4 ms·

If they all drank from the same well or had the same servant fetch them, or attest to the quality of, the water…

by koolba 4y ago

Kranar 4y ago
That would still not be sufficient to make any kind of inference. Plenty of people who die drank from the same well shortly before their death. Everyone in the city of New York who died in the past week drank water from the same source shortly before their death.
s1artibartfast 4y ago
It's like testing the well water when there's a bloody knife on the table. We know exactly why banks are failing. Federal rate increases pushed their long-term Holdings underwater and account holders made a run on the bank.
- voisin 4y ago
  > We know exactly why banks are failing. Federal rate increases pushed they are long-term Holdings underwater and account holders made a run on the bank. No, they failed because the banks didn’t hedge interest rate risk whatsoever. It isn’t the Fed’s fault for doing it’s job to tame inflation. It is the banks’ fault for not doing basic risk reduction at the expense of some profit. They optimized for profit and not resiliency.
  - pempem 4y ago
    They didn't hedge for something that is a once in the history of our nation's experience basically and quite literally freezing one of the most investable markets, housing. The increases have been relentless and its unclear that it is stemming inflation driven by corporate greed at all
    - voisin 4y ago
      Betting that rates would never ever rise again is idiotic. Regardless of whether it is once in history (hint: it isn’t).
      - s1artibartfast 4y ago
        I think that's overly simplistic and a bit misleading. Banks weren't betting that rates would stay low, they were betting that their depositors wouldn't run in Mass. How many of your customers will flee is much more difficult to Gauge then if rates will go up. This is why we see winners and losers. Most banks have the same exact Long-term securities and will continue to make money off of them. It isn't as much about the investment as it is the investor. I might make 5% putting money in a CD account. You might put money in the same account and lose 5% because you have to pull out early. The difference is our situation, not the account
        voisin 4y ago
        > Banks weren't betting that rates would stay low, they were betting that their depositors wouldn't run in Mass. I think you are confusing causality. The depositors fled because of the bad bet that rates would stay low. As a bank your entire existence depends on confidence. Make risky bets that rates will stay low forever, and you are eventually going to be proven wrong and then confidence in your institution will drop and depositors will flee.
        s1artibartfast 4y ago
        Yep there are banks happy sitting on billions of dollars of low interest MBS and securities happily making profit. The assets themselves turn profit no matter what the current interest rate is. You only lose the "bet" when there is a run, not when interest rate Rises. If there is no run on your bank, the MBS will always add to your profit no matter what the Fed rate is.
      - pempem 4y ago
        Woah. No one is saying that and the tone of your comment is honestly wild. Its' betting that they wouldn't raise faster than ever in history. ( yea we all know interest rates were higher and have been subjected to the same posts about interest rates in the 80s) Source: https://www.weforum.org/agenda/2022/10/comparing-the-speed-of-u-s-interest-rate-hikes-1988-2022/ https://www.weforum.org/agenda/2022/10/comparing-the-speed-o...
  - sbierwagen 4y ago
    Hedging doesn't eliminate risk, it moves it around. If you hedge away $100B of interest rate risk then your counterparty takes that hit when interest rates go up. Who's that counterparty supposed to be? Another bank? Pension funds?
    - voisin 4y ago
      Whichever party has short duration assets to match short duration liabilities. Matching long assets to short liabilities is idiotic. If you can’t find someone with short duration assets then you don’t lock into 10+ year fixed rate bonds. Maybe you don’t leverage up your balance sheet as much. I think implicit in your comment is that this was unavoidable, and I am vehemently against this stance. Just like 2008’s financial crisis, this was entirely avoidable.
      - sbierwagen 4y ago
        Banks are in the business of maturity transformation, they have to borrow short to lend long. Silicon Valley, Signature and First Republic all blew up because depositors withdrew their deposits. You can "fix" this with withdrawl limits, (In which case connected insiders can get their money out early and regular guys get screwed) full FDIC insurance, ("Unlimited bailouts for banks", moral hazard) or just end fractional-reserve banking entirely. (Say goodbye to 30 year mortgages, or any mortgages at all.) Ending bank crises essentially requires ending the "business cycle" of credit expansion and credit contraction, which would take deleting quite a lot of the economy and turning everything into state owned enterprises.
        s1artibartfast 4y ago
        I agree most people ignore the difficulty of estimating run risk, which is what actually killed these banks. However, this isn't really an all or nothing situation. There is are material reasons why some banks will make it through this just fine while others will fail, despite all running on the same fractional-reserve system and buying the same securities. Some will be right about their customer flight risk estimates, and others will be wrong. How much of this is due to better models or just luck is anyone's guess.
- kurthr 4y ago
  I agree with the sentiment that it's not the auditors, but actually the Fed only drives short term interest rates, while what is cause issues is duration on long term interest rates (particularly mortgages/MBS with 10+ year duration). Those rates are mostly set by the market and inflation expectations. So actually, quickly lowering inflation is key to keeping long term rates from going way up! In that sense what the Fed is currently doing is actually keeping the value of the bonds/MBS higher than otherwise (by driving the economy into recession). Now where you could argue that the Fed made a mistake was in buying MBS (lowering net interest margin) during 2020 early in the pandemic. That drove mortgage rates down right when fiscal stimulus was increasing bank reserves and everyone who could refinanced.
  - sitkack 4y ago
    Isn't the fed driving rates high to encourage unemployment to put pressure on inflation? Everything else is a byproduct of that move. I think the mortgage rate move was planned for an upcoming reset in housing prices.
  - s1artibartfast 4y ago
    There is a big difference between bonds and MBS that have already been issued and future ones. What the FED is doing now is tanking the value of securities with lower fixed interest issued in the past.
    - kurthr 4y ago
      But that value depends on their duration and the current interest rate on bonds of similar duration. If bond/MBS buyers don't believe that the Fed will beat inflation back down to 2% then rates at 5-20year will rise very significantly! They have been doing this over the past year by setting the Fed Funds rate (and by QE buying bonds/MBS etc in extreme circumstances like 2020 and 2008 and then eventually unwinding with QT). So, if they don't convince traders they will stop runaway inflation 5-20y rates could go to 10% or higher (inflation rate + net interest margin), which would absolutely crush long duration bond values! If you think a 10% fall in value is big, it could easily be 50% down and that would be a big deal for all banks. https://www.ustreasuryyieldcurve.com/ https://www.ustreasuryyieldcurve.com/ Go look and see how long rates at 10y have changed with expectations over the last year as short 6mo have consistently risen.

