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Post by newtecher on Mar 14, 2023 0:13:28 GMT
So did US Govt. just said there is effectively no limit on FDIC insurance on bank deposits? that is US govt. will always make people whole on bank deposits. No
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Post by steadyeddy on Mar 14, 2023 1:38:06 GMT
So did US Govt. just said there is effectively no limit on FDIC insurance on bank deposits? that is US govt. will always make people whole on bank deposits. Not directly, but by saving (or guaranteeing) SVB deposits the govt just set a precedent that can be used in courts to achieve similar results in other bank failures. There WILL be more banks that are likely to fail... Market is worried about Credit Suisse now... and they are a major counter-party for a lot of credit swaps, and impact would be felt much more broadly.
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Post by acksurf on Mar 14, 2023 12:15:04 GMT
Really? Going most of 2022 without a Chief Risk Officer..at a bank is not a good look. Meanwhile SVB was quite active on the ESG front getting an A rating and promising all kinds of loans for "sustainable businesses" (they might have tried to sustain their own business a bit better!). Furthermore, the "G" really is in question when your CEO is/was a Dir Federal Reserve Board of San Francisco Federal Reserve Bank. On another note, Barney Frank (aka Mr. Bank Regulation) was a board member at Signature Bank which also was taken over recently by FDIC. No inside ball/politics anywhere to be found I guess, just hard working folks. Wish I was part of that club. That NY Times snipped is also highly politicized - nothing to see here, move along folks! Come on man! You seem to be suggesting that I am defending the bank in some way. Or are you making the argument that ESG was what brought them down? If so, I don't see any supporting argument/data. Or are you presenting evidence that Barney Frank did this? Or is simply invoking his name the point? Like the Boogeyman? I am not sure what part of my post you are even skeptical about? It appears you take issue with my comments about not politicizing it here. My comments are meant to call into question whether we should be politically sniping at each other here. Rather than discussing the investment/economic issue like reasonable adults. I thought that political sniping was frowned upon here. And it is generally bad form. Also, I am not The NY Times. I've even got the ID to prove it. I quoted from The NY Times article, so I included the link, which is customary. Are the quotes that I used inaccurate somehow? Of course there will be plenty of politics tossed about from all angles. Mostly by people who aren't doing much else. People who are not at all interested in being fair or balanced. TL;DR - I am not arguing that this issue is not being politicized somewhere. I am suggesting that we not do it here. Particularly without supporting data. Do you think the "G" is silent in ESG? Promoting yourself as ESG while you lobby Congress to get your bank to be a "non systemic risk" and then when there is a bank run it's suddenly a critical bank. Yes, we differ - I think this is poor governance but apparently there are other opinions.
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Post by johntaylor on Mar 14, 2023 13:38:48 GMT
SVB apparently worked with over 1,500 climate/sustainability clients such as community solar.
Perhaps SVB was deemed critical because such startups were too trendy to fail -- an update of Reich's 1970 book The Greening of America?
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Post by richardsok on Mar 14, 2023 13:54:03 GMT
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Post by fishingrod on Mar 14, 2023 13:56:36 GMT
I see a rathole coming.
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Post by win1177 on Mar 14, 2023 14:49:06 GMT
I’m not sure that you can call this that Biden “nationalized the banking system”. The Govt. Just guaranteed the deposits above the traditional FDIC limit of $250,000, since many of the deposits at the two banks that were well above the 250K. Just trying to “reassure” traditional people that deposits in the US banking system are “safe”. To “nationalize” the banking system,, the Govt. would in effect “take over” the banks, shareholders would cease to exist, and the Govt. Would “own” the banks, operate them, etc. I think O’Leary was just trying to get “free press”, make a sensationalized statement. A little extreme if you ask me. Win
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Post by steadyeddy on Mar 14, 2023 15:09:07 GMT
O'Leary is the same guy that pumped FTX prior to its demise. Just be careful who we listen to.
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Post by Norbert on Mar 14, 2023 15:22:33 GMT
Treasury Secretary Janet Yellen said Sunday there will be no “bailout” for SVB, but she is indulging in semantics. The feds said they will guarantee even uninsured deposits at SVB as well as at Signature Bank in New York. Typically in a bank failure those depositors would get their money back with a 15% to 20% haircut. This would no doubt be a hardship for many customers, but the $250,000 limit was known.
