When it comes to bonds, the two main factors at play are interest rate risk and creditworthiness. IMHO, the US government will still be around even after every single US company has gone bankrupt i.e. the US will never default. SVB lost a huge amount of money because of wrong bets on the direction of interest rates, not because the creditworthiness of the US Government was suddenly being called into question.
Contrast Treasury with MBS. For the later, there’s always a risk that homeowners would default on their mortgages and then there’s also interest rate risk.
Also, say SVB hadn’t been forced to sell those bonds, they were still required under the GAAP accounting rules to mark to market their securities which means that they would have to report an accounting loss. It’s true that when that happens it’s not a monetary loss, but people do look at these things when analyzing financial statements and making investment decisions.
Actually what SVB should have done is to first raise capital quietly and then announce the loss. Instead they tried the other way around.
As part of the capital raise, SVB will have to explain to potential investors about the losses, and then afterwards during the announcement of the quarterly result, they can say that yes we have all these losses, but we’ve found new investors that are willing to put in capital.
The run began before any announcement of losses. It began behind the scenes when Founders Fund was informed by its investors that they were having problems using SVB’s funds transfer services. Peter Thiel alerted Founders Fund clients and investors ro pull their money from SVB on the news.
With six-month Treasury bills offering 5% interest rate it makes sense to buy them. The downside is the cost of paying interest on America’s $31.5 trillion and growing national debt is increasing several fold too.
And? If SVB had managed to raise capital a month or two before, enough to cover the gap in their balance sheet, there wouldn’t have been any problem with the fund transfer services in the first place.
At the end of the day, these guys don’t know how to run a bank. When interest rate is rising, you don’t buy long duration bonds, period. Why not buy short term Treasury bills? Or if you do buy long bonds, well you’d better hedge the interest rate risk.
Edit: the Chief Risk Officer of SVB had a degree in … public administration. That’s all everyone needs to know really.
That much harder to feel I feel. I’m in the market to win, money, not the knowledge that my county’s financial system is the most regular thing ever. Just money.
They had to sell to fund withdrawals and sold at loss because one pct yield bonds don’t bring a profit instead sold at a loss realizing some one point five billion loss
Maybe they didn’t need to divest the whole portfolio all at once
“With an abnegation of moral hazard, the long-term value of the dollar doesn’t stand a chance.”
Rome fell in very similar circumstances.
A combination of delusional, disconnected, exploitative rulers debasing the currency.
One major difference is this iteration of Rome burning has nukes to complicate things.
