[HN Gopher] The Collapse of SVB Exposes the Largest Crack in the...
       ___________________________________________________________________
        
       The Collapse of SVB Exposes the Largest Crack in the Economy
        
       Author : brockwhittaker
       Score  : 90 points
       Date   : 2023-03-10 21:09 UTC (1 hours ago)
        
 (HTM) web link (www.brooock.com)
 (TXT) w3m dump (www.brooock.com)
        
       | m348e912 wrote:
       | https://twitter.com/DavidSacks/status/1634292056821764099
       | 
       | Looking at the comments here, it's possible that this may trigger
       | a run on banks.
        
         | happytoexplain wrote:
         | I don't use Twitter. The Tweets I see when I click this link
         | are 80% political shitflinging from one side of US politics
         | (even the _replies_ to each one are 100% one-sided), and 20%
         | non-political. Why?
        
           | danielheath wrote:
           | Because that's estimated to maximise the chance of you
           | signing up?
        
           | quickthrowman wrote:
           | Twitter attempts to manipulate your emotions by showing you
           | controversial things to keep you looking at ads as long as
           | possible, just like every other social media company.
        
         | spamizbad wrote:
         | Sorry, but the systemic risk here is vastly overstated. Yes,
         | this will be painful to the tech sector but they made some
         | truly awful decisions and have to pay the piper.
         | 
         | We should also consider the moral hazard at play here. How are
         | future tech CEO's going to go into work every day and
         | completely crush it 200% if they know that the government will
         | bail them out if their monkey jpeg startup fails? A bailout
         | will only breed lazy entrepreneurs, taking hard-earned tax
         | dollars away from America's job-doers.
        
           | yieldcrv wrote:
           | all I'm seeing is that the monkey jpeg startup just needs to
           | never take VC capital from Andreesen Horowitz and then won't
           | be tied to using that one bank
           | 
           | just stick with selling directly to collectors and you
           | already have enough money
        
           | 7speter wrote:
           | Dunno if you're being intentionally tongue in cheek, but a
           | monkey jpeg startup is pretty lazy/scammy/bs-y
        
             | arcanemachiner wrote:
             | I believe it is a reference to the NFT craze.
             | 
             | So, yes to all 3.
        
         | tekla wrote:
         | There is no evidence of this
        
         | bagels wrote:
         | I don't think the statement is completely misplaced as other
         | comments on this thread indicate. Everyone has to be wondering
         | if their bank is next. Just an anecdote, but, I'm sitting here
         | wondering if I should sell the bank bonds I bought because the
         | counterparty risk just skyrocketed. It doesn't take much to get
         | the snowball going.
        
         | dragontamer wrote:
         | Why?
         | 
         | My money at VMFXX is almost entirely composed of safe Fed Repos
         | with average maturity of 2-weeks. VUSXX is mostly Treasury
         | Bills, again of maturity averaging like 2-weeks. My money at
         | SWVXX is composed of AAA-rated bank notes, of similar 2-weeks-
         | ish maturity average.
         | 
         | The idea of a bank, like SIVB, being composed of largely
         | 30-year mortgages and 10Y or 30Y Treasury Bonds is insane. The
         | bank deserves to die after taking such high duration risks.
         | There should be _NO_ bailout. I can barely believe a bank was
         | so stupid to keep customer deposits backed by something so
         | risky.
         | 
         | ----------
         | 
         | We've been preparing our financial system for the last 15 years
         | (since 2008) for the next financial storm. We've got "stress
         | tests" to see that various banks have severed contamination
         | between each other, at least in theory. Lets see how good our
         | preparations have held up.
         | 
         | No point giving up and bailing things out before we've even
         | tested our new financial system regulations. We can afford to
         | let some banks go under. Only if the contagion has a chance of
         | spreading everywhere should we consider the last-ditch effort
         | of a bailout.
        
           | qqqwerty wrote:
           | He is suggesting that the Fed/FDIC make depositors whole, not
           | necessarily bail out the bank.
           | 
           | There is a good chance that depositors will be made whole
           | regardless, but even if it does require some intervention it
           | is probably worth it to prevent this from spreading to other
           | banks. There are very valid reasons why certain organizations
           | would need to keep more than $250k in an account, and if
           | everyone of them started transferring their money to a
           | handful of the safest institutions, then things could quickly
           | get out of control.
        
           | cplusplusfellow wrote:
           | I couldn't give two shits about banks that go under. The
           | businesses that concern me are the ones who lose deposits.
        
