The fact that lots of people are predicting absolute doom is kind of a contrarian indicator to me. If everyone was like meh no big deal it’d be more worrisome.
This isn’t just cynicism. It’s based on how markets work. If lots of people think there’s a possibility of major doom then (1) they are preparing now and (2) it’s likely at least somewhat priced into the market already.
Yes. Not that it necessarily means it will be the same scale.
The biggest difference is that this will hit everything that was (knowingly or not) built for a near-zero-interest-rate environment, not just financial companies but speculative tech startups that need lots of VC patience, etc. So probably not as focused on just financial companies.
As far as I can tell, the banks aren't misbehaving en masse like they were in 2007. The failures seem to stem from some unfortunate or boneheaded decisions that ignore likely future interest rates.
And TBH... market needs a little cooldown. I am no expert, but I dont like where P/E ratios and such are even after the last mini downturn.
I've talked to a number of bankers over the last week and most of them don't seem to think so. The counter-argument to crisis is that most banks structured their investments differently (soundly) vs. how some banks (e.g. Silicon Valley Bank) structured theirs. There will be some more shakeout of banks with bad investments but not a broader crisis. Of course, take that how you will, but certainly doesn't feel like 2008.
It doesn’t feel similar to me, so far it seems like it’s a known problem and everything has been working ok-ish to prevent it from getting worse - last time it seemed like only very few people were ringing alarm bells and no one cared to listen
No, I remember 2007-2008 pretty clearly. That felt much more precarious. Right now it seems pretty clear that if your bank fails you're going to get your money.
That's not to say that this isn't the start of some kind of a financial crisis. But it could be very different from 2008. In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
My street going >60% up in price would disagree and I can't think of any other price that grew as fast in the last 2 years. Food and other things got slightly more expensive, but it doesn't seem comparable to the housing.
Australia is in DIRE need of reform - unfortunately we voted against Shorten's election plans in 2019 that would have dramatically reduced the upward pressure on housing prices
Anecdotal but I cannot afford to move back to the lower middle class regional town I grew up in, as there are 0 rentals and buying is minimum $800,000
My mother's place has gone from:
1990 - $100,000 AUD
2006 - $600,000 AUD
2021 - $1,200,000 AUD
The local council estimates we can only add 0.29% to the population YoY
Prices clearly peaked, and the YoY price increase in some places had gotten a bit silly. But don't a lot of cities still just have a lot less housing than they should because of decades of not building enough? And even the decline in prices is mostly about the higher mortgage rates?
Everyone refinanced to very low interest rates. If home prices drop and people default then that’s lots of exposure to potential negative equity in all those home loans.
I think the bubble is due to extremely high home prices. In my metro area, prices are up 70% since 2020. So a drop of 40% to correct to 2020 levels isn’t unheard of.
Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit).
I started to reply "How many of these loans are sub-prime ARMs though?" and then went and looked for the data myself. I can't tell if these ARMs are risky, but we're seeing an early-2000's-level number of people applying for them.
> “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.” At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.
> The ARM share of activity increased to 12.0 percent of total applications.
Now, my wife and I bought our current house on a 5/1 ARM that was capped at +-1%/year and I think 10% total. We then refi'd in April 2020 and got on a 30 year fixed. I'm not sure if new rules after 2008 require ARMs to have total/yearly caps or not, if they do then a bubble pop will likely hurt a lot less. If they don't, then we're likely 4-5 years out from another crash.
> Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit).
To back up the idea that the price changes are mostly just about mortgage rates changing:
- In California, Redfin data shows that the peak for median sale price was in April 2022, at $839,100, and now we're at $706,000 for Feb 2023. Ooh, that looks like a >15% drop in less than a year!
- But FreddieMac shows that the average 30y fixed was 5% in mid April '22, and was 6.32% mid last month. The median home with an average mortgage was signing up to pay $4504/mo vs $4379/mo last month. That's a decline of roughly 2.8%
So it seems like home buyers today are willing to pay almost as much per month as they were at the price peak, which has drawn prices down.
Who here has a mortgage that eventually got purchased by Fannie or Freddie? The lenders underwriting home loans hold them a grand total of a couple days before they get passed along.
The crisis this time is going to be to bank shareholders. Probably some pensions and retirement funds. And then consolidation, and fewer choices for the consumer. Eventually we will all bank at MorganChaseGoldmanWitterWellsSchwabFargoHamiltonMellonMerrillLynchPierceFennerReynoldsSmithSachs.
Precautionary demand for money isn't inflationary - it has a low velocity i.e. just sits, in it's precautionary state. [1 for an example during Covid lockdowns in AU].
The identity is MV=PY where M is money, V is velocity, P is the price level and Y is real income. [2]. A precautionary demand has a lower V.
While a rise in narrow money may be expected, there may be a fall in in broader money, typically much larger than M1, driven by a reduction in sought exposure to non bank financial companies.
The argument you linked is ignoring the fact that when you provide a bank with dollars (M1 bailout cash), it is lent out by the banks and creates a much bigger sum of M2 money (bonds, liquid assets) because of fractional reserves.
Any bailout that is large enough, and isn't done in tandem with major deflationary events, would certainly impact inflation.
I think 2008 was spectacularly smooth with respect to inflation/deflation because they allowed enough banks to fail.
M1 reserves are not lent out by commercial banks - they are a liability of the central bank and an asset of the commercial banks or anyone else with access to the central bank's balance sheet. Banks only ever lend you their own liabilities. E.g. if you get a loan from HSBC, you borrow HSBC pounds because you have a deposit with HSBC.
When banks lend, they create a deposit (or credit an existing one) in the name of the customer (liability), and create a corresponding loan (asset) on their balance sheet. Banks don't _need_ reserves, like warehoused cash, to lend. They just need a capital buffer to absorb any credit losses on their loan portfolios.
