Bipartisan support from two parties who are usually in the hands of Big [name the industry] doesn't negate it in the slightest. Sure one is more outwardly against any regulation that can negatively affect the ultra rich.
One difference is that when things start breaking, Democrats are willing to reconsider de/regulation, while GOP blames the government (even if there had not been inspections for years) and doubles down.
Some Dems voted to repeal Glass-Steagall, but more voted to keep it. The GOP votes was far more lopsided in favor of repeal.
It seems reasonably likely they would have also been cut if Clinton had been president, due to the review requirement that was built into the regulations themselves.
The 2015 law that required ECP brakes also required before they went into effect the government ask the National Academy of Sciences (NAS) to review the safety assumptions that the regulations had been based on and report whether or not those assumptions were correct, and revise or rescind the regulations accordingly.
NAS completed that report in early 2017 and it said that it was unable to conclude that ECP brakes were safer. There simply had not been enough actual tests to generate the data needed to reach a conclusion.
Given that NAS report it is hard to see how any administration could have justified not rescinding the regulation.
Unlikely they would have been cut under Clinton. And I don't think the required review you are talking about is concerned with safety. It's money. The review that is required is actually a financial review that decides if the cost of the safety regs in question exceed the cost of potential accidents. This analysis had already been done. However, the Trump admin had the calculation done again, I would assume after putting their own people in place and they found that the regulation was too costly. Big errors were made in their calculation but they claimed that even after fixing the errors, it was too costly. So they rolled back the regs.
That being said, the regs in question only applied to certain hazard levels and the train that crashed did not meet that level because it didn't have enough cars with hazardous materials.
I'm talking about the report that was required under Section 7311(b) of the FAST Act, Public Law 114-94 [1]:
(b) Emergency Braking Application Testing.--
(1) In general.--The Secretary shall enter into an agreement
with the National Academy of Sciences to--
(A) complete testing of ECP brake systems during
emergency braking application, including more than 1
scenario involving the uncoupling of a train with 70 or
more DOT-117 specification or DOT-117R specification
tank cars; and
(B) transmit, not later than 18 months after the
date of enactment of this Act, to the Committee on
Transportation and Infrastructure of the House of
Representatives and the Committee on Commerce, Science,
and Transportation of the Senate a report on the results
of the testing.
and the review required under 7311(c):
(c) Evidence-Based Approach.--
(1) Analysis.--The Secretary shall--
(A) not later than 90 days after the report date,
fully incorporate the results of the evaluation under
subsection (a) and the testing under subsection (b) and
update the regulatory impact analysis of the final rule
described in subsection (b)(2)(A) of the costs,
benefits, and effects of the applicable ECP brake system
requirements;
(B) as soon as practicable after completion of the
updated analysis under subparagraph (A), solicit public
comment in the Federal Register on the analysis for a
period of not more than 30 days; and
(C) not later than 60 days after the end of the
public comment period under subparagraph (B), post the
final updated regulatory impact analysis on the
Department of Transportation's Internet Web site.
(2) Determination.--Not later than 2 years after the date of
enactment of this Act, the Secretary shall--
(A) determine, based on whether the final regulatory
impact analysis described in paragraph (1)(C)
demonstrates that the benefits, including safety
benefits, of the applicable ECP brake system
requirements exceed the costs of such requirements,
whether the applicable ECP brake system requirements are
justified;
(B) if the applicable ECP brake system requirements
are justified, publish in the Federal Register the
determination and reasons for such determination; and
(C) if the Secretary does not publish the
determination under subparagraph (B), repeal the
applicable ECP brake system requirements.
This isn't a good thread to discuss train brake regulations since it is about bank regulations. That said, I don't believe train brakes would have had much effect on a ~50 car derailment. This is based on NTSB estimates[1].
Obama originally proposed rules for widening the definition of hazardous trains and requiring upgraded brakes. This version didn't get enacted. It was weakened after a lot of lobbying eg trains carrying oil and gas were no longer "hazardous".
Trump did remove this rule in 2018.
But we're in 2023 now when Biden was sworn in over 2 years ago. Did Biden or Buttigieg re-institute these rules? No.
This problem is beyond politics. Both parties serve corporate interests. Republicans just go a little further on the deregulation train (pun intended). Look at Biden and Congress united behind hobbling the rail workers strike. Those rail workers were wanting to strike in part due to safety issues.
Buttigieg is a McKinsey alum. He's part of the system that creates this problem. Don't think this is just a few bad apples. It isn't. It's a systemic problem.
Biden could reinstate them by EO, just like how Trump cut them. He hasn't though. There is a bipartisan consensus that the safety of the rail system is less important than rail company profits.
