Capitalism only works if companies can die. We (the public) cannot continue to let financial institutions pursue ever riskier investments, banking on the idea that the government will bail out the reckless.
Whatever investments they made that are now sour enough to not cash out to pay their depositors. Yeah, that's a bit circular, but I think that's how it works. There's some risk in every investment, or so my 401(K) plans tell me every quarter.
But that's the question I'm asking; what specific investment did they make that went "sour"? I can't find one when I look, that's not what I'm reading happened at all but I'm open to the idea that I'm missing something.
Their risk was not being diversified. They were heavily invested in long-term TBills. As interest rates have climbed, the value of those long-term TBills have fallen. Had they established ladders of different maturation lengths, they may have been able to weather the storm.
As usual, Money Stuff[0] has an amusing and informative description of the events. A choice quote
And so if you were the Bank of Startups, just like if you were the Bank of Crypto, it turned out that you had made a huge concentrated bet on interest rates. Your customers were flush with cash, so they gave you all that cash, but they didn’t need loans so you invested all that cash in longer-dated fixed-income securities, which lost value when rates went up. But also, when rates went up, your customers all got smoked, because it turned out that they were creatures of low interest rates, and in a higher-interest-rate environment they didn’t have money anymore. So they withdrew their deposits, so you had to sell those securities at a loss to pay them back. Now you have lost money and look financially shaky, so customers get spooked and withdraw more money, so you sell more securities, so you book more losses, oops oops oops.
Right but it sounds like their investment didn't "go sour"; this isn't then an example of "greedy bankers", more like "lazy bankers" or possibly even "unforeseeable circumstances".
....Do you not understand that a bank is a creature of "we'll keep it safe until you need it?"
That a bank, even if the ultimate investment of float they did, finds themselvesbin a position they cannot reconstitute sufficient float to pay out it's liabilities has ultimately engaged in bad/risky investments?
Risk can happen in terms of "Wow those turned out to be really crappy mortgages," ot in "Well, I just dumped all that money in single year TBills, and the interest rate went up!"
Any bond in an increasing interest rate environment in the abscence of enough time being available to fully mature is setting principle on fire. Because you can't cash out, because no one will buy.
That's what went sour. You bet peoples money on things'll stay the same... And you were wrong, and there was no time to paper over it with the coupons of those bills.
> this isn't then an example of "greedy bankers", more like "lazy bankers" or possibly even "unforeseeable circumstances".
A distinction without a difference. They made bad decisions for whatever reason, or they got unlucky for whatever reason, or some combination of the two. That's why companies go out of business. They are not special.
We distinguish intent all the time for various legal reasons, and if something done for the right reasons goes wrong, the empathy is certainly more readily available.
I have yet to see any real reason to suggest this was anything other than a blunder. A relatable one too, as nobody in 2021 thought the fed would have to hike interest rates at the rate they have since.
They put a lot of money into long-term bonds before the latest interest rate hikes. These bonds now sell at a discount, so they can no longer cover all deposits by selling them.
This is a very good/short description that explains what happened. It's not that they made risky investments but rather lack of diversity plus the insider trading of everyone pulling their money did they in. No sympathy.
Right, so where are the “gains”? Where is the greed? It doesn’t seem like there is an unreasonable upside here, just a misunderstanding/mistake in handling the assets.
Your ideas on this topic are so bizarre. Are you arguing here that the bank owners and employees were not paid? That they didn't pursue a strategy they believed would give them higher returns, and failed?
I'm arguing nothing, and am trying to better understand why people are continually claiming it was their "greed" that caused this failure, and not their incompetence.
They didn't seemingly pursue a strategy that would have resulted in their pay increasing meaningfully, in fact it seems like they pursued a strategy they believed was safe and cautious. It wasn't, but they did seem to think so.
But I don't have all of the facts and this is not my wheelhouse, so I'm asking questions for clarity. "I don't know" is a reasonable answer, but not one I find around here much.