             | JohnFen wrote:
             | They won't lose deposits except insofar as they decided it
             | was OK to exceed the 250k limit for FDIC insurance. And in
             | deciding to do that, they were deciding to take a risk and
             | got burned by it -- but it was a risk they willingly took
             | on.
        
         | SketchySeaBeast wrote:
         | As a rule let's not use Twitter comments as indicators of
         | anything, but most I see seem to either be enjoying the chaos
         | or confused as to how SVB's bad decisions leading it to fail
         | will lead to other banks failing.
        
         | EwanG wrote:
         | Is that universally a bad thing? Are all US Banks so thinly
         | capitalized that none of them could survive a run? If so, then
         | doesn't that make one question why you'd ever keep money in a
         | Bank in the first place?
         | 
         | I get that the FDIC insurance is supposed to make you whole as
         | long as you have less than $250K in a bank. But then you have
         | to ask if the FDIC can actually cover that for several banks at
         | a time - particularly at a time when the debt ceiling has not
         | been raised and so Treasury can probably ill afford additional
         | unplanned spending.
        
           | dougmwne wrote:
           | What you are talking about here is the financial apocalypse.
           | If a hundred million people all lose the money in their bank
           | accounts, then we go back to the barter system overnight. The
           | thing you will be bartering will likely be seeds and
           | ammunition.
        
           | 7speter wrote:
           | Though I've never connected the dots the way you have, the
           | last time major commercial banks (like WaMu) failed it was
           | because of being caught swapping much riskier assets than
           | this article is pinning the blame of SVB failing for. Also,
           | when it was clear that there was a risk for cascade collapse
           | of major commercial banks, fed leadership and potentially
           | people from the fdic went to congress and told them to stop
           | playing partisan football, and TARP was passed within a week.
           | 
           | If SVB really failed because it misstepped and believed it
           | would make more money off of government bonds and didn't, I
           | don't really see there being a risk of the major banks
           | collapsing. If lots of smaller banks banked on (no pun
           | intended) doing the same thing though...
        
         | lotsofpulp wrote:
         | Did he delete this tweet?
         | 
         | https://twitter.com/TheyCallMeTarz/status/163431641123228877...
        
         | fshbbdssbbgdd wrote:
         | The subtext here is David Sacks and his friends are investors
         | in Silicon Valley companies. Lots of Silicon Valley companies
         | are depositors of SVB and could lose money if there is a
         | haircut on assets over $250k, or at least will lose temporary
         | access to their cash. David Sacks wants SVB to be bailed out by
         | a major bank so those deposits are made good. He's talking
         | about a wider economic impact because that's an argument that
         | such a bailout is necessary for the country, not just local
         | VCs.
        
           | practice9 wrote:
           | > friends
           | 
           | Chamath?
        
           | ohashi wrote:
           | So gambler wants house to cover his losses because his
           | friends and him won't be able to continue gamble if they
           | lose.
        
           | cplusplusfellow wrote:
           | I don't understand the disgust I'm reading for VCs and
           | startups. Bailing out the bank doesn't mean we let the bank
           | CEO get richer off this transaction (like we did in 2008). It
           | means the startup companies making payroll are going to
           | survive and continue building the future of technology and
           | healthcare.
           | 
           | What am I missing?
        
             | sseagull wrote:
             | There's disgust for a few reasons. One is that the wealthy
             | (including VCs) have an undue influence on society and the
             | economy just due to being wealthy. It's always nice to see
             | them take a hit sometimes.
             | 
             | Silicon Valley is "building the future", but at the same
             | time can be very disconnected from the lives of many people
             | around the country. That leads to mistrust and lack of
             | empathy when these kinds of things happen.
        
               | snuxoll wrote:
               | I'll add on an extra layer of disguist: cash management
               | accounts exist. They've existed for a long time. They
               | serve literally to hedge against the risks of bank
               | failures by automatically sweeping funds in them between
               | multiple FDIC member banks to:
               | 
               | 1. Increase the amount of funds covered by FDIC insurance
               | 
               | 2. Reduce the potential for loss of funds by a bank
               | failure
               | 
               | I get that it's a pain in the ass to manage a bunch of
               | accounts, but any business with >$1mm in cash reserves
               | really should have everything but their operational float
               | in a CMA or manually move it around themselves into
               | multiple banks. When I see comments about a startup that
               | had $x million in cash with SVB I have to wonder what the
               | hell the founder and their investors were thinking
               | keeping all of that in a single place.
        
