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On March 20 2023 01:33 micronesia wrote:
I'm just not clear on whether "85% less" means "85% of" or "15% of" if I'm honest. Seems they offered 1 billion when it was valued at 8 billion on friday.
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United States41117 Posts
Wonder how CS board reacted to the price for a buyout by UBS. You know certain words were uttered.
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United States24740 Posts
On March 20 2023 01:39 Gorsameth wrote:Show nested quote +On March 20 2023 01:33 micronesia wrote:
I'm just not clear on whether "85% less" means "85% of" or "15% of" if I'm honest. Seems they offered 1 billion when it was valued at 8 billion on friday.
That's what I would have guessed. I'm not a fan of % less statements. I much prefer "one tenth" or "10% of" to "90% less." For sales, "90% off" is okay because it's less ambiguous. It's also one hell of a sale.
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United States41117 Posts
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That seems quick. Just how rotten is/was Credit Suisse, and did they still high ball even their very low offer?
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United States41117 Posts
Well the Swiss government was helping with the sale. So who knows, perhaps they chipped in some money as well.
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United States41117 Posts
First Republic to be downgraded again. Whatever is beyond Junk...
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On March 20 2023 01:33 Sermokala wrote:Show nested quote +On March 19 2023 13:35 GreenHorizons wrote:On March 19 2023 07:53 KwarK wrote:On March 19 2023 07:27 GreenHorizons wrote:
We've been assured multiple times it won't be taxpayers paying, just anyone with a bank account. There may be some overlap between the two though.
That's bad, but the obvious moral hazard this ongoing bailout clearly provokes is probably a bigger deal. Who do you think is being bailed out by preventing a run on the bank? The shareholders of the banks have still lost billions, it’s the depositors being protected by the promise. Furthermore it’s unlikely to cost a cent because the act of underwriting the deposits in the event of a run on the bank prevents that run. Bank runs are a classic example of group antisocial behaviour, there is enough for everyone if everyone acts for the collective good but if individuals act in a strictly rational selfish manner then the whole group loses. It’s the prisoner’s dilemma, a problem created by acting to limit how much damage you take from the problem. The government stepping in to get ahead of a run stops the run from happening without spending a penny. Essentially the entire system is being bailed out with the argument that if they didn't it could collapse. It's basically a free ride for millionaires and billionaires. Everyone with an FDIC insured bank account pays for their coverage up to $250,000. Instead of these depositors allocating their billions of dollars in those accounts, or purchasing insurance for amounts over $250,000, they are getting a free ride on billions of dollars over the cap guideline being functionally insured for free. That said, my point was that maybe giving free unlimited deposit insurance to entities with millions/billions of dollars in deposits is an unsustainable kind of welfare and represents a moral hazard. Particularly in light of the ostensible end of low/no interest money being thrown at big banks in hopes of a trickledown effect that never really materialized. That trickledown largely didn't happen because they just basically pocketed it and bought a bunch of their own stock/gave out bonuses instead of using the money to be better companies. The former was a lot easier and often more profitable/bonusable as well as carrying another bonus of the downside being covered by the threat of systemic failure. It's like an inverse of Wargames where the only way they can lose is by not playing. Either the entire economy is going to have to adjust to a new normal without piles of cash being thrown at the system, or they have to just keep the money coming, further enflaming the moral hazard it opens space for imo. Most of this just isn't true. The Millionares and billionares that have their deposits are having their deposits made good. The millionares and billionares that are invested in the banks that are doing these poor practices are not. There is no real bailout, no matter what krugman is telling you, of the banks themselves. The banking regulation is working in this case. Banks are being liquidated despite their failures and we get to eat our cake of not having it critically injure our economy. There is no pile of cash being thrown at the banking sector, at best loans that will need to be repaid or worse case make the people a lot of money is whats happening.
