News to me, if SVB’s hook really was offering above market rates then fair to make depositors take a haircut now.
Plus they banked for all these rate-sensitive tech companies so if rates ever went up, that would itself ensure that they were going to have to sell bonds early at a loss.
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Also, didn’t we recently get a big wave of tech layoffs? Makes the argument that this will save jobs seem pretty lol.
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That is the argument I don’t find persuasive. Fed is in charge of regulating the banking system and setting interest rates. The Feds engage in massive market interventions that cause wild swings and result in long term treasuries becoming the new MBSs…. then walk away when shit gets real… massive incompetence at best.
Keep in mind we’re not talking about these companies losing 10-15% of their market cap, or total assets. We’re talking 10-15% of their cash in SVB. I own Moderna and there’s a chance Moderna was banking with SVB. So I checked the balance sheet to double check the risk exposure here, because Moderna has had a lot of cash on hand - a few billion. It comes to $8.31 per share, out of their $138.29 share price right now. That’s the total amount. Losing 10-15 % of that means $0.83 to $1.25 per share.
Now, obviously the loss of liquidity could be an issue for a lot of businesses. So my first thought here is that the government should extend liquidity to these businesses, so that they’re able to meet payroll, etc. Give them low interest short-term loans to cover cash burn until the FDIC finishes liquidating SVB’s assets and paying out however many cents on the dollar they’re going to get, and use their certificates or whatever the FDIC gives them to verify how much they had on deposit at SVB as collateral. Once the payout comes, the loans get repaid.
Not shockingly, I don’t hear many wealthy people suggesting this. It’s GIVE THEM A BAILOUT!
And by the way, as impractical as it would be for Moderna to have their $3.21 billion in cash spread across 12,840 banks, as a shareholder I’m going to be pretty fucking angry if they had the entire amount in ONE bank. That should at least be spread across 2-3 banking institutions. That’s got to be common sense, right?
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Hold on. First, going to zero interest was a massive market intervention in the first place, by your definition. Second, SVB made a massive wager on zero interest being permanent, or at least persisting long-term. It was blatantly obvious IMO that wasn’t going to be the case. Even if not, they’re making a massive wager on what you’re calling a massive market intervention. That’s extremely risky behavior.
Here’s why I don’t want to do bailouts here, other than extending low-cost liquidity. It would be the same thing as 08-09 all over again. Everyone will talk about bailing them out and then setting up new regulations to prevent this from happening again. Well the bailouts seem to come pretty reliably, but the regulations not so much. So then we do it again. The dude telling Powell about moral hazard was spot-on. We, as a country/society/whatever, are not willing to risk the economic downside of not doing the bailouts, knowing it might be catastrophic. They, Wall Street and the wealthy, know this and thus take huge risks knowing that if they go a little bad it’s fine and if they go a lot bad they’ll get bailed out.
Who foots the bill for the bailouts? The taxpayer. Who’s not paying taxes? The wealthy.
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This x1000
Yes, zero rates were market manipulation, that is what the Fed does, manipulate markets. My argument is that they did so in a reckless and incompetent manner and that blame for this situation goes SVB execs and shareholders (who no one’s wants to get bailed out, that is a non-sequiter) >>>> Jerome Powell >>>>>>>> SVB depositors.
Taking rates to zero was obvious with COVID, where Powell fucked up is waiting too long to raise rates, which was an understandable mistake, then raising them way too fast at unprecedented rate. Just this week, this jackass was saying “the data” suggests more aggressive rates were needed as the 16th largest bank in the US was on the verge of failure. Again, this jackass is supposed to be regulating the banks.
Congrats on checking your exposure and realizing you can survive the first blow of Powell’s incompetence. Sure everyone on this board, including our tech workers, can too. Safe to assume that this won’t have any further affects beyond the direct and obvious, these things never do, amirite?
Obviously the $15 billion or whatever that the SVB deposit holders will lose are trivial in the grand scheme of the US economy. My concern is that it is false that SVB was uniquely positioned to suffer massively from the Fed’s unprecedented rate hikes, rather they were uniquely positioned to be the FIRST to do so.