             | yieldcrv wrote:
             | you're not missing anything
             | 
             | its not just government bailout versus nothing. private
             | equity could have come together and tried to shore of the
             | bank in its capital raise, but nobody (not enough) wanted
             | to be first. their own collective risk aversion is their
             | demise. And on the greed front, people totally plan to buy
             | the carcass and firesold assets.
        
             | [deleted]
        
             | morelisp wrote:
             | You're basically saying "it's bad when the capital class
             | being paid off isn't my subset, but very very good when it
             | is my subset."
             | 
             | It's capitalists top to bottom; you all misjudged the risks
             | and now you all get to eat shit basically in direct
             | proportion to how much you misjudged them. Enjoy!
        
             | JohnFen wrote:
             | It means that the bank was gambling, lost, and wants to
             | externalize those losses onto the rest of us who weren't
             | gambling.
        
               | worik wrote:
               | Yes
               | 
               | An alternative is to bankrupt the partners, cancel the
               | shares, then take action for depositors
               | 
               | That is what did not happen in 2008
        
               | drstewart wrote:
               | Funny they in threads about crypto companies failing
               | everyone cries about "this is why we have regulations and
               | safety valves in the financial industry!" but now when
               | these are in force people cry about these safety valves
               | and regulations existing, and how the companies should
               | just be allowed to fail
        
           | wpietri wrote:
           | The especially funny thing to me is that some VCs were
           | telling their portfolio companies to get their money out of
           | SVP first thing this morning. So Sacks is a VC asking for a
           | bailout on a bank run triggered by VCs. Cry me a river.
           | 
           | It's nice that he took time from his busy schedule decimating
           | Twitter to share his views. But in my opinion VCs can't
           | simultaneously claim to be such financial geniuses that they
           | deserve lower taxes (via the carried interest loophole) but
           | such babes in the woods that they need Uncle Sam to bail them
           | out for a bad financial decision. Pick a lane, buddy.
        
             | malermeister wrote:
             | It's also funny to see a free market absolutist suddenly
             | call for bank bailouts.
             | 
             | The Nanny State is good all of a sudden if Big Government
             | protects _your_ interests instead of the interests of the
             | vulnerable? Interesting.
        
               | wpietri wrote:
               | Ah yes, a classic for sure. That pairs well with the
               | libertarians who demand freedom to do anything they want
               | to others, with a state just large enough to keep their
               | inferiors from doing anything in return.
        
               | MrMan wrote:
               | yeah its high comedy
        
       | yalogin wrote:
       | As someone that is not following this as closely as I would like,
       | does the collapse of this bank have nothing to do with FTX and
       | Crypto?
        
         | jandrese wrote:
         | Only indirectly. They released a statement after the FTX
         | collapse saying effectively "don't worry, no problem here",
         | which caused a bank run that they couldn't manage and forced
         | the collapse.
        
         | timy2shoes wrote:
         | They are related in that crypto (and ftx) and the massive
         | explosion of start-ups are a low-interest rate phenomena.
        
         | morelisp wrote:
         | Only indirectly; the tide is receding for the first time in
         | many years, and it's exposing a variety of... issues.
        
           | UncleOxidant wrote:
           | naked swimmers.
        
         | tekla wrote:
         | FTX was simple fraud. This isn't really related and is more
         | standard bank taking on wayy too much risk.
        
           | thepasswordis wrote:
           | FTX was because they took customer deposits and gambled with
           | them, lost the gamble, and therefore lost the money.
        
         | UncleOxidant wrote:
         | Given the timing one wonders if Silvergate had more impact on
         | SVB. SVB claimed to have minimal crypto exposure, but one
         | wonders what might come out as the FDIC digs deep into their
         | books.
        
       | marcopicentini wrote:
       | In 2008 we learned "cartolarization".
       | 
       | In 2022-23: "Bond convexity".
       | 
       | This word is still not on headlines yet, so maybe more loses has
       | to come.
        
         | SideburnsOfDoom wrote:
         | > In 2008 we learned "cartolarization"
         | 
         | Did we? So what the hell is it?
        
       | rehitman wrote:
       | Everyone says SVB had bad investment and they deserv it etc.
       | However, I am worried about this being the first of many similar
       | financial instutation failing. After all, bonds are supposed to
       | be safe on paper. Increasintg interest rate fast can break many
       | people who are not able to adjust.
        
