SVB - 2023 Too Big to Fail

[Monahorns]

Another lie. The loss is only realized if the bank is forced to sell them. Otherwise there is no loss if the treasury bill are held to maturity:

Part of the reason these banks are in trouble is because their assets are no longer worth anywhere near par value in the marketplace

Nothing I said contradicts what you said. Either we are both telling the truth or we are both lying.

We both know SVB was closed because they held bonds at a very low pay back rate based on loose monetary policy. With the interest rate increases those bonds are now worthless. Whenever they are sold under the current situation they lose. The only way to give these bonds any value again is to cut rates to ~0% again. The low rate of return vs the higher rate of payment out is why there is zero market place value. But we have to be honest. The market place has little to do with the evaluations and very much to do with Fed policy.

 

[mb227]

Run,

You should have to work/deal with some of those regulators. How about the guy in charge being an English major from a school in the Midwest. No accounting, no finance classes at all, but he was in charge of a huge region.

The same people that don't question such individuals get all bent out of shape when people point out an FAA nominee appears to know nothing about aviation...

 

[Sangre Naranjada]

"appears to"?!? That dumb **** doesn't have the first foggy clue.

 

[mb227]

"appears to"?!? That dumb f**k doesn't have the first foggy clue.

I was being polite.

 

[ViperHorn]

Any more banks fail today?

Good news from Joe

"Any losses to the Deposit Insurance Fund will be covered by a special assessment levied on federally insured banks, not taxpayers."


https://www.cnbc.com/2023/03/13/tha...investors-who-lost-money-in-failed-banks.html

So all of the big banks are just going to pony up, smile and be happy?

 

[ViperHorn]

The same people that don't question such individuals get all bent out of shape when people point out an FAA nominee appears to know nothing about aviation...

After watching that guy I am not sure he could draw an airplane or know an airport if you drove him to one.

 

[mchammer]

Nothing I said contradicts what you said. Either we are both telling the truth or we are both lying.

We both know SVB was closed because they held bonds at a very low pay back rate based on loose monetary policy. With the interest rate increases those bonds are now worthless. Whenever they are sold under the current situation they lose. The only way to give these bonds any value again is to cut rates to ~0% again. The low rate of return vs the higher rate of payment out is why there is zero market place value. But we have to be honest. The market place has little to do with the evaluations and very much to do with Fed policy.

What are you smoking? The bonds aren’t worthless if they are held to maturity. It’s the same way that fluctuations in mortgage rates don’t affect your mortgage. It only matters to whomever owns that mortgage. Similarly a stock isn’t worthless if you bought it at $20 and it drops to $10 within a year. If you are not forced to sell it, it may go back to $20 or even $30.

 

[mchammer]

 

[Monahorns]

What are you smoking? The bonds aren’t worthless if they are held to maturity. It’s the same way that fluctuations in mortgage rates don’t affect your mortgage. It only matters to whomever owns that mortgage. Similarly a stock isn’t worthless if you bought it at $20 and it drops to $10 within a year. If you are not forced to sell it, it may go back to $20 or even $30.

It isn't about the bonds themselves. They bought bonds at a low rate of return. I don't know the exact number but it's like ~1-3%. So if they hold those bonds they will get that level of profit. But at the same time they are having to make payments on other things at levels that float. Once the Fed rate went to ~4.5% their overall profitability evaporated. So someone made a decision that their whole system wasn't going to work anymore and therefore the bank closed.

So the bonds didn't lose all worth but they became worthless in that they no longer will produce a profit for the bank. If that weren't the case then SVB would still be in business.

 

[Monahorns]

The articles that I linked basically say the same thing about why SVB crashed.

Where they differ is in how they describe what the Fed has done in response. The whole story that it is necessary to steal wealth from working people so that people holding >$250,000 in one account don't lose their money is what elites say to justify their theft. They knew FDIC only covered up to $250,000 in one account and foolishly didn't abide by that. The answer for the rich and powerful is always to take wealth from others when they act foolishly. At least it has been since 2008.

 

[mchammer]

This offers a bigger warning about financial regulation, not that anyone in Washington is likely to be interested. No law, rule or regulation can spare the economy from the consequences of bad policies, especially bad monetary policies, which can turn even the safest of assets into a ticking time bomb.

 

[Horn6721]

That'll do it From the Bee
WASHINGTON, D.C. — Many are praising President Biden for his swift and decisive leadership this morning. In a set of forceful and clear remarks to the country's financial system, he called on all banks to stop collapsing immediately.

"Hey there, banks! Yeah, you! Stop it! I mean it! Not a joke!" said the President to a smiley face written on his thumb in Sharpie he mistook for one of his nieces. "You've collapsed long enough! I say, no more! That's enough, banks! Cut it out right now, or so help me I'll count to ten!"

 

[SabreHorn]

MC & Mona,

Two signs that the management, their advisors, and regulators were doomed by their stupidity:

1) They sold the bonds calling for immediate write down. Smarter move, sell them on a repurchase agreement, which gives them the needed cash and NO mark to market. Been there done that - it saved five banks.

2) They should have been much more savvy and intelligent in their bond investments. Anyone remember "Pollution Control Revenue Bonds"? No one understood them so the St John Reserve, Louisiana bonds sold originally at 0.92 with a premium rate. What no one bothered to find out was that these were essentially Royal Dutch Shell TAX FREE corporate bonds with the full faith & guarantee of Royal Dutch Shell. When people figured out what they were, the value was 1.56. DO YOUR HOMEWORK.

Similar things with Maritime Bonds issued by the federal government, and those wonderful Texas Veteran land bonds that sold near 0.90 and were sold for 1.58 at peak.