Will a universal uninsured deposit guarantee be next? This would be a monumental policy surrender, essentially admitting that the regulatory machinery established in 2010 by Dodd-Frank failed. We may be the only people in the world who still worry about “moral hazard.” But a nationwide guarantee for uninsured deposits, even for a limited time, means this will become the default policy any time there is a financial panic.
There’s also a question of the legality of such a guarantee. The FDIC created a “transaction account guarantee” program amid the 2008 panic, but Congress explicitly let it expire in Dodd-Frank. Congress set the $250,000 insured limit to protect average Americans, not venture investors in Silicon Valley.
The FDIC may have resorted to its “systemic risk exception” for SVB and Signature, but this is a stretch considering their size. The joint statement by regulators said it received the required two-thirds vote of both the FDIC and Fed boards, and we’d like to see the creative legal work by the Office of Legal Counsel at the Justice Department.
The Fed is acting as it should as a provider of liquidity to all comers. But it’s going further and offering one-year loans to banks against collateral of Treasurys and other fixed-income assets. The Fed will value these assets at par, which means banks don’t have to sell their assets at a loss. The Fed is essentially guaranteeing bank assets that are taking losses because banks took duration risk that Fed policies encouraged. This too is a bailout.
-----
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the Treasury Department, the F.D.I.C., and the Federal Reserve said in a joint statement on Sunday. On Monday morning, President Biden repeated this message and added: “I am firmly committed to holding those responsible for this mess fully accountable.”
As far as the executives and shareholders of S.V.B. and Signature go, the Administration is on firm ground: taxpayers aren’t bailing them out. In closing down S.V.B., which was a big lender to tech companies, the F.D.I.C. promised to remove its top management, wiped out its shareholders, and created a new legal entity, the Deposit Insurance National Bank of Santa Clara (D.I.N.B.), to take over operations pending a possible sale. (Similar treatment was meted out to Signature.) Still, some individuals and businesses clearly benefitted from the government’s emergency intervention: S.V.B. and Signature customers with deposits that exceeded the quarter-million-dollar limit for insurance. “When you have people who were going to take losses and now they are not, they are being bailed out by somebody,” Morgan Ricks, a law professor at Vanderbilt University who previously worked at the Treasury Department, told me on Sunday night. “They have been making a lot of noise to be made whole, and now they are made whole.”
According to the joint statement, “any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.” This suggests that the ultimate cost, which at this stage is highly uncertain, will likely be borne by customers and shareholders at other banks. But, even if taxpayers aren’t directly on the hook for losses at S.V.B. and Signature, the actions taken raise larger questions about the financial sector and the favorable treatment it receives from the federal government, including implicit financial assurances that tend to become explicit guarantees during moments of crisis like this.
These questions were raised fifteen years ago, during the great financial crisis, when Congress bailed out the big banks and the Federal Reserve introduced a number of emergency-lending programs to stabilize the financial system. Essentially, taxpayers provided the banks with a much needed injection of capital, and the Fed agreed to allow these institutions to park some of their impaired assets in the central bank as collateral for cash loans. The reforms introduced under the Dodd-Frank Act of 2010 were meant to prevent such measures from being necessary. But, as part of Sunday’s rescue plan, the Fed launched a new lending vehicle, the Bank Term Funding Program, with Treasury backing, which will accept banks’ impaired assets as collateral at par value, thereby enabling them to avoid having to sell the assets at a loss, which was what happened to S.V.B. Evidently, the Fed believes that this move was necessary to defuse a potentially major problem: many banks are sitting on large holdings of Treasury bonds and other assets that have declined sharply in market value since it started raising interest rates. But the 2010 reforms were meant to prevent an intervention on this scale from happening.
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Post by newtecher on Mar 14, 2023 15:35:13 GMT
The Fed is acting as it should as a provider of liquidity to all comers. But it’s going further and offering one-year loans to banks against collateral of Treasurys and other fixed-income assets. The Fed will value these assets at par, which means banks don’t have to sell their assets at a loss. The Fed is essentially guaranteeing bank assets that are taking losses because banks took duration risk that Fed policies encouraged. This too is a bailout.
Hyperbole. If you want to go that far, then the accounting rules allowing banks to carry bonds at par on the balance sheet (HTM, held to maturity) rather than marked to market (AFS, available for sale) is also a bank bailout. Except this "bailout" has been going on forever.
