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Crisis? What Crisis?

kensalriser said:
Every time interest rates and gone low and stayed low, along with the inevitable QE, the wealthy have become wealthier.
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This is my understanding and observation too. Over the last 25 years or so, notwithstanding the 2008 dip, low interest rates have propped up rising house prices to the point where you were foolish NOT to have a house loan if you could get one. As a result the rich have very much got richer simply by borrowing money and living in a house. Compared to living in a cave I have been paid about £20-25k a year to live in my house over the time I've owned it. This would have paid for a LOT of mortgage. When I was in a rented house I was paying about £6k a year in rent and obviously the asset growth went to the landlord.
We are now seeing a correction fuelled by higher rates - home owners and landlords are seeing higher costs and this is causing house demand and pricing to shrink.
 
Kirk said:
SVB sowed the seeds of their own short-term downfall by misamanging risk (no risk officer for one), poor treasury management, failure to attract enough deposits, the CEO's "stay calm, don't panic" comment (a red flag to depositors) and apparent humming and hawing over a rights issue. Ultimately, the Fed could have stepped in as lender of last resort and saved everyone the bother - and some money.
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I understood the problem to be pretty much the opposite - they had $200bn in deposits which they had invested in treasury bonds - which were suddenly worth substantially less when interest rates rose.
 
kensalriser said:
Every time interest rates and gone low and stayed low, along with the inevitable QE, the wealthy have become wealthier, the pandemic being the most recent example. That's what the data show, but how you choose to interpret the data is another matter. I'm pretty sure even very knowledgeable economists disagree on this.
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I would be genuinely interested to ready an article from a recognised economist stating that low interest rates promote wealth inequality. There are plenty saying the opposite. If you’re interested try this called The Natural Rate of Interest is Zero
https://moslereconomics.com/wp-content/uploads/2018/04/The-Natural-Rate-of-Interest-is-Zero.pdf
 
paulfromcamden said:
I understood the problem to be pretty much the opposite - they had $200bn in deposits which they had invested in treasury bonds - which were suddenly worth substantially less when interest rates rose.
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The laugh is that investing in Treasury Bonds was one thing actively promoted post 2008 crash as being a safe move for banks.

As usual, they just created another issue that was ready to blow up in their faces...mainly because of the stupid assumption that inflation and interest rates would be low for decades. Even in the "2020 Stock Market" thread on here, us 'amateurs' were calling bullshit on that and here we are.
 
paulfromcamden said:
I understood the problem to be pretty much the opposite - they had $200bn in deposits which they had invested in treasury bonds - which were suddenly worth substantially less when interest rates rose.
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AIUI existing bonds pay out at their agreed rate, the only way that interest rates would affect existing bonds is if the were used as collateral to get access to other financial services.

Which begs the question as to why government securities are used to capitalise more risky banking?
 
andyoz said:
The laugh is that investing in Treasury Bonds was one thing actively promoted post 2008 crash as being a safe move for banks.

As usual, they just created another issue that was ready to blow up in their faces...mainly because of the stupid assumption that inflation and interest rates would be low for decades. Even in the "2020 Stock Market" thread on here, us 'amateurs' were calling bullshit on that and here we are.
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I haven't read up on it too deeply but yes, it does appear the regulatory requirement to hold 'safe' securities was perhaps a factor in SVB collapsing.
 
paulfromcamden said:
I understood the problem to be pretty much the opposite - they had $200bn in deposits which they had invested in treasury bonds - which were suddenly worth substantially less when interest rates rose.
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Deposits from its main client base: venture capital firms began to fall away. As interest rates went up (and why no one at the bank saw this one coming is a mystery), losses on the bank's investments began to rise and could not in the end be covered by the value/levels of deposits (which were still substantial but not enough apparently).
 
Sue Pertwee-Tyr said:
Matters not a jot. It's not exactly on-topic, which is what you and others have berated ks.234 for, upthread.
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From this, would I be right in thinking supporting KS234 is your motivation for your sudden interest in this thread?

If yes, do you think it may have coloured your reading of what I wrote in order to make the leap to KS234s assertion that I don’t believe income inequality has grown since 79?

Now is a good opportunity to use the apply Quote function to re-post anything I have written which categorically states the position you attribute to me.
 
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Kirk said:
Deposits from its main client base: venture capital firms began to fall away. As interest rates went up (and why no one at the bank saw this one coming is a mystery), losses on the bank's investments began to rise and could not in the end be covered by the value/levels of deposits (which were still substantial but not enough apparently).
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Yes, and they're depositore being tech sector biased sealed SVB's fate. Many of them needed access to their money to try and ride out last year's tech sector shit storm (largely because the tech sectors future 'promises' rely on low interest rates)

SVB was one big bet on low interest rates
 
Spraggons Den said:
From this, would I be right in thinking supporting KS234 is your motivation for your sudden interest in this thread?

If yes, do you think it may have coloured your reading of what I wrote in order to make the leap to KS234s assertion that I don’t believe income inequality has grown since 79?