         | jschveibinz wrote:
         | Just something to consider...
         | 
         | A casual look at the regional bank index ETF will show that
         | starting about two weeks ago, the price started to steadily
         | decline and then a sudden drop with SVB. I'm not sure if this
         | decline is well correlated with the total market index over the
         | same period, but if not, it suggests that some people "saw this
         | coming" a couple of weeks ago and the other shoe may still need
         | to drop. Was it just good analysis? Was there some whispering
         | going on? If so, I hope the SEC is watching.
        
       | TooSmugToFail wrote:
       | SVB used an exemption from Basel III, which allowed it to run a
       | riskier business, and eventually led to its implosion.
       | 
       | Basel III was introduced to force banks to be more conservative,
       | and thus more safe. Downside: this also means bank is going to be
       | less profitable.
       | 
       | European banks were forced to implement Basel III, while the US
       | bankers managed to lobby a loophole for certain types of banks.
       | And sure enough, SVB leveraged this loophole.
       | 
       | For those interested, FT Alphaville describes this in ample
       | detail:
       | 
       | Silicon Valley Bank is a very American mess
       | https://on.ft.com/3ywMURD
        
         | rr808 wrote:
         | Are you sure that is the problem? I see lots of comment today
         | they lost a lot of money on long dated treasuries. Which is
         | "safest" asset.
        
           | dragontamer wrote:
           | No.
           | 
           | My money market fund (VMFXX) is composed of Fed Repo notes
           | with 13 _DAYS_ of maturity average
           | (https://investor.vanguard.com/investment-products/mutual-
           | fun...)
           | 
           | A bank holding customer deposits in lol 30 _Year_ or 10
           | _YEAR_ treasuries is anything but safe. That's called
           | duration risk, and congrats, they just got burned by duration
           | risk.
        
             | rr808 wrote:
             | Sure, what I meant was Basel rules mark treasuries as level
             | 1 capital. So Basel doesn't have much to do with it, as the
             | OP suggested.
        
         | worik wrote:
         | > SVB used an exemption from Basel III,
         | 
         | Really?
         | 
         | That is interesting. Why? How? Who else?
        
         | toomuchtodo wrote:
         | https://archive.is/Fx1is
        
         | xwdv wrote:
         | The exemption should still be allowed, as it led to great
         | banking innovations for startups.
         | 
         | The exemptees just need to be fucking careful with this
         | advanced mode of operation.
        
           | rco8786 wrote:
           | > The exemptees just need to be fucking careful with this
           | advanced mode of operation.
           | 
           | How many times will we get burned until we learned that banks
           | will not be careful if they are given an opportunity to not
           | be.
        
           | talideon wrote:
           | So, you're essentially proposing a weaker, informal version
           | of Basel III. In which case, why have such an exemption in
           | the first place? What innovations does it lead to?
           | Restrictions on banking typically exist for a _really_ good
           | reason. After all, we saw what happened when retail and
           | investment banking were allowed to mingle because it 'lead to
           | [...] innovations'. If you're going to advocate for something
           | beyond saying 'but look, innovation!', you need to be more
           | explicit about what those innovations are, because European
           | banking is plenty innovative within the constraints of Basel
           | III.
        
             | worik wrote:
             | Yes.
             | 
             | And the pace of innovation in US banking was very slow,
             | essentially stalled, for a generation from the consumer's
             | POV
             | 
             | Here in Aotearoa we have ATMs on every street corner since
             | the 1980s. All but the tiniest traders have had pos
             | electronic transactions for nearly thirty years
             | 
             | Other countries are even more advanced (our banks are all
             | like yous now, consumers now viewed as pests)
             | 
             | I want innovation in customer services, but what we get is
             | innovations in financial engineering.
             | 
             | May they all rot...
        
           | MrMan wrote:
           | nonsense - what banking innovations do startups need? is
           | there really any such thing as a startup? or are we just
           | talking about small businesses some of which grow into larger
           | still unprofitable businesses? hopefully this mythologizing
           | stops
        
           | layer8 wrote:
           | > The exemptees just need to be fucking careful
           | 
           | You mean "need to have sheer luck in their gambling".
        
             | bequanna wrote:
             | Head, we get bonuses
             | 
             | Tails, taxpayers bail us out
        
               | nordsieck wrote:
               | > Head, we get bonuses
               | 
               | > Tails, taxpayers bail us out
               | 
               | You're doing to have to define "bail us out".
               | 
               | SVB's shareholders got wiped out.
        
           | bequanna wrote:
           | Please name one "banking innovation" the banking industry has
           | implemented in the last decade which has benefitted
           | consumers.
        
