Is the stock market going to tank?

[Mustonen]

Just spitballing here, let's all agree hardly anyone can independently determine the safety and soundness of a complex bank. I think that makes sense. You're right, Yglesias is right, everyone making this point is right. Does that even matter?

Most average people can't independently asses most things. And yet people figured out Yale and and Stanford are better than Utah state. Most people can't wrench on their own cars but they know a Toyota is more reliable than a Fiat. Few people can evaluate individual doctors but they know the Mayo Clinic is better than a small community hospital.

Unlike schools, cars, and medical care, nobody pays attention to bank safety because they don't have to. As a result banks can be more reckless because the average person isn't paying attention.

I don’t think bank failures are anywhere near as common as schools, automakers, or medical facility failures. But I didn’t do my own research and may well be wrong. And it’s hard to be reckless in that space, not that you can’t make bad decisions.

But yeah, people assume that the regulators are all up in their shit so they don’t have to be. I’m not sure I agree that it allows the banks to be reckless, because the regulators mostly are all up in their shit.

[Timberridge]

On average, most people can't independently asses most things.

[sic]

[MultiVerse]

Hah, must be running low on the letter 's'

I don’t think bank failures are anywhere near as common as schools, automakers, or medical facility failures. But I didn’t do my own research and may well be wrong. And it’s hard to be reckless in that space, not that you can’t make bad decisions.

But yeah, people assume that the regulators are all up in their shit so they don’t have to be. I’m not sure I agree that it allows the banks to be reckless, because the regulators mostly are all up in their shit.

Fair enough. FWIW, in the 80s and 90s it was on average one bank failure every couple of days and since 2000 one failure every week.

[J. Barron DeJong]

Just spitballing here, let's all agree hardly anyone can independently determine the safety and soundness of a complex bank. I think that makes sense. You're right, Yglesias is right, everyone making this point is right. Does that even matter?

On average, most people can't independently asses most things. And yet people figured out Yale and and Stanford are better than Utah state. Most people can't wrench on their own cars but they know a Toyota is more reliable than a Fiat. Few people can evaluate individual doctors but they know the Mayo Clinic is better than a small community hospital.

Unlike schools, cars and medical care, nobody pays attention to bank safety because they don't have to. They used to. But now, as a result of people not worrying about it any more banks can be more reckless because the average person isn't paying attention.

I think the issue with DYOR instead of having a guaranteed backstop is that it’s going to lead to runs.

[Timberridge]

it’s going to lead to runs.

I understand now why he said "asses"

[4matic]

If you look at a 5y chart of CS I think that’s going to happen to a lot of banks. A grind lower on profitability reserves.

[dunfree]

I think the issue with DYOR instead of having a guaranteed backstop is that it’s going to lead to runs.

It’s not the assessment that leads to bank runs, it’s the conversion into a binary yes/no, and the coordination of that. It’s avalanche risk independent of terrain, party, route planning, condensed to yes/no, for a whole ski resort

[MultiVerse]

I think the issue with DYOR instead of having a guaranteed backstop is that it’s going to lead to runs.

Right, resulting in a flight towards the safety of mega-banks. It has already started to happen. Maybe most of us, including me, have too much “It’s a Wonderful Life” collective nostalgia for smaller regional banks?

[J. Barron DeJong]

It’s not the assessment that leads to bank runs, it’s the conversion into a binary yes/no, and the coordination of that. It’s avalanche risk independent of terrain, party, route planning, condensed to yes/no, for a whole ski resort

Maybe, but the deposit guarantee acts as a necessary circuit breaker so things don’t become self-fulfilling.

[dunfree]

Right, resulting in more mega-banks. It's already started to happen. Maybe most of us, including me, have too much “It’s a Wonderful Life” collective nostalgia for smaller regional banks?

I had a small bank (6? branches at the time) who had a parrot as a logo. BITD, the parrot would tell the owner to approve the loan. They’ve since changed to have a massive atm network, more branches, and the average age of their customer has dropped substantially below 71

[dunfree]

Maybe, but the deposit guarantee acts as a necessary circuit breaker so things don’t become self-fulfilling.

the deposit guarantee wasn’t the issue, explicit or implicit, the issue was the SV podcast dildii want an implicit continuity guarantee. They want always on guaranteed banking. Most bank failure depositors get their money bake, sometimes with minimal interruption (I banked with wamu)

[MultiVerse]

I had a small bank (6? branches at the time) who had a parrot as a logo. BITD, the parrot would tell the owner to approve the loan. They’ve since changed to have a massive atm network, more branches, and the average age of their customer has dropped substantially below 71

The argument is the old 6 branch bank grew large enough to become systemically significant but not large enough to be closely regulated like mega-banks. If we're going to backstop all deposits and therefore need to regulate all systemically significant banks like mega-banks then it makes more sense to just have mega-banks.