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Post by archer on Mar 14, 2023 15:43:47 GMT
I've been following the news on SVB, but, I am missing the basics. What did they actually do that is questionable? Banks make loans to people, (risky investment), and they make money on the interest. They pay interest to depositors, (part of their operating costs). They invest capital in cash equivalents ((in their case long term bonds)(usually considered minor risk)). What should they have done differently that would be more responsible, and in keeping with standard banking practice?
In 2008 bank failure causes were more obvious. Banks gave loans to people without the means to pay them to invest in an overvalued housing market. SVBs failure seems less clear cut.
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Post by richardsok on Mar 14, 2023 16:01:36 GMT
I've been following the news on SVB, but, I am missing the basics. What did they actually do that is questionable? Banks make loans to people, (risky investment), and they make money on the interest. They pay interest to depositors, (part of their operating costs). They invest capital in cash equivalents ((in their case long term bonds)(usually considered minor risk)). What should they have done differently that would be more responsible, and in keeping with standard banking practice? In 2008 bank failure causes were more obvious. Banks gave loans to people without the means to pay them to invest in an overvalued housing market. SVBs failure seems less clear cut. Here's the short answer.... "No one at the bank perceived any risk from the Fed raising interest rates."The bank was involved in all all manner of speculative crypto and techy start-up ventures, all handled by incompetent managers. ----------------. From today's WSJ .... "....the bank put some of this new capital into higher-yielding long-term government bonds and $80 billion into 10-year mortgage-backed securities paying 1.5% instead of short-term Treasurys paying 0.25%. This was mistake No. 1. SVB reached for yield, just as Bear Stearns and Lehman Brothers did in the 2000s. With few loans, these investments were the bank’s profit center. SVB got caught with its pants down as interest rates went up. Everyone, except SVB management it seems, knew interest rates were heading up. Federal Reserve Chairman Jerome Powell has been shouting this from the mountain tops. Yet SVB froze and kept business as usual, borrowing short-term from depositors and lending long-term, without any interest-rate hedging. The bear market started in January 2022, 14 months ago. Surely it shouldn’t have taken more than a year for management at SVB to figure out that credit would tighten and the IPO market would dry up. Or that companies would need to spend money on salaries and cloud services. Nope, and that was mistake No. 2. SVB misread its customers’ cash needs. Risk management seemed to be an afterthought. The bank didn’t even have a chief risk officer for eight months last year. CEO Greg Becker sat on the risk committee. As customers asked for their money, SVB had to sell $21 billion in underwater longer-term assets, with an average interest rate around 1.8%. The bank lost $1.8 billion on the sale... The loss flagged that something was wrong. Venture capitalists, including Peter Thiel, suggested that companies ... should withdraw their money and put it somewhere safer. On Thursday the dam broke and there was no way to cover billions in withdrawal requests. Mistake No. 3 was not quickly selling equity to cover losses. The first rule of survival is to keep selling equity until investors or depositors no longer fear bankruptcy. Private-equity firm General Atlantic apparently made an offer to buy $500 million of the bank’s common stock. Friday morning. --------------------------- Archie .... Were YOU loading up on long term treasurys last year? SVB was.
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Post by Norbert on Mar 14, 2023 16:25:33 GMT
richardsok, Right. They loaded up on the long bond and didn't hedge the rate exposure. What were they thinking? Sure, there's no credit risk, but there's huge short-term interest rate risk. They couldn't hold the bonds to maturity because of customer demand. This is so obvious that I figure we must be missing something.
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Post by johntaylor on Mar 14, 2023 16:36:51 GMT
Puzzling because Mary Miller was on the board. Although her grad school was in urban planning, she headed fixed income at T. Rowe Price.
Although she was politicized (Obama appointee at Treasury), she had bond background.