" There is a bipartisan consensus that the safety of the rail system is less important than rail company profits."
Any of us can buy railroad stocks and become - in your mind - wealthy. Perhaps the more important value being protected was, if the railroads stop working, many of us stop eating. Same reason we subsidized food production, fuel, etc. Our societies have grown too much to be able to go back to life without them, without huge numbers of deaths as we adjust.
> Biden could reinstate them by EO, just like how Trump cut them. He hasn't though.
He probably just hadn't noticed. It couldn't be that he allowed to rules changes to continue because some money flows towards him, his friends, or his party and his party's friends depended on maintaining those changes. Biden put a famously competent and experienced person in charge of Transportation and he didn't notice the change, so how could you expect Biden to?
The secretary of transportation is far too high up the chain to know about the minutia of train brake regulations. There is a whole federal agency that deals with train regulations which is one of the 10 agencies that report to the sec of transportation.
Its understood that those regulations wouldn’t have saved the train in Palestine. That’s one problem with the discourse on the left. I don’t favor regulation for the sake of regulation - nor cutting it for its own sake. There obviously needs to be a rational best-effort cost-benefit analysis. Not cheap politics.
> There obviously needs to be a rational best-effort cost-benefit analysis.
You don't seriously think there haven't been many? The problem is that train companies, governments, and people who care about the environment classify and price costs and benefits differently, and government was paid to adopt train company calculus.
It's not that nobody ever thought of figuring out the costs or the benefits of this major, well-known proposed change.
You really think people are that stupid? Biden and the Democrats had their chance either way. They chose to crush the unions, so the burden of proof is on them. However, since this is politics, nobody is going to listen because it's too damn late.
Was there actual evidence that Trump's changes had any affect on the derailments? From what I heard they had no effect. And last I checked , Biden has been president for 2 years. If they were vitally important, wouldn't the transportation dept worked to add them back?
Political parties aren't people so assigning feelings to them is of questionable value, but no more so than calling someone insane for doing so.
The underlying fact is that the Republican and Democratic Party are both constituted to represent their donors and that certain parties (rich individuals being the largest such party) enjoy the benefit of giving bi-partisan patronage.
It probably is an exaggeration, and assigning emotion is futile and counterproductive; however, I think it's far less contentious to note that, however they might actually personally feel, both parties regularly vote for laws and actions that harm the vast majority of people i.e. the non-rich.
Claiming otherwise is being blindfolded. When I look at American politics, I can't see any justification other than the desire to help 1% and the apathy towards people who live paycheck-to-paycheck (or worse). We saw it in 70s, 2008, COVID, Student Loan Forgiveness cancellation, increasing rent/housing costs, and now seeing it, and will always see it. "Hate" is a strong word of course but the spirit is absolutely true.
It's okay for banks and trains to crash. If you have more than $250k in a single bank, you should have insurance on that cash.
If a train spills chemicals, they should be liable for a satisfactory resolution, including buying a property that was polluted, or paying for the cleanup and any depreciation of the property.
They should also be responsible for resurrecting people who died and compensating them for the time they missed, and unpolluting hopelessly polluted sites before they were hopelessly polluted.
At the end of the parable of Job, God gives Job all new sons and daughters to replace the sons and daughters that were crushed during the game with Satan. I never considered that as a thing that made Job whole. In case of devastating and prevetable disaster, the train companies will just declare bankruptcy and the owners will start new train companies, or they'll nationalize themselves and sell to the government at an inflated price.
edit: these companies were all formed by groups of insiders that were handed state property for free; they have typical post-Soviet oligarch origin stories.
1) Hold interest rates near zero, inflating the fuck out of the economy
2) Use government to destroy market value of distant maturing bonds by holding real interest rates deeply negative and then rapidly inverting it. Force people to seek ever more risky investments and long term low interest MBS securities just to barely not even break even.
3) Suck all the liquidity out of the market by using fed to raise interest rates sharply
4) Banks fail
5) "There wasn't enough government intervention, we need more!"
A bank failed, and then only because they were doing unwise things with their holdings. Where are all the other failed banks as a result of the long-standing fiscal policy?
If the bar you're setting is looking for failed banks exacerbated by fed policies, look no further than the great depression.
Now we could move the goal posts to something else, but the question you ask is not hard to find examples of.
> doing unwise things
In retrospect anything that causes a failure is going to be characterized as "unwise." You could say the wisest thing would be to create a 100% reserve ratio by passing through deposits to the central bank, yet it's impossible to get a banking license to do that. We're left with various shades of unwise.
