They bought $80b of fixed-rate bonds at historically and artificially low interest rates in a time of massive QE. Even based on the information available at the time, this is not a surprising outcome at all.
In retrospect, the Chief Risk Officer leaving and not being replaced immediately was a bad sign: https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
100% speculation: the CRO told them loading up on long term bonds was crazy, and that they'd just have to eat lower earnings. The CEO/CFO disagreed, and the CRO didn't want to have any part of it. Hindsight is 20/20, but... this really was a disaster waiting to happen.
"A risk officer typically anticipates and manages regulatory, operational, competitive or other risks faced by a firm."
That looks like _non-financial_ risks. If that was the role of the CRO at SVB, the risk for this event probably should have been with the CFO?
The charge of "manipulating bond markets" is pretty absurd - their mandate is to influence inflation and employment via interest rates. Of course it has an impact on bond markets.
>They did a pretty good job during COVID
One word: "transitory".
Note all the months since July 2022. It's good to read the source material rather than hyperventilating news articles.
Mean MoM % change in CPI-U from January to preceding July, 2016-2023:
* 2016: 0.01
* 2017: 0.27
* 2018: 0.27
* 2019: 0.10
* 2020: 0.21
* 2021: 0.30
* 2022: 0.61
* 2023: 0.27
Raw monthly data: https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_...
I am eager to see Tuesday's numbers for February inflation.
I just don't know if I'd call it a "pretty good job," is all. They were caught-off guard and didn't move quickly enough.
The idea that they aren't doing a good job because they aren't perfectly precise with their timing is silly.
You'll have to support thay with something. Again, the language of their correspondence over the past few years says otherwise.
Unless, of course, you are expecting the Fed to predict the war in ukraine, the energy crisis, etc.
And in any case, people who take the Fed's predictions at face value, and base their financial positions on it, can only blame themselves when the Feds do something contrary (as they are always entitled to). These predictions aren't promises.
It has been. We're barely at 1.5-2 years in length and it looks to be either stabilized and perhaps dropping.
A number of folks estimated that the COVID recovery stimulus would take about this long to work its way through the system, using Korean War spending as an analogue:
* https://www.piie.com/blogs/realtime-economic-issues-watch/in...
The fact that energy and food prices spiked due to geopolitical events threw a monkey wrench in the works temporarily, but now that those have stabilized, so has inflation.
The first half of stopping a panic is always easy if you're the Fed with the exorbitant privilege to print money with virtually no immediate ill effects. The second half is the hard part and they've failed 11 times out of 10.
They acted as aggressively as possible to remedy a short term problem, which just created longer term problems. Its easy to throw money at a problem and worry about the consequences later.
SVB wouldn’t have failed if the Fed hadn’t artificially suppressed rates to the extent they did, for example. And Id venture there’s a lot more to come on the economic front. Many assets became extremely overvalued which makes the larger downside on price more disruptive. Commercial real estate is a big one to watch in the coming years
If inflation remains entrenched we may require a GFC style hard landing to quench it.
The fed did head off an immediate disaster through suppressing the rapidly widened credit spreads, but everything after that will likely be remembered as a failure
Because after all the purpose of society is to serve the market, not the other way around, right?
One of the principle, statutory purposes of the Federal Reserve is to conduct monetary policy to achieve maximum employment and stable prices. That means it's the job of the Fed to manipulate interest rates.
The Fed knows that there is no real ongoing inflation. The devaluation of the dollar already occurred and the new price has to propagate through the market. Their actions have no effect on the cause or broader course of apparent inflation only on who “wins and loses.”
Can you cite any metric showing there is "no real ongoing inflation"? CPI, PPI, PCE, and other less-commonly used metrics all indicate ongoing inflation. It would be interesting to understand how you've arrived at the conclusion there isn't ongoing inflation.
>The devaluation of the dollar already occurred and the new price has to propagate through the market.
The DXY has been uptrending for nearly a decade, even more rapidly so since mid-2021.
It's a dual mandate. If I'm not mistaken, we recently reached pre-pandemic employment levels. There is no way we would have reached this point without low interest rates through the pandemic.
Other countries have the same inflation rate that we do, but with lower employment rates. Ours is a better position to be in.
(this is not to excuse the greed of the bankers - this crisis is the purest essence of capitalism, it's inherent contradictions on full and gory display.)
The Fed can’t end the invasion of Ukraine or cure avian flu or speed up cargo ships. They can raise rates and that’s about it.
No, the economists at the Fed do not think that. Or rather, they try to find out what is driving inflation in any given situation, like they did with this 2022 study:
> Inflation has remained at levels well above the Federal Reserve’s inflation goal of 2% for over a year. Separating the underlying data from the personal consumption expenditures price index into supply- versus demand-driven categories reveals that supply factors explain about half of the run-up in current inflation levels. Demand factors are responsible for about one-third, with the remainder resulting from ambiguous factors. While supply disruptions are widely expected to ease this year, this outcome is highly uncertain.
* https://www.frbsf.org/economic-research/publications/economi...
Having unstable prices for staple goods will lead to unrest very, very quickly, which in term results in a downturn in the econonmy, which in term leads to even more unstable prices and thus more unrest.
QE and ZIRP is the original sin here which created the dilemma the fed now faces - hard inflation or hard recession. They didn’t solve the GFC or Covid, they just postponed the impact and made it far worse.
I have absolutely no objection to counter-cyclical monetary policy but the monetary policy has become the cycle.
HN will blame crypto for everything, for ever. Because it's trendy to do that.
It hasn't.
When the assets haven't even moved in the same direction, I don't know how you are going to blame federal policy to counteracted the recessionary impact of covid for moving them. Whereas the fed has caused significant damage & also been ineffective at fighting the current supply-side inflation caused by Russia's war of aggression.
No one expects that real estate will skyrocket and tank like shitcoins (even in 2008, the residential real estate market didn't bottom out until 2012). But that doesn't mean that Federal Reserve policy has been good.
I'd highly recommend the book (or audiobook) "The Lords of Easy Money: How the Federal Reserve Broke the American Economy" for anyone who is interested in a historical summary of the FOMC.
That’s what happens when people buy meme stock. I think the failure of the goverment and the bank are unrelated here.
Is this true?
Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dollars of QE.
Over the last few years the Fed has basically done a pump and dump on the bond market, and SVB being a bank was basically forced by regulation to buy long-dated bonds for yield.
I've seen a lot of people speak critically of SVB and I get it, but I think people should take a minute to ask why the hell bonds were yielding such a low amount in 2021. I just wonder how much longer we're going to blame, banks, crypto investors, bond investors, equity investors, home buyers, etc for what's happening to the value of their assets. When central bankers make government bonds trade like meme stocks this is what happens. Perhaps if we didn't do that, SVB and many others wouldn't be in this position.