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Post by retiredat48 on Mar 14, 2023 18:17:54 GMT
Thanks for video. I tend to agree generally with O Leary. If the gvt becomes the ultimate backstop/guarantor of depositors, then the gvt will surely put more regulations in place to assure money is not lost. Dodd Frank did this to a degree. Note that JP Morgan turned down all the startup companies requesting early funding...too risky...gotta meet Dodd Frank rules. That is, JP Morgan is the lender than can get highest quality loans, as it is "too big to fail" bank. The commodity of banks. 3-6-3 rule: Pay 3% to depositors, loan out at 6% and be on the golf course by 3 PM! It is sure as can be that if all depositors are insured, then some regional, small bank managers will stretch things to the limit of lending to zombie companies at high rates. After all, why not. May have high bank earnings for a few years until go bust. We will have gvt defining loans to oil companies (that ESG thing) as undesirable; gvt will be defining bank board makeups...like two women, two people of color, etc to be on bank boards, as a minimum (the California rule)...credentials do not matter; they will mandate a certain percentage of bank loans be via holding treasury bonds, at a time the country may need a bailout from poor treasury bond valuations...etc. Standby. And as for me...Me, and richardsok and uncleharley will start a bank with one share each, AND we will deposit $100,000 each, and invest in risky junk bonds and PDI. And if we lose money, simply declare bankruptcy, take a 100% loss on our one share, and get reimbursed via the 100% FDIC depositor insurance guarantee! A new way to bank! R48
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Post by newtecher on Mar 14, 2023 18:48:05 GMT
And as for me...Me, and richardsok and uncleharley will start a bank with one share each, AND we will deposit $100,000 each, and invest in risky junk bonds and PDI. And if we lose money, simply declare bankruptcy, take a 100% loss on our one share, and get reimbursed via the 100% FDIC depositor insurance guarantee! A new way to bank! R48 R48, I am sure you know the difference between the equity needed to start a bank and the FDIC-insured deposits. So why are you insisting on conflating different balance sheet items in all of your examples? It is not helpful for the discussion.
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Post by retiredat48 on Mar 14, 2023 18:55:56 GMT
There's all this talk by the President et al that there is no public money being used, as the FDIC insurance will pay things, even for non-insured depositors. I see it differently. This is the use of "public money." Let me explain with an analogy. Consider FLOOD INSURANCE. The fed provides voluntary flood insurance home policies to people across the USA. Sometimes even insuring absurd homes, located in extreme risk areas. Let's say 50% of population buys such insurance. And a lot of smug millionaires pass on the flood insurance, deciding to self insure...or simply risk it. They pay nothing for years. Comes a time a major flood occurs in one area of the country. The fed dusts off its policies and pays the insurers their due. But wait, the fed/and president/and regulators want to pay off (make whole) everyone, even the uninsured. They take from the insurance pool kitty, enough to pay off all these uninsured homeowners. Clearly, such money is coming from gvt holdings...from reserves meant to help insure all USA flood policy holders. To make this "policy" permanent requires all homeowners to pay insurance (perhaps at increased costs), or live with the "moral hazzard" that what you are doing is unfair to many. Ditto for bank failures. "Making whole" uninsured depositors is doing what the flood insurance analogy did. A moral hazzard...as a minimum. And a host of many other unintended consequences. R48 Your analogy will/would have merit IF, in this particular case, monies that do not emanate from FDIC insurance premiums, are eventually used to make irresponsible actors "whole". Or mitigate acceptable risk. I am not entirely certain that it is an apt analogy though. I wouldn't pay $1 to "bail out" people who bought coastal properties in hurricane zones and did not buy flood insurance. They eagerly put heir hands out for the money annually. All indications are that it is only going to get worse. To be fair though, the insurance situation in places like this is a bit more complicated. What would a rational insurer have to charge to cover the $50-65 billion in insured costs brought about by hurricane Ian. R48 reply in bold: Simple. Florida residents are paying what a rational insurer would charge via its current yr 2023 insurance policy payment.And what is the cost of not rebuilding at all? How long before it becomes a "Puerto Rico" type of situation? You are perhaps unaware that these FL residents who lost their home, are getting whole; and many making huge profits. The land is extremely valuable and being sold to Condo builders, and those wishing to build new single family homes. Turns out most homes that were built to new standards of first floor raised at least 12 feet above ocean levels, with open garage type areas, survived. New construction will meet those standards. Condo builders can't get enough of the land they desire.
And when/if the de facto leader of such a place become a top federal decision maker, does a virtual firehose of (moral hazard) funding ensue? A non-stop torrent of subsidy for all residents? Kinda a political statement, no.
Certain folks in that area talk about "divorcing" from the U.S.A. Like that is some sort of panacea, or that we will all be sorry. My thinking is, "how soon can we make that happen"? I am 100% serious here. I would like nothing more than watch as they find themselves unburdened and free to live their best lives. I would go so far as to say that anything less than giving them their freedom is unconscionable. Another political statement. Just let the record show that 1150 people a DAY move to Florida...many from NY/NJ areas...not the other way around. Must be something desirable here.