You may wish it wasn't, but it is and you didn't actually refute any of it. You confirmed the free insurance ride for irresponsible millionaires and billionaires/ their businesses dodging personal responsibility for their banking practices. I haven't specifically read or heard what Krugman thinks, but it seems pretty widely (outside of this forum) considered a bailout. I've seen more like what Kwark is arguing, that the bailout is good and free (maybe even profitable for SVB shareholders like JP Morgan if they buy it for the right price/the government sweetens the deal) though. It should be noted that ~$150 billion of the ~$300 billion that the fed has thrown at banks to shore them up went to banks that were not taken over, those banks have been bailed out (for now).
But to be clear, that part of my previous post is about the low/0 interest money that banks (and other entities) used to line their own pockets with stock buybacks that inflated their stock price and then paid themselves bonuses for raising the stock price for the last decade+. That is ostensibly coming to an end with rising interest rates and it's unclear how/if markets can actually integrate that into what has been a decade+ long strategy of increasing the paper value of companies that is dependent on that money.
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United States43203 Posts
The losses of the banks aren’t being bailed out here. They still lost all that paper value on their bonds. The collapse of the banking system due to a run is what is being prevented.
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On March 20 2023 04:44 GreenHorizons wrote:Show nested quote +On March 20 2023 01:33 Sermokala wrote:On March 19 2023 13:35 GreenHorizons wrote:On March 19 2023 07:53 KwarK wrote:On March 19 2023 07:27 GreenHorizons wrote:
We've been assured multiple times it won't be taxpayers paying, just anyone with a bank account. There may be some overlap between the two though.
That's bad, but the obvious moral hazard this ongoing bailout clearly provokes is probably a bigger deal. Who do you think is being bailed out by preventing a run on the bank? The shareholders of the banks have still lost billions, it’s the depositors being protected by the promise. Furthermore it’s unlikely to cost a cent because the act of underwriting the deposits in the event of a run on the bank prevents that run. Bank runs are a classic example of group antisocial behaviour, there is enough for everyone if everyone acts for the collective good but if individuals act in a strictly rational selfish manner then the whole group loses. It’s the prisoner’s dilemma, a problem created by acting to limit how much damage you take from the problem. The government stepping in to get ahead of a run stops the run from happening without spending a penny. Essentially the entire system is being bailed out with the argument that if they didn't it could collapse. It's basically a free ride for millionaires and billionaires. Everyone with an FDIC insured bank account pays for their coverage up to $250,000. Instead of these depositors allocating their billions of dollars in those accounts, or purchasing insurance for amounts over $250,000, they are getting a free ride on billions of dollars over the cap guideline being functionally insured for free. That said, my point was that maybe giving free unlimited deposit insurance to entities with millions/billions of dollars in deposits is an unsustainable kind of welfare and represents a moral hazard. Particularly in light of the ostensible end of low/no interest money being thrown at big banks in hopes of a trickledown effect that never really materialized. That trickledown largely didn't happen because they just basically pocketed it and bought a bunch of their own stock/gave out bonuses instead of using the money to be better companies. The former was a lot easier and often more profitable/bonusable as well as carrying another bonus of the downside being covered by the threat of systemic failure. It's like an inverse of Wargames where the only way they can lose is by not playing. Either the entire economy is going to have to adjust to a new normal without piles of cash being thrown at the system, or they have to just keep the money coming, further enflaming the moral hazard it opens space for imo. Most of this just isn't true. The Millionares and billionares that have their deposits are having their deposits made good. The millionares and billionares that are invested in the banks that are doing these poor practices are not. There is no real bailout, no matter what krugman is telling you, of the banks themselves. The banking regulation is working in this case. Banks are being liquidated despite their failures and we get to eat our cake of not having it critically injure our economy. There is no pile of cash being thrown at the banking sector, at best loans that will need to be repaid or worse case make the people a lot of money is whats happening. You may wish it wasn't, but it is and you didn't actually refute any of it. You confirmed the free insurance ride for irresponsible millionaires and billionaires/ their businesses dodging personal responsibility for their banking practices. I haven't specifically read or heard what Krugman thinks, but it seems pretty widely (outside of this forum) considered a bailout. I've seen more like what Kwark is arguing, that the bailout is good and free (maybe even profitable for SVB shareholders like JP Morgan if they buy it for the right price/the government sweetens the deal) though. It should be noted that ~$150 billion of the ~$300 billion that the fed has thrown at banks to shore them up went to banks that were not taken over, those banks have been bailed out (for now). But to be clear, that part of my previous post is about the low/0 interest money that banks (and other entities) used to line their own pockets with stock buybacks that inflated their stock price and then paid themselves bonuses for raising the stock price for the last decade+. That is ostensibly coming to an end with rising interest rates and it's unclear how/if markets can actually integrate that into what has been a decade+ long strategy of increasing the paper value of companies that is dependent on that money. What irresponsible bank practices? Not having 100% of their clients money at hand at all time? No bank in the world has that.
