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SVB should have known better. Interest rates were not going to stay zero forever. When inflation goes up, the Fed raises interest rates.

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But now, the author claims the Fed won’t raise interest rates. So SVB’s bet maybe was that they wouldn’t be the first to fail. If they thought interest rates wouldn’t rise except for a short amount of time, that is correct.

They held 1 1/2% bonds despite the Federal Reserve making it as obvious as possible that they were aggressively going to be raising rates.

Same bonds are now at 4% or something-

they bet on complacency and lost.

the big banks moved into bonds more suitable in a rising rate environment-fr all appearances SVB nothing. A little surprising given all the tech layoffs and tech stock meltdowns. In essence it is a tech bank maybe implying some foreknowledge and still didn’t act.

The author is speculating that the Fed won’t raise interest rates. The CPI report was out today, and core CPI was 5 and change. The Taylor rule says that the Fed should increase rates to 7%, maybe a little more. They are not there yet. Plus the Fed started a round of quantitative easing to generate the bailout cash for SVB and Signature, plus other banks that will fail. QE will increase inflation by putting more dollars in the economy. The Fed and us are really hosed. Inflation is heading up again if the Fed doesn’t raise interest rates. Those increases probably be even greater due to QE.

As for banks, they are stuck with those previously purchased bonds. Their price’s won’t increase until interest rates go down. I’m betting that those bonds will reach maturity before that happens.

The Fed had a vacillating monetary policy back in the 70’s. Inflation yo-yoed from ‘73 until the ‘80’s. It wasn’t until interest rates were raised to close to 20% that inflation was stomped out.

The Fed needs to get their act together or this economy is going to suck for a long time. Alternatively, drop the interest rate changes and massively cut government spending. Hell will freeze over first tho. Money has to leave the economy to get rid of inflation. I prefer government not spending/putting money into the economy. That removes the need for the Fed to print money to make up for spending the government doesn’t have revenue (taxes) or other countries to buy our treasuries.

Things would be much better for the economy and us little guys if there wasn’t a bailout for accounts greater than $250k. By the way, businesses can insure their cash for greater than $250k, and it isn’t expensive. Like SVB, those businesses were asleep at the wheel. That’s a nice to say they are greedy. SVB was trying to squeeze every last nickel of profit and did not have a risk manager for the last 9 months. Their previous risk manager came from Lehman Brothers- kiss of death on that one. Basically, they are woke, partying and mismanaging everything. They are not focused on banking.