets the short stick while JP Morgan gets the long stick).

dragontamer 4y ago

B was also true in the Savings and Loan Crisis of 1980. The mark-to-market decline of long-term loans wiped out an entire category of financial services (the Savings and Loans service). Remember "A Wonderful Life??" George Bailey? That was "Savings and Loans". Gone, the entirety of the entire sector was wiped out, despite the 30+ year bonds still being "good on their money".

dllthomas 4y ago
> Remember "A Wonderful Life??" George Bailey? That was "Savings and Loans". Bailey ran a savings and loan. The run in the film was not a reference to the S&L crisis, seeing as the film predates it by decades. I assume you meant the right thing, but there's enough ambiguity that I could see a reader being confused.

skybrian 4y ago

While it’s true that the future cash flow from the bond hasn’t changed, it is quite literally worth less money now, because better investments are available. For a bank, these better investments are available to its depositors if they leave. The bank’s borrowing costs have gone up (or will soon) and that’s the difference between profits and losses. The losses will happen sometime (unless interest rates go down again), but when they get recognized is a matter of accounting. So the bonds were risky, as is any fixed-income investment when your borrowing costs are variable. (Though it’s clearly not as bad a loss as it would be if the bonds defaulted.)

onlyrealcuzzo 4y ago

> There's too much darn rent seeking. It's kind of hard for the American Dream to be a rent seeker, and for their not to be a lot of rent seeking...

thefounder 4y ago

Well..imagine if you as a trader would never get the "margin-call" and you would be able to defer the currebt payments until you cash in your future bets. Here we have the banks simply bailed out by the gov(i.e the tax payer gets the short stick while JP Morgan gets the long stick).