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Invisiblesudly
Darwin's stagger

Registered: 01/05/15
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Re: Two Wings of the Same Bird [Re: Kryptos]
    #28262481 - 04/04/23 05:36 PM (9 months, 19 days ago)

Had they been liquidity tested, they may not had have to do a fire sale for the long term bonds, they took the risk of not selling them off earlier. 

Quote:

Silicon Valley Bank locked billions of dollars away into 10 year bonds. But there were risks it wasn't seeing.

Risk #1: Access. Those billions were now locked up for years. It wouldn't be easy to get that money in an emergency.

Risk #2: Interest rates. When interest rates started going up, the market value of Silicon Valley Bank's bonds went down.

That's because the bank bought its government bonds before interest rates started going up. The price you get from bonds is directly tied to interest rates. When interest rates go up, the market price of older bonds goes down because new bonds pay out higher interest rates.

When rates started climbing quickly, the price of Silicon Valley Bank's bonds tumbled.

Risk #3: Really, really rich customers. When rumors started up about the bank, customers panicked and and started pulling their money out. Because they were rich individuals and companies, that meant multi-million, even multi-billion dollar accounts cashing out all at once.

Silicon Valley Bank needed a lot of cash fast. But, of course, a lot of its cash was locked up in 10 year bonds. Now it had to try and sell those now to get cash.

Government Bond Fire Sale

That's where the interest rate risk bit Silicon Valley Bank: Trying sell those second hand, low interest rate bonds at a moment when all the new bonds being issued paid out far more was not easy.

"Now, that same bond and the yield would be about 20 times higher," says Mark Williams. "So, to encourage investors to even think about your old bond, you would have to discount it."

Discount as in, a fire sale.

Silicon Valley Bank took huge losses selling off its bonds, and more investors panicked and pulled out their money. Williams says it was a bank run on a scale the U.S. hadn't seen since the Great Depression.

"In a single day last week, depositors knocked on the door and pulled 41 billion depositor dollars out," says Williams. "That's about a quarter of their total deposits. No bank, no matter how strong, could ever survive that sort of withdrawal... that sort of run on the bank

https://www.npr.org/2023/03/19/1164531413/bank-fail-how-government-bonds-turned-toxic-for-silicon-valley-bank




The risks they took were mismanagement and a gamble for a bigger payout that didn't work out.


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InvisibleballsalsaMDiscord
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Re: Two Wings of the Same Bird [Re: sudly]
    #28262491 - 04/04/23 05:43 PM (9 months, 19 days ago)

Look at the last line there in your quoted excerpt
Quote:

No bank, no matter how strong, could ever survive that sort of withdrawal... that sort of run on the bank




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Invisiblesudly
Darwin's stagger

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Re: Two Wings of the Same Bird [Re: ballsalsa]
    #28262537 - 04/04/23 06:18 PM (9 months, 19 days ago)

Quote:

ballsalsa said:
Look at the last line there in your quoted excerpt
Quote:

No bank, no matter how strong, could ever survive that sort of withdrawal... that sort of run on the bank







SVB didn't have enough diversity from their funding sources, which is the kind of mismanagement that puts a bank like SVB at risk if things change, like they did.

They put too many of their eggs in one basket, and lobbied to deregulate their own stress testing. They relied on long term bonds that were susceptible to interest hikes and didn't act as soon as they could have. 

Quote:

Another common theme in financial accidents is bad management. For example, in the early 1990s in the savings and loan crisis it was poor asset-liability management. The GFC was caused by many parties failing to adequately perform their roles in the mortgage finance process—appraisers, rating agencies, mortgage underwriters, financial engineers, regulators. It is clear to everyone now that SVB’s business strategy left it relying on a deposit base concentrated in a relatively homogeneous type of commercial customer. This lack of diversified funding sources was compounded by SVB’s portfolio asset allocations. Treasurys and Agencies might not carry credit risk, but they are exposed to market risk that has hit like a sledgehammer during the Fed’s aggressive 450 basis points of rate hikes over the past year.

https://www.guggenheiminvestments.com/perspectives/portfolio-strategy/svb-replays-ugly-consequences-of-disintermediation




If they had diversified their funding sources, this may have played out differently.


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: ballsalsa]
    #28262540 - 04/04/23 06:20 PM (9 months, 19 days ago)

To paraphrase:

Risk 1: SVB recognized that half their customers were gambling, and took out loans that were incredibly safe, and therefore, not easily liquefied.

Risk 2: SVB recognized that interest rates only went in one direction for 40 years, and they assumed that would remain the case, as did literally everybody.

Risk 3: A bunch of rich SV tech bros did a bank run because they were all so smart they saw the failure first and withdrew their money en masse. A panic that is entirely unpreventable without collapsing banking as a concept, much less a system.