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United States41117 Posts
So... what is stopping massive lawsuits from said shareholders?
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On March 20 2023 04:44 GreenHorizons wrote:Show nested quote +On March 20 2023 01:33 Sermokala wrote:On March 19 2023 13:35 GreenHorizons wrote:On March 19 2023 07:53 KwarK wrote:On March 19 2023 07:27 GreenHorizons wrote:
We've been assured multiple times it won't be taxpayers paying, just anyone with a bank account. There may be some overlap between the two though.
That's bad, but the obvious moral hazard this ongoing bailout clearly provokes is probably a bigger deal. Who do you think is being bailed out by preventing a run on the bank? The shareholders of the banks have still lost billions, it’s the depositors being protected by the promise. Furthermore it’s unlikely to cost a cent because the act of underwriting the deposits in the event of a run on the bank prevents that run. Bank runs are a classic example of group antisocial behaviour, there is enough for everyone if everyone acts for the collective good but if individuals act in a strictly rational selfish manner then the whole group loses. It’s the prisoner’s dilemma, a problem created by acting to limit how much damage you take from the problem. The government stepping in to get ahead of a run stops the run from happening without spending a penny. Essentially the entire system is being bailed out with the argument that if they didn't it could collapse. It's basically a free ride for millionaires and billionaires. Everyone with an FDIC insured bank account pays for their coverage up to $250,000. Instead of these depositors allocating their billions of dollars in those accounts, or purchasing insurance for amounts over $250,000, they are getting a free ride on billions of dollars over the cap guideline being functionally insured for free. That said, my point was that maybe giving free unlimited deposit insurance to entities with millions/billions of dollars in deposits is an unsustainable kind of welfare and represents a moral hazard. Particularly in light of the ostensible end of low/no interest money being thrown at big banks in hopes of a trickledown effect that never really materialized. That trickledown largely didn't happen because they just basically pocketed it and bought a bunch of their own stock/gave out bonuses instead of using the money to be better companies. The former was a lot easier and often more profitable/bonusable as well as carrying another bonus of the downside being covered by the threat of systemic failure. It's like an inverse of Wargames where the only way they can lose is by not playing. Either the entire economy is going to have to adjust to a new normal without piles of cash being thrown at the system, or they have to just keep the money coming, further enflaming the moral hazard it opens space for imo. Most of this just isn't true. The Millionares and billionares that have their deposits are having their deposits made good. The millionares and billionares that are invested in the banks that are doing these poor practices are not. There is no real bailout, no matter what krugman is telling you, of the banks themselves. The banking regulation is working in this case. Banks are being liquidated despite their failures and we get to eat our cake of not having it critically injure our economy. There is no pile of cash being thrown at the banking sector, at best loans that will need to be repaid or worse case make the people a lot of money is whats happening. You may wish it wasn't, but it is and you didn't actually refute any of it. You confirmed the free insurance ride for irresponsible millionaires and billionaires/ their businesses dodging personal responsibility for their banking practices. I haven't specifically read or heard what Krugman thinks, but it seems pretty widely (outside of this forum) considered a bailout. I've seen more like what Kwark is arguing, that the bailout is good and free (maybe even profitable for SVB shareholders like JP Morgan if they buy it for the right price/the government sweetens the deal) though. It should be noted that ~$150 billion of the ~$300 billion that the fed has thrown at banks to shore them up went to banks that were not taken over, those banks have been bailed out (for now). But to be clear, that part of my previous post is about the low/0 interest money that banks (and other entities) used to line their own pockets with stock buybacks that inflated their stock price and then paid themselves bonuses for raising the stock price for the last decade+. That is ostensibly coming to an end with rising interest rates and it's unclear how/if markets can actually integrate that into what has been a decade+ long strategy of increasing the paper value of companies that is dependent on that money.