The problem with blaming the government for this failure is that only one bank seems to have been affected. Since we are talking about sector wide regulations and policies rather than anything that targeted this specific institution, it is evidence strongly in favor of the problem being with the bank, not with the environment. Were this is a problem with law or interest rates or something like that, we would expect to see a lot more collateral damage.
Instead, the only thing we see is a single bank that failed due to voluntarily tying up too much of their capital in instruments that cannot be easily liquidated.
1000 people are forced to roll a 10,000 sided dice. They roll a '1' and they die.
At the end one person is dead.
Clearly since that one person followed the sector wide regulation and polices rather than anything that targeted that specific person, it is evidence strongly in favor of the problem being with that person, not the dice game. Were this a problem with the game or the dice or something like that, we would expect to see a lot more damage.
Instead, the only thing we see is one person who lost the dice game voluntarily rolling the dice at the improper starting position and velocity that cannot be easily rolled to the correct number.
Clearly this isn't the same, but the logic you've used doesn't parse and in any case the full fault is unlikely to be fully the fault of government nor the bank. And it remains to be seen if the dice game is over...
Yes, it clearly isn't the same. In the first place, we are not talking about randomness. Your example is facile and your copy and paste sarcasm is both unwelcome and against the rules. I'm done here.
I see so we're yet again moving the goalposts you set and now moving on to additional criteria like whether chance was involved. On the contrary, I would say quite a bit of uncertainty was involved, especially since a lowest uncertainty option was outlawed.
There are hard tradeoffs here, and one failed bank doesn't mean the wrong choice was made.
As I remember it, the reason for weakening these regulations was that Dodd-Frank is/was extremely expensive to comply with, and that created a banking sector where only the biggest banks could survive and it made no sense to start any new banks.
I conducted Dodd-Frank Act Stress Tests for one component of a large bank. For a $400B portfolio I was able to do it with a team of 4 people including myself plus a $100k/year license to Barra and it takes about a week of the whole team’s focus.
The thing is, we were already employed by the bank to run risk management and the bank already had the subscription to the software. So from the bank’s perspective it was close to 0 marginal cost to conduct the stress tests because even if they weren’t required, we would be doing them anyway as good risk management practice.
If a bank says that stress tests are too expensive to run, that means that absent regulatory requirements they would perform no risk management.
Exactly. But also for smaller companies whining about government regulation. The “regulation” is what’s expensive, not the government part. If they can’t afford government regulation, they can’t afford self-regulation either, unless their idea of self-regulation is “do nothing and keep the money.”
Or “do nothing until someone(s) else gets stung/slapped, and hope that it is someone/someones else not you, so you are around to learn from the mistake”.
Just chiming in as a lawyer who works for a fairly big corporation.
You're imagining a scenario where one set of clearly written and fairly interpreted rules applies to your core business. You're excluding scenarios where there are fifty states and two hundred countries wildly swinging back and forth from idiotic legislation drafted to apply to three companies (Google, Facebook, Amazon) that is impossible to apply to everyone else.
Imo the situation I describe is worthy of belly aching. I don't work in finance so I guess theoretically the US banking system could be easier to comply with than everything else - but I definitely disagree that everything else is easy to comply with.
Doing the stress tests isn't where the cost would be coming from; the issue is more about the distraction of making sure that compliance is in place.
I'd draw an analogy to having breakfast. If we legally required people to have breakfast every day, that would actually be quite expensive. It'd go from a reflex to something that has to be considered, we have to spend a little bit of time creating evidence that we had breakfast to satisfy the regulator, there'd have to be enforcement where parents check on their kids to make sure they have breakfast, situations where it doesn't make sense to have breakfast (eg, really excessive sleep-ins) now need big reworks to make sure that despite that someone rolls out of bed to have breakfast. The police would roll in and muck up people's life because they skipped breakfast one day due to illness.
It'd be a debacle. It is funny to even imagine what mandatory breakfast would look like if we tried to legally enforce it. It would be expensive, both in dollar figures and hours of lives wasted; no question of it. Just because the act itself is cheap and necessary doesn't make legal compliance cheap and easy. There is a huge gap between the everyday "should do" and the legal "must do".
The issue is that you think making sure compliance being in place is a "distraction". This is like devs saying writing test classes is a "distraction", or having an infosec team is a "distraction", or having seatbelts in cars is a "distraction".
I feel that is an unfair interpretation because there was one phrase spent on the word "distraction" and then a long paragraph included comparing stress tests to breakfast. If you feel breakfast is unimportant then more power to you I suppose, but I disagree.
