I received a reader comment, as follows, below.
This has been rather typical, over the last few days.
Don’t know about “duration risk”. The term is duration mismatch. They locked in on long dated paper. Let’s say they locked in at 2% for 10 years using a treasury bond, assume at a cost of $1000 ea.. They pay 0.1% interest to depositors. Those accounts are essentially zero duration. Interest rates (Fed Funds) rise to 4%. Depositors want a higher rate as they can get 4% on T-bills. So they start withdrawing. The Ten year bonds SVB bought 2 years ago are now around $700 ea.. They HAVE to sell these bonds to get the money for depositors. 30% loss. They can use the Fed discount window, but that’s going to be 4.5% interest. But they are only making 2% on their assets.
They should have hedged, but they didn’t.
My response:
Some serious misunderstanding here. The yield is never locked in, only the coupon is locked in. And you can sell your Treasuries any time, perhaps at a loss, but it’s not like a $100 paper bond certificate that you buy for your nephew as a novelty, and he holds it until it matures. In the adult world of AAA bonds, no one is “locked in.”
The REAL “duration mismatch” is in a bank’s non-callable loan portfolio, but in that case, ALL banks, EVERYWHERE, have duration mismatch, ALL the time, since the DAWN OF BANKING.
Pretending (as “they” have done) that this was an SVB problem only, to deflect from the systemic crisis, is REALLY dishonest. As if all these smart people, don’t know what banking is about? Yeah, OK.
They were just seeding talking points among the peasants. I saw it play out in real time with Bill Ackman being carried by “Citizen Free Press”, which is a sort of reboot of the Drudge Report, very popular.
A LOT of proles have fallen for it, more than a few commenters on this site have fallen for it. So many of them repeating the “should have hedged” BS, like they are experts all of a sudden. Do they even know what “hedging” is?
The only hedge is for the government to maintain an atmosphere of confidence, all the time. Any bank will fall if enough depositors start asking for their money, and don’t stop. You can’t “hedge” against that.
This reminds me of July 2014, when the Malaysian Boeing was shot down over Donetsk, and everyone became an overnight expert on the alleged trail of “the Buk”, and the rebel personalities allegedly involved, some guy code-named “Beast” among others, LOL. That guy was probably too busy raiding police stations for bullets. He was in charge of the Buk, like I’m a pimp in a fur coat. It was all BS.
But people are all the same, always. If one doesn’t understand something, it’s a new or unfamiliar topic, one will latch on to whatever talking points are going around. Critical thinking is always in very short supply.
We are all, always, at risk of being a sock puppet for some spin-master. Some much more, some less, but there’s always some risk.
Well, that covers “duration mismatch.”
In my next post…..
I aim to cover the alleged “duration risk” BS…..
It’s a bit more complicated.
I’ll give you more detail, than I did in my recent long headline.
BTW, I just got a reader email, asking:
What is yield?
I guess my “rent on money” explanation…..
…..from “Dreizin Explains Banking“…..
…..was too nebulous.
“Yield” is the expected gain, for the buyer, on a bond.
Probably the concept is obscured…..
…..by the multiple meanings of the word.
In Russian, the word for “yield” (in the financial sense)…..
…..доходность…..
…..is really more like “profitability.”
Anyway…..
Yield is a function of a bond’s price…..
…..(think, relative to “par (face) value”)…..
…..it’s coupon payments…..
…..and its remaining time until maturity.
There is an arithmetical formula for it, you can look it up online.
Speaking of BS…..

So, they went online…..
…..and got some photos of a Russian women’s jail.
Wonderful.
That’s all the evidence you need, LOL.
Can someone please explain…..
Why are Brits so stupid?
Not the ones reading me…..
…..but all the others?
I mean, Brits have to be stupid…..
…..to believe this shit, day in, day out.
(I assume, if they didn’t believe it, day in, day out… the papers wouldn’t publish it.)
Brit papers are the Worst of the Worst.
Why is that?
My Twitter Engagement Fell Off A Cliff
Folks, still got some really good, original stuff for you…..
…..further down.
But, first…..
It looks as though…..
If I don’t keep asking, in every post…..
Then, people can’t be bothered to remember…..
…..to “like” my tweets.
Well, here I am, asking.
Please like my tweets.
Go back and like everything you’ve read.
Thank you!
Of course, if that’s asking too much…..
You’re always free to give me money.
I’m raising money to be with these ladies:
But, I want to be clear…..
If you’re a pensioner…..
…..eating spaghetti with ketchup for dinner…..
…..or a single dad with two kids, on a blue collar salary…..
I DO NOT need any money from you.
If you need that $5 or $15 much more than I do….
…..then, please…..
…..just follow me on Twitter, it’s enough.
As it is…..
I’ve got at least a couple of thousand readers…..
…..who do nothing for me at all.
So, don’t feel bad.
Thanks.
Ukrainian Ethnogenesis…..
…..And, Why ANY Ukrainian State Will Always Descend Into Fascism
Here’s another one from my “comment response bin.”
In large part, here’s what I wrote:
As for the Nazism, they can’t avoid it.
The Ukraine is a historically new construction. Until the late 19th century, the Ukraine was merely a region, and 100% of its inhabitants, the Ukrainians, or Rusyns (Ruthenians) as they were called in areas under Austria at that time, considered that their language, or whatever regional dialect they spoke, was Russian (“Russka mova”), and they had zero political awareness or identity separate from Russia (with the exception of the Zaporozhian Cossacks, who were Cossacks, not as presently described, “Ukrainian Cossacks”, LOL.)