The M2 money supply only increases if banks lend. In theory, they are more ready to lend when they have a better capital and liquidity position, which an injection of reserves is intended to achieve. But if no-one wants loans then M2 money supply doesn't increase as a result of a higher M1 money supply.
Also, "fractional reserve banking" is not a concept that relates to modern banking. Banks can lend as much as they like within reason. They are no different to any other business which can leverage their balance sheet by adding debt to increase return on equity. Loan creation is limited by:
1) Capital requirements - whereby loan creation is a function of how much capital they have, how risky their existing assets/loans are and how risky incremental loans are
2) Demand for loans from customers, which is a function of the macro environment e.g. interest rates
The thing is that a crisis like this is inherently deflationary! Or at least has a strong negative impact on the business cycle.
> they allowed enough banks to fail.
There really were not a lot of "bank fails and depositors lose money" events. Ones I can think of were Kaupthing (for some reason a lot of UK local government were keeping their money in an Icelandic bank), and Cyprus (deemed too dodgy to bailout).
There was a lot of fiscal policy tightening ("austerity"), the other lever which people forget about.
> I think 2008 was spectacularly smooth with respect to inflation/deflation because they allowed enough banks to fail.
They also started paying interest on excess reserves held at the Fed as they printed up a bunch of money to recapitalize the banks so as to not end up creating trillions of dollars of new money.
This time they injected trillions of dollars directly into the economy (hello, Helicopter Ben) and are now dealing with the effects. All that cash caused a huge bubble in Silicon Valley because people had nothing to do for quite a while except buy and consume stuff off the interwebs.
Now we have the correction for the Covid stimulus spending.
Consumption, job creation, and wages are still going up (on average). Most appreciating real estate is in high-demand urban centers where construction can't/doesn't keep up.
On top of that, a lot of older people are realizing the equity in their homes or their stocks, and they can buy in cash.
In that environment, you expect high home prices and high debt (as people assume their income will keep rising).
No, we aren’t 5 years into a hollow “expansion” like the post-2001 one. People who only look at aggregate figures and headline institutional failures, and ignore distributional facts of the preceding context, simply cannot begin to understand anything about what was going on in the Great Recession.
Iceland has like 300k people; it's a rounding error with regards to European population. It's like trusting Rhode Island as a barometer for the US, it just doesn't follow.
I second that this is not like 2008. 2008 felt like the end of the world; this feels like more banks are failing than in a normal recession, but nothing like 2008 - at least so far.
> In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
I disagree on this point. Why do you have to print money to make everybody whole? Because a bunch of money disappeared when the bank went down. You're printing a bunch of money to try to get to net zero. That's not inflationary. In the same way, the Fed's moves in 2008 to create $4 trillion were to replace the $4 trillion that vaporized in the crash, and were not inflationary. (And before anybody raises the point, no, inflation showing up a decade later does not mean that the Fed's actions in 2008 were inflationary.)
During this crisis, the Dow will rise because investors, or those left with a job and money to invest know there will be bailouts. These layoffs will put people back in the office so the cities don’t collapse. I don’t know how that’s going to happen any other way.
The vibes are similar to early 2008. But the financial structure is different. Banks are not overleveraged. Housing is not all adjustable rate.
That being said, easy to see weakness. Commercial real estate is a big one. I'm somewhat concerned about non-bank Financials. Some large foreign banks (CS(dead)
, DB, HSBC) I'm skeptical of.
And a recession feels imminent (felt to me this way even before SVB).
To sum up, I don't think this is over. There's no telling how bad it might get - we might get off fairly easily, might be bad.
One thing that concerns me is that there is much less room for fiscal/monetary action given where inflation is.
I don't understand how residential housing isn't a big bubble. That has to have second order effects yet to be fully felt.
I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.
> I don't understand how residential housing isn't a big bubble.
It’s not inherently a bubble because it’s driven by demand far outstripping supply. It may prove to be bubble-like if:
A) Some significant % of homeowners see salaries reduced enough they can’t keep up on payments.
B) We suddenly start building massive amounts of additional housing units so a larger % of the population can own/rent a home and the price drops to match the lowest income that still outcompetes the rest of the non-homeowners / non-renters / uncomfortably sharing renters.
I think there is still a pathway to things calming down, especially if FRB and other verticalized regional banks can make it over the next few weeks.
I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear.
I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming.
As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.
No, the bonds are worth something, and the losses can narrow by a lot if they're allowed to hold to maturity, deposit interest rates rise slowly enough and if broad interest rates drop some time on the future. The risk that they can't narrow is indeed real and whether to backstop that is a source of contention here.
"slightly less valuable than expected" is not "worthless"! The hyperbole bubble is getting exhausting. People really want to talk a crisis into existence. Are they bored?
No, its not, compared to 2007, when the all time peak of consumer debt (as a share of GDP) was reached, at 98.4%. The recent local peak was 80% in early 2021, and by September 2022 (the most recent number I can find) it had dropped to 75.2%.
There's lots of little differences, but the big difference is that in 2007-2008 I believed the government/fed would do the right thing and let the banks fail. They didn't, they created massive moral hazard, and communicated clearly they would be bailed out again.
No, I don't think it's the start, and no, it doesn't feel very similar. There's just no obvious asset bubble or other obvious overhang of risk. Credit Suisse and SVB feel like idiosyncratic outliers, not like the first pebbles of an avalanche.
ehh, not really. Watch The Big Short to get an idea of what was going on. Bankers were giving money to anyone with a pulse so they could buy a 3rd investment house. Liar loans, subprime mortgages, option-ARMS, etc. The real estate market last year was nuts but nothing like that.