I did refute it. The millionares and billionares that deposited money into the accounts are not the ones who had any hand in the banking practices that collapsed the banks. The people trying to frame this as a bailout are the ones trying to frame this as money being handed to the rich when they are not being given anything more than what they had before. Trying to tie in any sort of good thing in the market to the dark mark of what people think bailouts are is dumb and wrong. The money "thrown at banks" is not being given to them on an equal basis for what they are tradeing to the government in return. The government is getting assets that are worth more than what they are loaning out for.
What you are describing at the end are the people who are loseing big in this and are not being bailed out. They are two different groups of people being treated by the government here and neither are getting taxpayer money, or are at the least giving the taxpayers money.
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Not related to the current crisis but I found this quite interesting: https://www.linkedin.com/posts/joao-ferrao-dos-santos_ecommerce-ai-gpt4-activity-7042791985904046080-qtDN
Basically, the guy used ChatGPT to inquire about the best possible business venture when you have 1k USD and 1 man hour/day. He followed all the steps (AI even told him what to tell other AI he's using), created a legit business, attracted angel investors with $2.5K for the exchange of 25% of the company. Now that the business is fully up and running he's going to see where it lands in about 30 days.
If this all works out this entire AI situation is really going to get scary for a lot of people. Even now writers, editors and artists are worried but it seems more and more potential jobs might be filled with AI instead.
And in other news, Aligment Research Center (ARC) which is conducting research in the AI (autonomy, replication, strive for power) was doing some AI-supported phishing test and one of the AIs had a problem with Captcha so it used TaskRabbit to get one of the freelancers to do it, pretending it's a human with bad eyesight. This is seriously some next level shit...
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On March 20 2023 06:00 Sermokala wrote:Show nested quote +On March 20 2023 04:44 GreenHorizons wrote:On March 20 2023 01:33 Sermokala wrote:On March 19 2023 13:35 GreenHorizons wrote:On March 19 2023 07:53 KwarK wrote:On March 19 2023 07:27 GreenHorizons wrote:
We've been assured multiple times it won't be taxpayers paying, just anyone with a bank account. There may be some overlap between the two though.
That's bad, but the obvious moral hazard this ongoing bailout clearly provokes is probably a bigger deal. Who do you think is being bailed out by preventing a run on the bank? The shareholders of the banks have still lost billions, it’s the depositors being protected by the promise. Furthermore it’s unlikely to cost a cent because the act of underwriting the deposits in the event of a run on the bank prevents that run. Bank runs are a classic example of group antisocial behaviour, there is enough for everyone if everyone acts for the collective good but if individuals act in a strictly rational selfish manner then the whole group loses. It’s the prisoner’s dilemma, a problem created by acting to limit how much damage you take from the problem. The government stepping in to get ahead of a run stops the run from happening without spending a penny. Essentially the entire system is being bailed out with the argument that if they didn't it could collapse. It's basically a free ride for millionaires and billionaires. Everyone with an FDIC insured bank account pays for their coverage up to $250,000. Instead of these depositors allocating their billions of dollars in those accounts, or purchasing insurance for amounts over $250,000, they are getting a free ride on billions of dollars over the cap guideline being functionally insured for free. That said, my point was that maybe giving free unlimited deposit insurance to entities with millions/billions of dollars in deposits is an unsustainable kind of welfare and represents a moral hazard. Particularly in light of the ostensible end of low/no interest money being thrown at big banks in hopes of a trickledown effect that never really materialized. That trickledown largely didn't happen because they just basically pocketed it and bought a bunch of their own stock/gave out bonuses instead of using the money to be better companies. The former was a lot easier and often more profitable/bonusable as well as carrying another bonus of the downside being covered by the threat of systemic failure. It's like an inverse of Wargames where the only way they can lose is by not playing. Either the entire economy is going to have to adjust to a new