Breakfast represents something like 10-30% of of a person's caloric intake, it is much more important than regulatory compliance in the financial system. We could adjust to poor compliance relatively easily (we did without formal compliance regimes for centuries). You seem to be underestimating breakfast.
This is part of why I like the analogy; something being important is different from whether it is a legal necessity. Making it a legal necessity is what brings in the complaints about costs, not the cost of doing the thing itself. The cost is in proving compliance under all possible conditions. The complying act, as the thread ancestor I first replied to noted, is often cheap and generally already done as good practice.
Any analogy comparing requirements for a corporation with a human being is always going to sound ridiculous because you are comparing a legal entity with a person.
A government is formed by people, not corporations.
Corporations exist inside of a space governments specifically carve out for them.
The mantra that corporations are people is political ideology.
That’s an incredibly bad analogy. A more apt one would be lobbying FAA to give up pilot mandatory rest time for regional jets (eg. ERJs) as “they’d be too expensive compared flying with wide bodies 777”
I think your comment is agreeing with what the parent said. If you did it for a $400b portfolio that was only a component of the bank, it was a large bank.
Hiring a team of 5, paying a $100k/year software license, etc are big barriers when you’re a small regional bank with $30 million in deposits.
> the reason for weakening these regulations was that Dodd-Frank is/was extremely expensive to comply with
It would be a lot easier for banks to comply with a reinstated Glass Steagall law, but banks don't want that either. The problem is really just that the banks don't want any restrictions, but as this situation shows, restrictions exist for good reason.
But the ultimate crux is done by the Federal Reserve Board for allowing $50+B --> non-bank <-- to skimp on the stress test. (emphasis is mine but the key crux). This was done on March 14. 2014, which is 4 years earlier.
"Finally, the Board has determined not to impose enhanced prudential standards on nonbank financial companies supervised by the Board through this final ($50B stress test) rule."
Not seeing any partisan hacks there, unless you count the financial ones.
I can't remember all the specifics, but after the 2008 crash banks with a certain levels of holding have to pass stress test showing they can survive scenarios like this. I think the old limit was 50 billion but go changed to I think 150 billion which puts SVB below the threshold for the stress test.
Perhaps it'd be better to combine a dollar value with a percentile, eg, "each of the top banks representing X% of total deposits or with > $YB of deposits"
Other than the focus on governmental regulation we should also look at the glaring principal-agent risk. Large shareholders (such as the Swedish pension fund) should have asked questions about the concentration risks and AOCI losses. Management could be loathe to realize the losses earlier due to profit targets. Their risk/reward calculation on addressing a mistake could be misaligned from the shareholders'.
Pension funds - and municipalities - have no business to take the funds that they have been entrusted with outside of the country where they reside. The same kind of nonsense led to the Icesave debacle.
Surely the lowest gdp (maybe per capita) country in the world that has pension funds should be eligible to invest these funds outside of the country.
A priori, without knowing anything about world economies, we shouldn't expect every country with pensions to even have local possibilities of investment. There's possibly a country where every single tax payer works remotely, or in local administration.
Icesave was a very different problem. Iceland’s banks, trough the countries membership in the EEA, were able to offer their services in the UK and Netherlands. However when not just Icesave but 3 of their big banks collapsed around the same time their depositor guarantee mechanism lacked the funds to actually guarantee deposits. At the same time Iceland was in a credit crisis that prevented it from issuing more debt to refinance the deposit guarantee mechanism.
This is a very different problem from a pension fund investing money abroad. An investment can always go to 0, which would hurt Swedish pensions but has no ramification outside Sweden. On the other hand the 2006 Icelandic bank sector was flush with foreign deposits that not even the Iclendic government could credibly guarantee deposits at the legal level.
Quick side note, the Icelandic deposit guarantee at the time was only ~20k USD. Not a lot.
Lol somehow always blaming “deregulation” and politicians
I’ll tell you what, it’s not regulators that caused this. IMO Banks need less regulation (and more smaller banks) and need to fail more (and have more jail time). It’s the banking executives and business analysis team at fault here.
Just like it’s the startups error for failing to have multiple bank accounts.
Some advice, be robust and self reliant. Assume everywhere you keep money could / will be stolen.
As an individual, I have 3 bank accounts - 1 large U.S. bank and 2 regional (in different regions). Each account has a minimum of 1 month living expenses, plus I keep 1 month expenses in cash on hand.
I do the same with investments, particularly after the whole “we won’t let you short sell GameStop” on with firms (but not others).
Be robust, that’s your job as an individual or founder.
>Be robust, that’s your job as an individual or founder.
100%
I learned the hard way not to "trust systems" when it comes to important aspects of your life.