Yes, car loan delinquencies are up and mortgage delinquencies are trending up but mortgage delinquencies are still at some of the lowest levels (~1%) in the past 15 years.
About a third of housing sales now go to investors. We really don’t know what their balance sheets look like - but presumably someone is lending them money. Some fraction of those loans will be variable interest rate.
Housing was returning 20% YoY - I wouldn’t be surprised to learn some investors are holding 10% mortgages which they may not be able to carry.
I can't say I understand what will become of things if those investors go belly up, but I can't say I have any sympathy for investors who've made the housing crisis worse.
Let them crash and put the houses back on the market.
Keep in mind that "investor" doesn't necessarily mean big evil corp.
An "investor" is also someone who saved up enough money for a down payment on a house in their neighborhood that they Airbnb and go over and clean and wash dishes to try to supplement their income.
In 2008, a couple of very large banks failed because they were more exposed to assets that every bank held, signaling widespread distress.
The bank failures going on right now are due to still large, but smaller banks courting customers that most banks don't deal with. Other banks still have to deal with the rise in interest rates impacting the value of bonds they hold as capital, but they aren't so uniformly exposed/overexposed as was the case in 2008.
In 2008 the leading news was mortgage write-down, with the prospect of $200/bbl crude somewhere in the background. In 2023, the leading news is raging inflation (with crude trading for zero just 3 years ago) and people vaguely aware of a lockup in the real estate markets.
I don't think this will be anywhere close to 2008.
In many ways, SVB was a perfect storm of many factors. High uninsured deposits. Few, tech-savvy despositors. Bad investment choices w.r.t. interest rates. Makes sense why a run was possible.
Other smaller banks - while they may even have similar investment choices - are likely to have many depositors who are under the FDIC limit. So... rationally... they shouldn't call in their money. But also practically, it seems unlikely the masses will be able to effectively coordinate.
I think, however, that this will start a slow long-term erosion of many community banks. How it affects a short-term recession that's looming is hard for anyone to predict. If you're in the camp that the Fed is being too aggressive, maybe this actually slows down interest rate hikes... which might end up being a good thing!
All in all, fundamentals of banks just aren't as bad as '08.
It’s not a great situation. What we’re seeing is that the fed can’t raise rates to fight inflation without further eroding the balance sheet of big institutions holding large amounts of low yield bonds. So they’re kinda stuck. Hello stagflation.
Raising rates never really reduced inflation anyway… In the 70s Volcker shock, when the oil crisis eased the inflation came down of its own accord, and would have with or without the rate hikes (and the money supply was expanding when the inflation started coming down, which was the exact opposite of their theory - they were trying to reduce the money supply with their rate rises, which they thought would reduce inflation, but they were never able to hit their money supply targets anyway). The Volcker era should be remembered as nothing but a failure.
We saw this problem at the opposite end too - central banks around the world were trying for more than a decade to stimulate economies by dropping rates, many even to the point of taking them negative - and inflation remained stubbornly below the target…
So dropping rates hasn’t worked to stimulate, raising rates hasn’t worked to slow inflation… Why persist with the charade that adjusting rates is an effective policy?
Because it's never proven to be effective in either direction! (Neither stimulating the economy by dropping rates, nor controlling inflation by raising them)
I mean there's Milton Friedman's 2005 paper [1] that provides a visual argument. Then I'd recommend reading this interview [2] with an empirical macroeconomist, and I think it's pretty clear that nowadays any serious economic argument has to be data driven [3] with a corresponding statistical treatment. (At worst low-complexity simulated data. And in the linked paper they are basically using a regression model to estimate the treatment effect. And on page 23 of the document [26 in PDF pages] you can see the "interest rate to GDP and inflation" response curves, and then later they present an absurd amount of additional graphs too.)
Aaand of course the picture that seems to present itself is that "it's not that simple". In this [4] 2022 paper the argument is that it makes sense to consider low- and high-inflation states, because their behavior seems to be significantly different, hence it's important to apply different monetary interventions. (The many graphs paper has a whole chapter on state dependence.) That said, on page 61 they also include a response curve that might interest you on empirical effectiveness of interest rate based monetary policy.
Yes - 2008 was like stepping on a land mine, and right now it feels like we’re staring at multiple rocket launchers pointed right at us.
Someone said they remember 2007-8 vividly and it felt precarious. I don’t, but from what Hollywood tells me, this person must be Michael Burry. Now we have a bunch of money that has been printed, which has done nothing to improve the economy and just caused a lot of wealth disparity and inflation. The Fed trying to get that under control is one of 2 concrete reasons for SVB. It has probably caused issues at many banks (they’re bag holding) with the only difference being their depositors are less reactive. What’s the solution? Print more money. Add to that geopolitical conflict between the US - which (let’s be real) doesn’t really stand for anything anymore other than the value of a dollar - and BRICS - which doesn’t stand for anything other than devaluation of the dollar. Putin once said the US economy is based on housing prices and he’s more or less right. It’s all tech and finance - which is either exploitative or can be done anywhere. BRICS has most of the resources and most of the production capability. A globalized world is more efficient and better, but debts need to be paid.
I think it's more like 2000 when there was a significant over-investment in tech, then Greenspan increased interest rates quickly and all the companies had to adapt to non-free money.
I think the housing market will correct (crash) and tech jobs will be harder to come by for junior folks and people who aren't that great at it. Not a great time to job hop. It won't be horrible like 2008 but it won't be great. Should be over by the 2024 election.
That does sound more apples to apples. But without looking anything up, it seems like this time we’ve built up a bigger free-money cliff to fall off of
They argue the free money has been going on since 2008, but I would argue it's been going on since 2001. Lowering interest rates is what the Fed did to combat the dot bomb.
