They got to play with 10x leverage with their client funds for free. You can't barely get 2x leverage at broker, you pay interest rates much higher and they actually enforce strict margins.
Minewhile these people out of their privilege as bankers got to play with much bigger leverage, while paying zero interest rates to their counterparty which turned out to be fully paid for by the government in the end.
100% investment loss in this case is hardly enough, with the leverage levels banks can access they can literally collect pennies in front of a train and have positive expectation values for shareholders, while investing in negative expectation value investments.
And they did collect pennies in front of a train. Bought 10yr treasuries at historical lows. They paid their customers nothing for it.
VC investment strategy for VC bank. They took the zero or hero attitude until the end. Again, we're taking about people with already VC mentality of "worst case 100% loss, best case 1000%".
No wonder that once VCs recognized their own shadow they fled so fast.
And now they are pretending as if it's the fate of the banking system on the line.
VC bank, managed like VC venture for VC firms. They deserve to lose VC money.
Their loans are probably also worthless than they claim, but they managed to successfully swindle the Fed in the most VC way ever with the shortest deadline. I'm betting FDIC is going to pay twice as much as expected in the end.
> And they did collect pennies in front of a train. Bought 10yr treasuries at historical lows.
> worst case 100% loss, best case 1000%
See I don't understand how you can have 1000% return by buying treasuries, at any time. It was a stupid decision in hind sight, but the best case is order of magnitudes below 1000% return.
And you've put these two things right next to each other, what am I missing?
They would be perfectly safe have they dumped their deposits into T-Bills.
They didn't went for the 1000%, they went for the 5-10% extra and ended up losing everything.
Had they used T-Bills or even straight up depositing it against the Federal Reserve for NO return, they would remain liquid and could now reinvest into higher yield bonds as the rates have risen. Instead they now hold 1.5% 10 year HTM bonds that are now valued at 70% original today because the prevailing rate is 4.5%.
To clarify I don't know the actual strategy they took. I am responding to how they can have risk in "make safe loans" or "buy safe bonds" scenario.
> They would be perfectly safe have they dumped their deposits into T-Bills.
How is this different than what you described? If the rate increases beyond the coupon of a 10 year treasury, its value drops. Are you referring to extremely short term treasuries?
Thanks for explaining it so well. I was thinking that simply losing the bank was enough in this case, but you make a very good point, and this kind of insight is what's good about this site.
You seem to be conflating the bankers with the bank owners here. The former have done well, the latter have lost everything (total SVB dividends are less than the value of the bank).
Minewhile these people out of their privilege as bankers got to play with much bigger leverage, while paying zero interest rates to their counterparty which turned out to be fully paid for by the government in the end.
100% investment loss in this case is hardly enough, with the leverage levels banks can access they can literally collect pennies in front of a train and have positive expectation values for shareholders, while investing in negative expectation value investments.
And they did collect pennies in front of a train. Bought 10yr treasuries at historical lows. They paid their customers nothing for it.
VC investment strategy for VC bank. They took the zero or hero attitude until the end. Again, we're taking about people with already VC mentality of "worst case 100% loss, best case 1000%".
No wonder that once VCs recognized their own shadow they fled so fast.
And now they are pretending as if it's the fate of the banking system on the line.
VC bank, managed like VC venture for VC firms. They deserve to lose VC money.
Their loans are probably also worthless than they claim, but they managed to successfully swindle the Fed in the most VC way ever with the shortest deadline. I'm betting FDIC is going to pay twice as much as expected in the end.