The concept of a “Ukrainian language” and the associated identity was constructed in areas under Austrian rule (parts of Galicia and Volhynia), with Austrian support and state financing, immediately after the local iteration of the 1848 revolutions, as a way to quell pro-Russian irredentism among landowners and the Russian Orthodox church in the region. From here on, the Galician literary dialect was also set as the “one and only” Ukrainian language, similar to how the dialect of Florence became “standard Italian.”
Due to Russia’s backwardness, the Russian Empire was unable to standardize its linguistic landscape in the same manner as the Germans and French had largely done by prior to World War 1, or World War 2 at the latest. That process requires compulsory schooling and mass literacy, which Russia did not have until Soviet days. Hence, by the time of the Russian Revolution, the Galician Ukrainist movement had been able to gain some marginal but elite following throughout all territories that spoke Ukrainian dialects rather than “Great Russian.”
This was subsequently channeled, with the Russian collapse of 1917-1918, into the formation of the Ukrainian breakaway state. After this was put down by the Bolsheviks (first and foremost, Ukrainian urban Bolsheviks from Kharkov and what’s today called Donetsk), it again came to life under German rule with the Galician-based Banderist movement.
Most Ukrainians did not vote for independence from the USSR in 1991, but the republic was abandoned by Yeltsin, and thus, had independence thrust upon it. There was a general lack of enthusiasm for the state, a lack of understanding as to its purpose, especially as by this time, almost all Ukrainian citizens spoke Russian as their language of work, at least, and among well over half of the population, of the home as well. In short, there was a near-total ideological vacuum.
The only people who had an ideology… were, well, guess who.
Today, excepting the far northwest, with its dominant Greek Catholic church, the Ukraine is still so similar to Russia (culturally there is ZERO difference)…..
…..that the ONLY way any Ukrainian leadership can aim to make its state distinct, to justify its own rule, is to invent a completely fictitious, phony history of some coherent, historical “Ukraine” that never existed (their school history textbooks are a RIOT)…..
…..and to adopt a “supremacist”, Russian-exclusionist approach and ideology. Like, “We’re not Russian goddamn it, we were never Russian, we will cut the Russian out of us, perhaps slowly, perhaps quickly if we can, but we’ll get rid of it, because the Ukraine isn’t big enough for minorities or two nationalities, so, someone needs to get steamrolled.”
In short, fascism.
The Ukrainian state (under German protection) of 1918, and then again with the Banderist movement (again under German protection, or benign neglect at least) during WW2 and then in exile… were explicitly fascistic. The former, even before the term existed.
I wrote last summer or so, that any independent Ukrainian entity will ALWAYS arrive at fascism as its governing ideology. It just took much longer this time (since 1991), in part because of the dominance of Russian cultural and professional media (and the difficulty in re-Ukrainizing in the absence of a sufficient written base and professional need) and the enormous cross-border family bonds left over from Soviet days.
But, it happened.
Obviously, Uncle Sam has taken advantage of this to establish his 51st state on the territory of the former Ukrainian Soviet Socialist Republic.
Obviously, the majority of Ukrainian officials, educators, etc., are just there to get paid. Like people everywhere, they go along and are not driving the ideology.
Nonetheless, no fascists… no 51st state.
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Comments and any associated weblinks or other references must be directly relevant, tangential, and responsive to specific facts or views within my own published material (not just to other comments), specifically the material above the given comments section that you are adding to. What this means, for example, is if I wrote about dogs and cats in the Ukraine, and only dogs and cats in the Ukraine, please don’t start babbling about life in Lugansk, or the horrible loss of life in general. THIS IS NOT A “DISCUSSION BOARD.” IT IS NOT A DEBATE PLATFORM TO DISCUSS IRRELEVANT HISTORICAL QUESTIONS, OR TO INJECT YOUR OWN PET SUBJECTS / INTERESTS, PHILOSOPHICAL MUSINGS, OR RANDOM RAMBLINGS THAT DON’T DIRECTLY, SUBSTANTIALLY BEAR ON WHAT I WROTE. Please, no disjointed / overcaffeinated rambling, which implies, among other things, no mentioning eight different topics in one comment, like a schizoid aiming to connect all the dots (if your mind is racing, take your Ritalin and calm the fuck down before you comment on this site); no “pet issues” or inquiries that have no direct bearing on what I wrote; no unclear/unexplained, irrelevant, or barely-relevant weblinks; no trying to write your own mini-blog news update digest in my comments; no batteries of questions like what about Donetsk and what about Kiev and what about the Big Offensive and how does this all end and where does blah blah blah (I will NOT respond to you, I will BLOCK you); no asking me what I think of some commentator whom I’ve never heard of; no Nazis; no Nazis pretending to be Jewish like “I’m a bar mitzvah boy, but I’m so ashamed of my people who are not the real Jews of Jesus’ time“; no “crypto” Jew-hating (when I have to read it three times before I’m sure it’s about Jews, then I permanently block your wise ass); no dogmatic Marxists; no using anti-Ukraine jargon or other “Nadsat” bullshit-speak that you picked up from The Saker, which no one outside of you and your freaky virtual friends can understand (e.g., Ukrops, 404, the vimiratis); no calling for the destruction or dissolution of the USA or its government; no calling for the destruction of