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: sudly]
    #28262543 - 04/04/23 06:22 PM (9 months, 19 days ago)

Quote:

sudly said:
SVB didn't have enough diversity from their funding sources,




In other words, their customers were all the same. Are you blaming SVB for not attracting diverse enough customers?

Is a business responsible for the demographics of their customer base, and should a business be punished if their customer base isn't diverse enough?


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: Kryptos]
    #28262550 - 04/04/23 06:26 PM (9 months, 19 days ago)

Go back and focus on the lack of stress test. Raising the threshold from 50B to 250B is the only reason that SVB collapsed swo publicly, if they had undergone a stress test they likely would have branched out into more risky investments, and that probably would have saved the bank. Unless the bank run still happened, banks are fundamentally not capable of surviving a bank run.


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InvisibleballsalsaMDiscord
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Re: Two Wings of the Same Bird [Re: Kryptos]
    #28262551 - 04/04/23 06:26 PM (9 months, 19 days ago)

That's a good point though.  If they had acquired or developed a regional retail banking arm they could have offset some of those withdrawals with the deposits of hapless Joe Blows putting their paychecks in on Friday.  Weren't they only insolvent by like, 1 billion?


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: ballsalsa] * 2
    #28262558 - 04/04/23 06:28 PM (9 months, 19 days ago)

hell, crypto speculation would have given them access to musketeer lolcash, probably on margin, to cover the difference.


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Invisiblesudly
Darwin's stagger

Registered: 01/05/15
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Re: Two Wings of the Same Bird [Re: Kryptos]
    #28262816 - 04/04/23 09:11 PM (9 months, 19 days ago)

Quote:

Kryptos said:
Quote:

sudly said:
SVB didn't have enough diversity from their funding sources,




In other words, their customers were all the same. Are you blaming SVB for not attracting diverse enough customers?

Is a business responsible for the demographics of their customer base, and should a business be punished if their customer base isn't diverse enough?




They're responsible for how they invest.

Quote:

What Is a Diversified Fund?

A diversified fund is an investment fund that is broadly invested across multiple market sectors, assets, and/or geographic regions. It holds a breadth of securities, often in multiple asset classes. Its broad market diversification helps to prevent idiosyncratic events in one area from affecting an entire portfolio.

Diversified funds refer to pooled investments that build portfolios across several asset classes, regions, and/or industry sectors.

Diversification is a key investment strategy for reducing systematic risk in a portfolio while maintaining levels of expected return.

Diversified funds can range in focus from passive indexed funds that replicate broad indices to actively managed funds that invest broadly.

Overall, diversified funds are mindful of both unsystematic and systematic risks. They seek to mitigate these risks through their broad diversification. Since unsystematic risks are often sector-specific they can be alleviated by multi-sector investing. Funds broadly diversified across regions may also be able to manage against some market-wide systematic risks that are inherent to a particular country or region.

https://www.investopedia.com/terms/d/diversifiedfund.asp




I did mention and do agree the increased threshold from 50b to 250b was also an issue.


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: sudly]
    #28262854 - 04/04/23 09:33 PM (9 months, 19 days ago)

So...your argument is that SVB should have been more reckless with investor money? Yes, I agree, in hindsight that would have been the correct course of action.


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Invisiblesudly
Darwin's stagger

Registered: 01/05/15
Posts: 10,789
Re: Two Wings of the Same Bird [Re: Kryptos]
    #28262892 - 04/04/23 10:26 PM (9 months, 18 days ago)

It astounds me how you came to that conclusion, but whatever floats your goat man.

I think they were already plenty reckless, and having some more diversity in what they were investing in could have mitigated the risks of having too many eggs in one basket.


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: sudly]
    #28262897 - 04/04/23 10:42 PM (9 months, 18 days ago)

Again, I reiterate. Their eggs were in T bonds. That is the basket that makes up the backbone of the global economy.


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Invisiblesudly
Darwin's stagger

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Posts: 10,789
Re: Two Wings of the Same Bird [Re: Kryptos]
    #28262927 - 04/04/23 11:21 PM (9 months, 18 days ago)

And that basket of long term 10 year government bonds were susceptible to changing interest rates.

Maybe they didn't think interest rates would change like they did, but that's one of the risks they took, and they didn't have the diversification to outlast it, or the balance of liquidity to survive it.

SVB wasn't as prepared as they could have been and I think that's the point.

And if you think being woke had anything to do with it you can define what you think woke means.