In college, I found some transfer requirements confusing. I utilized the college's guidance center. They told me they were sure that I needed class X, Y and Z. Of course, as it turned out, I didn't need _any_ of them. So an entire year and thousands wasted. I know mistakes can happen... I know I probably should have done the work to check for myself but I figured they would know more anyways.
Maybe a priceless lesson in the long run though...
No, laws (criminal codes) are how you get jail time.
Regulations are rules passed by administrative bodies, those rarely, if ever, result in jail time. There’s a lot of reason for that, but administrative agencies often don’t have the full authority to send people to prison (I personally don’t think they should). Instead injured parties should be able to bring a suit, and I’m sure they will here.
That's nitpicking. Regulatory bodies are also created by laws. Laws that prescribe criminal penalties for bad conduct are still regulatory in nature. Most US administrative bodies refer criminal activity to the Department of Justice for prosecution. It's all part of the same apparatus.
It's not a nitpick. We have a two-tier justice system and regulatory bodies mostly live in the tier that issues fines but doesn't send anyone to prison, and this is not coincidence.
People who commit white collar crime are deeply scared of prison. And since the crimes usually are very premeditated, and not heat of the moment or out of necessity, calculations of risk do take place here.
I seriously hope that the people asking the government for a bailout revisit their past policy positions and offer the same empathy to others going forward that they are asking for themselves right now.
The tech sector has made themselves one of the most hated groups in the country, behind Congress, telecom providers, and the media. Doubt they're going to find much sympathy from the folks in "flyover country" that the tech sector has gleefully been shitting all over for a decade. Perhaps the tech sector will have enough political capital to ensure they get to dump their losses on the public they loath, but it's going to come at a great political cost for those who go along with it.
> "flyover country" that the tech sector has gleefully been shitting all over for a decade
I'm a founder of an Indiana based tech startup. What people in flyover states don't like is seeing stuff like Theranos. They also don't understand operating businesses for 10 years that lose billions. People here do not see the "tech sector" as evil: every flyover state has programs to attract and create tech sector companies. If anything there is a bit of envy combined with a simmering rage when we get bus-rolled for not having a great high-tech workforce, when Purdue, Notre Dame, IU, and other Midwest universities are cranking out fantastic engineering and business management talent that gets pulled to the coasts for big starting salaries.
> Perhaps the tech sector will have enough political capital to ensure they get to dump their losses on the public they loath,
I don't think that is what is being asked for at all. It's more of a "fix this before it hurts everyone". The Fed raising interest rates too quickly is the root cause of SVBs problems, and those rate changes may be doing the same thing with the small, community banks that flyover country agriculture and manufacturing relies on heavily. Hopefully SVB is the end of it... but this situation is not a "tech sector" issue. It's a banking problem caused by the Fed changing the rules to quickly.
> it's going to come at a great political cost for those who go along with it.
Not doing everything that can be done to fix this quickly will be politically un-affordable.
I suspect hating on Twitter/FB/etc is a tech industry thing. Most people don't hate big tech. They buy iPhones/Androids to keep up on their family and friends on Facebook, watch Netflix, find things on Google and buy stuff on Amazon.
As a Purdue grad who spent a decade in Silicon Valley and who currently works remote for a FAANG in a state adjacent to yours: Didn't go to the coast for the big starting salary. Went for the interesting job, the flexibility to move to another job without renting a new apartment, and the career growth. Best career choice I made.
Good for you starting a tech company outside the tech meccas, it's a hard road. Remote work might help you. In an remote work world, you are on a level playing field.
As it relates to the SVB bailout. There's a strong libertarian streak in SV. While it might be entertaining to watch the hypocrisy unfold, I'm pretty certain these folks read hackernews and I'd like them to have a bit of self reflection about the role of government now that SVB has imploded.
> Good for you starting a tech company outside the tech meccas, it's a hard road.
Thanks. I think the hard road is getting easier every year. Access to capital is getting better, and as you said, remote work has been a game changer for talent.
> I'd like them to have a bit of self reflection about the role of government now that SVB has imploded.
What is remarkable is how much government intervention went into creating SV. You'd never know from listening to the scene. Regardless, I hope that the SVB situation ends well for everyone and we can get back to work building things that matter.
The entire system is a house of cards. The collateral of the system itself is debt (USTs). There is no firm ground to stand on after decades of low interest rates. Marginal tweaks to banking regulations neither caused nor can fix this.
The Fed is raising rates and we are taking our medicine.
The Fed, creates magic money from thin air then lends it to the government at interest to sell as T bills. Guess who is on the hook for the interest? The US taxpayer.