Washington, DC; no calling for violence against current or former elected or appointed officials of the U.S. Government; no nonconstructive or hateful ranting about Jews (or Swej, Joos, Jooz, Jooze, Juice, Juize, Jewz, Jewze, J-Dogs, J-Dogz, J-Dawgz, J’s, Chews, Choos, Chooz, Chooze, Zionists, Zio-Nazis, Anglo-American Zionists, Amerizionists, Zionist Occupation Government, ZOG, IsraHell, Bibi SatanYahoo, “those of whom we cannot speak”, “your friends whom we can’t talk about”, “a certain small ethnic group”, the chosen, the tribe, the chosen tribe, the thirteenth tribe, tribe of Judah, the Khazarians, Khazarian mafia, Rothschilds, Khazarian Rothschilds, JewTube, JooTube, JewMerica, JooMerica, etc., etc.); no being nasty to other commenters; no trolling the “sysop”; no passive-aggressive needling of the “sysop” (I don’t acknowledge, I just BLOCK and you’re gone, “one strike” and your ass is out, GO GET SOME THERAPY); no dissing or ragging on the Insane Clown Posse, no Chupacabras, no “country music”, no karens or avocado toast, no complaining that your other comment wasn’t published (because you’d didn’t read this Comments Policy), and no claiming “the korona doesn’t exist because vyruses don’t exist.” Please share your ***CONCISE*** (2 smartphone screens of small font text is NOT concise, I don’t have time to read your dumb fucking manifesto, gawd dayyuuum!!!), relevant, coherent, organized thoughts, and come back for my next post. Also, by commenting, you expressly accept and agree to my “one bullet, one Nazi” policy, and please be advised, this includes Nazis everywhere, even in the Ukraine. Furthermore, if you are a LibJew/DemJew, you are BANNED from commenting on this site UNLESS you acknowledge the extensive presence and influence of Nazis and other fascists in the Ukraine, who don’t give a fuck that they have an allegedly “Jewish president”, because they’re still (in many cases) getting paid by the state, and they’ll “take their country back from the Jews” once they take care of the Russians (can’t slit all throats at once.) If you can’t acknowledge it, then get the fuck out with your “Never Again” bullshit. Also, no scrubs. If you don’t know what a “scrub” is, please consult the TLC video on YouTube. Although scrubs exist in ALL ethnic groups and populations, a very good example of scrubs, is all the poor young black men who get shot dead, and then the moms are like, “He had such aspirations, he was going to be a rapper.” Yeah, they were all going to be famous rappers, all the thousands of them! Sure!

“Most Ukrainians did not vote for independence from the USSR in 1991”
Where do ghet your BS from? 90+% voted for independence.
https://en.wikipedia.org/wiki/1991_Ukrainian_independence_referendum
Ah, a wikipedia expert. If you comprehend what you read, you’ll note the independence rederendum was conducted months AFTER parliament had already declared independence, and the count was likely totally fake anyway. In the last referendum taken BEFORE independence, a great majority voted to preserve the USSR. That count may have been fake also, but nonetheless, was not nearly so lopsided. In any case, there was NEVER any popular independence vote taken BEFORE independence.
Nice Ukrainian history/summary and fits with much of what I heard from my Lvov born grandparents, I tell everyone I had a grandfather who belonged to the Canadan Labour Temple(still around!) but was a huge capitalist – ran rural store then shoe repair shop, a rooming house and rented out property! ROTFL
BTW you didn’t even rant about you know who’s channel! About time.
“Today, excepting the far northwest, with its dominant Greek Catholic church, the Ukraine is still …..”
WTF are you talking about? There is no “Greek Catholic Church” in Ukraine and of course no “domination” of it, only a Greek minority of Greek Orthodox who live mainly in the South-East!
ALL WRONG – but you said it anyway.
And then you talk about “bullshitters”
Hey asshole, you’re obviously Greek, because you act like it. I am referring to the Uniate church. Everyone but you, understood that. I’m not blaming ethnic Greeks for that shitty church. Go back to your piano, Yanni.
Brits are complete fucking morons. Like half the time I see a completely r,e,t,a,r,d,e,d take on Ukraine on Twitter, I check the account and they’re from the UK. I’ve never seen a Brit account post anything other than neocon garbage. All the good ones either died in the wars, or moved to the US generations ago.
Wow Jacob, Mary and Alice look like a fun night or three. I’m skeptical of their names, and more skeptical of their virginity. (I wonder how many times they’ve sold THAT story.) They certainly look well worth 1/10,000 thae price, but I’m sure it’s negotiable. Do we have to go to Ukraine to take advantage of their offer, or do they make house calls in the USA? If my dick still worked (and I had money to burn) I might be tempted. But I digress…
In any case, I am also skeptical that “You get what you pay for” applies. But good luck and best wishes.
P.S. Get a supply of penicillin before your night of deflowering. Word to the wise. 😉
De vulgari eloquentia. A good read.
Have to admit, the banking stuff mostly goes over my head, good thing my expert financial advisor (wife) looks after my/our/her/mostly her……who am I kidding, money
The FED just poured anither 300bn $ into banks în a week. That s insane.
The counter argument – which I’m just putting out there – is that this whole episode is doing what should have been done a long time ago – making money more expensive and bringing a tiny bit of discipline back. The central banks might (who knows) get their money back as these institutions wind down their asset portfolios and convert them back into cash to repay the central bank. It’s just when things happen all of a sudden it can go out of control in a heartbeat. It’s going to hurt whatever happens.
No visible tats or piercings. Dad approves.
Still glad they’re not part of my daughters’ circle.
