12 ms·

Big VC, Tech Got Backstop for Billions in Uninsured SVB Deposits

127 points by minzi 3y ago

djoldman 3y ago
https://archive.is/jgnkp https://archive.is/jgnkp
fosk 3y ago
The Fed first said it would not increase rates, then it said inflation was transitory, then all of a sudden they did a 360 and increased the rates the highest in more than a decade, then they are saying they will keep increasing, then something will inevitably break, and then they will start cutting again despite their original plans. Sure the banks should have managed risks better and this whole fiasco falls on SVB, but to be fair the Fed is doing a horrible job at setting expectations. Whoever trusted them in the past, got screwed. They are fundamentally a reactive organism that for some unknown reason talks as if they are the ones in charge. Obviously they are not.
- mathattack 3y ago
  It was relatively cheap to hedge the interest rate risk. Most banks did that. SVB didn’t.
  - vgatherps 3y ago
    Buying the 10 year and hedging all risks down to the two years is equivalent to just buying the two year. I think most other banks tried to get interest revenue from something other than going turbo long long-term treasuries? Or just accepted lower profit?
    - mathattack 3y ago
      Could also hedge with swaps or swaptions or mortgage pass throughs. Banks who are very long mortgages frequently short passthroughs. They take enough risk off the table to not have the risk exposure of a hedge fund. https://en.m.wikipedia.org/wiki/Mortgage-backed_security https://en.m.wikipedia.org/wiki/Mortgage-backed_security
  - smileysteve 3y ago
    Many banks are still building deposit reserves by competing on CD rates.
- deepsquirrelnet 3y ago
  The only thing we should take away is that there are no rules. The Fed will decide the winners and losers without the deference that a system claiming to be for the benefit of people should have. If you’re not too big to fail, then you’re too little to succeed.
  - survirtual 3y ago
    "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
- lesuorac 3y ago
  When you're paid millions of dollars its your job to hedge risks. When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding. When you're a 200 unit apartment owner, you better have a list of a dozen handymen that you can go down when the first one doesn't show up. These banks are the equivalent of the apartment owner. They are expected to be able to survive any decision the FED makes short of the FED shutting them down and even in that case they should have known ahead of time and been working on an appeal.
  - no_wizard 3y ago
    > When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding Not to overly quibble but it really isn’t. If we let the small renter get away with such egregious behavior the bigger renters will take note and do the same
    - ke88y 3y ago
      The analogy is stretched, for sure. I think the analogy works a bit better if you say that one apartment building houses enough people that there aren't enough hotel rooms to house everyone if the building becomes uninhabitable, thus making the apartment building structurally significant to the local housing supply in some sense. But again, it's just an analogy.
      - no_wizard 3y ago
        Still feels like it breaks. Given the new analogy, proper planning would be to set policy to steadily increase housing supply relative to renters based on likelihood of them being able to purchase a home, adjusted quarterly (or maybe yearly) and/or increase the number of available renter units relative to the amount of new renters coming online (IE, graduating college or moving into a new job that requires them to live in the area). Don't be overly dependent on any one local thing in another words. You can't 100% plan for total failure of course, but this would blunt it significantly. In another words, SVB did a bad job at hedging risk, and there's really no excuse for it.
- tekla 3y ago
  Of course this is in fact a total lie and reflects no truth in rality.
  - xyzelement 3y ago
    I don't have a view on the topic itself but post like yours - assertions of what is true or false with zero fact or argument - make me favor whatever the other side is. Presumably if you had something that supported your point you'd share it.
    - deleted 3y ago
      [deleted]
    - deleted 3y ago
      [deleted]
- 0xParlay 3y ago
  [flagged]
- martythemaniak 3y ago
  I find these takes truly bizarre. Your basic assumption is that the future is predictable and there's a group of powerful, but incompetent people controlling it. Central Banks' mandate is to control inflation while still ensuring employment is healthy. They can try and model and predict the future as much as they want, and they can tell you what they're thinking at any point in time, but this is fundamentally not something that anyone can do. So the line became "The fed promised us they wouldn't raise rates, but then they did, so my shitty risk management is their fault, not my fault". No, it's your fault, because the Fed's job isn't to make pronouncements and stick to them regardless of reality, it's to keep inflation and employment at healthy levels. So the Fed did its job. Inflation is being brought under control without a recession or a hit to employment which so far is quite remarkable. If they continue this for another year or two and bring the situation completely under control it'll actually be a historic achievement.