If they all drank from the same well or had the same servant fetch them, or attest to the quality of, the water…

by koolba 4y ago

If they all drank from the same well or had the same servant fetch them, or attest to the quality of, the water…

That would still not be sufficient to make any kind of inference. Plenty of people who die drank from the same well shortly before their death. Everyone in the city of New York who died in the past week drank water from the same source shortly before their death.

s1artibartfast 4y ago

It's like testing the well water when there's a bloody knife on the table. We know exactly why banks are failing. Federal rate increases pushed their long-term Holdings underwater and account holders made a run on the bank.

voisin 4y ago
> We know exactly why banks are failing. Federal rate increases pushed they are long-term Holdings underwater and account holders made a run on the bank. No, they failed because the banks didn’t hedge interest rate risk whatsoever. It isn’t the Fed’s fault for doing it’s job to tame inflation. It is the banks’ fault for not doing basic risk reduction at the expense of some profit. They optimized for profit and not resiliency.
- pempem 4y ago
  They didn't hedge for something that is a once in the history of our nation's experience basically and quite literally freezing one of the most investable markets, housing. The increases have been relentless and its unclear that it is stemming inflation driven by corporate greed at all
  - voisin 4y ago
    Betting that rates would never ever rise again is idiotic. Regardless of whether it is once in history (hint: it isn’t).
    - s1artibartfast 4y ago
      I think that's overly simplistic and a bit misleading. Banks weren't betting that rates would stay low, they were betting that their depositors wouldn't run in Mass. How many of your customers will flee is much more difficult to Gauge then if rates will go up. This is why we see winners and losers. Most banks have the same exact Long-term securities and will continue to make money off of them. It isn't as much about the investment as it is the investor. I might make 5% putting money in a CD account. You might put money in the same account and lose 5% because you have to pull out early. The difference is our situation, not the account
      - voisin 4y ago
        > Banks weren't betting that rates would stay low, they were betting that their depositors wouldn't run in Mass. I think you are confusing causality. The depositors fled because of the bad bet that rates would stay low. As a bank your entire existence depends on confidence. Make risky bets that rates will stay low forever, and you are eventually going to be proven wrong and then confidence in your institution will drop and depositors will flee.
        s1artibartfast 4y ago
        Yep there are banks happy sitting on billions of dollars of low interest MBS and securities happily making profit. The assets themselves turn profit no matter what the current interest rate is. You only lose the "bet" when there is a run, not when interest rate Rises. If there is no run on your bank, the MBS will always add to your profit no matter what the Fed rate is.
    - pempem 4y ago
      Woah. No one is saying that and the tone of your comment is honestly wild. Its' betting that they wouldn't raise faster than ever in history. ( yea we all know interest rates were higher and have been subjected to the same posts about interest rates in the 80s) Source: https://www.weforum.org/agenda/2022/10/comparing-the-speed-of-u-s-interest-rate-hikes-1988-2022/ https://www.weforum.org/agenda/2022/10/comparing-the-speed-o...
- sbierwagen 4y ago
  Hedging doesn't eliminate risk, it moves it around. If you hedge away $100B of interest rate risk then your counterparty takes that hit when interest rates go up. Who's that counterparty supposed to be? Another bank? Pension funds?
  - voisin 4y ago