Dreizin, I would disagree with you on the topic of the genesis of Ukrainian language. Sure, it has something to do with the lack of standards in pre WWI period, but it really went off during Ukrainian SSR and the Lenin era. Lenin was meticulous in his attemp to destroy Ortodoxy in Russia, even had some Ateist brigades which sole purpose was to murder Russian priests, and they really did as much as they could on that front. But he allowed the Union church to serve in Ukraine, also under the disguise of some organisation that Stalin dismantled afterwards, I forgot its name. My point is, the same thing would happen in Germany or France, it’s just that there wasn’t concerted effort to achieve that outcome (esspecially the case with Germany or Spain). In the Balkans, the language was, to all intents and purposes, standardized by the Serbs in the first half of the 19th century. And just as in Russia, due to political animosity, previously defined dialects of the Serbian language have become new languages of the new nations (the case with Montenegro is very similar to the one in Ukraine). So, it’s mostly identity politics, the real Slav way, with a heavy influence from the West.
Yep
Your comment is a mess, sorry. What is the point? What exactly do you disagree with me on?
The Ukrainian language has not spontaneously appeared due to a lack of standards in Russian empire, but because of concerted effort of the post-revolution regime. It would have happened even if the Empire was super-sophisticated. I mean, look at Zelensky, he had to learn Ukrainian 5 years ago, to conform the nationalists, regardless of the state of Russian language. The same is in Montenegro, they added two new letters on top of the Serbian cyrillic, only to make small difference, and that happened like 15 years ago, literacy of everyone was 99%, it was laughable stuff.
Total nonsense. Ukrainian was not invented by the Bolsheviks. It is well documented in local literature as far back as the 16th century, all the way up through the last Tsarist census. It was not standardized, but a Ukrainian dialect grouping has existed for centuries. Why don’t you learn something, instead of just listening to yourself yap yap yap?
Doltish sluts or sluttish dolts?
Who? What?
Those two twin sisters. Sorry I wasn’t clear.
Elkojohn, no one suffered more than Ukraine during collectivization (are you communist’s are not? said Stalin to his colleagues), as he had the balls to actually do it. If memory serves correctly, it began earlier than ’32-33. However, mass collectivization resulted in the same famine and agricultural disaster throughout Russia, as a side note. Terrible suffering beyond our measly comprehension!
I often wonder what percentage of “Ukrainians” (excluding those in the Donbas) are Russia-hating true believers, and what percentage simply go along to get along. The ideologues are driving the Nato supplied bus off a cliff, but the passengers do not appear to be making any attempt to wrest away control of the wheel. On a side note, I find it somewhat comical that the notion of a primordial Ukrainian identity is essentially a Habsburgian anti-Russian contrivance.
Well some of the ‘passengers’ did try to protest the Maydan coup in Odessa. They ended up being burned alive, shot or beaten to death.
Just saying, that here in Hungary there is Rusyn Ethnic Council and Ukran(ien) Ethnic Council – without any animosity of I am aware of.
HOWEVER in a referendum back in 1991 Zakarpathia (Kárpátalja lit. Subcarpathia) voted for “special status” since autonomy was cautiosly removed from the questions’ text. NO referendum since.
Zakarpathia’s main ethnic group is Rusyn.
Could have been done simply, without intervention from any central banks. When you use capital reserve to buy a bond, you’re getting a contract with a fixed coupon rate (you’ve locked in your YTM).
If you then go out and buy an interest-rate swap that takes those coupon payments and pays you a (lower) variable rate, you have hedged your rate risk, by giving up some of the present-value of your fixed rate instrument. When rates rise, the counterparty that sold you that IRS will start increasing their coupon payments to you (because IRS are either linked to PRIME or to LIBOR).
1. Buy a bond with a YTM of 3%
2. Buy an IRS that takes 3% fixed and pays PRIME minus 1% (2% at time of purchase).
You have now ensured 2% return on your reserve capital. Now, rates rise. PRIME rises to 5%. Your net position is now [1] a bond trading at 90% of the price you paid for it and [2] an IRS contract trading at 110% of the price you paid for it.
Now your net position, if you convert that bond + that IRS contract from HTM to AVS on your bal. sheet, is net zero … you are not exposed!
Layer 2: You bought that IRS from American Int’l Group (AIG). You review their Y9C filing with central bank and decide their balance sheets isn’t as strong as you’d like it. You think MAYBE they might not be able to hold up their end of the IRS contract. You go out and buy a Credit Default Swap contract (a CDS) from Lloyd’s on AIG. If AIG goes under, Lloyd’s will cover what you would have lost on the IRS payments with a single default pmnt.
NOW, the only way you will lose money on your reg cap position is if both AIG and Lloyds go under… and in that case, you are guaranteed to get a bailout either from the US FRB or from Exchequer of the BoE.
THAT’S the 1 2 3 of how you hedge both rate and counterparty risk on your reg cap and NOT GO UNDER WHEN THE BANK RUNS START!
Banks can also use the repo market if short of liquidity and need cash in a hurry and can’t wait until bonds mature. But I do agree with Dreizin on the ‘big picture’ and 95% of what he said. My point was about fixing the yield, and there does seem to be something particularly fishy with SVB in terms of the way they responded to the need for cash, the lack of any hedging (which I do also agree with D. is somewhat limited but that’s because banks can’t give up all of their yield) and the failure of the capital raise. Banking is a pseudo ponzi scheme and things start to go badly wrong when confidence goes and customers try and get their money back. There’s never going to be a system of lending that doesn’t rely on confidence, it’s still to be seen if this is the start of the end or they can kick the can down the road for a while. I’m guessing rate rises will continue, but that is a pure guess. I don’t work any more so am not close to the details of any of this. Interesting comments on this topic!
