7 ms·

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 i

by 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

by fosk 3y ago

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