[4matic]

Bank of America has $113 Billion of unrealized losses on its balance sheet

This represents >60% of tangible book value

BAC stock is unchanged since 1997.

[Mustonen]

Bank of America has $113 Billion of unrealized losses on its balance sheet

This represents >60% of tangible book value

BAC stock is unchanged since 1997.

They’ll only be realized if they’re forced to sell, and they’ll only sell if it makes financial sense to do so OR if they have to liquidate investments prior to maturity, and they’ll only have to liquidate investments if they have an issue with liquidity, and they’ll only have an issue with liquidity if their ample cash reserves and other sources of liquidity are inadequate to cover operations and deposit outflows. Except the BTFP will make that unnecessary anyways.

Unrealized losses in the system are off the charts, and are no longer the easy or attractive source of liquidity they were always considered. That’s what a sustained record low rate environment plus rapid rate hikes does.

[Bunion 2020]

That’s what a sustained record low rate environment plus rapid rate hikes does.

So fucked up that the Fed in trying to use the traditional approach to tamping inflation causes this and worse, never seems to have seen it as a possibility.

[J. Barron DeJong]

They’ll only be realized if they’re forced to sell, and they’ll only sell if it makes financial sense to do so OR if they have to liquidate investments prior to maturity, and they’ll only have to liquidate investments if they have an issue with liquidity, and they’ll only have an issue with liquidity if their ample cash reserves and other sources of liquidity are inadequate to cover operations and deposit outflows. Except the BTFP will make that unnecessary anyways.

But that’s exactly what happened to SVB, right? They had Treasuries marked as hold to maturity, no plan to sell, but were all of a sudden forced to take a loss on them due to a liquidity crunch?

[Mustonen]

So fucked up that the Fed in trying to use the traditional approach to tamping inflation causes this and worse, never seems to have seen it as a possibility.

As long as liquidity is managed and capital is adequate to bridge a low earnings environment it’s ¯\_(ツ)_/¯.

Nobody was giving anybody credit for substantial unrealized gains on the balance sheet heading into COVID. But an unrealized loss gets us all a flutter. Whatever. The story is panic and small number of non-diverse large depositors and all the juice getting pulled out of the market by the fed. Shit’s awful dry around here.

Could use some lube.

[Mustonen]

But that’s exactly what happened to SVB, right? They had Treasuries marked as hold to maturity, no plan to sell, but were all of a sudden forced to take a loss on them due to a liquidity crunch?

Sorta. Unclear to me if they had to or just saw an opportunity to chase profits, I’m sure liquidity was a part of the discussion either way. $80B at 1.8% for ten years with prognosticators indicating sustained high interest rate markets. Take $1.8B in losses to turn $20B into 6% assets for ten years or ride it out for ten years and maybe let them crater further? You do the math.

[Lvovsky]

It’s not just the cliche tech bros tho. Somethjng like 50% of startups had there money in svb. If they go under that will set back a lot of tech innovation which will domino into economic set backs

Peter Thiel tho has just cemented his rep as pos if that wasn’t clear before now

So fucking what? Socializing the losses and private profits capitalism can fuck right off. 2008 should have been a full on armageddon but instead the gamblers walked away unharmed.

[Toadman]

Bank of America has $113 Billion of unrealized losses on its balance sheet

This represents >60% of tangible book value

BAC stock is unchanged since 1997.

Interesting.

https://www.bloomberg.com/news/artic...er-svb-failure

Someone should start a twitter thread and reverse that $15 billion inflow of deposits.

But short the stock before you hit send.

[BobMc]

My call sold at about 2:00 when the underlying moved up to $33. I set an order to buy it back at $6.50, figured if I could make $150 in a couple hours I’d take it. It tailed off going into close and my buy it back order filled at six minutes till close, it then closed at $31.16.

After hours FRC has moved to $32.38. I know I lost $6.50 of downside protection by moving out of the call but I’m going to see what happens pre-market and hopefully I can sell an even juicier call tomorrow.

I’m hoping to make about 2k on this trade if things go marginally well. Of course I could lose about 7k if everything goes tits up all of a sudden.

[Brock Landers]

So fucking what? Socializing the losses and private profits capitalism can fuck right off. 2008 should have been a full on armageddon but instead the gamblers walked away unharmed.

socializing what?

[4matic]

Interesting.

https://www.bloomberg.com/news/artic...er-svb-failure

Someone should start a twitter thread and reverse that $15 billion inflow of deposits.

But short the stock before you hit send.

I’d tend to be a buyer of the mc banks from here.

[Lvovsky]

socializing what?

Bailing out failed businesses with tax payers money is called socializing the losses

[fastfred]

So fucking what? Socializing the losses and private profits capitalism can fuck right off. 2008 should have been a full on armageddon but instead the gamblers walked away unharmed.

exactly