The Fed is owned by its member banks which are for-profit corporations. Imagine paying interest to a third party to access your own wealth! That's the USA. There is no technical need for the Fed. We were fine without it till 1913. It just makes a lot of insiders rich.
There is no technical need for any bank, at least in the way they operate now. When you get a house loan, you're not getting any money, you're transferring the property lien to the bank in exchange for cash. It is just a value exchange not a real loan, and this could be done by the government. This is true for pretty much anything a bank does nowadays, they're just exchanging one type of value for cash and getting interest on the top of this transaction that takes a few minutes to process.
> The Fed is raising rates and we are taking our medicine.
Taking our medicine would imply there are market consequences. It seems the typical gov reaction is some form of bailouts to the high end of the market combined with regulation to further limit the market to a few giant monopolies.
All the matters to people is not ruffling feathers, a sense of security, not about actually solving the root problems that SVB took a massive gamble on mortgages and no one seemed to care.
Gov focusing on helping the depositors is fine. But it sounds like the vast, vast majority of SVBs depositors will be made whole. So that's probably not even necessary. The Yallen stuff is most likely about calming the market, not direct intervention.
What is capitalist about modern banking? It's probably the most regulated industry in existence. Where a practice that would normally be regarded as fraudulent anywhere else (fractional reserve banking) is not only legal but encouraged by government. There's nothing capitalist about it[0].
A sovereign state in a capitalist society is a capitalist state. A capitalist state always serves, in aggregate, the interests of the capitalist class. Karl Marx showed us how this works 150 years ago and nobody has challenged this part of his analysis to my knowledge.
I am familiar with the delusional American libertarian fantasies, but that's just ideological denial. They haven't done any actual analysis of how a government or state works, or who influences it.
I was referring to capitalism as in "free enterprise" (not as in "anything that happens in a mostly capitalist society"). Many of Marx' central theories were shown to be incorrect (e.g. labor theory of value) and personally, I don't buy the theory of class struggle (it is probably not even a falsifiable theory).
So you think the government should step in to add regulation to ban fractional reserve banking, and that that would be more capitalist? Your Mises link doesn’t even mention the term.
Sure, but that doesn't mean that we can't fight that. Indeed, I think it means we must work ardently against it. Capitalism's pretty neat, but it has known failure modes like monopoly and corruption.
It does mean you can't fight it with little advocacy groups or well-meaning think tanks. According to history, you need a strong labor movement led by principled socialists.
What you call "corruption" is fundamental capitalism. In other words, there has never been and can never be a capitalist society without it. Thinking otherwise is capitalist utopianism.
"The government" (or state) is part of capitalism. In fact, it is a critical component. There could be no capitalism without a state to enforce it. Libertarianism is not a coherent ideology; it is a disease of the intellect.
I meant that as corruption from the perspective of the governmental system. Which either you knew perfectly well or we're talking past one another here, so either way I think I'm done.
That won't happen with the current "socialist" movement. Socialism is about _all workers_, including those who have "chud" opinions. This is the largest group of workers, by a lot - White working class, Southern and Midwestern dudes.
Look at the Far East and Europe - successful movements _do not_ bundle Drag Story Time and Workers Rights. Stalin was closer to Nick Fuentes than Biden. Same with Mao.
As long as the first issue that the DSA cares about is trans rights, the DSA will continue to be a joke at best and potentially controlled opposition at worst.
None of that will do anything, beyond, at best, chipping at some of the most egregious examples. We are a capitalist system. Economics and politics are inseparable, and the capitalist class has the power.
Which is weird because it's general operation is funded by banks paying premiums. The federal government only pays up in event the FDIC uses up it's hundreds of billions it's sitting on.
Suppose they'd hedged away their interest rate risk. There'd just be another party on the other side of those swaps who'd have gotten wiped out instead, right?
The point of risk management isn't that you never have any losses, it's that your losses won't be large enough to produce a crisis (e.g. where you can't honor withdrawal requests). If the other party is also managing their risk well, they may take a loss, but they won't be "wiped out".
Sure SVB used lobbyists but that's not the crux of the issue. The issue is our governments tax and spend policies are driving up rates to an unsustainable amount. SVB is totally at fault, don't get me wrong, but this is the house of cards we have built.
Interest rates are where they were in the mid/late 90s (https://fred.stlouisfed.org/series/FEDFUNDS). The idea that these interest rates are unsustainable/dangerous is just silly. If anything, the 2009-2016 and 2020-2021 periods at an interest rate of 0% are the anomalies.
The problem is is that the amount of debt is percentage of GDP, and therefore the interest rates that we need to pay are significantly higher now. This kind of analysis is hopelessly naïve without taking into account overall macro situation.
