The collapse of SVB is just the collateral damage from the Fed's steep rate hikes. The Fed boomers are still living in the 70s. Yes, raising interest rates to fight inflation works but it's a blunt sledgehammer move and it smashes everything in its path. SVB wasn't even making irresponsible bets and its main bad move was to invest in US treasuries.
1. You are correct. From one perspective, one might even say the cause of this collapse was the Fed itself (for having increased interest rates so much). If you have seen my posts from much much much earlier on, I had questioned the logic of central bankers for deciding to increase interest rates to fight inflation that does not appear to stem from sources that have much to do with interest rates at all. Something had to break sooner or later. So, I really have to shake my head at disapproval at the US, particularly. SVB, Signature bank are garnering headlines. But, there was recently FTX and silvergate collapsing as well. Does it portend bigger things to come?
2. From another perspective (which is also correct), I can also say that SVB is itself to blame for investing in long-dated US treasuries amid an increasing interest rate environment. Actually, they really only wanted to raise US$2 billion (for losing money on US treasuries no less) and that was what got the ball rolling. US$2 billion should honestly be a relatively small sum to a bank of their size. But, it caused this entire mess.
3. Judging by the pre-market reaction tonight, it seems the markets somewhat share my view that the combined action by the Fed, treasury and the FDIC might not be enough. But, we shall see. It looks like First Republic Bank or Credit Suisse could be in trouble now? I hope not. Or, are we in for the next great financial crisis (we are way overdue anyway and i won't be surprised if it happens)?
4. I am happy for depositors at SVB and signature bank as their full deposits have been protected. But, question. If you were going to do that anyway, you should just make FDIC insurance up to unlimited amount of deposits from the beginning. Another way to put it, if individuals/companies were aware the insurance is up to US$250k only BUT they still decided to put in more than that. Why should their money above US$250k be saved? They have already understood that that amount of money is not insured. They should lose it. That's how its supposed to work, right? No doubt it was just cash deposits, but these individuals/companies were probably risk-taking in the sense that SVB was offering higher interest rates than bigger banks like JPM, BOA etc. Similarly for stocks, if i take risk, if i lose, i lose. It should be the same here? No?