Here is the Thursday March 9 experience from an SVB business account that withdrew deposits:
https://twitter.com/torrenegra/status/1634573234187407369
If there is something catastrophic to hedge or be cognizant of, it’s the concentration of depositor base into a common influence network. As Dreizin posted, “We are all, always, at risk of being a sock puppet for some spin-master.”
California state financial regulator reported SVB had $42 billion deposit withdrawals on March 9 alone. This strikes me as an insane amount for a bank with $210 billion balance sheet assets and $170 billion deposits. Presumably, net withdrawals continued after.
https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf
Not to brown nose too much and at the risk of swelling your head even more I must say you have done a tremendous job explaining the bank situation.
It seems the left has been told it’s a risky investment problem.
The right has been told to think it’s woke management issue.
I certainly believe that wokenss will eventually ruin about anything in the long run (See Western Civ) I suspect banks like SVB were for the most part playing by the rules. Again, it’s not like they were investing in over valued appraised properties to people with no reportable income. Nah it was just good old fashioned US treasuries and reasonable prime loans.
After reading your piece last weekend I had an epiphany to share. Never was a big crypto guy but have a modest amount of physical metals. I came to the sudden realization that I have over looked Bitcoin as possibly the best alternative to hedge our current situation.
Going to buy a modest amount and get it the hell off the exchange and into a Crypto Wallet ASAP. Waiting for my funds to be sent. I am not doing this to capitalize on market gains. I’m doing it because it’s an outside source of currency to fall back on should the worst come to pass.
I want to pre apologize to you and any of your readers who currently hold Bitcoin. Get ready as soon as I buy it the fucker will go down. And you can take that to the bank.
Any thoughts on the Ukraine Famine of 1932–1933 fueling Ukrainian hatred
of Stalin’s Russia?
I have, this famine occurred in southern Russia and Kazakhstan as well. Part Stalins collectivism and partly natural. However, a Canadian of Ukrainian descent made up the word Holodomor in the 80s which intentionally or not stoked up yet more Russia hatred amongst the descendants of the Galician brigade up there.
The man in charge of the forced collectivization of Ukraine was a Ukrainian named Kaganovitch.. Descendants of that family came to the US and shortened the name to Kagan.
LOL. “Descendants of that family”, nice try. So the Jew Kaganovich was the Jew Nuland’s Jew husband’s 15th cousin, thrice removed, on his grandmom’s side? If so, who cares? They’re all assholes, but what’s the significance?
Twitter will let me retweet you but won’t let me follow you.
“Duration Mismatch” is the wrong term. “Duration Risk” is better. “Interest Rate Risk” more accurately describes the issue.
But even that is not enough.
It is better understood through the balance sheet. On the assets side they had long treasuries that they bought in 2020 and early 2021 at .75 to 1.5% yield. Fed raised rates very fast in 2022 to 4.5%. New Treasuries for the same duration are selling at a price that gives a yield ~5%. Prices move inverse to yields. If you were to sell the treasuries you bought in 2020 now you would get today’s price, which is lower than what you paid for them (because of today’s higher yield). Hence the loss.
But you don’t have to sell them. You can keep them on the books to maturity and you will get the principal back along with the coupon payments along the way. Sure you won’t make as much as if you had bought them in 2022 at the lower price, but still you will make the expected yield at time of purchase. SVB couldn’t do that. They had other Agency MBS which has higher credit risk than treasuries, but still very low risk, so no Credit Risk here either.
SVB HAD to sell to give back their depositors the money they deposited (the liability side). A bank which has a high number of accounts with deposits lower than $250K is at very little risk of a bank run than one with few depositors with very large deposits, because in the second case all you need is few depositors to freak out and pull out. SVB was the second type. That forced selling at a loss meant that they had negative Equity (A – L < 0), and hence was on its way to becoming insolvent.
Hedging the Interest Rate Risk with IRS (Interest Rate Swaps) would have worked if they kept the hedges all through to maturity (or a FED pivot). Another was to get out of the way early and replace long treasuries with short term TBills that roll over every 3 months with a new higher interest rate that will sell very close to purchase price when forced. They didn't do that.
And now they're gone with the VCs and other rich depositors bailed out by the government. As they say "Socialism for the rich and Capitalism for the poor".
Thanks, but you simply recounted the loss the bank took. I already covered this in “Dreizin Explains Banking”, you’re not adding anything new, only some details.
To suggest that all similar banks (or all banks) can hedge all such risk is silly. Who’d take the other side of that mass hedge? It would have been an epic meltdown in itself, when rates shot up, and all banks (whose names we haven’t even heard of yet) with losses realized or unrealized, began stepping out of the shadows to collect… and in that parallel universe, you’d be roasting the hedge writers, saying what they should have done differently 🙂
There is a gigantic market for interest rate hedges (called swaps) that matches financial institutions who suffer when rate go up with those that suffer when rates go down and neither party wants to be too exposed – and the investment banks step in to solve that problem. You are wrong on this aspect IMO.
Thanks, I also saw your other comment in which you provided more hedging details, and briefly summarized your resume.
Like my wife who also works finance, as a technical specialist, you have difficulty seeing the forest for the trees. Of course, one can hedge. It’s technically possible.
But if everyone (or even just, all deposit banks with an overweight bond portfolio) is hedged the same way…..
…..and then interest rates (or whatever else) shift HARD…..
That will blow it all up, to the same extent as if there was no hedging at all, because the losses would be THE SAME, no matter who is called to absorb them.