The war is the wildcard. 9/11 made the dot bomb a whole lot worse for hiring since all the travel/entertainment companies went off a cliff for a few years.
I agree that it feels more like 2000 in some ways. Certainly the crypto space was just as bubble-icious.
2008 when the crunch came it was super bad. Tech companies just froze their product plans. Stopped spending money. Lots of good startups failed through very little fault of their own, when they couldn't ride out the year or two before their customers would spend again.
In 2001 I founded a VC funded startup, and while it was a shit time to be raising money, it was a great time to be hiring. I think we could get to that position again this year. Right now it doesn't feel like good engineers are really struggling to find work though, while in 2001 that was definitely the case, and VCs are definitely getting more cautious.
In 2008 I had the sale of that business fall through as a major SV tech company's CFO said "Nope, we're just not spending any money on anything" after lots of work and terms being sorted out etc. People (CEOs & CFOs) were really scared about contagion and problems well beyond just "tech share are prices falling". I hope we don't get to that point again this time.
I wonder how much bot written replies I read here. Sure it might be all storm in a glass of water (that's what I read in pretty much every top level quote). But we also know that big biz protects it's status quo and they have used bots before.
Familiar with the "dead internet theory"?
Also why do we like HN? Because here I can interact with some thought leaders: this would be exactly the place I'd point my bots at :)
Sorry for the paranoia spread. Take it with a grain of salt.
I was wondering about this same question today. The reason was a PBS documentary[1] and Jeff Bezos' advice to not make big purchases[2] (which is a stunning stance for the CEO of an online shopping company). I don't know enough to know whether these folks know what they're talking about - I don't think anyone does. Maybe it's a wait and watch game since this is a complex system with millions of variables.
Every crisis introduces a new type of failure that was not expected. The 2008 came with the realization that the housing market was not as bullet proof as people thought.
This one is no different. It's possible we recover from it very quickly, but it's also possible that the bank run that we saw earlier this month introduce a new type of failures that no one thought was possible. I'm of a curious nature, so I really wonder what's coming.
No, each time is different. We just had the biggest and longest bull run in history. The economy moves in cycles. The longer the prosperity move the steeper the correction. Something like this is long overdue.
Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the stress of it at these low rates, and the central banks' bailout mechanism is itself inflationary.
Although, strictly speaking the answer should be no, this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.
But also bank failures are disinflationary so is the bailout negating the rate hikes or just negating the new regime of tighter lending standards by banks? I dont think anyone has a solid answer to that question
I think the repeating pattern is the banks end up over leveraging based on value of things like MBS or this one is maybe interest rates because money has been free to them for so long (holding lots of worthless bonds I think). In the end, none of it is their money they are playing with so they have a high risk tolerance and a history of getting bailed out, bought out and at a minimum getting bonuses paid out. And then they lobby for deregulation or self-policing.
I think having a shot at solving problems involves less lobbying and more criminal prosecution and loss of operating licenses.
people rarely invest into new ventures, raise wages, or hire more employees during a bank run. the FDIC stepping in doesn't negate that (it probably prevented a serious crash that could have lead to even more supply chain fluctuations, which itself causes a significant portion of the inflation.)
Honest question, how is (in the case of SVB and Select) making sure depositors don’t lose money while the bank itself is closed and assets sold off, holders of it’s debt (those who lent money to the bank), and those that owned the stock all lose their investments?
I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct?
Again, honest question if I seem to be missing something.
Zero repercussions? How about stockholders losing 100% of their investment, and management losing their jobs? Those sure look like repercussions to me...
Yes. It’s counter-intuitive but both lowering and raising interest rates are inflationary. A rise in rates means more bond coupon and more bonds sold (new money), and lowering rates results in more bank lending (new money). A rise in rates is actually more inflationary, since bank lending won’t necessarily increase with lowering rates, but a rise in rates necessarily means more bonds and bond coupon from banks purchasing bonds.
The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.
Even if your argument were true there would have to be a theoretical interest rate that minimizes inflation (how can a function increase in both directions but not have a minimum?).
That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness.
The connection between monetary policy and inflation is weak. But the connection between how the monetary system is structured and an ever increasing money supply is clear and factual.
Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer.
1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.
2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.
3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.
4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.
> Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation.
An increase in interest rates is not an increase in interest, because it decreases borrowing. (And even if it did mean an increase in interest, that’s a delayed effect, the impact on borrowing is immediate.)
To increase the federal funds rate the fed has to sell treasuries (pushing up coupon rate, which is government interest payments), or pay banks interest on reserves (give banks money), or buy assets from banks (give banks money). So from every angle, the government is creating money when it increases funds rate. https://www.stlouisfed.org/open-vault/2020/august/how-does-f...
If we zoom out, the two ways the Fed increases the rate is by giving banks free money, or pushing up bond prices (and the interest on bonds comes from new money).
Despite the enormous complexity of monetary policy, the only actual tool the Fed has underlying everything is the ability to print money.
> It’s counter-intuitive but both lowering and raising interest rates are inflationary.
Counterintuitive, sure, but less counterintuitively, it is also false.
> A rise in rates means more bond coupon and more bonds sold (new money)
No, it doesn’t mean more bonds sold.
(Purchasing bonds is lending; the idea that lending increases with both rate increases and rate decreases is…wrong. Borrowing, whether via banks or via bonds, is more common when it is cheaper because of low rates, and less common when it is expensive because of high rates.)
And exchange of equity instead of interest for money follows the same patterns, because those with capital will trade it for less valuable (in expected future value) equity when they’d make less money in its alternate use (lending), and demand more valuable equity for it when they’d make more lending. So, equity financing (which, despite the structural difference, also gets the money moving in the economy) is also more active with lower rates and less with higher rates.