The Fed can’t just be a passive bystander here. First, stop the crazy rates hikes and be prepared to reverse. Powell is like a pot newb that keeps downing edibles because the one he took 5 minutes ago hasn’t kicked in yet.
Second, if you are going to let SVB depositors take a haircut you gotta treat the SVB execs like SBF and lay out the case about why SVB depositors should have known better. Tough as SVB was under your supervision this whole time but that is what is required.
Is it true these rate increases are unprecedented?
The rate hikes were correct. The dipshits at SVB took on way too much interest rate risk, they bet on the rates staying at zero for way longer than was ever likely. They deserve to get crushed for that.
They were also extending lending to startups that were losing money based on their projected future earnings. Another bet on low/zero interest.
Like I said, I’d keep the businesses with deposits from going under. Any that go under due to losing 10-15% of their cash deposits despite having nearly free liquidity extended to them, well, they were probably going under anyway.
Other banks and brokerages will certainly have bad earnings, maybe even take a loss for a few quarters or a year. We’ll see how many actually go under. It sounds like 2-3 regional banks on the west coast may.
We’re still at 6.4% inflation.
The one selling tons of shares last month definitely should go to jail. Probably won’t cause this is USA#1, but they should.
You really don’t have to make this case, and it’s absolutely not “what is required.” The rules are that everything over $250K is technically at risk. The onus is on them to explain why they deserve to get bailed out from losing 10-15% of their deposits when they know the FDIC only insures $250K. The rule isn’t, “The first $250K is insured, unless the bank fucks up, then the rest is also insured.” The insurance is specifically there in case the bank fucks up.
I’d be fine with insuring more as a policy going forward, they’d just have to charge the banks more to do so.
They were also banking with a publicly traded bank, and could have effectively insured themselves against this if they wanted to. Free markets and all.
Nobody makes these arguments when Joe Schmo gets fucked by some unforeseen events. I’ve been taking it on the chin for a few months by unforeseeable events, and it’s cost me a lot of money. Nobody’s coming to bail me out. I certainly don’t think I should have to bail out a bunch of millionaires and billionaires because they picked a higher-yielding bank that was taking undue risks.
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No, not really. They’ve jumped more in less time before. You can make the argument this time is worse since it started from 0%, but you also then have to make the argument that it was reasonable to expect it to stay at 0% long-term, which it was not.
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I said in a previous post that the chasing higher yield argument is a good start. And yes the Fed is obligated to make the case, there are going to be bank runs on Monday and mitigating that sort of thing kind of fits within the Feds’ job description.
As to what should have expected to be reasonable rate hikes when SVB bought these treasury bonds in 2021, the Fed itself lays out guidance. Check the records and compare it too what actually happened, was the Fed itself anywhere close to correct? Were they lying or just that incompetent?
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I don’t think they’re obligated to make the case why they shouldn’t go outside their ordinary purview. You’re saying they HAVE to do something they’re not supposed to do and if they don’t they HAVE to explain why they aren’t doing so.
They are obligated to explain how this happened on their regulatory watch imo.
It’s possible, perhaps even likely. I don’t think it’s guaranteed.
Neither, the war started in Feb 2022 and caused massive inflation. Clearly at no point did SVB hedge off it’s risk. That’s incompetence on SVB’s part.
Don’t see how raising interest rates is an appropriate response to inflation caused by Russia invading Ukraine. Businesses and people are already suffering from high costs on goods, food and energy from an unexpected war and making them pay more interest on their debt is supposed to help them?
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The idea is that it’ll decrease demand and slow down inflation. I agree it’s less effective than it is in the face of other inflationary causes, but it’s the tool they have. And what of the people who did not take on debt they couldn’t afford, who are watching their savings diminish due to the inflation?
BTW Bill Ackman believes uninsured depositors will get back 98% of their deposits without government intervention. He says the issue is short-term liquidity. So my suggestion to extend bridge loans to them at low rates would solve the issue he’s worried about.
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If they don’t have the appropriate tool then they should just stay out of the way. Energy prices are up because the war cut supply? Let Russia have Ukraine, let energy prices rise to the appropriate price and/or let Biden/Congress pass subsidies to help people afford the higher energy prices. The end.
The Fed taking matters into their own hands and dialing up rates until they “weaken demand” to a level they deem appropriate is insane.