There’s never enough absorption depth in a situation like this.
Your beloved investment banks (or whatever other counterparties) would be beating down the Fed’s door for a bailout, as usual.
(Alternately, if SVB had hedged and other banks didn’t, you’d now be hearing about the other banks.)
That you STILL refuse to grasp this, no matter how many pictures I draw, is not surprising, seeing as so many large U.S. corporations melt down and disappear, or at least need a bailout at one time or another. Almost no one on “the inside”, ever sees ANYTHING coming.
My wife BTW worked a top financial role at a large entity associated with SunEdison. She refused to see the obvious collapse coming, and we lost $45,000 because she didn’t listen to me and sell her award stock in the narrow window that she had available to do so, before the blackout period that slightly preceded (and overlapped with) the crash.
She was convinced the stock would go up and up. On the other side of the two-month blackout, when the end was upon us, she’s like, “It was a ponzi scheme.” Yeah, babe. A little late. What a difference, two months makes. But it’s the same story, every time.
My advice to you, stick with treasury operations, and leave the Big Picture to the bloggers.
It was ALWAYS OBVIOUS that the Fed would massively blow something up, and then “pivot”, because these rate hikes WERE NOT going to work.
Some of the smartest people in the country, put down huge bets on that. But those smarties work in hedge funds, or they daytrade, whatever.
They’re not people like you.
“Like my wife who also works finance, as a technical specialist, you have difficulty seeing the forest for the trees. Of course, one can hedge. It’s technically possible.”
Many people lack the imagination to envision the worst scenario. Hedging works until it doesn’t. During normal times, it has its uses. But during abnormal times, systems can break down.
For an idea of how this could happen, I suggest readers look into the “Tin Crisis” of the 1980s. This busted the London Metal Exchange and it had to be reconstituted as a Ltd. company instead of a partnership. All those who hedged got screwed. The winners were those who didn’t hedge. Being prudent and doing the right thing only cost my company between US$1 and US$2 million, because one couldn’t hedge against the exchange going boom. There is no exchange where one can hedge against a system collapsing.
Risk can be reinsured (for a fee) but it cannot be made to disappear.
Consolidating all risk in a single system puts the system itself at risk.
That is why we have quadrillions in (mostly interest rate) derivatives: it is an attempt to completely abrogate risk by having an infinite regress of mirrors. As in the fitting cubicle, an illusion.
Being a Scottish Brit living in England I can tell you more than the average peoples are programmed to distrust and dont understand Central & East European anything. Newspapers are entertainment or triggering points to those addicted to the rush. Some know it all’s have previously taken the cheap Balkan holiday spending a week oscillating from swimming pool to bar uncovering all manners of culture & historical values, not. This week they may worry if their hotel will be safe from Putin.
This week the ATM”s in my area got restocked following the rush as media portrayed SVB stories. The crash is here.
This week more hate for the government budget announcement lies of economy upturn when everyone’s reality differs and middle classes pink glasses shatter.
This week an accumulation of protests are being realised on asylum seekers and unbearable politics, Brexit again, minute cities with some clarity on community action developing. Ukraine/wars now a dead duck. Interesting exposure on UK Bill of Rights the farce of Sovereignty and Law courts are good, how pitiful Magistrate courts are run & Corrupt, grassroots doing a good job on the tax fraud with solutions.
This week, I refuse to spend a moment on historical diatribe, media misdeeds, or whose to blame. Im decorating and got a garden to fix. Not that I find you floating in that soup.
I like your blogs, I dont do Twitter . So consider this a Tick in the Like box, have a good week and dont let your wife see those ladies you’d like to buy a coffee for, I’d be tempted to place a sanction of withdrawal, you can guess, for a week.
PS: Your short history of any Ukrainian state is — a masterpiece. Thank you.
Finally somebody wrote the right history of „Ukraine“, and that was you – short and true, tnx. The Chmelnicky Kosaks were Russians. Still today, many let make DNA tests – russian blood most, some Tatar b and some Turkmens (Osman – türkisch). They even didn‘t mix with the ukr peasants who came from Galizia. All are Slaws anyway.
There is no “Russian blood”, there is only statistics. There is a certain distribution of certain genes in the genotype (and therefore phenotype) of people and hence in a population within a geographical unit, like a country, or a linguistic unit, like the “Eastern Slavic room” (including the dialect continuum between 2 languages). People get assimilated, others get expelled, people mix up. Maybe some Mongol had nasty sex with my grand-…-grandmother some 1000 years ago – a certain haplotype/gene could be proof of that – don’t know (but would be cool, maybe Genghis Khan himself). Everytime I hear crap like “pure blood” or something similar my balkan-slavic dorsal hair starts to tilt up.
Thank you Jacob. A question if I may: Banking never interested me – is there any Level 101 basic book for pedestrians you would recommend – especially dealing with these bond, Treasury, certificates, etc. side? Many thanks in advance for possible guidance.
This is a good resource for financial history and insight – the books are not online but there are good videos and the catalogue of books indicates which are popular.
https://www.libraryofmistakes.com/
Just like the Proddies v. Kafflics in the Celtic countries….same people, common language, divided by religion. In Ukraine’s case, divided by ideology and fake national stories. V. Sad, the kind of thing that is only settled by war.
Sorry for length but this was a particularly thought provoking post.
I am also glad you exempt your British readers from the stupidity comment! But I did just read most of the Mail article (cannot bear all of the drivel) and it is totally deranged. “Evidence” is something that some Ukrainian official or an anti Putin Russian exile said. Most of the comments then show just how stupid, Russophobic and propagandised much of the U.K. population is.