  - fosk 3y ago
    I am not arguing that they failed at predicting the future: they failed at managing expectations. I am suggesting that the Fed should have not be authoritative on these topics since obviously they have no clue. Only recently they tried to tone it down a little by asserting they are a "data-dependent" and even then, they are still authoritatively making assumptions every week on things they have no clue about.
    - martythemaniak 3y ago
      Again, dig into your own premise. You can't set and manage expectations about a future you cannot predict. You can set expectations about your behaviour given a certain situation (ie, if kid misbehaves, then no video). You cannot set expectations about the economy, because the economy is a complex and unpredictable system. This is the reason that while companies can issue guidance and forecasts in their quarterly reports, they come with pages of disclaimers. You've essentially taken the equivalent of those forecasts at face value, ignored the disclaimers and are angry your trades didn't work out. You can blame other people all you want, but your ideas are just weird.
  - 3y ago
- api 3y ago
  The lesson really is that the market is in charge of the market. I don't think the Fed lied. I think they really thought they wouldn't have to raise rates much, if at all. They were just wrong because they're not in charge. They only think they are.
- adrr 3y ago
  I don’t understand why there hasn’t been a push to replace Powell as fed chair. He’s been so wrong on everything. Everyone knew inflation wasn’t transitory to the point even Janet Yellen made a comment that it wasn’t.
- JumpinJack_Cash 3y ago
  > > Whoever trusted them in the past, got screwed Righfully so. It's econ101. Central Banks modulate the interest rate based on inflation. Nobody knows how inflation originates or subsides
deleted 3y ago
[deleted]
remote_phone 3y ago
Where was the “courage” to quote this article while it was happening? This was exactly what I was saying but it was drowned it by people saying it was for the “little guys” which was lies.
- jmeister 3y ago
  "On the startup bailout. It is claimed that the startups who put all their cash in SVB will now be forced to close, so get going with the bailout now. It is not startups who lose money, it is their venture capital investors, and it is they who benefit from the bailout. Let us presume they don't suffer sunk cost fallacy. You have a great company, worth investing $10 million. The company loses $5 million of your cash before they had a chance to spend it. That loss obviously has nothing to do with the company's prospects. What do you do? Obviously, pony up another $5 million and get it going again. And tell them to put their cash in a real bank this time." https://johnhcochrane.blogspot.com/2023/03/silicon-valley-bank-blinders.html https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba...
  - coder9874 3y ago
    Just my 2c as a startup guy - this is patently absurd. VC's would not just write checks for millions again after such huge losses. Many, many startups would shut down and the entire startup/VC ecosystem would be devastated.
  - s1artibartfast 3y ago
    I'm not sure why this analysis assumes that the startup doesn't have $5 million of debt or somehow gets back the equity they sold. They're not in the same position they were before. If you're worth 10 million when you have five million in the bank, you are now worth 5 million without it. If you sold half your company to get the first 5 million, why would keep working if you have to sell the other half?
  - muzz 3y ago
    The "haircut" would have been less than 15%, this is why the bailout of $151B in uninsured desposits was less than $20B and not $151B. So if they had $5M uninsured in SVB they would have received $4.25M and suffered only a 750k loss.
xyst 3y ago
> Some critics said that making all depositors whole at the lender and Signature Bank, which failed March 12, created a moral hazard. It’s a bit late to be talking about “moral hazard” https://www.usatoday.com/money/blueprint/personal-finance/government-bailout-relief-programs/ https://www.usatoday.com/money/blueprint/personal-finance/go... https://www.propublica.org/article/government-bailouts https://www.propublica.org/article/government-bailouts
rvnx 3y ago
It was a great deal for VCs, and also a great deal for politicians who are connected with startups, and a great deal for startups as well (they had the high fixed-rate deposit, without having to carry the risk). It's just a loss for everyone else who pay taxes. This is the real moral hazard.
- jeffbee 3y ago