    Whichever party has short duration assets to match short duration liabilities. Matching long assets to short liabilities is idiotic. If you can’t find someone with short duration assets then you don’t lock into 10+ year fixed rate bonds. Maybe you don’t leverage up your balance sheet as much. I think implicit in your comment is that this was unavoidable, and I am vehemently against this stance. Just like 2008’s financial crisis, this was entirely avoidable.
    - sbierwagen 4y ago
      Banks are in the business of maturity transformation, they have to borrow short to lend long. Silicon Valley, Signature and First Republic all blew up because depositors withdrew their deposits. You can "fix" this with withdrawl limits, (In which case connected insiders can get their money out early and regular guys get screwed) full FDIC insurance, ("Unlimited bailouts for banks", moral hazard) or just end fractional-reserve banking entirely. (Say goodbye to 30 year mortgages, or any mortgages at all.) Ending bank crises essentially requires ending the "business cycle" of credit expansion and credit contraction, which would take deleting quite a lot of the economy and turning everything into state owned enterprises.
      - s1artibartfast 4y ago
        I agree most people ignore the difficulty of estimating run risk, which is what actually killed these banks. However, this isn't really an all or nothing situation. There is are material reasons why some banks will make it through this just fine while others will fail, despite all running on the same fractional-reserve system and buying the same securities. Some will be right about their customer flight risk estimates, and others will be wrong. How much of this is due to better models or just luck is anyone's guess.
kurthr 4y ago
I agree with the sentiment that it's not the auditors, but actually the Fed only drives short term interest rates, while what is cause issues is duration on long term interest rates (particularly mortgages/MBS with 10+ year duration). Those rates are mostly set by the market and inflation expectations. So actually, quickly lowering inflation is key to keeping long term rates from going way up! In that sense what the Fed is currently doing is actually keeping the value of the bonds/MBS higher than otherwise (by driving the economy into recession). Now where you could argue that the Fed made a mistake was in buying MBS (lowering net interest margin) during 2020 early in the pandemic. That drove mortgage rates down right when fiscal stimulus was increasing bank reserves and everyone who could refinanced.
- sitkack 4y ago
  Isn't the fed driving rates high to encourage unemployment to put pressure on inflation? Everything else is a byproduct of that move. I think the mortgage rate move was planned for an upcoming reset in housing prices.
- s1artibartfast 4y ago
  There is a big difference between bonds and MBS that have already been issued and future ones. What the FED is doing now is tanking the value of securities with lower fixed interest issued in the past.
  - kurthr 4y ago
    But that value depends on their duration and the current interest rate on bonds of similar duration. If bond/MBS buyers don't believe that the Fed will beat inflation back down to 2% then rates at 5-20year will rise very significantly! They have been doing this over the past year by setting the Fed Funds rate (and by QE buying bonds/MBS etc in extreme circumstances like 2020 and 2008 and then eventually unwinding with QT). So, if they don't convince traders they will stop runaway inflation 5-20y rates could go to 10% or higher (inflation rate + net interest margin), which would absolutely crush long duration bond values! If you think a 10% fall in value is big, it could easily be 50% down and that would be a big deal for all banks. https://www.ustreasuryyieldcurve.com/ https://www.ustreasuryyieldcurve.com/ Go look and see how long rates at 10y have changed with expectations over the last year as short 6mo have consistently risen.