I always see people say the national debt doesn’t matter because it isn’t like household debt. However, I just fail to see how that is true. At some point the can won’t be able to be kicked down the road anymore. I guess everyone is hoping that it won’t be during their lifetime.
My point is just that national debt is more complicated than household debt. And every attempt to reduce it to household debt is flawed. They are fundamentally different.
> At some point the can won’t be able to be kicked down the road anymore.
No country other than New Zeeland bothers to properly account for the asset side of the national budget. Increasing liabilities is fine if there's a corresponding increase in assets. But most countries are basically guessing about the second half. (This is also why we see so many wasteful privatisations where national assets are sold off for way less than they're worth)
I mean, yeah, that's ultimately a potential problem for the federal budget. But that's not what tripped up SVB - long-term Treasury prices declined because higher interest rates made short-term Treasuries more attractive than long-term ones.
What? Low interest rates are literally the government printing money. High interest rates are the opposite of government spending. Also, this is one of the few places where the government can add / remove money to the economy without spending taxpayer dollars.
This seems pretty knee-jerk, especially given,
that the current glances that the business was probably too conservatively managed. The problem here was not holding safe assets - but the value of the government bonds depreciating dramatically because of the rising interest rates and a flush supply of higher interest rates due to massive government deficit spending. It’s also a reflection of the extremely aggressive mark to market rules that have been put in place.
You can make a very solid argument at the risk here is actually risk that was forced into these companies by the government.
I'd not consider that argument solid at all, considering that SVIB and Silvergate are the only ones bankrupt, while the other banks are solvent.
Instead, I'd look at the concentration of depositors within narrow geographic and professional areas and their connections to one another, which allows panic to spread faster and enables a bank run; other banks have a much broader and diverse set of depositors. I'd also look at the foolishness of some of those depositors who deposited far too much in one bank instead of distributing funds across many banks. Both are errors of over-concentration. Retail banking only made up 7% of deposits at SVIB; the rest was VC/tech money. That's not by any stretch of the imagination like other banks, and that's what caused this unique failure, not the same interest rate hikes that all banks are exposed to (and which they all account for regularly in internal exercises and stress tests like responsible banks do).
I wouldn’t consider over-investing in assets that are extremely volatile from a short-term liquidity perspective “conservatively managed”. The timeline liquidity of your assets is one of many forms of risk that needs to be managed by a bank.
The overinvestment into US debt put them at extreme risk for interest rate related devaluation, which is exactly what happened.
Even if they were going to go heavy with US debt, investment professionals normally use bond laddering for with fixed income funds to reduce that interest rate risk to the portfolio. They did not even do basic laddering!
Can anyone provide a link that carefully outlines this? Eg did they just recently buy a ton of ten year bonds? That would sound nuts as everyone knows rates are rising right now. Would love to see details.
It wouldn't matter even if they weren't of the same maturities, since you'd have to buy bonds with better interest rates, and you'd want the capital outflow to be spaced out.
The mitigation to interest rate risk is by buying them spaced out so principal returns are being re-invested at changing rates, and you are never tied to a specific rate. https://www.investopedia.com/terms/b/bondladder.asp
Thanks that makes sense. What I was hoping to see was links to what specifically they did that was not smart. Eg did they really just buy a lot of bonds, not spacing it out?
Bonds are normally priced at the current interest rate, then modified based on type e.g. higher yield for longterm bonds, and less yield for short term bonds.
Recently we've been in an inverted yield curve where short term yield was superior to longterm yield.
The way I see it they did a few things wrong:
1 - bought too much of the same instrument (diversity)
2 - did not bond ladder (put themselves into a high risk situation)
3 - Moved unrealized risks into realized losses by fireselling bonds (bad timing which provoked liquidity crisis)
If you think about it, #1 & #2 were easily manageable. It is the colossal screwup of #3 on top of #1 & #2 that proved to be the coup de grace.
Whether the interest rates were going to increase or decrease was completely up in the air. No one knows after a few rate increases.
This is equivalent to selling at a loss a stock because it has a 3 - 6 month downtrend when the stock is still fundamentally sound, nothing has changed in the thesis instead of riding it out longer with the recognition you may not receive primo returns or even decent returns, but you won't be taking a big hit either.
I don’t think you can make that argument. Buying longed dated bonds is done in the pursuit of profit. Nothing stopped SVB from buying shorted dated bills with less interest rate risk instead.
Not managing your interest rate is amateurish for any large bank. Every bank treasury has a whole team which only purpose is to monitor and manage that risk. They had volatile corporate / institutional investor deposits, and took an interest risk that assumed their deposits where super stable (i.e. they wouldn't have to sell those assets).