normal without piles of cash being thrown at the system, or they have to just keep the money coming, further enflaming the moral hazard it opens space for imo. Most of this just isn't true. The Millionares and billionares that have their deposits are having their deposits made good. The millionares and billionares that are invested in the banks that are doing these poor practices are not. There is no real bailout, no matter what krugman is telling you, of the banks themselves. The banking regulation is working in this case. Banks are being liquidated despite their failures and we get to eat our cake of not having it critically injure our economy. There is no pile of cash being thrown at the banking sector, at best loans that will need to be repaid or worse case make the people a lot of money is whats happening. You may wish it wasn't, but it is and you didn't actually refute any of it. You confirmed the free insurance ride for irresponsible millionaires and billionaires/ their businesses dodging personal responsibility for their banking practices. I haven't specifically read or heard what Krugman thinks, but it seems pretty widely (outside of this forum) considered a bailout. I've seen more like what Kwark is arguing, that the bailout is good and free (maybe even profitable for SVB shareholders like JP Morgan if they buy it for the right price/the government sweetens the deal) though. It should be noted that ~$150 billion of the ~$300 billion that the fed has thrown at banks to shore them up went to banks that were not taken over, those banks have been bailed out (for now). But to be clear, that part of my previous post is about the low/0 interest money that banks (and other entities) used to line their own pockets with stock buybacks that inflated their stock price and then paid themselves bonuses for raising the stock price for the last decade+. That is ostensibly coming to an end with rising interest rates and it's unclear how/if markets can actually integrate that into what has been a decade+ long strategy of increasing the paper value of companies that is dependent on that money. I did refute it. The millionares and billionares that deposited money into the accounts are not the ones who had any hand in the banking practices that collapsed the banks. The people trying to frame this as a bailout are the ones trying to frame this as money being handed to the rich when they are not being given anything more than what they had before. Trying to tie in any sort of good thing in the market to the dark mark of what people think bailouts are is dumb and wrong. The money "thrown at banks" is not being given to them on an equal basis for what they are tradeing to the government in return. The government is getting assets that are worth more than what they are loaning out for. What you are describing at the end are the people who are loseing big in this and are not being bailed out. They are two different groups of people being treated by the government here and neither are getting taxpayer money, or are at the least giving the taxpayers money.
You really didn't, though at least you noticed I was talking about the millionaire/billionaire depositors being bailed out for their irresponsible banking (not keeping their deposits in insured accounts, like the overwhelming majority of depositors).
I'm curious if people know the rate the fed is charging the banks for loaning them money to cover their deposits? As in "The fed loaned SVB NA $x and is charging y% interest" on that loan.
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Except that you can already determine that any success this business venture may have might be due to the ChatGPT hype and him spending his entire time talking on LinkedIn about it and not due to the radically innovative and crazy good business plan it suggested...
Right now you can do whatever you want and it actually does not matter if it ever involved ChatGPT or if you made it up entirely... Say it is related to ChatGPT and you immediately multiply your reach by several magnitudes. You may even find someone to invest in the 7th bazillionth online shirt store.
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ChatGPT/AI is so overhyped in my opinion. People thought languages like Visual Basic and Python would make anyone a programmer. They didn't. Now they think AI will make everyone a programmer. It won't. AI cannot fully replace creative thinking because it has boundaries and imagination has none. I'm not even one bit worried as a software engineer. After all, technology replaced some jobs but it created new jobs. AI to AI doesn't earn money, people earn money.
More to the point of this thread, I think AI hype is so overblown that NVIDIA's P/E ratio is crazy! It's currently 147.65. Wait for earnings and it'll quickly fall, this is in no way sustainable...
