‘Explain’ is easy when you realize the decision makers are irrational, delusional and brainwashed. They can’t explain the fact that God created only two genders. They can’t explain why ‘green’ energy is unsustainable. EVERYTHING they believe is a lie.
Can anyone explain why you would by long term bonds at 1.5%?
Irresponsible management.
SVB marketed itself as a specialist in lending to tech companies, and especially small, start-up companies with venture capitalist backing.
SVB made loans to these companies, and in turn the companies did their banking with SVB.
The funds SVB received were invested in (a) more loans to start-ups, and (b) other "safe" investments, such as US Treasuries. Because they could get more interest with long-term treasuries than short-term (1.5% is more than say 0.01%), they put their money there.
1.5% doesn't seem like much, but when they use leverage, it is more than you would otherwise think.
EXCEPT ...
(a) Small, start-up tech companies are VERY risky, and USUALLY fail, and
(b) Long-term bonds (even government) fluctuate both up AND down in price more than short-term bonds do.
So, as the Federal Reserve (a private business, not a government agency) started increasing interest rates, the value of long-term bonds decreased.
This made SVB's balance sheet look worse, as some of its assets went down, so they had to sell some assets (long-term bonds) at a loss to raise cash.
When they announced this, fear set in for the account holders, who started to withdraw their cash from the bank.
So, as SVB was selling assets to raise cash, the customers were withdrawing that cash, forcing SVB to sell yet more assets.
A friend years ago used to run one of the largest banks in the US. They are one of a few on the "too big to fail" list.
SVB was a competitor in some areas. He said his bank ceased dealing with SVB because they took INSANE risks as a matter of course.
So all of these people pondering how this could have happened given how conservative SVB's choices were? No.
Can anyone explain why you would by long term bonds at 1.5%? Everyone knew rates were going up...
I still dont get why this bank was used by so many tech corporations...
‘Explain’ is easy when you realize the decision makers are irrational, delusional and brainwashed. They can’t explain the fact that God created only two genders. They can’t explain why ‘green’ energy is unsustainable. EVERYTHING they believe is a lie.
I saw where other similar conservative investments at the time (10-year U.S. Treasuries) were paying 0-0.25%. That was part of it.
SVB would work with companies other banks would not.
Irresponsible management.
SVB marketed itself as a specialist in lending to tech companies, and especially small, start-up companies with venture capitalist backing.
SVB made loans to these companies, and in turn the companies did their banking with SVB.
The funds SVB received were invested in (a) more loans to start-ups, and (b) other "safe" investments, such as US Treasuries. Because they could get more interest with long-term treasuries than short-term (1.5% is more than say 0.01%), they put their money there.
1.5% doesn't seem like much, but when they use leverage, it is more than you would otherwise think.
EXCEPT ...
(a) Small, start-up tech companies are VERY risky, and USUALLY fail, and
(b) Long-term bonds (even government) fluctuate both up AND down in price more than short-term bonds do.
So, as the Federal Reserve (a private business, not a government agency) started increasing interest rates, the value of long-term bonds decreased.
This made SVB's balance sheet look worse, as some of its assets went down, so they had to sell some assets (long-term bonds) at a loss to raise cash.
When they announced this, fear set in for the account holders, who started to withdraw their cash from the bank.
So, as SVB was selling assets to raise cash, the customers were withdrawing that cash, forcing SVB to sell yet more assets.
It turned into a downward spiral, and ...
poof
Yo' money is ... gone!
A friend years ago used to run one of the largest banks in the US. They are one of a few on the "too big to fail" list. SVB was a competitor in some areas. He said his bank ceased dealing with SVB because they took INSANE risks as a matter of course. So all of these people pondering how this could have happened given how conservative SVB's choices were? No.