  It’s paid by banks so it is a loss for all bank account holders, a broader group than taxpayers.
  - s1artibartfast 3y ago
    Alternatively, you could look at it as a loss for Bank shareholders which is a much smaller group or a loss that falls predominantly on large account holders. Let's not pretend that a student with $20 in their bank account is paying as much towards FDIC insurance a multinational with a billion dollar account
    - pessimizer 3y ago
      Billion dollar accounts don't pay anything towards FDIC insurance for they are not insured by the FDIC. Someone who has $20 in their bank account is obviously paying more.
      - s1artibartfast 3y ago
        What do you base that on? Banks pay the insurance. Do you think a bank makes more off of $20 account than a billion dollar account?
      - butlerm 3y ago
        Under current law FDIC member banks pay assessments on their total liabilities, which include uninsured deposits. Account holders do not directly pay anything for deposit insurance, and what they do pay is largely in the form of lower interest. The only thing worth paying for would be paying a bank custodial fees so they do not lend out your deposits to anyone. Otherwise it is the banks responsibility to insure funds that they are allowed to legally lend to others, to make good on the very idea of a deposit (as opposed to a loan) in the first place.
taeric 3y ago
How do folks think this could have gone down otherwise? The assets that backed these deposits didn't disappear, they were lowered in value. As such, they got sold to someone else that can afford to hold on to them to maturity and wait for them to possibly even go up in value. Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these. Worse, it would have created a race to get your funds out before you couldn't. At which case, it would have certainly screwed up other fundamentals. Worse still, if you do start auction devaluing of treasury bonds, that will reach so far into the economy that it is hard to really state.
- pessimizer 3y ago
  > Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these. And the very rich entity that once held them but lacked the liquidity to keep them would get a lot poorer. I'm pretty sure that's how capitalism is supposed to work. They're being rewarded for how well they handled risk. If banks, or any other investor/depositor aren't supposed to be rewarded in return for dealing with risks that the government doesn't want to or isn't equipped to take on, what exactly are they being rewarded for? Government backstops are a license to print money for the people positioned to take advantage of them. Insurance on accounts <$250K is required in order to protect boring deposit banking from runs. If the lack of insurance on accounts >$250K is a bluff, and the state is always going to save them anyway, pricing this in amounts to a direct wealth transfer. The idea that the degree to which this wealth transfer is necessary should be directly proportional to how wealthy the recipients are (the more to be lost, the more "systemic risk"), is perverse.
  - taeric 3y ago
    But that happened? The very rich entity that held the assets was literally dissolved. With all shareholders in SVB wiped out. The depositors, to be clear, NEVER held the assets under question. They deposited money into the bank that let the bank purchase the assets. At that point, the depositors are not assets of the bank, but liabilities. Now, the bank's assets dropped in value so that they could not cover their obligations to their depositors. The bank was dissolved accordingly, with their assets sold to another bank. You are wanting to also have their liabilities dissolved, such that the depositors are also somehow punished?
pc_edwin 3y ago
These articles and comments are to put politely, very silly. Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability. These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply. You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.
- pc_edwin 3y ago
  The particular case of SVB is rather illuminating. They weren't risking money on some high risk mortgage bonds or memecoins for that matter (illegal). They were literally buying US government bonds based on outlook given by THE government agency which gives OUTLOOKS & sets POLICIES on these matters. They literally did the you are "supposed" to do and they were called "greedy capitalists" or chumps for not doing sophisticated active player stuff like hedging.
  - dehrmann 3y ago
    Their risk was duration and idiosyncratic depositors. What got them was that the Fed raised rates the at the fastest rate ever, and a classic bank run from well-connected depositors starved for cash. But were they irresponsible? Not really. This is a scenario that's very easy to see the flaws of in hindsight.
    - borski 3y ago
      Well, and perhaps more importantly, they took the Fed at their word that they wouldn’t raise interest rates, which they then raised.
  - 3y ago
sharts 3y ago
This is a transfer of wealth upwards which is the only acceptable wealth re-distribution in society.