The history context is very useful. Aligns pretty much with what I have read in Sakwa’s “Frontline Ukraine”. He makes the comment based on survey evidence that many Russian speaking and Russian identifying Ukrainian citizens were happy to try to give Ukraine a go as a country and were not all clamouring to rejoin Russia. If people are left alone to live our lives, allowed to speak their language and not persecuted then I suspect this would be true too of most of us, whatever country we happen to be in. The state becoming dominated exclusively by the very monist / exclusive anti Russian Galician definition of Ukrainian identity after Maidan seems to have been the tipping point.
My sense is that most other European national identities are also much newer than we like to think. Even German identity only really gets going in the Napoleonic Wars. It was an elite top down construction too that was intensified after 1870 and built through state education and language standardisation.
Despite the lack of history, an independent Ukraine maybe could have worked in the way that modern day Austria or Belgium (themselves not historical states) do. Austria is totally similar to Bavaria (which itself arguably has more in common with Austria than with North Germany) in pretty much everything, for example. For Ukraine to work it clearly would have required the Galician legacy to be faced down though. As we know, the US instead spent money (I have seen $0.5billion quoted for up to 2014) on “democracy promotion” in the new Ukraine. I genuinely wonder if things could have worked out in the absence of that outside stimulus and whether some form of cultural pluralism within Ukraine might then have flourished.
Ironic too that Tsar Nicholas I saved the Hapsburgs in 1848 and that one of the ways they repaid him was by promoting an anti Russian Ukrainian national identity! I guess this is how Ukrainian came to have a separate alphabet too? Have often wondered how that arose. Would need a state to create it.
I’m struggling a bit with the criticism of the comment about yield being locked in. The way you can unlock the yield on a held to maturity (HTM) accounted bond is to sell it, at which point you realise (sorry I am using UK spelling!) the previously unrealised gains or losses that you have been ignoring due to the HTM accounting method adopted. Market price changes on these bonds are not an issue if either the price goes up (book a gain when sold) or the bond is held to maturity, at which point you get the principal back and do not book any unexpected losses. I thought the reader comment was correct in identifying the issue for SVB – they were forced to sell HTM accounted bonds early and book a loss, which depleted their capital and led to the attempted equity raise, which failed and forced a loss of confidence by depositors. Maybe it’s more complex in why the capital raise failed – that’s another issue. The same yield issue would have arisen had they chosen to sell the mortgage backed securities, but these are less liquid than a bond portfolio. I’m not disagreeing that this is potentially a major issue for all banks that use HTM accounting. If SVB had taken out interest rate swaps to hedge against the risk that yields rise and prices fall, they would have been OK, and it seems to me that these swaps would have been relatively inexpensive at the time they purchased the bonds since the market’s long term rate expectations were lower. SVB’s lack of interest rate risk hedging seems to be a big problem, and they were more exposed than most banks, who certainly used to employ financial risk experts to manage these risks, unlike SVB which had no chief risk officer for many months and a head of UK / Europe risk who was a black lesbian activist who probably struggles to multiply 7 by 6.
I agree this raises as many questions as it answers. Since Jacob is a very busy man who already gives us so much of his time for free, I will (humbly) try respond. I think this is the pertinent paragraph:
“The only hedge is for the government to maintain an atmosphere of confidence, all the time. Any bank will fall if enough depositors start asking for their money, and don’t stop. You can’t “hedge” against that.”
Well you probably can hedge against all those risks, but there is a cost, so even if a bank doesn’t have an incompetent Lesbian running that department, the emotions of Greed and Recklessness may tempt management to forego proper hedging or provisioning, or do it partially/inadequately on the cheap.
So it’s in this sense that all kinds of clever explanations of “failed to hedge” or whatever are a smokescreen for the proles, because ultimately it’s a zero sum game and the bankers will always pursue the course which most probably guarantees their personal profit and safety. Again, this is all assuming that they are competent.
Banks *can* in fact hedge against a run on their ban. In addition, all countries have central banks, the “the lender of last resort” whose job is to step in and restore calm at times like this. People generally won’t take all their money out of every bank – they run from the most risky first to the relatively safe and that money then goes back through the system – via the central bank. If SVB had hedged properly they could have sold a chunk their assets without material losses and refunded deposits, it really is that simple IMO, and I have worked in Treasury functions, balance sheet management and capital management for many many years (more than 20), so probably should know what I’m talking about. I’m not disputing long term structural issues but unless I missed something, the original comment was correct IMO.
Institutionalized UK stupidity, Wallace’s “UK Defense Ministry” seems to be the top nodge & foremost BS agency all over the place.
Remember 1 year ago their claims about “mobile crematories” with which Russians allegedly tried to “hide” their casualties (later on, it was spewed out that they were “hidden” in Belarusian morgues etc.)& on and on in this sense ad nauseam. Who is that imbecile to bed fed with stuff like that ? Enough people, it seems, appreciate kinda brain-simmering.
>>”Most Ukrainians did not vote for independence from the USSR in 1991, but the republic was abandoned by Yeltsin, and thus, had independence thrust upon it.”
I don’t disagree with the broad thrust of your historical analysis.
However, in the December 1991 referendum, by a vast majority most Ukrainians DID vote in favour of the unilateral declaration of independence from the USSR that the Supreme Soviet (Ukraine) had made four months earlier.
