Hacker News Reader

Comment by FormerBandmate | Hacker News Reader

This is how financial crises start. IndyMac ($40 billion) went under in July 2008 which caused tension, and then Lehman fell apart two months later which led to 15 institutions failing in a matter of weeks.

There are other financial institutions that are suffering. We could definitely see cascades among some of the weaker banks

View on HN

Bear Stearns was even earlier that same year.

It’s like that old quote about going bankrupt, first it happened slowly, then suddenly.

https://www.youtube.com/watch?v=gUkbdjetlY8

If you’re gonna shop Cramer clips, might as well show his take on SVB from about a month ago: https://twitter.com/WatcherGuru/status/1634246217226919937

(Spoiler: should have bought the inverse Cramer ETF…)

"How did you go bankrupt?" Bill asked.

"Two ways," Mike said. "Gradually and then suddenly."

--Ernest Hemingway, The Sun Also Rises

If you were ultra paranoid, what other institution types would be advisable to exit? Could this impact investments in the market?

How paranoid would you have to get before you'd be willing to convert all your money to crypto? ;P

My paranoia goes the other way.

if by crypto you mean bitcoin, i'd feel more comfortable xD

Crypto was the first to fall

At least they still have their keys (hopefully).

If crypto had a navy and nukes, then maybe.

Switzerland has neither and China has both. Which one would you bank with?

i think this question depends entirely on what passport you hold.

as a US citizen, personally i wouldn't put money in either system.

Many nations have nukes and navies. None is capable of breaking a secp256k1 key.

Silvergate bank which is THE bank for crypto companies failed a few days ago on the same day that SVB was trying to raise capital to plug losses. The after effects of that are still unknown.

What are some speculations on the scenarios that might play out based on this?

Crypto is correlated, it's not going to work.

Avoid holding cash above deposit insurance limits. You can play the account titling game as well as use multiple institutions. There are some banks that promise to spread your funds to multiple banks to get coverage; but you need to be sure you don't use those underlying banks elsewhere, etc.

For stocks and things, you've got some options. For best protection, you would want to have your stock ownership registered on the books of the company; you might be able to make that happen with a full-frills brokerage, ask about holding stocks not 'in street name' or you might have to transact via the registered transfer agent. Expect that to result in paying comissions and hassle.

If you don't want to go that far, making sure you don't have a margin account is a good step. Brokerages generally have to maintain customer deposits and holdings separate from the brokerage's propriatary holdings, but not necessarily for customer's margin deposits. Anyway, one should always be careful with margin.

If a brokerage fails due to their own poor investments, it shouldn't impact your holdings. Of course, if they fail due to poor record keeping or fraud, your holdings may not actually exist. SIPC provides some insurance that may apply, but the limits aren't very high and there's not that many credible brokerages to spread your holdings among.

This is why I come here, thank you for the response.

Is there a way to tell which banks are the weaker banks? I know the fed does stress tests but I've read that Silicon Valley Bank didn't take part, so I don't know how to get the data.

Those banks were all built on a fraudulent and irrational housing bubble. SVB just bought too many bad bonds and got stuck. I don't see the industry-wide effects from this.

The bonds aren’t bad. They are performing according to all reports I’m reading.

They simply have a longer date to maturity then is comfortable for the depositors withdrawal cadences, and they have had to be sold / marked down in a period of rising interest rates.

I mean bad by low returns and long date to maturity, as in a poor choice.

They bought those bonds based on the assumption that money would flow in/out within a certain margin and that margin was exceeded. There will definitely be more cases to come where companies who are supposed to act conservatively took on more risk because they’re used to operating in an environment where it was profitable to do so.

The next financial crisis likely won't play out the same as the last.

We're in a semi-fraudulent housing bubble now. Well, maybe not fraudulent, but unethical, and similar to what was going on in the '00s.

Big banks are holding onto large, mostly unoccupied housing developments to create artificial scarcity and drive the prices up. Then they're selling with huge loans to buyers that are going to see value plummet and be unable to pay anything back.

> Big banks are holding onto large, mostly unoccupied housing developments to create artificial scarcity and drive the prices up.

I’m assuming you’re talking about the US. Do you have a source for this claim? There is a problem with vacant houses, but this is the first I’ve heard of the narrative of empty developments implying new houses.

A discussion of vacant housing: https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...

I can only speak anecdotally and assume it's happening everywhere. I'm in the Midwest US. Banks themselves are building neighborhoods full of spec houses. Half of them go empty because they're overpriced. A bunch of developments have stopped before being completely finished, presumably because they can't put up for sale in that condition, but they still contribute to the bank's assets.

I can't say I understand the whole economics of it, but it's obvious something sketchy is happening.

Reply on news.ycombinator.com