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Edited by sudly (04/04/23 11:31 PM)


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Offlinelifeiswhatyoumake
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Re: Two Wings of the Same Bird [Re: 336]
    #28267000 - 04/07/23 02:17 PM (9 months, 16 days ago)

Quote:

336 said:
tbh to me it seems both the left and right want a dictator. so long as the dictator is of their political ideology... which isn't good for any of us when you extrapolate what ends up happening in such situations.





Nope.
Where did you get the idea from that the Democrats want a dictator?  Seriously.


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Invisiblesudly
Darwin's stagger

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Re: Two Wings of the Same Bird [Re: lifeiswhatyoumake]
    #28267119 - 04/07/23 03:39 PM (9 months, 16 days ago)

I got the idea they want to maintain the effective Oligarchy the US is in from their historical trends of legislatively favouring corporate profits over human welfare.


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OfflineKryptos
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Re: Two Wings of the Same Bird [Re: lifeiswhatyoumake]
    #28267142 - 04/07/23 03:57 PM (9 months, 16 days ago)

That's not even remotely close to a dictator.

Quote:

lifeiswhatyoumake said:
Quote:

336 said:
tbh to me it seems both the left and right want a dictator. so long as the dictator is of their political ideology... which isn't good for any of us when you extrapolate what ends up happening in such situations.





Nope.
Where did you get the idea from that the Democrats want a dictator?  Seriously.




OP is an enlightened centrist/republican who doesn't want to admit they're republican.

Like the No Labels party. They insist that they're not trying to run a pro-GOP spoiler campaign...but their own internal polling shows Trump winning with 33% to Biden's 28% after their party takes 20%. And they keep calling both Trump and Biden "far right/left" extremists, and claim that they will provide a sensible and moderate alternative...to Biden. The guy that keeps asking republicans for permission to take a shit.


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Invisiblesudly
Darwin's stagger

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Posts: 10,789
Re: Two Wings of the Same Bird [Re: Kryptos] * 1
    #28267164 - 04/07/23 04:09 PM (9 months, 16 days ago)

Yknow, members of all parties, or independents alike, can recognise there is currently a system of governence that has a lot of room for improvement with things like universal healthcare that woukd save the US economy $5 trillion over 10 years. I also think members of all groups can see that there are a set of representative elites that don't effectively represent their constituencies.

If anyone is trying to make a statement that Biden is anywhere left of centre or comparative to Bernie Sanders in a meaningful and legislative way, then it's imperative for them to be able to point to one progressive policy decision they have implemented that is the same.

Biden ran on wanting a public option for healthcare, but has hasn't represented his constituency in that regard yet.

He spoke favourably of a public option, and hasn't entertained the idea seriously since.


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Edited by sudly (04/07/23 04:17 PM)


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InvisibleballsalsaMDiscord
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Re: Two Wings of the Same Bird [Re: sudly]
    #28267237 - 04/07/23 04:53 PM (9 months, 16 days ago)

And won't


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OfflineThe Ecstatic
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Re: Two Wings of the Same Bird [Re: sudly] * 1
    #28268282 - 04/08/23 07:45 AM (9 months, 15 days ago)

Quote:

sudly said:
Yknow, members of all parties, or independents alike, can recognise there is currently a system of governence that has a lot of room for improvement with things like universal healthcare that woukd save the US economy $5 trillion over 10 years. I also think members of all groups can see that there are a set of representative elites that don't effectively represent their constituencies.

If anyone is trying to make a statement that Biden is anywhere left of centre or comparative to Bernie Sanders in a meaningful and legislative way, then it's imperative for them to be able to point to one progressive policy decision they have implemented that is the same.

Biden ran on wanting a public option for healthcare, but has hasn't represented his constituency in that regard yet.

He spoke favourably of a public option, and hasn't entertained the idea seriously since.




You have to understand that Biden ran on VETOING universal healthcare, and then coincidentally won the democratic primary.

Floating a public option at this point is saying “we need to take another look at marijuana” or “we need to act on climate change.” It’s something you never intend on actually doing but you have to say something about so the critics to your left can’t say “Biden wants to maintain the status quo on healthcare!” Because now some koods-esque figure can say “that’s Russian disinformation! Biden has called for a public option! He’s practically a socialist on healthcare!”


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Invisiblesudly
Darwin's stagger

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Re: Two Wings of the Same Bird [Re: The Ecstatic] * 1
    #28268834 - 04/08/23 04:08 PM (9 months, 15 days ago)

Biden's base wants universal healthcare yo.

Oooh scary socialism! What are firetrucks and roads anyway?

There are blendable options of good ideas from capitalism and socialism.

Biden is a neo-liberal corporatist and his voting record espouses that blatantly.

Duck Joe Biden for spewing bull through his shit eating grin for votes, and I hope some day we find someone who will represent the constituency that voted them in on a more federal scale.


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