There were two referendums Gorbachev’s new Union treaty (the real one) and Yeltsin & other Sovok crooks post-backroom-powergrab referendums (fake as fuck).
After all if the U.S.S.R has already been effectively rendered ungovernable at federal-level by treasonous kletptocrats & strongman who couldn’t hold Gorby’s job. But could crave the country into fiefdoms then anything they present as the “will of the people” is by definition suspect.
SVB – a special feature of this latest banking disaster is that, it seems that, allegedlly etc. etc., the word on the street is that for the last eight months the bank did not have a ‘risk manager’ or whatever you call it in the USofA, in post. If true, why not?
Leaving for Twitter now!!
Ukrainians are not Russian. The culture is different not only in the west of Ukraine. Here is a simple example. During Nazi occupation, hundreds of thousands of Jews were enthusiastically killed all over Ukraine by local people in Ukraine, but not in Russia. My relatives were killed not far from Kiev. Villagers killed other villagers because they were Jews. And I believe, this is hereditary. You can not “denazify” it.
I guess for the Russian elite it will be enough to cut them off from the Black Sea and from all fertile and mineral rich lands and maybe even take Odessa and Kharkov in the process. The rest of this f’ed up place can remain “Rumpcraine” that will be bombed till kingdom come. The amount of western weapon presents will only decide where the Russian border will be.
Perhaps your Twitter account is ‘shadow-banned”? I am following you and never saw a tweet on my feed.
I don’t understand much of the financial situation, but have read that about a week before the SVB crash, Peter Thiel advised people to start withdrawing from SVB, which could have seeded the run on the bank. Peter Thiel….that name keeps popping up everywhere. I don’t trust him (or Rumble).
Peter Thiel “lost” 50 million in SVB bank. He has come out publicly and said the reports of him telling people to withdraw money are false. SVB board are all Pelosi, Clinton, Newsom connected.
Australians are dumber than the British because we just offered to pay for them (AUKUS) to reestablish their empire from here and turn our asian neighbours into enemies.
I appreciate your blog very much. I am not skilled at financials or banking or anything like that, so I am trying not to ape or repeat anyone’s perspective on the matter. Many of the people I have read or listened to regarding the subject blame or point to various things, so it’s difficult to really find the truth in the matter. Like everyone else, I’m just doing my best to brave the storm, so to speak. At any rate, I appreciate your work very much, and I hope things are going well for you. I don’t use twitter because I do not like the service, so I help a contribution is enough.
Wanna hear something funny: The German media is almost exclusively citing British “sources”.
“The British council of political surrealism and war fantasy assumes that Ukraine will occupy Russia as far as Irkutsk or even Wladiwostok.”
“The British ministry of fecal matters has proof that Russians commit mass suicide to avoid the shameful isolation by the civilised world.”
“Acc. to Boris Johnson Russia has no Uranium and Plutonium left and could not fight a proper nuclear war!”
I could do that all day long, but those Martha Fokkers get paid for it and I don’t.
But you are right, the Brits are the most stupid people in Europe. I just would add the the Germans are the most pathetic (maybe of the whole planet).
For some time I have been telling young Brits that understanding what is happening in Ukraine is quite simple. Just read the Daily Express and assume whatever it says, the opposite is true.
I don’t do Twitter, so I’ll just donate. : )
It’s crazy that a big portion of the ancestors of those “Teenage Ukrainian Sich Cossack Heros” was of Russian ethnicity and most likely even fought in the Red Army against the Nazis. And 78 years later their grandgrandchildren have stupid tattoos, laughable haircuts and moustaches and fight for American hegemony against their own “primordial” ethnic group. What is highly ironic: You had/have so many assimilated people within the Russian corpus, like Bagration, Stalin, a lot of Germans, Italians, other Europeans, etc., people like Valeriy Gergiev (watched him live, Ossetian ancestry) – but many of those “real Russians” in Eastern Ukraine hate Russian guts and became pure fascists.
I could not have said it better myself.
I remember a movie from 2008, The Conqueror, about Taras Bulba (by Gogol). It was an Ukrainian movie, and it was very pro-Russian: when the cossacks were killed by the poles, before dying they blessed the ‘Russian motherland’, wishing her eternal glory. Obviously, the film was criticized by some nationalists, from the western Ukraine, I imagine, but was generally well-received. Also, historically the Sich Cossacks were not anti-Russian. Khmielnitsky accepted to be a vasal of the Russian Empire in order to be protected from the Poles.
Also, the Ukraine Project apparently wants to appropriate the Kievan Rus, and most recently even the name of ‘Russia’, and to rename Russia into Muscovia (btw, why is ‘muscovite’ an insult in their view?).
Back in the heyday of the Kievan Rus’ Moscow was just a backwater town. It would be as if 500 years from now, Tallahassee became the cultural and political capital of a reunified America, and NYC turned into a backwards shithole. Well, it is, but pretend it got a lot worse.
Only difference is Ukrainians are clearly ‘Florida man’ in this situation.
All of Eastern Europe is a quagmire of mixed blood, mixed races, pretending to be Pure “Something”.
But ultimately Eastern Europe is a European issue, elastic borders, hatred, lousy compromises. Either Europe needs to find some working compromise with a fed-up Russia or retract back into the Dark Ages.
The Disunited States of Financialized Cotton Candy has already signed their own Death Warrant, by uniting all but her powerless Colonies against her. The once mighty Industrial Powerhouse, now a whiny bitch, properly and accurately represented by a senile, mouthy airhead pushed along by a gender-confused, skittish, spank-me, Creeporian Guard.