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Long-term treasury bonds are fairly volatile. That's how Silicon Valley Bank went under: their long-term bond holdings dropped in value enough to make them ins
by eru 10mo ago
Long-term treasury bonds are fairly volatile. That's how Silicon Valley Bank went under: their long-term bond holdings dropped in value enough to make them insolvent.
- Dylan16807 10mo agoThey can swing a few percent. So can gold. Either one could make a bank insolvent. In the long term treasury bonds are not volatile, especially if you hold them to maturity.
- eru 10mo agoWhat does holding to maturity have to do with their current value?
- Dylan16807 10mo agoIt makes the current market price irrelevant because you're still owed the same amount on the same date.
- eru 10mo agoThe current market price is about what it is worth _currently_. When your deposits are denominated in _current_ dollars, and that's what your customers can demand, then it doesn't matter that your expectation of how many dollars you are going to receive in 2035 is stable. It's about what our assets are worth right now, in case you need to liquidate them to satisfy withdrawal requests. If you can contrive your deposits to be denominated in 2035 dollars, then long term treasury bonds are 'stable' in that sense. Similarly, if your deposits are denominated in grams of gold, then gold is a stable backing for those. If you have a mismatch between what you owe and what you own, then you need a thick equity cushion between your assets and fixed liabilities.
- Dylan16807 10mo agoThis conversation was not about banks when the comparison came up, and when I talk about long term value I'm not talking about bank reserves. (And even if you argue a stablecoin is like a bank, it's one with an utterly massive reserve ratio.) If you're worried about short term value then you can use shorter term bonds if you want, whatever. It doesn't make a difference to the reason I brought it up in the first place, because either option is more stable than gold.
- eru 10mo agoWhat do you mean by long term value? The current market value is typically the best estimate we have for their long term value. No one is talking about bank reserves. I'm talking about assets.
- littlestymaar 10mo ago> The current market value is typically the best estimate we have for their long term value. It's not. The EMH has been empirically disproven in the 80s.
- eru 10mo agoCould you please link me to the evidence? Which version of the EMH has been disproven? EMH comes in multiple different strengths. The strongest version would be something comical like 'market prices are omniscient and perfectly predict future prices'. That's almost certainly wrong. Very weak versions are something like 'Don't bother actively trading on the news as a retail investor, because by the time you've heard them, the folks over at Goldman Sachs and the hedge funds and their computers will have traded on them a million times over already', and these are almost certainly true. (But even somewhat stronger versions are probably true.)
- littlestymaar 10mo agoSee Bob Schiller's work (for which he received the econ Nobel prize in 2013). The “weak version of EMH” has nothing to do with markets being “efficient”, it's a property of random markets. Assimilating the two just Fama's motte-and-bailey fallacy.