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Comment by spamizbad | Hacker News Reader

Engineering is significantly more intellectually rigorous than banking and finance. I'm not trying to say bankers a dumb or anything - far from it. They're quite smart, and they know their industry well, but engineering enjoys the privilege of sitting on top of "hard science" and mathematic whereas banking has... economics?

Imagine the field of engineering in a world where science still debated whether the world was flat or round, or whether empiricism was even worth the trouble in physical sciences (and if you felt strongly one way or another you were considered an ideologue) -- that's where economics is today.

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I would say, engineers sit at the bottom of office politics. Lowest caste of the food chain. Depending on company you have pointy haired manager, sales people or technically uneducated product manager above. At the end nobody is responsible for anything. See Volkswagen gas fraud: https://en.m.wikipedia.org/wiki/Volkswagen_emissions_scandal I really wanted to see real punishment here.

When I say "sits on top of" I mean in terms of the intellectual foundation. The reason why engineers can confidently say a bridge is safe is in large part due to the massive amount of pre-existing knowledge of mathematics, metallurgy, physics, geology, etc that they apply when designing such things. They are are building real-world things on top of existing human knowledge other humans figured out decades or centuries ago.

Economics just isn't as well grounded, so Banking is always going to be less certain - and perhaps, for that reason, should be far more conservative.

Yes -- before we understood the science of building a safe bridge, the way to build a safe bridge was just to massively overbuild it.

sure, there are things that are uncertain about economics, but there are a great many things that are understood as well. Within Finance, its understood that some things are riskier than others. SVB blew up because they opted to buy highly risky long dated, low yield bonds even when there was good reason to believe that the economy was entering an inflationary period.

Low yield bonds are pretty much by definition the safest instrument around, that's why they're low yield. (High-yield aka junk bonds are the risky ones.)

In SVB's case, the risk was not in the bonds themselves, but in the facts that a) there was a yawning mismatch between the high interest they needed to pay out on deposits to stay competitive and the low interest they were getting on their locked-in capital, and b) their customers were heavily concentrated in a single industry, namely fickle VCs and their companies.

Parent is taking issue with SVB's long date preference for the yield bump, which from a risk standpoint wasn't appropriate for their depositor base, in an inflationary environment.

I think you just conpletely misunderstood what risk here meant.

Risk management has far more depth and consequences than you realise. For example, by far the safest form of investment would be 10yr T-bills held to maturity. Which is what SVB had. The Fed made their paper value worthless because of the high interest rate they set. If they were greedy and opted for highest yield then there would have been a good chance that they stuck around longer.

Problem is that I'm not sure wether to blame the fed or the banks.

Long term treasury bills never were the safest investment. That would be short term treasuries. Interest rate risk is not a novel concept.

also this doesn't take into account the duration gap between the assets and the liabilities.

10yr T-bills don't exist. Bills have a <= 1 year maturity. What you are talking about is either treasury bonds or treasury notes.

It’s totally irresponsible to invest in 10 year government bonds, without hedging duration risk, especially if your clientele is SVB’s clientele. But doing so would have dampened the short term gains that paid bonuses for a few quarters.

No, SVB has irresponsible strategy and pretty much everyone who works in the field knew it was irresponsible strategy.

This was 100% SVB fault and 0% Fed fault.

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