Final note to theycallmenobody,: I try not to be political in my postings. At times can't help but cite the source as "The President", when he is the one who said: "there will be no taxpayer monies used", the subject of our current discussion. But to me at least, you have clearly crossed over to making political statements, and assertions. Clear "we-they" sentiments. As such, I will not reply any more on this topic or to your posts generally, and that should resolve these matters for the future as well. Best wishes...
R48 in bold.
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Post by liftlock on Mar 14, 2023 19:00:59 GMT
I've been following the news on SVB, but, I am missing the basics. What did they actually do that is questionable? Here is an insightful post by Barry Ritholtz on the matter. images.mauldineconomics.com/uploads/pdf/20230314_OMS_SBV-Ritholtz.pdfThe suggestion that regulators allow banks to mark Treasury bonds to par at maturity, rather to current market prices, illustrates how easy it can be to overlook risks in the regulated banking industry. Not mentioned by Ritholz is the question of whether there is adequate liquidity in the bond market. Before the great financial crisis, banks were big market makers in bonds. It is not clear to me what has happened since then. My impression is that regulators forced the big money center banks to curtail their bond market making activities, greatly reducing the liquidity in bonds. I don't know that for a fact.
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Post by bobfl on Mar 14, 2023 20:35:15 GMT
My impression is that regulators forced the big money center banks to curtail their bond market making activities, greatly reducing the liquidity in bonds. I don't know that for a fact. Would be ironic if bank failures resulted from Treasuries. Fact is every credit investment shows loss if you bought it at the peak (near zero Fed Rate) and it goes bottom in price as the Fed raises rates. Always does. Each instrument has to go down to reflect the current yield for a similar, newly released instrument (bond, loan etc.) When the Fed stops raising rates, credit reverses, prices go back up, if it is quality. But investors know that and are forward looking. So the best deals are at panic points. That is why my Number One rule since 2008 has been, if you own credit and you hear "inflation is heating up " get the hell out of the credit market and buy back in when the credit market crashes. The head scratching moment was when one credit analyst said, "How could we know credit (debt) would drop?" Because that's what it does.
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Post by johnsmith on Mar 14, 2023 23:04:50 GMT
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Post by johnsmith on Mar 14, 2023 23:11:23 GMT
And as for me...Me, and richardsok and uncleharley will start a bank with one share each, AND we will deposit $100,000 each, and invest in risky junk bonds and PDI. And if we lose money, simply declare bankruptcy, take a 100% loss on our one share, and get reimbursed via the 100% FDIC depositor insurance guarantee! A new way to bank! R48 R48, I am sure you know the difference between the equity needed to start a bank and the FDIC-insured deposits. So why are you insisting on conflating different balance sheet items in all of your examples? It is not helpful for the discussion. they aren't conflating different items.
I could be wrong, though what I think is that they are trying to show - privatised profits - publc losses.
3 shares at $1 each
Deposit $100K
buy junk bonds / PDI get a 13% return. if bank fails (junk bonds/PDI go bust etc)
the depositers get their $100K back aka the owners
It's actually a great example. Bravo!
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Post by newtecher on Mar 14, 2023 23:16:19 GMT
R48, I am sure you know the difference between the equity needed to start a bank and the FDIC-insured deposits. So why are you insisting on conflating different balance sheet items in all of your examples? It is not helpful for the discussion. they aren't conflating different items.
I could be wrong, though what I think is that they are trying to show - privatised profits - publc losses.
3 shares at $1 each
Deposit $100K
buy junk bonds / PDI get a 13% return. if bank fails (junk bonds/PDI go bust etc)
the depositers get their $100K back aka the owners
It's actually a great example. Bravo!
How about putting 10-15k as equity first (which is what banks normally have for 100k in assets)? And then be ready to lose all equity if it goes bust. The depositors will get their money back, but the shareholder lose everything.