Some measures of inflation include the cost of a typical mortgage, so in that sense rate rises are by definition inflationary; however it's also true that raising rates puts downward pressure on economic activity, which in the medium term is disinflationary (though weird things can happen sometimes when raising rates has a signalling effect that the central bank thinks the economy is doing better, which in turn can increase economic activity).
Out of curiosity, what makes you think interest rates need to go higher to stop inflation? I know that’s the standard response to inflation, but economics is wildly complex. My read on this situation was always that we needed to decrease the feds balance sheet, get some marginal increase in interest rates, and the rest is supply side.
I think that's highly likely. Banks aim to maximize their profit margins and that necessarily means taking risks. When regulators close one loophole, banks find another one to exploit. This is a game of whack-a-mole that the regulators cannot hope to win.
SVB, Credit Suisse, and Signature Bank aren't outliers. These are just the first banks to get hit by the crisis. It's almost certain that most other banks have been playing exactly the same kinds of games and betting on a low interest rate environment. Now that the inflation has risen to unacceptable levels, the Fed has no choice but to raise rates. This will translate into further chaos in the banking system.
If the rates don't go up then we'll see inflation keep climbing, and this will cool investment because it's practically impossible for companies to produce any meaningful returns in high inflation environment. A company right now has to show consistent 6% growth simply not to lose money right now.
Furthermore, 64% of Americans are now living paycheck to paycheck [1]. 37% of people are working two full time jobs [2]. And typical debt is around 100k [3].
So, over half the population has no savings and can barely makes ends meet while nearly 40% of people are already working as much as humanely possible. If cost of living keeps climbing a huge chunk of population will become insolvent, we'll see large numbers of people defaulting on their debt. Banks are the ones who are holding a lot of this debt, and as people start defaulting the banks will start failing.
Meanwhile, overall economic activity will cool with people cutting discretionary spending in order to afford necessities. This will make companies go out of business creating mass unemployment, and further feeding into the debt crisis.
Incidentally, we're right on schedule for a crash in the boom/bust capitalist cycle [4].
Yes, it feels like it felt just before the 2008 crisis - I was looking into banks financial statements and it was pretty incredible feeling - like wow it can’t be that bad ! Markets didn’t start to tank yet, so you don’t know if you’re crazy or not.
Same here - there are bubble signs everywhere (SPACs, startup valuations, joke money called Dogecoin with market cap of 10B$ !), banks are sitting at >600B$ of unrealized losses - this is all public knowledge.
A 166 years old Swiss bank was bailed out this weekend.
So yeah, it definitely feels like a big crisis ahead. Gradually then suddenly !
How was Credit Suisse bailed out? It seems like they were closed and sold, as happens with a bank that fails.
Bailouts, by 2008 standards, would have been giving money to Credit Suisse so they could continue operating and avoid the fallout of their bad choices.
Not the greatest term I agree. But how do we call what happened ?
Shareholders still got some money (~3B$). If it wasn't for government intervention, the bank would be dead very soon.
The thing with banking and finance is that incentives are very bad - you play with other's people money, on thin margins - you're de facto encouraged to take risks. If they pay off, you get big bonuses, if they don't - you just change the bank you work for.
No. There is absolutely no comparison to the US banking system now and in 2008. In 2008, banks were 4 times more leveraged than they are now, because regulations are far stricter. The source of the crisis was a giant asset class — private residential mortgage-backed securities — whose risks had been systematically hidden by the banks that made them, and the ratings agencies who were complicit.
So, banks were very vulnerable on the one hand due to over leverage, and they all owned a lot of an asset class that became unpriceable once people realized what had happened.
There is nothing like that now. The big issue is unrealized losses on 2020-1 vintage Treasury and government-mortgage securities because of rising rates. The Fed backstopped that by letting banks borrow against the full value of the bonds, not the depreciated value. If those bonds go to expiration, they are paid back in full, and the unrealized losses never become realized.
This is a tempest in a teapot caused by a few babies on Sand Hill Road who decided to destroy SVB, and then whine all weekend to the government to save them. They are libertarians until it hurts the bottom line.
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[ 2.9 ms ] story [ 245 ms ] threadThis isn’t just cynicism. It’s based on how markets work. If lots of people think there’s a possibility of major doom then (1) they are preparing now and (2) it’s likely at least somewhat priced into the market already.
The biggest difference is that this will hit everything that was (knowingly or not) built for a near-zero-interest-rate environment, not just financial companies but speculative tech startups that need lots of VC patience, etc. So probably not as focused on just financial companies.
And TBH... market needs a little cooldown. I am no expert, but I dont like where P/E ratios and such are even after the last mini downturn.
That's not to say that this isn't the start of some kind of a financial crisis. But it could be very different from 2008. In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
Most suburbs would have gone up in 2021 and down in 2022 and not be that much higher.
Anecdotal but I cannot afford to move back to the lower middle class regional town I grew up in, as there are 0 rentals and buying is minimum $800,000
My mother's place has gone from: 1990 - $100,000 AUD 2006 - $600,000 AUD 2021 - $1,200,000 AUD
The local council estimates we can only add 0.29% to the population YoY
Prices clearly peaked, and the YoY price increase in some places had gotten a bit silly. But don't a lot of cities still just have a lot less housing than they should because of decades of not building enough? And even the decline in prices is mostly about the higher mortgage rates?
I think the bubble is due to extremely high home prices. In my metro area, prices are up 70% since 2020. So a drop of 40% to correct to 2020 levels isn’t unheard of.
Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit).
And I think is a pretty decent reference to average US home prices going up by 45% [0] since 2020.
[0] https://www.ceicdata.com/en/indicator/united-states/house-pr...
https://www.cnbc.com/2022/05/11/adjustable-rate-mortgage-dem...
