Balaji

Important update. Let's see if this has come in time.

"Finally, the Fed...announced it will make available additional funding...to help assure banks have the ability to meet the needs of all their depositors." https://t.co/lOxOGEa2MK https://t.co/StcCoiwpHW https://t.co/kBtgujLZ2M

The fundamental question now is what the post-SVB state of the economy is.

Before, only the too-big-to-fail banks had an implicit guarantee beyond FDIC insurance.

Now, perhaps FDIC insurance has been replaced with Fed insurance. That is, maybe the Fed will now backstop every… https://t.co/zCvADwIvFL

Aha. Here's the mechanism. So, they may print away the bond losses. Given their scale, we will see if $25B is enough. https://t.co/1XXjSAhc2C https://t.co/BztTuMavKg

Immutable money, infinite frontier, eternal life. #Bitcoin

"So who really owns the failure of SVB? The Fed. By hiking rates in a totally unprecedented manner less than a year after assuring...that they were NOT going to hike rates until 2024, they created...the second-largest bank failure in US history." https://t.co/vPibqL5wn6 https://t.co/TNzEKk4cKP

@profplum99 and I independently came to the same conclusions from looking at the data, and we don't normally agree. You should read his excellent piece.
https://t.co/vPibqL5wn6

The Fed doesn't just forecast rates.
IT SETS THEM.

Trillions is allocated on their forecasts.
They're upstream of the entire economy.
And what they did was:

- forecast 0.1% in 2023
- sell long-term bonds on that basis
- actually set rates to 4.75% (47X higher!)
- devaluing the… https://t.co/t58LmszMW5 https://t.co/vC6CLZf35K

Someone needs to teach this guy what a forecast is…

Hint: it’s not a promise! https://t.co/7RCWKXAb3d

David S. Loeb Professor of Finance @NYUStern (Household Finance, Climate Finance, Social Networks, Real Estate, and Macroeconomics), 🗽🇩🇪🇺🇸🇬🇧🇪🇺

Johannes Stroebel

Some say "oh, just hedge the rate risk."
Doable if forecast is 1%, actual is 1.1%
Impossible if forecast is 0.1%, actual is 4.75%
That's off by >47X.
You're dead.
And so is everyone else.
Because the other bond buyers invested on the wrong guidance too.
https://t.co/HuT0UPawFp

It's not a bank-specific issue.
It's a central bank issue. https://t.co/b5dPINBBj2 https://t.co/SIuOOhy9Nv

Again, SBV and its allies fought at great length and great expensive in multiple venues to *not* have the same regulatory status as the largest banks. 

It took tremendous effort on their part to achieve this outcome, it wasn’t done to them by their enemies. https://t.co/buDLSGR3jf

Slow Boring. Bad Takes podcast. Bloomberg columnist.

Matthew Yglesias

I see people on the right posting about the climate bonds SVB bought and people on the left talking about their regulatory posture or whatever.

All of that might matter if the issue that took down SVB was specific to SVB.

It is not.
https://t.co/DKa6G89p6x https://t.co/ENqcHpMl3t

By the way, just to engage this for a second...

I have no money in SVB.
I do know about it though.
It's a startup bank.
It banks immigrant founders and guys in garages.
People without visas or years of audited financials.
The aspiring not-yet-new money.
As opposed to (say)… https://t.co/5Axrf2R94k https://t.co/b5dPINBBj2

This is a question of bank solvency.

Are your deposits safe?

It wasn't really common knowledge before this crisis that either you bank at a big four OR you are at risk of losing your principal at any time.

Literally the entire economy would have been positioned differently. https://t.co/HP2ldZFuj2

Breaking news: Federal authorities are seriously considering safeguarding all uninsured deposits at Silicon Valley Bank, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe private deliberations. https://t.co/rUd6C4wEcJ

The Washington Post

There’s a really stupid place where progressive antipathy towards “the rich” and libertarian antipathy towards “the bailouts” intersects.

That really stupid place is when you start treating all the money in small banks as "obviously unsafe, bro".

And the operative term is… https://t.co/zEkMQnIusv

The message the market has received is: deposits are unsafe unless they are in a too-big-to-fail bank.

Small banks get piddly FDIC insurance. Big banks get the full backstop of the US government, because they're systemically important.

Bail out the big, submerge the small. https://t.co/jvEUoGWeBs

Serious issue. Are we saying that all cash piles, no matter how large, will be guaranteed by the government so long as they’re in an FDIC bank? So, no matter how rich you are, the government guarantees your wealth? So long capitalism; ‘twas nice knowing you. https://t.co/wNnTAhVAHq

Macroeconomist/investment professional. Tweeting all things macro/investment. Host of the Multipolarity podcast, @MultipolarPod.