Now is a good opportunity to use the apply Quote function to re-post anything I have written which categorically states the position you attribute to me.
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No
 
^^ then SVB was mismanaged to the point of criminal negligence.
Banks are supposed to stress test what changes in interest rates would do to their P&L and hedge any large losses.
Where were the bank regulators/auditors during the last few years ?
 
Sue Pertwee-Tyr said:
No
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As youre so chatty tonight, I would like to return to the remarks you made in another thread saying something like you thought people treated KS234 differently since MMTgate.

You are right but then again I would argue he has become increasingly strident since he had his MMT epiphany and hence he tends to elicit a stronger response from those who disagree with him or, as is the case here, even if they don’t disagree with him and he just fancies a heated debate.

Regarding my own contributions to MMT, I remember with quite some fondness sparring with the excellent Le Baron as I recovered in a fog of morphine and insomnia from bowel surgery last summer which resurfaced on the Ukraine thread. KS’s recollection may well be different and he may well be along shortly to say otherwise but, for example, I was not the one who started the Simon Says thread.
 
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Spraggons Den said:
From this, would I be right in thinking supporting KS234 is your motivation for your sudden interest in this thread?

If yes, do you think it may have coloured your reading of what I wrote in order to make the leap to KS234s assertion that I don’t believe income inequality has grown since 79?

Now is a good opportunity to use the apply Quote function to re-post anything I have written which categorically states the position you attribute to me.
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I rather think it is clear from your contribution to this thread and others that you have an interest in arguing against me, even when those arguments don’t stack up. You’ve been doing it for some time across different threads

If you do now believe that wealth inequality has grown since 1979, what is it that you are still, even now, arguing about?

It now seems that you are taking exception to someone who, like me, cannot see any sense or evidence to your argument other than arguing for the sake of it.

You have argued that income inequality was worse in the 1920’s, but that is not true. You are right that wealth inequality has been greater at certain points in history, the early medieval for example, but that is still not an argument against the fact that inequality grew under Thatcher.

If you now accept that inequality did grow under Thatcher, rather than just leaving it there, why are you now trying to pick a fight with someone else who also agrees that inequality grew under Thatcher. You entire MO seem to be to attack the poster rather than the post.
 
Spraggons Den said:
As youre so chatty tonight, I would like to return to the remarks you made in another thread saying something like you thought people treated KS234 differently since MMTgate.

You are right but then again I would argue he has become increasingly strident since he had his MMT epiphany and hence he tends to elicit a stronger response from those who disagree with him or, as is the case here, even if they don’t disagree with him and he just fancies a heated debate.

Regarding my own contributions to MMT, I remember with quite some fondness sparring with the excellent Le Baron as I recovered in a fog of morphine and insomnia from bowel surgery last summer which resurfaced on the Ukraine thread. KS’s recollection may well be different and he may well be along shortly to say otherwise but, for example, I was not the one who started the Simon Says thread.
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Bringing up arguments from other threads and other topics is I believe, an example of a circular argument.

The real point about producing a strong response from people who disagree with me was that none of those disagreements were about the argument itself. There was very little engagement with the issue, it was mostly sarcasm and you were one of those most sensitive fond of the sarcasm.

On the topic of Le Baron, I rather remember you taking great pleasure in misspelling Le Baron’s name into something rude, what was it? Le Bore On or something similar. Fondness did not come into it. Can you remind us what it was about MMT that you disagreed with Le Baron?

Finally, you bring up an old thread that was started specifically to ridicule one particular poster, @Klassik, who posted with great intelligence on MMT. A poster who never resorted to personal comments and who only ever addressed the topic of MMT with calm, knowledge and evidence. He did however receive a great deal of abuse. You might not have started the thread started for the sole purpose of abusing another person, but did you contribute? The only person who contributed to that thread to condemn it was @Sue Pertwee-Tyr!
 
Kirk said:
Deposits from its main client base: venture capital firms began to fall away. As interest rates went up (and why no one at the bank saw this one coming is a mystery), losses on the bank's investments began to rise and could not in the end be covered by the value/levels of deposits (which were still substantial but not enough apparently).
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Not really. SVB was illiquid, not insolvent. SVB had substantial assets but couldn’t meet the demand when too many people wanted to take their money out.

So in the respect that there were insufficient deposits to meet demand when there was a run on the bank, you are correct, but no bank keeps all it’s reserves liquid in order to meet the demand of a potential bank run.

AIUI. Most commercial banks have deposit insurance but a condition of that insurance is to hold government securities. The problem arises when government backed securities are used as collateral to secure other, riskier, investment opportunities and when the interest rate goes up, the lenders want greater guarantees that SVB could not realise in time.

Anatomy of a Bank Run: https://www.patreon.com/posts/episode-162-of-80157783
 
ks.234 said:
Excellent link. Do like a bit of history.
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I commented here a year ago when Chase bank was the first to offer 1.5% on savings when base rates were still in the toilet.... They were front running the market. Chase is JP Morgan....they 'knew' what was coming or maybe I'm too cynical :)
 
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