> “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.” At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.
https://www.mba.org/news-and-research/newsroom/news/2022/07/...
> The adjustable-rate mortgage (ARM) share of activity decreased to 9.5 percent of total applications.
https://newslink.mba.org/mba-newslinks/2022/november/mba-new...
> The ARM share of activity increased to 12.0 percent of total applications.
Now, my wife and I bought our current house on a 5/1 ARM that was capped at +-1%/year and I think 10% total. We then refi'd in April 2020 and got on a 30 year fixed. I'm not sure if new rules after 2008 require ARMs to have total/yearly caps or not, if they do then a bubble pop will likely hurt a lot less. If they don't, then we're likely 4-5 years out from another crash.
To back up the idea that the price changes are mostly just about mortgage rates changing:
- In California, Redfin data shows that the peak for median sale price was in April 2022, at $839,100, and now we're at $706,000 for Feb 2023. Ooh, that looks like a >15% drop in less than a year!
- But FreddieMac shows that the average 30y fixed was 5% in mid April '22, and was 6.32% mid last month. The median home with an average mortgage was signing up to pay $4504/mo vs $4379/mo last month. That's a decline of roughly 2.8%
So it seems like home buyers today are willing to pay almost as much per month as they were at the price peak, which has drawn prices down.
https://www.redfin.com/state/California/housing-market https://www.freddiemac.com/pmms
The crisis this time is going to be to bank shareholders. Probably some pensions and retirement funds. And then consolidation, and fewer choices for the consumer. Eventually we will all bank at MorganChaseGoldmanWitterWellsSchwabFargoHamiltonMellonMerrillLynchPierceFennerReynoldsSmithSachs.
The identity is MV=PY where M is money, V is velocity, P is the price level and Y is real income. [2]. A precautionary demand has a lower V.
While a rise in narrow money may be expected, there may be a fall in in broader money, typically much larger than M1, driven by a reduction in sought exposure to non bank financial companies.
[1] https://www.rba.gov.au/publications/bulletin/2021/mar/cash-d...
[2] https://en.m.wikipedia.org/wiki/Quantity_theory_of_money
https://marginalrevolution.com/marginalrevolution/2023/03/ba...
Any bailout that is large enough, and isn't done in tandem with major deflationary events, would certainly impact inflation.
I think 2008 was spectacularly smooth with respect to inflation/deflation because they allowed enough banks to fail.
When banks lend, they create a deposit (or credit an existing one) in the name of the customer (liability), and create a corresponding loan (asset) on their balance sheet. Banks don't _need_ reserves, like warehoused cash, to lend. They just need a capital buffer to absorb any credit losses on their loan portfolios.
The M2 money supply only increases if banks lend. In theory, they are more ready to lend when they have a better capital and liquidity position, which an injection of reserves is intended to achieve. But if no-one wants loans then M2 money supply doesn't increase as a result of a higher M1 money supply.
Also, "fractional reserve banking" is not a concept that relates to modern banking. Banks can lend as much as they like within reason. They are no different to any other business which can leverage their balance sheet by adding debt to increase return on equity. Loan creation is limited by:
1) Capital requirements - whereby loan creation is a function of how much capital they have, how risky their existing assets/loans are and how risky incremental loans are
2) Demand for loans from customers, which is a function of the macro environment e.g. interest rates
> they allowed enough banks to fail.
There really were not a lot of "bank fails and depositors lose money" events. Ones I can think of were Kaupthing (for some reason a lot of UK local government were keeping their money in an Icelandic bank), and Cyprus (deemed too dodgy to bailout).
There was a lot of fiscal policy tightening ("austerity"), the other lever which people forget about.
They also started paying interest on excess reserves held at the Fed as they printed up a bunch of money to recapitalize the banks so as to not end up creating trillions of dollars of new money.
This time they injected trillions of dollars directly into the economy (hello, Helicopter Ben) and are now dealing with the effects. All that cash caused a huge bubble in Silicon Valley because people had nothing to do for quite a while except buy and consume stuff off the interwebs.
Now we have the correction for the Covid stimulus spending.
On top of that, a lot of older people are realizing the equity in their homes or their stocks, and they can buy in cash.
In that environment, you expect high home prices and high debt (as people assume their income will keep rising).
https://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_fi...
> In this case I think the risk is more towards high inflation - for example, if enough banks were to fail (hypothetically - I doubt this will happen) and bunch of money essentially has to be printed up to make everyone whole, that's going to devalue money hence more inflation.
I disagree on this point. Why do you have to print money to make everybody whole? Because a bunch of money disappeared when the bank went down. You're printing a bunch of money to try to get to net zero. That's not inflationary. In the same way, the Fed's moves in 2008 to create $4 trillion were to replace the $4 trillion that vaporized in the crash, and were not inflationary. (And before anybody raises the point, no, inflation showing up a decade later does not mean that the Fed's actions in 2008 were inflationary.)
That being said, easy to see weakness. Commercial real estate is a big one. I'm somewhat concerned about non-bank Financials. Some large foreign banks (CS(dead) , DB, HSBC) I'm skeptical of.
And a recession feels imminent (felt to me this way even before SVB).
To sum up, I don't think this is over. There's no telling how bad it might get - we might get off fairly easily, might be bad.
One thing that concerns me is that there is much less room for fiscal/monetary action given where inflation is.
I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.
It’s not inherently a bubble because it’s driven by demand far outstripping supply. It may prove to be bubble-like if:
A) Some significant % of homeowners see salaries reduced enough they can’t keep up on payments.
B) We suddenly start building massive amounts of additional housing units so a larger % of the population can own/rent a home and the price drops to match the lowest income that still outcompetes the rest of the non-homeowners / non-renters / uncomfortably sharing renters.