127 points by minzi 3y ago

https://archive.is/jgnkp https://archive.is/jgnkp

fosk 3y ago

The Fed first said it would not increase rates, then it said inflation was transitory, then all of a sudden they did a 360 and increased the rates the highest in more than a decade, then they are saying they will keep increasing, then something will inevitably break, and then they will start cutting again despite their original plans. Sure the banks should have managed risks better and this whole fiasco falls on SVB, but to be fair the Fed is doing a horrible job at setting expectations. Whoever trusted them in the past, got screwed. They are fundamentally a reactive organism that for some unknown reason talks as if they are the ones in charge. Obviously they are not.

mathattack 3y ago
It was relatively cheap to hedge the interest rate risk. Most banks did that. SVB didn’t.
- vgatherps 3y ago
  Buying the 10 year and hedging all risks down to the two years is equivalent to just buying the two year. I think most other banks tried to get interest revenue from something other than going turbo long long-term treasuries? Or just accepted lower profit?
  - mathattack 3y ago
    Could also hedge with swaps or swaptions or mortgage pass throughs. Banks who are very long mortgages frequently short passthroughs. They take enough risk off the table to not have the risk exposure of a hedge fund. https://en.m.wikipedia.org/wiki/Mortgage-backed_security https://en.m.wikipedia.org/wiki/Mortgage-backed_security
- smileysteve 3y ago
  Many banks are still building deposit reserves by competing on CD rates.
deepsquirrelnet 3y ago
The only thing we should take away is that there are no rules. The Fed will decide the winners and losers without the deference that a system claiming to be for the benefit of people should have. If you’re not too big to fail, then you’re too little to succeed.
- survirtual 3y ago
  "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
lesuorac 3y ago
When you're paid millions of dollars its your job to hedge risks. When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding. When you're a 200 unit apartment owner, you better have a list of a dozen handymen that you can go down when the first one doesn't show up. These banks are the equivalent of the apartment owner. They are expected to be able to survive any decision the FED makes short of the FED shutting them down and even in that case they should have known ahead of time and been working on an appeal.
- no_wizard 3y ago
  > When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding Not to overly quibble but it really isn’t. If we let the small renter get away with such egregious behavior the bigger renters will take note and do the same
  - ke88y 3y ago
    The analogy is stretched, for sure. I think the analogy works a bit better if you say that one apartment building houses enough people that there aren't enough hotel rooms to house everyone if the building becomes uninhabitable, thus making the apartment building structurally significant to the local housing supply in some sense. But again, it's just an analogy.
    - no_wizard 3y ago
      Still feels like it breaks. Given the new analogy, proper planning would be to set policy to steadily increase housing supply relative to renters based on likelihood of them being able to purchase a home, adjusted quarterly (or maybe yearly) and/or increase the number of available renter units relative to the amount of new renters coming online (IE, graduating college or moving into a new job that requires them to live in the area). Don't be overly dependent on any one local thing in another words. You can't 100% plan for total failure of course, but this would blunt it significantly. In another words, SVB did a bad job at hedging risk, and there's really no excuse for it.
tekla 3y ago
Of course this is in fact a total lie and reflects no truth in rality.
- xyzelement 3y ago
  I don't have a view on the topic itself but post like yours - assertions of what is true or false with zero fact or argument - make me favor whatever the other side is. Presumably if you had something that supported your point you'd share it.
  - deleted 3y ago
    [deleted]
  - deleted 3y ago
    [deleted]
0xParlay 3y ago
[flagged]
martythemaniak 3y ago
I find these takes truly bizarre. Your basic assumption is that the future is predictable and there's a group of powerful, but incompetent people controlling it. Central Banks' mandate is to control inflation while still ensuring employment is healthy. They can try and model and predict the future as much as they want, and they can tell you what they're thinking at any point in time, but this is fundamentally not something that anyone can do. So the line became "The fed promised us they wouldn't raise rates, but then they did, so my shitty risk management is their fault, not my fault". No, it's your fault, because the Fed's job isn't to make pronouncements and stick to them regardless of reality, it's to keep inflation and employment at healthy levels. So the Fed did its job. Inflation is being brought under control without a recession or a hit to employment which so far is quite remarkable. If they continue this for another year or two and bring the situation completely under control it'll actually be a historic achievement.
- fosk 3y ago
  I am not arguing that they failed at predicting the future: they failed at managing expectations. I am suggesting that the Fed should have not be authoritative on these topics since obviously they have no clue. Only recently they tried to tone it down a little by asserting they are a "data-dependent" and even then, they are still authoritatively making assumptions every week on things they have no clue about.
  - martythemaniak 3y ago
    Again, dig into your own premise. You can't set and manage expectations about a future you cannot predict. You can set expectations about your behaviour given a certain situation (ie, if kid misbehaves, then no video). You cannot set expectations about the economy, because the economy is a complex and unpredictable system. This is the reason that while companies can issue guidance and forecasts in their quarterly reports, they come with pages of disclaimers. You've essentially taken the equivalent of those forecasts at face value, ignored the disclaimers and are angry your trades didn't work out. You can blame other people all you want, but your ideas are just weird.
- 3y ago
api 3y ago
The lesson really is that the market is in charge of the market. I don't think the Fed lied. I think they really thought they wouldn't have to raise rates much, if at all. They were just wrong because they're not in charge. They only think they are.
adrr 3y ago
I don’t understand why there hasn’t been a push to replace Powell as fed chair. He’s been so wrong on everything. Everyone knew inflation wasn’t transitory to the point even Janet Yellen made a comment that it wasn’t.
JumpinJack_Cash 3y ago
> > Whoever trusted them in the past, got screwed Righfully so. It's econ101. Central Banks modulate the interest rate based on inflation. Nobody knows how inflation originates or subsides