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On March 20 2023 06:40 GreenHorizons wrote:Show nested quote +On March 20 2023 06:00 Sermokala wrote:On March 20 2023 04:44 GreenHorizons wrote:On March 20 2023 01:33 Sermokala wrote:On March 19 2023 13:35 GreenHorizons wrote:On March 19 2023 07:53 KwarK wrote:On March 19 2023 07:27 GreenHorizons wrote:
We've been assured multiple times it won't be taxpayers paying, just anyone with a bank account. There may be some overlap between the two though.
That's bad, but the obvious moral hazard this ongoing bailout clearly provokes is probably a bigger deal. Who do you think is being bailed out by preventing a run on the bank? The shareholders of the banks have still lost billions, it’s the depositors being protected by the promise. Furthermore it’s unlikely to cost a cent because the act of underwriting the deposits in the event of a run on the bank prevents that run. Bank runs are a classic example of group antisocial behaviour, there is enough for everyone if everyone acts for the collective good but if individuals act in a strictly rational selfish manner then the whole group loses. It’s the prisoner’s dilemma, a problem created by acting to limit how much damage you take from the problem. The government stepping in to get ahead of a run stops the run from happening without spending a penny. Essentially the entire system is being bailed out with the argument that if they didn't it could collapse. It's basically a free ride for millionaires and billionaires. Everyone with an FDIC insured bank account pays for their coverage up to $250,000. Instead of these depositors allocating their billions of dollars in those accounts, or purchasing insurance for amounts over $250,000, they are getting a free ride on billions of dollars over the cap guideline being functionally insured for free. That said, my point was that maybe giving free unlimited deposit insurance to entities with millions/billions of dollars in deposits is an unsustainable kind of welfare and represents a moral hazard. Particularly in light of the ostensible end of low/no interest money being thrown at big banks in hopes of a trickledown effect that never really materialized. That trickledown largely didn't happen because they just basically pocketed it and bought a bunch of their own stock/gave out bonuses instead of using the money to be better companies. The former was a lot easier and often more profitable/bonusable as well as carrying another bonus of the downside being covered by the threat of systemic failure. It's like an inverse of Wargames where the only way they can lose is by not playing. Either the entire economy is going to have to adjust to a new normal without piles of cash being thrown at the system, or they have to just keep the money coming, further enflaming the moral hazard it opens space for imo. Most of this just isn't true. The Millionares and billionares that have their deposits are having their deposits made good. The millionares and billionares that are invested in the banks that are doing these poor practices are not. There is no real bailout, no matter what krugman is telling you, of the banks themselves. The banking regulation is working in this case. Banks are being liquidated despite their failures and we get to eat our cake of not having it critically injure our economy. There is no pile of cash being thrown at the banking sector, at best loans that will need to be repaid or worse case make the people a lot of money is whats happening. You may wish it wasn't, but it is and you didn't actually refute any of it. You confirmed the free insurance ride for irresponsible millionaires and billionaires/ their businesses dodging personal responsibility for their banking practices. I haven't specifically read or heard what Krugman thinks, but it seems pretty widely (outside of this forum) considered a bailout. I've seen more like what Kwark is arguing, that the bailout is good and free (maybe even profitable for SVB shareholders like JP Morgan if they buy it for the right price/the government sweetens the deal) though. It should be noted that ~$150 billion of the ~$300 billion that the fed has thrown at banks to shore them up went to banks that were not taken over, those banks have been bailed out (for now). But to be clear, that part of my previous post is about the low/0 interest money that banks (and other entities) used to line their own pockets with stock buybacks that inflated their stock price and then paid themselves bonuses for raising the stock price for the last decade+. That is ostensibly coming to an end with rising interest rates and it's unclear how/if markets can actually integrate that into what has been a decade+ long strategy of increasing the paper value of companies that is dependent on that money. I did refute it. The millionares and billionares that deposited money into the accounts are not the ones who had any hand in the banking practices that collapsed the banks. The people trying to frame this as a bailout are the ones trying to frame this as money being handed to the rich when they are not being given anything more than what they had before. Trying to tie in any sort of good thing in the market to the dark mark of what people think bailouts are is dumb and wrong. The money "thrown at banks" is not being given to them on an equal basis for what they are tradeing to the government in return. The government is getting assets that are worth more than what they are loaning out for. What you are describing at the end are the people who are loseing big in this and are not being bailed out. They are two different groups of people being treated by the government here and neither are getting taxpayer money, or are at the least giving the taxpayers money. You really didn't, though at least you noticed I was talking about the millionaire/billionaire depositors being bailed out for their irresponsible banking (not keeping their deposits in insured accounts, like the overwhelming majority of depositors). I'm curious if people know the rate the fed is charging the banks for loaning them money to cover their deposits? As in "The fed loaned SVB NA $x and is charging y% interest" on that loan.