The business got in trouble with long term mortgage backed securities, not government bonds. "The government did it" is a bad take on this one. It was the business that chose excessive long term illiquid mortgage backed securities vs short to mid term government bonds which would have been a better choice.
This does not appear to be the case with the numbers coming out this morning. It’s really the government bonds that have the dramatic drop in value, relatively. The write down of the government bond assets are significantly higher than the write down of the MBS assets.
It was 0% interest rates before then that actually caused problems. Raising rates should have happened sooner but trump threatened to fire Powell if he did.
Janet Yellen during Obama's second term didn't want to raise interest rates to protect Democrats. However, she wanted to raise interest rates during Trump. That's why Trump didn't renominate her. Why blame Powell here? Blame Janet Yellen, when she should have started raising rates under Obama.
Not true. Powell raised rates, and then Trump threatened to fire him. Powell continued to raise rates anyway. The Fed takes no shit from the president or congress.
edit: HN is rate limiting me, but to see why the commenter below is wrong, just zoom out the chart he linked to 5 years view.
It appears the emerging consensus among the apologists is that SVB failed because the federal government, or the Fed specifically, over-regulated them by making them take certain positions, then pulled the rug out from under the by raising interest rates. In short, it wasn't the fault of the people running the bank.
I don't think there is any consensus on this issue.
They clearly mismanaged their portfolio, since the Fixed Income approach towards interest rate risk is to hedge, and to use Bond Laddering, and utilize diversification.
They did the exact opposite at the same time they permitted deposits to flow into the bank unchecked. This is a crisis of their own making 100%
If SVB collapsed because of corruption in the federal government, then that just makes a stronger case for federal institutions doing whatever they need to do to make the depositors whole. The solution to failing to protect depositors is not to snuff them out, it's to make things right.
Where on earth do you get "corruption in the federal government" from that article? It's explicitly saying that they were lobbying to weaken regulation. That's transparently circular. You're saying government oversight is bad because the government can be convinced not to oversee, in which case we get bad results from the lack of oversight!
In this particular case, it's unclear exactly what oversight could have prevented the mistakes. We just won't know for a while. But... yeah, it seems very much not unreasonable that the 2018 Dodd-Frank rollback may be part of the problem.
I don't see where you get "government oversight is bad" from anything I said. I strongly believe that we should have strict government oversight of deposit accounts and that people should be able to have faith in the banking system. I don't think it's depositors fault that banks lobby to weaken this regulation and that the government goes along with it.
I agree that we don't know if the weakened regulations caused this - it's possible the regulators already had the tools in their belt they needed to prevent this and were asleep at the wheel. We will find out eventually.
OK, I see what you meant now. FWIW: employing the phrase "corruption in the federal government" to refer to what was clearly lawfully drafted and correctly passed legislation marks you as kind of a wingnut, so I interpreted your point to be "see? we can't trust the government!" and not "the government did something bad".
The fact that the 2018 bill was a bad bill with bad effects doesn't make it "corrupt". Congress debated it, congress passed it, the president signed it. All that happens in public; it's the opposite of "corrupt".
I think you would do well to not try to instantly bucket people into "my political tribe" or "the enemy political tribe." Not only is it lazy and harmful, you just aren't good at it. Plenty of people on the left would describe the relationship between members of congress and banking institutions to be corrupt.
To add; "corrupt" and "legal" are frequently the same thing. Corruption is often about misbehaving within the confines of laws you wrote specifically to take advantage of.
I've started to wonder if we have any other kind, frankly.
I think the govt may have been able to help with this issue.
But it would have taken the govt getting into the whole risk & diversification & bond laddering & liquidity issues at a very granular level. You know, the whole shindig about huge risks to the banking sector and responses? That, all over again.
I'll say from my perspective they were under-regulated. We can't have dumb banks throwing all their deposits into Fixed-Income with similar maturities putting their deposits at extreme risk of devaluation and interest rate risk with no hedging or laddering, and no good response to liquidity demands.
I question the professionalism of the bank's investment crew given we knew about the interest rate rise several years ago. NIRP/ZIRP could never continue indefinitely and they knew it, and we knew it.
What’s coming to them, exactly? A new yacht and 12 months off?
Serious question: Is there any chance of any repercussions for the lobbyists, the execs that hired them, or even the people that moved the balance sheet into the previously “Illegal! Danger! Dragons will eat you!” corner of the risk quadrant?
When a bank fails, it's the depositors who get screwed, not the CEO. Why would you cheer for that? I understand why you're out for blood, but you're not getting the blood you want.
