When your company goes under and they eventually get X% of their deposits back 1.5 months from now, yes, you will get your last paycheck.
The idea that this is just a product of tech bro hubris is dangerous. You are 100% sure that your mayor in charge of a $X billion budget is making sure the bank they are using has appropriate interest rate hedges on their treasury bonds? Guess we will find out!
Companies and towns with billion dollar budgets have CFOs, the mayor isn’t picking the bank themself.
It’s not “tech bro hubris.” It’s “rich people hubris.”
And none of the hundreds/thousands of companies that banked with SVB had CFOs?
Good thing all the rich people just put their money in SVB.
Sure, and maybe some of them even hedged the risk of SVB going out of business by spreading business across multiple banks. Others may not have done as a good job.
You’re obviously concerned about what is going to happen to next week. There obviously some risk there.
What are some your falsifiable predictions of what will or won’t happen over the course of next five days? It’s rare to have such a short timeframe to test theories like this so just lay them out there and we can all pick up discussion next weekend
If we go into tomorrow with the status quo, there will be a run on countless midsize banks. At least one will go under, probably more than one. All the big banks/financial institutions will freeze as they scramble to figure out their liabilities/entanglements with the failed/failing/weaker entities and focus on unwinding them. Things will continue to go down the shitter until the Fed is forced to admit they fucked up.
Maybe they can save things from there except now the problem is a multiple of what it is today and you need Congress/Biden to help…. and good luck with that as any politician who signs off on your plan is going to get eaten alive by Trump and his minions populist messaging.
So people would move to bank with banks that have better safeguards? Seems like a good result and how things should work in a functioning economy.
This is what we fucked up in 2008. There was a great opportunity for banks that did things the right way to gain a ton of business. But instead we backstopped the losses of those who cratered the economy and taught the financial sector that it was ok to take on a ton of added risk in pursuit of greater profits. If things go bad, you’ll just get bailed out.
One midsize bank going under sounds like the system working just fine and being pretty resilient.
It’s going to be more than one by the end of Monday. This is going to trigger a bunch of mini bank runs as businesses with effectively uninsurable positions move money out of harms way.
You asked for a falsifiable prediction in the next week knowing that the 2008 crisis took a year to play out. Would me saying two make you happy? More importantly, do you contend the core point that the next week is on pace to be an absolute shitshow that has a foreseeable path to financial crisis?
Perhaps if you don’t take it out of context, it’s good enough:
“When I say reset, I’m not looking at a particular specific set of data. What I’m really saying is that we’ve had a time of a red-hot housing market all over the country, where famously houses were selling to the first buyer at 10% above the ask even before seeing the house. That kind of thing. So there was a big imbalance between supply and demand. Houses were going up at an unsustainable fast level. So the deceleration in housing prices that we’re seeing should help to bring prices more closely in line with rents and other housing market fundamentals. That is a good thing. For the longer term what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level and at a reasonable pace and that people can afford houses again. We probably in the housing market have to go through a correction to get back to that place. There are also longer-run issues with the housing market. As you know, it is difficult to find lots now close enough to cities, so builders are having a hard time getting zoning and lots and workers and materials and things like that. But from a business cycle standpoint, this difficult [housing] correction should put the housing market back into better balance,” Powell told reporters on Wednesday.
He’s against the bubble persisting. So yes prices have to come down, but that doesn’t mean a crash.
This is almost certainly not what’s going to happen.
Or by taking out way out of the money puts on SVB… or by hedging against rate hikes through other financial products that probably aren’t available to retail investors.
@Pwn you should read this link and then reconsider your position. As I’ve been saying, the issue here isn’t that a bunch of companies are going to lose 10-15% of their cash holdings. The issue is the liquidity crunch this week.
As long as the government can figure out a cap on the maximum loss by SVB, which seems doable according to this guy I linked to, they can backstop up to that amount starting on Monday. As a result, there shouldn’t be an issue making payroll or covering operating expenses.
And if they can’t do that, they can extend bridge loans at low/no interest covering something like 50% of what was on deposit at SVB and secured against the eventual payouts, again covering short-term liquidity concerns.
So what’s the end result at end of week?
Can’t tell if you think this actually will be a really massively devastating week to US economy or just would be if people do the wrong thing?
Like is SPY going to be down 15+% by end of this week?
Prices have to come down and it is going to be difficult, clearly we are just debating the size of the crash here.
And what man had more power than anyone to prevent the bubble in the first place? My pick is the guy who has been Fed Chairman since 2018. The same guy you insist has no responsibility for were we are, he did everything right and then the Ukraine war forced his hand. Case closed.
I wasn’t the one who asked. I am just saying if that’s your prediction, then bailouts are not the right medicine because two banks failing is not a systemic risk.
Well what I’m saying is if a house was worth $400K in 2019 and shot up to $600K in 2021, and ends up at $500K in 2023, you may call that a 16.66% crash and blame Powell. I call it a good job of reigning in an out of control bubble.
Actually I am pretty sure I was ripping his predecessors before all this for keeping rates at zero for like six years or whatever it was after 08-09, and for keeping them two low after moving them off zero.
I agree, and a flight to safety is a natural response in a free market. This is capitalism working. some banks will fail but the system will hopefully be resilient as there are still some elements left in the post 2008 regulations (e.g. stress testing, stricter capital requirements) that have help most be prepared for this.
Paradoxically the flight to safety will actually raise the value of the treasuries the banks are holding because they are still the safest investment and because people will expect any continued collapse of several banks will change expectations of future interest rates.