Philip Pilkington

Of course, becoming a too-big-to-fail bank comes with strings. It means you are de facto nationalized.

The Chinese call them state-owned enterprises, the Americans call them systemically important financial institutions. https://t.co/BniRUVnvno https://t.co/qv67GwKfvW

There was indeed a broken promise.
And we can prove it.
Every quarter, the Fed publishes rate forecasts.
What did they forecast back in Dec 2020?
Well, their median estimate for 2023's rate was 0.1%.
But today, it's actually 4.75%.
Off by >47X!!
So any bank who bought long-term… https://t.co/Tkp1h1Rh05 https://t.co/Dk3PuwHbVE

The Federal Reserve never - never - "denied" it would raise interest rates. It said it would wait to raise interest rates until it saw signs of significant inflation. We got significant inflation - the Fed raised interest rates. There was no imaginary broken promise to banks. https://t.co/y7diFDyz0x

Author of The Wisdom of Crowds. I blog at https://t.co/W3TS5jpnp5. I wrote The Financial Page for The New Yorker.

James Surowiecki

This isn't a one off.
Here's a gif of the last nine Fed "dot plots".
See how they start at the bottom...then soar?
Remember, they control these numbers...
...yet their forecasts were wildly misleading!
And misdirected many billions of dollars.

This is why https://t.co/YrAk1aHaCU… https://t.co/3usqokhOIA https://t.co/XDg2I39Z1b

Now, I'm sure someone will say "oh, it's just a forecast, it has uncertainty, people deserved to get rekt if they didn't guess right."

However:

THEY SET THE RATES TOO
The people forecasting these numbers are also the ones *setting* these numbers. It's https://t.co/Ncf5hEISX7… https://t.co/tcSkkOr9oc https://t.co/j2MUpG6PU0

In summary: Fed lied, banks died.

They said rates would stay low.
The government sold bonds on that premise.
Then they suddenly hiked rates.
Crushing existing bondholders.

This is how the Fed caused the unrealized losses that led to SVB's insolvency. And maybe that of other… https://t.co/BlmZxrD2xV https://t.co/LZtWpPVnOO https://t.co/HPHqH2mUJ5

Depositors must take responsibility for understanding the Federal Reserve Bank...

...yet the Fed is understood to take no responsibility for bankrupting depositors?

What’s the level above a merely FDIC-insured bank? Perhaps one of the 30 global banks designated too-big-to-fail.

These aren’t known for being startup friendly. But many may now seek a fiat account there. https://t.co/5JINcr1RAt

It’s possible that everything plays out fine on Monday. I hope everyone gets their deposits back quickly.

But if not, it’s quite possible that we see a stark dichotomization of tech into centralized and decentralized. Into the state and the network.

On the centralized side,… https://t.co/EwqHdxWipY

Investors who make risky investments shouldn’t get bailouts.

But depositors who make routine deposits should be able to get their cash out.

Many people seem to (implicitly) think SVB must have been doing some kind of atypical tech gambling.

But most other banks *also* have unrealized losses. Because, like SVB, they trusted the Fed’s guidance and bought what is marketed as the safest thing you can buy: US Treasurys.… https://t.co/QdjAmGlsj9 https://t.co/s0yQlz7hjp

What we’re likely to see in the coming weeks is that this wasn’t a single bank’s issue. It was a central bank issue.

Don’t take my word for it. Just four days ago the FDIC chair said “most” banks are suffering unrealized losses thanks to the Fed’s rapid change in interest rates.… https://t.co/oniZXxUKTs https://t.co/j5YDtR2DUv

Yellen &amp; Powell said inflation was transitory so they could keep spending &amp; pumping. When it blew up in their faces, the Fed jacked up rates so hard it collapsed a huge bank. Now they want to say it’s startups’ fault—you shouldn’t have kept your deposits there. Give me a break.

VC @craft_ventures Bestie @theallinpod Founder @getcallin

David Sacks

Link to the FDIC chair’s talk.

Note that he calls out rapid interest rate changes in particular as a primary driver of risk. The Fed caused the chaos. https://t.co/s0ZnYyGYT1

Here’s part where he says “most” banks have unrealized losses.

The total: $620B in unrealized losses from buying what are supposed to be the safest assets around, namely treasuries.

To simplify: the government sold bonds, said they were safe, then massively devalued them. https://t.co/PR95wWLwPG

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