deleted 3y ago

[deleted]

remote_phone 3y ago

Where was the “courage” to quote this article while it was happening? This was exactly what I was saying but it was drowned it by people saying it was for the “little guys” which was lies.

jmeister 3y ago
"On the startup bailout. It is claimed that the startups who put all their cash in SVB will now be forced to close, so get going with the bailout now. It is not startups who lose money, it is their venture capital investors, and it is they who benefit from the bailout. Let us presume they don't suffer sunk cost fallacy. You have a great company, worth investing $10 million. The company loses $5 million of your cash before they had a chance to spend it. That loss obviously has nothing to do with the company's prospects. What do you do? Obviously, pony up another $5 million and get it going again. And tell them to put their cash in a real bank this time." https://johnhcochrane.blogspot.com/2023/03/silicon-valley-bank-blinders.html https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba...
- coder9874 3y ago
  Just my 2c as a startup guy - this is patently absurd. VC's would not just write checks for millions again after such huge losses. Many, many startups would shut down and the entire startup/VC ecosystem would be devastated.
- s1artibartfast 3y ago
  I'm not sure why this analysis assumes that the startup doesn't have $5 million of debt or somehow gets back the equity they sold. They're not in the same position they were before. If you're worth 10 million when you have five million in the bank, you are now worth 5 million without it. If you sold half your company to get the first 5 million, why would keep working if you have to sell the other half?
- muzz 3y ago
  The "haircut" would have been less than 15%, this is why the bailout of $151B in uninsured desposits was less than $20B and not $151B. So if they had $5M uninsured in SVB they would have received $4.25M and suffered only a 750k loss.

xyst 3y ago

> Some critics said that making all depositors whole at the lender and Signature Bank, which failed March 12, created a moral hazard. It’s a bit late to be talking about “moral hazard” https://www.usatoday.com/money/blueprint/personal-finance/government-bailout-relief-programs/ https://www.usatoday.com/money/blueprint/personal-finance/go... https://www.propublica.org/article/government-bailouts https://www.propublica.org/article/government-bailouts

rvnx 3y ago

It was a great deal for VCs, and also a great deal for politicians who are connected with startups, and a great deal for startups as well (they had the high fixed-rate deposit, without having to carry the risk). It's just a loss for everyone else who pay taxes. This is the real moral hazard.