             | morelisp wrote:
             | VCs and founders must believe SVB offers at least one, or
             | why not go with a normal bank?
        
         | Jensson wrote:
         | > Downside: this also means bank is going to be less
         | profitable.
         | 
         | What are the downsides to society if banks are less profitable?
         | They invested in T-Bills, I don't see how that investment
         | served society in any way.
        
           | PKop wrote:
           | Literally funds the government lol
        
             | phkahler wrote:
             | Taxes fund the government. Bonds are just a way to avoid
             | managing a budget.
        
               | PKop wrote:
               | Ok so you're saying it's bad that they fund the
               | government. But given the large budget deficit we have,
               | the statement is true.
        
               | arez wrote:
               | government doesn't need taxes to fund anything, it can
               | just create money and sell bonds. Taxes are just for
               | steering money flows
        
               | nostromo wrote:
               | Inflation would like a word.
        
               | [deleted]
        
           | dragontamer wrote:
           | > They invested in T-Bills
           | 
           | They invested in T-Bonds (10Y or longer) and MBS (mortgages)
           | it seems like, not T-Bills (1Y or shorter)
           | 
           | The distinction is extremely important in this case. If they
           | were trading T-Bills, they would have survived. Instead, they
           | took on much riskier T-Bonds (probably hoping to make more
           | money).
        
         | talideon wrote:
         | Your username is both very ironic and apt in this particular
         | case. Also, your analysis is spot on.
        
       | nodesocket wrote:
       | > A 10Y T-Bill purchased on the first trading day of 2021 is now
       | worth less than $0.80 on the dollar
       | 
       | Just one note for those that aren't fully aware, the treasuries
       | were only down approx 20% because they were forced to sell before
       | the 10yr maturity. If they could have held the entire term they
       | would get back 100%.
        
         | dougmwne wrote:
         | Yes, another way to think about this is that if you bought an
         | .80 t-bill today it would have the return on investment
         | equivalent to a 1.00 bill bought last year. That's because the
         | new t-bill has a much higher interest rate.
         | 
         | So in effect, as the fed raises interest rates, they are
         | destroying the principle of every existing bond on the market.
         | That's a big problem for anyone owning bonds, especially if
         | they are using them as collateral for leverage.
        
           | JohnFen wrote:
           | > they are destroying the principle of every existing bond on
           | the market
           | 
           | What principle are they destroying? Bonds are not, and never
           | were, immune to economic changes. They're just less volatile
           | and react differently than stocks and, if you hold them to
           | maturity, will pay what what they promised.
           | 
           | It seems to me that the problem is that a whole bunch of
           | people made investments assuming that there was effectively
           | no risk in doing so. Like the good times would last forever
           | or something.
        
             | candiodari wrote:
             | These bonds are not held as investments, but as collateral
             | for getting other things (like money to buy mortgages
             | with).
             | 
             | If your collateral gets worse ...
        
               | JohnFen wrote:
               | Either way, they were treating them as if their value was
               | guaranteed prior to maturity. That has never been a thing
               | that these instruments guaranteed. They were gambling,
               | because they failed to hedge that risk.
        
             | [deleted]
        
         | quantgenius wrote:
         | They would have gotten their principal back but missing out on
         | interest for 10 years is a huge cost, particularly if you have
         | to pay out interest in the interim to your depositors.
        
         | worik wrote:
         | > If they could have held the entire term they would get back
         | 100%.
         | 
         | What counts is the real, not nominal, value
        
         | projektfu wrote:
         | I noticed that he conflated the safety of a T-note* with the
         | asset price. US Treasuries are AAA-rated super safe guaranteed
         | returns because they're not expected to default or miss a
         | coupon payment, and they'll be redeemed for the full value when
         | they mature. That doesn't mean they don't have market prices
         | that fluctuate.
         | 
         | *T-bills are up to 52 weeks maturity.
        
         | stefan_ wrote:
         | Just so we are all fully aware: SVB bet in ~2020 that interest
         | rates they offer could be well below 1% (given their operating
         | costs and what not) for 10 years. Obviously, by 2023 already,
         | depositors were expecting much more.
         | 
         | So, yeah, these MBS will probably pay out when held to
         | maturity, but their customers didn't buy MBS, they deposited
         | their money in a bank.
        
         | nostromo wrote:
         | Owning bonds that pay 1% for 20 years when inflation is running
         | at 7% is a great way to lose lots of money.
         | 
         | You'll get that money back come 2041, it just won't be able to
         | buy you much.
        