I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear.
I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming.
As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.
Banks are holding $600+ billion in currently worthless bonds.
https://www.google.com/search?q=620+billion+dollar+bonds+ban...
There is no $600B of worthless bonds. There is $600B of unrealized losses. The bonds are worth something.
Moreover, unrealized losses are not leverage. Banks in 2008 were levered 30-to-1. No such thing now.
[0] https://www.wsj.com/livecoverage/stock-market-news-today-03-...
But the people are, consumer debt is out the wazoo
No, its not, compared to 2007, when the all time peak of consumer debt (as a share of GDP) was reached, at 98.4%. The recent local peak was 80% in early 2021, and by September 2022 (the most recent number I can find) it had dropped to 75.2%.
Yes, car loan delinquencies are up and mortgage delinquencies are trending up but mortgage delinquencies are still at some of the lowest levels (~1%) in the past 15 years.
Housing was returning 20% YoY - I wouldn’t be surprised to learn some investors are holding 10% mortgages which they may not be able to carry.
Let them crash and put the houses back on the market.
An "investor" is also someone who saved up enough money for a down payment on a house in their neighborhood that they Airbnb and go over and clean and wash dishes to try to supplement their income.
The bank failures going on right now are due to still large, but smaller banks courting customers that most banks don't deal with. Other banks still have to deal with the rise in interest rates impacting the value of bonds they hold as capital, but they aren't so uniformly exposed/overexposed as was the case in 2008.
History doesn't repeat, but it sure does rhyme.
In many ways, SVB was a perfect storm of many factors. High uninsured deposits. Few, tech-savvy despositors. Bad investment choices w.r.t. interest rates. Makes sense why a run was possible.
Other smaller banks - while they may even have similar investment choices - are likely to have many depositors who are under the FDIC limit. So... rationally... they shouldn't call in their money. But also practically, it seems unlikely the masses will be able to effectively coordinate.
I think, however, that this will start a slow long-term erosion of many community banks. How it affects a short-term recession that's looming is hard for anyone to predict. If you're in the camp that the Fed is being too aggressive, maybe this actually slows down interest rate hikes... which might end up being a good thing!
All in all, fundamentals of banks just aren't as bad as '08.
We saw this problem at the opposite end too - central banks around the world were trying for more than a decade to stimulate economies by dropping rates, many even to the point of taking them negative - and inflation remained stubbornly below the target…
So dropping rates hasn’t worked to stimulate, raising rates hasn’t worked to slow inflation… Why persist with the charade that adjusting rates is an effective policy?
the US central bank has a dual mandate, price stability and close to full employment. having just one it could be much more aggressive.
I mean there's Milton Friedman's 2005 paper [1] that provides a visual argument. Then I'd recommend reading this interview [2] with an empirical macroeconomist, and I think it's pretty clear that nowadays any serious economic argument has to be data driven [3] with a corresponding statistical treatment. (At worst low-complexity simulated data. And in the linked paper they are basically using a regression model to estimate the treatment effect. And on page 23 of the document [26 in PDF pages] you can see the "interest rate to GDP and inflation" response curves, and then later they present an absurd amount of additional graphs too.)
Aaand of course the picture that seems to present itself is that "it's not that simple". In this [4] 2022 paper the argument is that it makes sense to consider low- and high-inflation states, because their behavior seems to be significantly different, hence it's important to apply different monetary interventions. (The many graphs paper has a whole chapter on state dependence.) That said, on page 61 they also include a response curve that might interest you on empirical effectiveness of interest rate based monetary policy.
[1] https://www.aeaweb.org/articles?id=10.1257/08953300577519678...
[2] https://noahpinion.substack.com/p/interview-emi-nakamura-mac...
[3] https://www.frbsf.org/wp-content/uploads/sites/4/wp2017-02.p...
[4] https://www.imf.org/en/Publications/fandd/issues/2023/03/POV...
Someone said they remember 2007-8 vividly and it felt precarious. I don’t, but from what Hollywood tells me, this person must be Michael Burry. Now we have a bunch of money that has been printed, which has done nothing to improve the economy and just caused a lot of wealth disparity and inflation. The Fed trying to get that under control is one of 2 concrete reasons for SVB. It has probably caused issues at many banks (they’re bag holding) with the only difference being their depositors are less reactive. What’s the solution? Print more money. Add to that geopolitical conflict between the US - which (let’s be real) doesn’t really stand for anything anymore other than the value of a dollar - and BRICS - which doesn’t stand for anything other than devaluation of the dollar. Putin once said the US economy is based on housing prices and he’s more or less right. It’s all tech and finance - which is either exploitative or can be done anywhere. BRICS has most of the resources and most of the production capability. A globalized world is more efficient and better, but debts need to be paid.
Ever seen Lawrence Welk?
I think the housing market will correct (crash) and tech jobs will be harder to come by for junior folks and people who aren't that great at it. Not a great time to job hop. It won't be horrible like 2008 but it won't be great. Should be over by the 2024 election.
I agree. This is a good video on it from Frontline.
https://www.youtube.com/watch?v=EpMLAQbSYAw
They argue the free money has been going on since 2008, but I would argue it's been going on since 2001. Lowering interest rates is what the Fed did to combat the dot bomb.
https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
2008 when the crunch came it was super bad. Tech companies just froze their product plans. Stopped spending money. Lots of good startups failed through very little fault of their own, when they couldn't ride out the year or two before their customers would spend again.
In 2001 I founded a VC funded startup, and while it was a shit time to be raising money, it was a great time to be hiring. I think we could get to that position again this year. Right now it doesn't feel like good engineers are really struggling to find work though, while in 2001 that was definitely the case, and VCs are definitely getting more cautious.