jeffbee 3y ago
It’s paid by banks so it is a loss for all bank account holders, a broader group than taxpayers.
- s1artibartfast 3y ago
  Alternatively, you could look at it as a loss for Bank shareholders which is a much smaller group or a loss that falls predominantly on large account holders. Let's not pretend that a student with $20 in their bank account is paying as much towards FDIC insurance a multinational with a billion dollar account
  - pessimizer 3y ago
    Billion dollar accounts don't pay anything towards FDIC insurance for they are not insured by the FDIC. Someone who has $20 in their bank account is obviously paying more.
    - s1artibartfast 3y ago
      What do you base that on? Banks pay the insurance. Do you think a bank makes more off of $20 account than a billion dollar account?
    - butlerm 3y ago
      Under current law FDIC member banks pay assessments on their total liabilities, which include uninsured deposits. Account holders do not directly pay anything for deposit insurance, and what they do pay is largely in the form of lower interest. The only thing worth paying for would be paying a bank custodial fees so they do not lend out your deposits to anyone. Otherwise it is the banks responsibility to insure funds that they are allowed to legally lend to others, to make good on the very idea of a deposit (as opposed to a loan) in the first place.

taeric 3y ago

How do folks think this could have gone down otherwise? The assets that backed these deposits didn't disappear, they were lowered in value. As such, they got sold to someone else that can afford to hold on to them to maturity and wait for them to possibly even go up in value. Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these. Worse, it would have created a race to get your funds out before you couldn't. At which case, it would have certainly screwed up other fundamentals. Worse still, if you do start auction devaluing of treasury bonds, that will reach so far into the economy that it is hard to really state.

pessimizer 3y ago
> Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these. And the very rich entity that once held them but lacked the liquidity to keep them would get a lot poorer. I'm pretty sure that's how capitalism is supposed to work. They're being rewarded for how well they handled risk. If banks, or any other investor/depositor aren't supposed to be rewarded in return for dealing with risks that the government doesn't want to or isn't equipped to take on, what exactly are they being rewarded for? Government backstops are a license to print money for the people positioned to take advantage of them. Insurance on accounts <$250K is required in order to protect boring deposit banking from runs. If the lack of insurance on accounts >$250K is a bluff, and the state is always going to save them anyway, pricing this in amounts to a direct wealth transfer. The idea that the degree to which this wealth transfer is necessary should be directly proportional to how wealthy the recipients are (the more to be lost, the more "systemic risk"), is perverse.
- taeric 3y ago
  But that happened? The very rich entity that held the assets was literally dissolved. With all shareholders in SVB wiped out. The depositors, to be clear, NEVER held the assets under question. They deposited money into the bank that let the bank purchase the assets. At that point, the depositors are not assets of the bank, but liabilities. Now, the bank's assets dropped in value so that they could not cover their obligations to their depositors. The bank was dissolved accordingly, with their assets sold to another bank. You are wanting to also have their liabilities dissolved, such that the depositors are also somehow punished?

pc_edwin 3y ago

These articles and comments are to put politely, very silly. Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability. These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply. You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.

pc_edwin 3y ago
The particular case of SVB is rather illuminating. They weren't risking money on some high risk mortgage bonds or memecoins for that matter (illegal). They were literally buying US government bonds based on outlook given by THE government agency which gives OUTLOOKS & sets POLICIES on these matters. They literally did the you are "supposed" to do and they were called "greedy capitalists" or chumps for not doing sophisticated active player stuff like hedging.
- dehrmann 3y ago
  Their risk was duration and idiosyncratic depositors. What got them was that the Fed raised rates the at the fastest rate ever, and a classic bank run from well-connected depositors starved for cash. But were they irresponsible? Not really. This is a scenario that's very easy to see the flaws of in hindsight.
  - borski 3y ago
    Well, and perhaps more importantly, they took the Fed at their word that they wouldn’t raise interest rates, which they then raised.
- 3y ago

sharts 3y ago

This is a transfer of wealth upwards which is the only acceptable wealth re-distribution in society.