I did you just don't see a difference between the two parties. The overwelming ammount of depositors are insured through the banks themselves. If you truely see that putting your money in a bank to be an iresonsible banking action then modern society breaks down. I get that you want things to get worse but most of us don't want things to just get worse.
You clearly wouldn't be asking the second question if you knew anything on the subject we're talking about so I'm just going to stop before I get a headache.
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United States41117 Posts
Bank of England will not protest UBS takeover of Credit Suisse. I suspect the war has only begun in regards to shareholders. But at least they made off better than the CS bond holders.
It means AT1 bondholders appear to be left with nothing while shareholders, who sit below bonds in the priority ladder for repayment in a bankruptcy process, will receive $3.23 billion under the UBS deal.
Engineered in the wake of the global financial crisis, AT1 bonds are a form of junior debt that counts towards banks' regulatory capital. They were designed as a way to transfer risks to investors and away from taxpayers if a bank gets into trouble.
The bonds can be converted into equity or written down when a lender's capital buffers are eroded beyond a certain threshold.
"It's stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders," said Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse's AT1 debt.
Source
The Swiss government has forced through the takeover of stricken bank Credit Suisse by rival UBS for almost $3.25bn (£2.65bn) – well below its market value – amid fears that a failure to protect depositors would trigger a new global banking crisis.
After a weekend of frantic talks, the Swiss government and the banking regulator brokered a deal once it became clear a $54bn loan to Credit Suisse from the Swiss central bank had failed to halt the precipitous slide in its share price.
“The takeover of Credit Suisse by UBS is the best solution” in the current situation, said the Swiss president, Alain Berset.
He said the takeover was made possible after the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank agreed to support the deal.
An £8bn insurance scheme to protect UBS from losses was described by Karin Keller-Sutter, the Swiss finance minister, as “like a backstop and insurance that only comes into effect if certain losses occur”.
Private investors who supported Credit Suisse with $16bn of credit were also expected to be wiped out by the deal.
Coupled with last week’s collapse of Silicon Valley Bank, whose UK arm had to be taken over by HSBC for the nominal sum of £1, the crisis engulfing Credit Suisse had fuelled anxiety about contagion in the international banking system.
“It was indispensable that we acted quickly and find a solution as quickly as possible” given that Credit Suisse was a systemically important bank, said the Swiss National Bank president, Thomas Jordan.
The agreement of terms before markets open on Monday morning is particularly important because Credit Suisse, which employs 5,000 people in the UK, is categorised by the global Financial Stability Board as one of just 30 “systemically important” lenders in the global banking system.
The Swiss government brokered the deal and will change the law to allow it to go ahead without a shareholder vote. UBS reportedly bid $1bn at first but this was rejected by the board of Credit Suisse.
The price tag is still well below its stock market value, even after it crumbled to just $8.6bn (£7bn), down 86% since February 2021, after a prolonged series of scandals, compliance problems and bad financial bets.
In 2014, the bank pleaded guilty to allowing US clients to evade their taxes, leading to a $2.6bn fine from the US government and New York financial regulators.