In 2008 I had the sale of that business fall through as a major SV tech company's CFO said "Nope, we're just not spending any money on anything" after lots of work and terms being sorted out etc. People (CEOs & CFOs) were really scared about contagion and problems well beyond just "tech share are prices falling". I hope we don't get to that point again this time.
Familiar with the "dead internet theory"?
Also why do we like HN? Because here I can interact with some thought leaders: this would be exactly the place I'd point my bots at :)
Sorry for the paranoia spread. Take it with a grain of salt.
[1] https://www.youtube.com/watch?v=EpMLAQbSYAw
[2] https://www.businesstoday.in/latest/world/story/dont-buy-tv-...
This one is no different. It's possible we recover from it very quickly, but it's also possible that the bank run that we saw earlier this month introduce a new type of failures that no one thought was possible. I'm of a curious nature, so I really wonder what's coming.
Although, strictly speaking the answer should be no, this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.
I think having a shot at solving problems involves less lobbying and more criminal prosecution and loss of operating licenses.
I think we can all agree this pretty much sums it up. Basically every major problem we face in America is the result of lobbying and gerrymandering.
I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct?
Again, honest question if I seem to be missing something.
If people could get bailed out of their credit card debt, how reckless would peoples spending be?
The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.
That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness.
Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer.
The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi...
1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.
2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.
3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.
4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.
An increase in interest rates is not an increase in interest, because it decreases borrowing. (And even if it did mean an increase in interest, that’s a delayed effect, the impact on borrowing is immediate.)
To increase the federal funds rate the fed has to sell treasuries (pushing up coupon rate, which is government interest payments), or pay banks interest on reserves (give banks money), or buy assets from banks (give banks money). So from every angle, the government is creating money when it increases funds rate. https://www.stlouisfed.org/open-vault/2020/august/how-does-f...
If we zoom out, the two ways the Fed increases the rate is by giving banks free money, or pushing up bond prices (and the interest on bonds comes from new money).
Despite the enormous complexity of monetary policy, the only actual tool the Fed has underlying everything is the ability to print money.
Counterintuitive, sure, but less counterintuitively, it is also false.
> A rise in rates means more bond coupon and more bonds sold (new money)
No, it doesn’t mean more bonds sold.
(Purchasing bonds is lending; the idea that lending increases with both rate increases and rate decreases is…wrong. Borrowing, whether via banks or via bonds, is more common when it is cheaper because of low rates, and less common when it is expensive because of high rates.)
And exchange of equity instead of interest for money follows the same patterns, because those with capital will trade it for less valuable (in expected future value) equity when they’d make less money in its alternate use (lending), and demand more valuable equity for it when they’d make more lending. So, equity financing (which, despite the structural difference, also gets the money moving in the economy) is also more active with lower rates and less with higher rates.
SVB, Credit Suisse, and Signature Bank aren't outliers. These are just the first banks to get hit by the crisis. It's almost certain that most other banks have been playing exactly the same kinds of games and betting on a low interest rate environment. Now that the inflation has risen to unacceptable levels, the Fed has no choice but to raise rates. This will translate into further chaos in the banking system.
If the rates don't go up then we'll see inflation keep climbing, and this will cool investment because it's practically impossible for companies to produce any meaningful returns in high inflation environment. A company right now has to show consistent 6% growth simply not to lose money right now.
Furthermore, 64% of Americans are now living paycheck to paycheck [1]. 37% of people are working two full time jobs [2]. And typical debt is around 100k [3].
So, over half the population has no savings and can barely makes ends meet while nearly 40% of people are already working as much as humanely possible. If cost of living keeps climbing a huge chunk of population will become insolvent, we'll see large numbers of people defaulting on their debt. Banks are the ones who are holding a lot of this debt, and as people start defaulting the banks will start failing.
Meanwhile, overall economic activity will cool with people cutting discretionary spending in order to afford necessities. This will make companies go out of business creating mass unemployment, and further feeding into the debt crisis.
Incidentally, we're right on schedule for a crash in the boom/bust capitalist cycle [4].
[1] https://www.cnbc.com/2022/03/08/as-prices-rise-64-percent-of...
[2] https://www.denver7.com/news/national/more-americans-report-...
[3] https://www.firstrepublic.com/insights-education/average-ame...
[4] https://www.investopedia.com/terms/b/boom-and-bust-cycle.asp
Same here - there are bubble signs everywhere (SPACs, startup valuations, joke money called Dogecoin with market cap of 10B$ !), banks are sitting at >600B$ of unrealized losses - this is all public knowledge.
A 166 years old Swiss bank was bailed out this weekend.
So yeah, it definitely feels like a big crisis ahead. Gradually then suddenly !
Bailouts, by 2008 standards, would have been giving money to Credit Suisse so they could continue operating and avoid the fallout of their bad choices.
Shareholders still got some money (~3B$). If it wasn't for government intervention, the bank would be dead very soon.
The thing with banking and finance is that incentives are very bad - you play with other's people money, on thin margins - you're de facto encouraged to take risks. If they pay off, you get big bonuses, if they don't - you just change the bank you work for.
So, banks were very vulnerable on the one hand due to over leverage, and they all owned a lot of an asset class that became unpriceable once people realized what had happened.
There is nothing like that now. The big issue is unrealized losses on 2020-1 vintage Treasury and government-mortgage securities because of rising rates. The Fed backstopped that by letting banks borrow against the full value of the bonds, not the depreciated value. If those bonds go to expiration, they are paid back in full, and the unrealized losses never become realized.
This is a tempest in a teapot caused by a few babies on Sand Hill Road who decided to destroy SVB, and then whine all weekend to the government to save them. They are libertarians until it hurts the bottom line.