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Post by Capital on Mar 14, 2023 23:19:32 GMT
How to Start a Bank - Just for fun you might to take a gander. What do you think about this one LOL? Capital Bank capitalbank.com
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Post by johntaylor on Mar 15, 2023 0:53:45 GMT
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Post by richardsok on Mar 15, 2023 1:03:43 GMT
My take -- underlying a lot of the public interest in the bank's demise is the impression management was more focused on liberal virtue-signaling, BLM, carbon footprints, DEI than on running a bank. For instance, we learn from The Daily Mail only ONE board member had actual experience in investment banking -- evidently the rest were high level Democrat supporters and woke cheerleader types. Without the political angle, I'd bet there wouldn't be half the interest. Heck, I never even heard of SVB until it failed. (I love the Daily Mail. You get perspectives (left and right) never covered in US newspapers.) www.dailymail.co.uk/news/article-11859379/Only-ONE-member-failed-SVBs-board-experience-investment-banking.html
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Post by johnsmith on Mar 15, 2023 1:07:38 GMT
doesn't change a thing.
private profits public losses
as the OP was demonstrating.
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Post by gman57 on Mar 15, 2023 1:18:09 GMT
My take -- underlying a lot of the public interest in the bank's demise is the impression management was more focused on liberal virtue-signaling, BLM, carbon footprints, DEI than on running a bank. For instance, we learn from The Daily Mail only ONE board member had actual experience in investment banking -- evidently the rest were high level Democrat supporters and woke cheerleader types. Without the political angle, I'd bet there wouldn't be half the interest. Heck, I never even heard of SVB until it failed. (I love the Daily Mail. You get perspectives (left and right) never covered in US newspapers.) www.dailymail.co.uk/news/article-11859379/Only-ONE-member-failed-SVBs-board-experience-investment-banking.htmlYeah.... but what does a board really do. Do they run the day to day business? No. To me boards seem to be a good ole boys club. I'll be on your board and you be on my board. We'll both get paid a lot of money and then a bunch more for travel etc... when we actually have a meeting. They are supposed to be looking out for their shareholders but didn't do such a great job at SVB. They are elected by shareholders so maybe the shareholders didn't do their job?
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Post by bizman on Mar 15, 2023 1:29:33 GMT
richardsok , Right. They loaded up on the long bond and didn't hedge the rate exposure. What were they thinking? Sure, there's no credit risk, but there's huge short-term interest rate risk. They couldn't hold the bonds to maturity because of customer demand. This is so obvious that I figure we must be missing something. Having some experience in banking, on a much smaller scale, I remember something Charlie Munger said in an interview once. He was talking about what happened to his family members during the Great Depression and he recalled an uncle who managed a tiny bank that failed. Charlie said "he was a lovely man, but he was an optimist. A banker should not be an optimist." I have occasionally observed bank operators who grew like crazy and knew no fear. Usually, these are people who missed out on the busts (like the 80's farm crisis in Iowa). As in all fields, if you hit the long cycles right and take tons of risk, you can get really big and really rich. But the people who operate banks like that only give lip service to risk management. And the number of people who can recognize they have been really lucky on timing and should change their spots and become cautious after a great run throwing caution to the wind rounds to zero. I have watched a few of these folks do round trips over the years and give it all back during the busts. Making it big and keeping it are 2 different skill sets. Few people have the self awareness to change their spots. And if someone has been that successful for 10 or 20 years and made those around him rich, who is going to tell him he's doing it wrong? In the real world, not many. And if someone did, they wouldn't listen because they think they have been geniuses and not just really lucky on their timing. A tale as old as time.
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Post by newtecher on Mar 15, 2023 2:03:22 GMT
doesn't change a thing.
private profits public losses
as the OP was demonstrating.
Nope. Private profits and losses. If you lost everything you invested to start a bank, the losses are not socialized. That is not an attractive proposition anymore.
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Post by johnsmith on Mar 15, 2023 10:41:21 GMT
doesn't change a thing.
private profits public losses
as the OP was demonstrating.
Nope. Private profits and losses. If you lost everything you invested to start a bank, the losses are not socialized. That is not an attractive proposition anymore. really?
So you run a private bank for 10 years with 15% in equity. (From what I have heard, banks, the really good ones run on around 10% equity, during the GFC, they were running on a thin 3% equity)
you invest in junk bonds and make 10% return every year. (I don't know what bank profitability is generally, I'm sure it's way less as they usually invest in treasuries.)
After 10 years of super profits. the owners, in the example, who are also depositors, get all their money back, except for their equity investment.
They deliberately took extra risk, to make extra profits, because they knew that their deposits would be 100% backed by the public.
how is that not :
private profits (the public did not share in all those years of super profits)
public losses (the public ponied up to make depositors 100%)
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