My granddaughter that in college tells me that many students use their gov loans to purchase clothing, and vehicles after tuition is paid and the residual put on their account. Students can use the funds for certain expenditures but not to purchase cars and use the money to party on. I mean when they use it for a down payment on a car that's co-signed imagine what they really end up paying for after the loans paid.
Who knew that “saving the economy” from inflation could crush the economy if massive interest rate hikes are implemented too stridently? I’m just an internet geek, but shouldn’t there be economists who can foresee these things?
Interest rates have to come up. Inflation is bound to happen. We have lived since the 90s with artificially low inflation (thanks to Russia fire-selling USSR surplus) and artificially low prices (from China), and since 2008 with artificially low interest rates trying to keep the economy going as Russia stocks ran low and Chinese labor prices exploded. But there is no way we know of to outrun Boomers retiring and pulling their money out of the market. We'll have more work than we know what to do with, and we'll build out our manufacturing base like we've never seen before. That will cause inflation. But there is a TON of money to be made. Economists know all of this. I don't think there was any way to slow inflation without raising interest rates like they did.
I wasn’t disagreeing with the notion that interest rates had to rise, just how quickly they were doing it. No time for adjustments without major ramifications.
I don't think this had all that much to do with interest rates going up. It's not a problem with the economy per se, it's a problem with fools (SVB management) and assholes (Peter Thiel et al). barfo
It's mostly do to the interest rates. SVB bought a lot of 10-year treasuries as collateral to hold onto. When the interest rates rise, the value of those treasuries tank. It's not a huge deal if they hold it until maturity... but when people started the bank run, they had to sell the treasuries at a massive loss making the problem worse
Exactly. Here’s a good summary from this morning’s NYT newsletter: “Because the federal government has always paid its bills, U.S. bonds are widely considered the safest investment. SVB’s experience shows there are moments when even these safe investments may not pay off. The details get technical, but they’re worth unpacking to understand what went wrong. Bonds are effectively money that the government borrows from buyers — the public — before paying them back later, with interest. Market conditions and the Federal Reserve, America’s central bank, help determine that interest rate. When SVB bought bonds, interest rates were very low. Since then, the Federal Reserve, which sets certain influential rates, increased those to combat rising prices. Now, new bonds can carry interest multiple times higher than those SVB bought. Imagine, then, that you want to buy bonds today. You would want the newer bonds because they have a higher payout. So when SVB needed to sell bonds, to raise cash that it could use for its customers’ withdrawals, it could do so only for a discount, taking a loss. The bank failed to follow basic financial advice: Diversify your portfolio. “It’s not fraud,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. “But it’s an extremely risky, and obviously risky, strategy.” In the past few weeks, venture capitalists and other wealthy customers on social media and in private chats started discussing concerns that SVB could no longer pay its depositors. Some began to move their money out of the bank, and the situation spiraled quickly. “Once you start asking, ‘Are we having a bank run?,’ it’s too late,” my colleague David Enrich, a business editor, said.”
You guys are getting it all wrong. According to my conservative Facebook friends, this happened as a result of liberal wokeness run amuck into industries. The bank was in Silicon Valley, what other evidence do you need?
Apparently the board of directors was too diverse. Had they all been white men the bank would not have failed.
Yes, but it's a bit like saying a car driving off a cliff is mostly about the cliff. Gotta also consider the condition of the guardrails, the condition of the brakes, and the skill of the driver. barfo
Gallego Says Lobbyists 'Bought Sinema's Vote' That Resulted in Bank Collapse "When bank lobbyists asked me to weaken bank regulations, I said no. When they asked Sen. Sinema, she asked how much—and voted yes," said the Democratic Arizona congressman, who is running for Sinema's Senate seat. https://www.commondreams.org/news/ruben-gallego-sinema
Warren and Porter Lead SVB Act to Repeal Trump-Era Bank Deregulation Law Sen. Elizabeth Warren said a 2018 law backed by Republicans and dozens of Democrats allowed banks to "load up on risk to boost their profits," endangering "our entire economy." https://www.commondreams.org/news/warren-porter-trump-bank-deregulation 16 democrats sided with Trump and the republicans in this deregulation. Therefore, this was in fact, bipartisan deregulation. So blaming just Trump or the republicans is simply... wrong. Democrats had a hand in this too.
It might be a good time to raise the $250,000 FDIC threshold as well... They will of course pay out over that amount already, but they should probably get it in writing because people are stupid during bank runs.
