A short addendum to my SVB post of yesterday. The insolvency of SVB is at least partially the result of an arcane accounting practice applied to assets that are designated as “Held to Maturity.” Addressing the three of you still reading on, “Held to Maturity” is crucial to understanding what happened. I’m going to quote some numbers that may surprise you. SVB’s 12/31/22 balance sheet shows a net worth of about $16 billion. It also shows a value of $91 billion for its Held to Maturity assets. But in a parenthetical note, right there on the balance sheet, SVB reveals that the market value of that $91 billion of assets was worth at market prices only $76 billion. That’s a difference of $15 billion, equivalent to almost the entirety of its net worth.
I don't think it is uncommon that actions we take to avoid a short-term loss come back to haunt us and so it is in this case. Pretending, in 2009, the losses in value were not real because they had not been realized led us to this happening in 2023. Likewise, bailing out banks once before set a precedent for a bailout of some sort now, though gov may not want to call it that. Protecting deposits over $250k will come back to haunt us at some point, even if only when the gov refuses to do it in some future case and they loses a lawsuit brought on the basis of precedent.
Let's smooth things over as best we can and also prevent responsible individuals from taking responsibility. No banker went to jail as a result of the 2008 crisis, though lots of people lost their homes.
Thanks for this, David. As a non-accountant, non-banker, I only catch the general sense of what is happening and what has happened. The networks report a politicized version. Do you have a recommendation for books that chart this history in clear terms?
I can't think of a specific book. But I can recommend Matt Levine's almost daily writing at Bloomberg. His writing is a pleasure, he has a great sense of humor, and he does a great job of explaining complex financial phenomena.
A good explainer. Thanks! (Good footnote too!)
Read it 3x. Does it make sense to me? Sort of. I hope and pray SVB is an anomaly.
I don't think it is uncommon that actions we take to avoid a short-term loss come back to haunt us and so it is in this case. Pretending, in 2009, the losses in value were not real because they had not been realized led us to this happening in 2023. Likewise, bailing out banks once before set a precedent for a bailout of some sort now, though gov may not want to call it that. Protecting deposits over $250k will come back to haunt us at some point, even if only when the gov refuses to do it in some future case and they loses a lawsuit brought on the basis of precedent.
Let's smooth things over as best we can and also prevent responsible individuals from taking responsibility. No banker went to jail as a result of the 2008 crisis, though lots of people lost their homes.
Thanks for this, David. As a non-accountant, non-banker, I only catch the general sense of what is happening and what has happened. The networks report a politicized version. Do you have a recommendation for books that chart this history in clear terms?
I can't think of a specific book. But I can recommend Matt Levine's almost daily writing at Bloomberg. His writing is a pleasure, he has a great sense of humor, and he does a great job of explaining complex financial phenomena.