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.
As usual, Money Stuff[0] has an amusing and informative description of the events. A choice quote
[0]: https://newsletterhunt.com/emails/24927