These were people "playing bank" without a clue what they were doing.

 

[Monahorns]

 

[Chop]

I wonder what SVB's CAMELS ratings were shortly before they crashed?

Normally, that's hush-hush. But I wonder if they can release such info now?

 

[Chop]

So all of the big banks are just going to pony up, smile and be happy?

Banks' fees will go up. They'll nickel and dime you when you're not watching. Nothing big, but in the aggregate, it all adds up.

 

[SabreHorn]

They will receive certain undisclosed, well hidden compensation. Biggest problem is who to keep & who to jettison. That is not as easy as it sounds. You want the ones with the most knowledge about "hidden" activities. Anyone remember "Oregon West Corp". Then there was the case where multiple GL entries referred to a boat, but the bank didn't own a boat, it just owned the entity that owned the boat.

Once again, people will purchase loan packages with loans that:

1) Quality will allot their sale for a premium of 10-20%

2) Loans that can be sold for 90%+

3) Loans that will bring 70-80%

4) Loans that could be called "all profit". Anything collected is more than expected.

Mind you that the people buying these packages are paying pennies on the dollar. During the S&L crisis people bought these packages and made $50 million profit on a package they paid $5-10 million or less for.

 

[bystander]

Interest rate swap covering the fixed interest rates on the mortgages they lent out?

 

[mchammer]

 

[bystander]

The thing that gets me about Liberals is how they literally believe in the good faith and competence of their politicians. They actually think they're smart, good people.

 

[Monahorns]

Anytime the central bank turns off the free money spigot that created the boom a bust is inevitable. The Fed should have started rates increases earlier. But it doesn't really matter how quickly or slowly they raise them. There is no soft landing. There will be some kind of economic set back because newly printed money was being directed into areas that aren't profitable under normal circumstances. Once inflation hits those economic activities built on the new money have to end for the economy to be put back on stable footing. The set back can take different forms but there is no avoiding it.

 

[bystander]

Anytime the central bank turns off the free money spigot that created the boom a bust is inevitable. The Fed should have started rates increases earlier. But it doesn't really matter how quickly or slowly they raise them. There is no soft landing. There will be some kind of economic set back because newly printed money was being directed into areas that aren't profitable under normal circumstances. Once inflation hits those economic activities built on the new money have to end for the economy to be put back on stable footing. The set back can take different forms but there is no avoiding it.

They could have started raising rates earlier but (and I haven't looked at the data so I'm riffing here) COVID threw a wrench into everything. Regardless of your position on the actual pandemic/vaccines, the plummeting economy and loss of jobs created a need for easy money. The collective panic took over.

 

[Monahorns]

They could have started raising rates earlier but (and I haven't looked at the data so I'm riffing here) COVID threw a wrench into everything. Regardless of your position on the actual pandemic/vaccines, the plummeting economy and loss of jobs created a need for easy money. The collective panic took over.

My stance was always that people should be allowed to assess risk for themselves and do whatever they deemed most appropriate for them.

The economic problems started because of government policy not the virus itself. Same for the panic. Remove the draconian language and policy trillions of new $ most likely weren't necessary.

Even now no one is talking about the need for government savings or insurance accounts to cover for catastrophes. There should also be corporate and personal insurance policies for these purposes. You either save today or borrow from the future and cause all the other problems that comes with it.

 

[mchammer]

Even now no one is talking about the need for government savings or insurance accounts to cover for catastrophes. There should also be corporate and personal insurance policies for these purposes. You either save today or borrow from the future and cause all the other problems that comes with it.

Sorry, this is myopic policy which leads to a no-risk and low growth economy. Other than you and your simpaticos, no one wants this policy. Ever hear of no risk, no reward? That is your economic policy. It’s far better to take some risk for higher economic growth and innovation even at the cost of the occasional bank collapse.

 

[mchammer]

Here’s a good article on what happened. All of this was avoidable if the Fed and the banks had acted earlier before it was too late.

The Peston effect

 

[mchammer]

My stance was always that people should be allowed to assess risk for themselves and do whatever they deemed most appropriate for them.

The economic problems started because of government policy not the virus itself. Same for the panic. Remove the draconian language and policy trillions of new $ most likely weren't necessary.

Even now no one is talking about the need for government savings or insurance accounts to cover for catastrophes. There should also be corporate and personal insurance policies for these purposes. You either save today or borrow from the future and cause all the other problems that comes with it.

 

[mchammer]

So the bonds didn't lose all worth but they became worthless in that they no longer will produce a profit for the bank. If that weren't the case then SVB would still be in business.

From a contributor at the WSJ (it implies incompetence at the bank, state regulator, and the Fed):

Some believe that SVB couldn’t borrow sufficient cash from the Fed to stem the run because it lacked collat-eral. But the fair-market value of its entire portfo-lio of government-backed securities was $102.2 billion as of Dec. 31. Even allowing for a significant decline in value by March 9, SVB would still have substan-tial collateral to borrow from the Fed to cover the run on its deposits. Moreover, the Fed had no credit risk taking government-backed securities, even at par rather than fair-market value, as it could itself hold them to maturity.

 

[Mr. Deez]

A lot of truth to this.

 

[Monahorns]

Sorry, this is myopic policy which leads to a no-risk and low growth economy. Other than you and your simpaticos, no one wants this policy. Ever hear of no risk, no reward? That is your economic policy. It’s far better to take some risk for higher economic growth and innovation even at the cost of the occasional bank collapse.

OMG did you miss the point. Oh well.

 

[mchammer]

OMG did you miss the point. Oh well.

Please explain it to me if you get a break from stuffing your mattress with gold.