         | TacticalCoder wrote:
         | > Just one note for those that aren't fully aware, the
         | treasuries were only down approx 20% because they were forced
         | to sell before the 10yr maturity. If they could have held the
         | entire term they would get back 100%.
         | 
         | 100% back in, say, 9 years at 1.5%. Or take the 20% hit today,
         | buy back bonds giving 4% yearly and end up with the same
         | amount. I mean: it's literally how the price drop is calculated
         | right?
        
       | guhcampos wrote:
       | This whole discussion around bonds makes me feel like I'm either
       | too stupid or too smart, because it does not make sense to me
       | that SVB would not have any sort of hedging around government
       | bonds?
       | 
       | I don't know much about US bonds, but Brazil issues 3 types of
       | bonds: fixed rate, inflation-indexed floating rates and interest-
       | indexed floating rates. It's common sense between investors you
       | need to hold a mix of the 3 to hedge against macroeconomic
       | changes, that way the term does not really matter that much: if
       | inflation skyrockets, it's likely the government will increase
       | interest rates to compensate, and so on.
       | 
       | Is it that much different in the US or has SVB simply failed to
       | choose the bonds they bought carefully?
        
       | Apocryphon wrote:
       | So between the tech angle and the housing-related investment
       | vehicles, are we remixing 2000 with 2008 now?
        
         | cplusplusfellow wrote:
         | Self inflicted wounds this time, though. There is nothing wrong
         | with a bank purchasing 80bln of MBS with their depositors
         | money. The issue becomes when the fed suddenly raises rates
         | faster than any time in their history while still failing to
         | fight inflation (which is a result of having a stronger
         | economy).
        
           | worik wrote:
           | > The issue becomes when the fed suddenly raises rates faster
           | than any time in their history
           | 
           | No. That is a fact. But it does not collapse properly run
           | banks.
        
           | throwaway2847 wrote:
           | Nobody forced SVB to buy up long bonds at negative real
           | yields.
        
           | testfoobar wrote:
           | SVB failed to hedge their interest rate risk.
        
             | teacpde wrote:
             | Curious what are the ways SVB could have hedged in this
             | scenario?
        
               | wskinner wrote:
               | Buy T-Bills or other short maturity assets instead of
               | long maturity T-Bonds and mortgage-backed assets.
        
               | snuxoll wrote:
               | Not investing such a large percentage of their capital in
               | long-duration fixed income vehicles all at once.
               | 
               | There's nothing wrong with going long on duration, it's a
               | hedge against decreasing rates. The problem is when you
               | go all-in on long duration investments and rates suddenly
               | shoot up like they did, you now can't sell those assets
               | without eating a massive loss.
               | 
               | An appropriate hedge would have been doing what every
               | retail bond trader does, build a ladder. If they had
               | simply bought a wider variety of say 1/2/5/10 year
               | securities then they could have let the longer-dated ones
               | sit and sell the shorter duration ones (and they wouldn't
               | have suffered such a huge loss of market value that
               | spooked depositors and started the run in the first
               | place).
        
               | actionablefiber wrote:
               | They took deposits from depositors who would blow up if
               | interest rates went up, and then used those deposits to
               | buy assets that would blow up if interest rates went up.
               | Interest rates went up, so their assets crashed at the
               | same time that deposits plummeted and withdrawals
               | skyrocketed.
               | 
               | If you want to standardly hedge against interest rate
               | risk, that's what swaps are for. If you want to take on a
               | comparatively less rate-sensitive portfolio, then you buy
               | shorter-dated bonds. They yield less, but surely that's
               | better than "the FDIC seizes your bank and your equity
               | goes to zero."
        
           | beezle wrote:
           | No, please do not even try to imply that this was the Fed's
           | fault.
           | 
           | They did not raise "suddenly". The move away from ZIRP was
           | well telegraphed. Once they did the first hike the only
           | question was how fast and how far. Most in the market
           | initially expected an end rate around 3% (ie, 100bp over
           | their target inflation rate of 2%). As it became increasingly
           | clear that the inflation was not just about supply chain
           | disruptions that end rate target went to 4% and higher.
           | 
           | Further - every bank has a team with one responsibility -
           | asset and liability management. They are responsible for not
           | just the product choices (ie, MBS vs Treasuries, etc) but
           | also matching durations. The Treasurer of the bank is also
           | responsible for oversight, including whether or not any of
           | these positions should be hedged and to what extent.
           | 
           | This is entirely on the bank staff and management.
        
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