The Economy

I don't have time to pull up a 10K. ... but my (albeit somewhat limited) understanding is that Hold to Maturity (they call it HTM) is an ACCOUNTING designation that actually gives someone like you or me even less insight to what their actual losses they might have been if it played out before a bail out.

Banks can designate bond holdings as Hold to Maturity (HTM) , Available for Sale (AFS) or Held for Trading (HFT). And that was precisely the problem.

Banks have all designating what they own as HTM precisely because it doesn't force them to mark to market and demonstrate that they are really under water. So their treasury and MBS holdings get carried on the balance sheet as an amortized cost. What I believe you are getting from that 10K. ... is the AMORTIZED cost. I believe there is no way to know specifically what they own and what they bought each of the bonds for, unless you look at the actual portfolio and then mark it to market based on where the market is today. That doesn't even tell you what the actual losses would be, either, because banks selling would be a self-fulfilling event that drives prices down even further and would magnify their realized losses.

The obvious problem with them designating bonds as HTM. ... is that a run on the bank made it so that SVB had to sell bonds rather than collect a coupon (which in itself as a problem, because they were being paid peanuts relative to yields now, crippling them as a bank) and REALLY hold to maturity. It sold bonds to raise money and THAT is what showed us just exactly what the realized loss (on just a small portion of their portfolio they were able to sell) was.

 

I honesly don't know enough about that bank's balance sheet or the accounting rules.

But suppose they were under water to the tune of $15 billion on a marked to market basis. ... and that is spelled out on page 125 (or wherever you said) in a footnote in their 10K. ...

What I do know something about is order flow in the treasury bond market. ... and if that bank had stepped in to sell a $90 + billion bond portfolio, with the relative illiquidity the Fed has already caused, there is little chances their losses would have been limited to $15 billion. Then add in all of the banks that would immediately be losing deposits in that environment (what we started to see) and would be stepping in in a panic to sell long-dated bonds. ... and however you were marking to market those losses on December 31, 2022 is just silly in that environment.

This is not a problem of $620 in losses the way it ever REALLY plays out. ... you are looking at several trillions of dollars of losses as liquidity dries up. That isn't speculation or a seeing eye guess. It's how markets actually trade, made worse by the illiquidity the dopes who caused this have left in what was traditionally the most liquid, price-stable market in the world.

 

FDR said that in 1932. The unemployment rate in 1933 was 25 percent. The U.S. did not match 1929's GNP. ... for more than a decade.

That is not me suggesting we are going into the great depression. But I do know that we have monetized a shit load of debt over the last couple of decades, which stole growth from the future and misallocated a great deal of that capital, making it so that we won't be left with anything productive for it.

That IS NOT (already is not) going to be consequence free.

Also, the main reason for all of that debt monitization isn't that they are trying to spur runaway private debt levels. That is the collateral damage that has great potential to dry up global credit for years and cause a great deal of economic pain.

The only way our Federal government was able to keep running up larger and larger debt levels, was that debt monetization. And that is what was at work. It was not the result of one political party or the other, it was two political parties that seperately and together have not done the country any favors.

Whether people realize it or not, these two graphs, in tandem, are what should be creating a healthy dose of fear in people. If there had been a little more fear for last 15 years, what is on the horizon wouldn't have been quite as potentially bad as it may be.