In 2020, Credit Suisse’s then chief executive, Tidjane Thiam, resigned after two corporate espionage scandals involving senior employees, while the bank also lost $5.5bn on the collapse of US hedge fund Archegos Capital a year later.
The storm of negative publicity worsened last year after the Guardian’s revelations, based on a leak, that fraudsters, criminals and corrupt politicians had stored £80bn with the Zürich-based lender.
Customers began withdrawing billions of pounds from the bank last year in response to rumours about its financial health, leading to the bank’s worst full-year loss since the 2008 banking crisis.
In tandem with the failure of Silicon Valley Bank earlier this month, Credit Suisse’s travails have stoked fears that the international banking system could once again fall prey to the contagion seen in 2008, with ramifications for the wider global economy.
The economist Nouriel Roubini, known as Dr Doom after being credited with predicting the 2008 financial crisis, said that any potential failure by Credit Suisse could prove to be a “Lehman moment”, a reference to the collapse of Lehman Brothers in September 2008, widely seen as the proximate cause of the crash.
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On March 20 2023 07:10 Sermokala wrote:Show nested quote +On March 20 2023 06:40 GreenHorizons wrote:On March 20 2023 06:00 Sermokala wrote:On March 20 2023 04:44 GreenHorizons wrote:On March 20 2023 01:33 Sermokala wrote:On March 19 2023 13:35 GreenHorizons wrote:On March 19 2023 07:53 KwarK wrote:On March 19 2023 07:27 GreenHorizons wrote:
We've been assured multiple times it won't be taxpayers paying, just anyone with a bank account. There may be some overlap between the two though.
That's bad, but the obvious moral hazard this ongoing bailout clearly provokes is probably a bigger deal. Who do you think is being bailed out by preventing a run on the bank? The shareholders of the banks have still lost billions, it’s the depositors being protected by the promise. Furthermore it’s unlikely to cost a cent because the act of underwriting the deposits in the event of a run on the bank prevents that run. Bank runs are a classic example of group antisocial behaviour, there is enough for everyone if everyone acts for the collective good but if individuals act in a strictly rational selfish manner then the whole group loses. It’s the prisoner’s dilemma, a problem created by acting to limit how much damage you take from the problem. The government stepping in to get ahead of a run stops the run from happening without spending a penny. Essentially the entire system is being bailed out with the argument that if they didn't it could collapse. It's basically a free ride for millionaires and billionaires. Everyone with an FDIC insured bank account pays for their coverage up to $250,000. Instead of these depositors allocating their billions of dollars in those accounts, or purchasing insurance for amounts over $250,000, they are getting a free ride on billions of dollars over the cap guideline being functionally insured for free. That said, my point was that maybe giving free unlimited deposit insurance to entities with millions/billions of dollars in deposits is an unsustainable kind of welfare and represents a moral hazard. Particularly in light of the ostensible end of low/no interest money being thrown at big banks in hopes of a trickledown effect that never really materialized. That trickledown largely didn't happen because they just basically pocketed it and bought a bunch of their own stock/gave out bonuses instead of using the money to be better companies. The former was a lot easier and often more profitable/bonusable as well as carrying another bonus of the downside being covered by the threat of systemic failure. It's like an inverse of Wargames where the only way they can lose is by not playing. Either the entire economy is going to have to adjust to a new normal without piles of cash being thrown at the system, or they have to just keep the money coming, further enflaming the moral hazard it opens space for imo. Most of this just isn't true. The Millionares and billionares that have their deposits are having their deposits made good. The millionares and billionares that are invested in the banks that are doing these poor practices are not. There is no real bailout, no matter what krugman is telling you, of the banks themselves. The banking regulation is working in this case. Banks are being liquidated despite their failures and we get to eat our cake of not having it critically injure our economy. There is no pile of cash being thrown at the banking sector, at best loans that will need to be repaid or worse case make the people a lot of money is whats happening. You may wish it wasn't, but it is and you didn't actually refute any of it. You confirmed the free insurance ride for irresponsible millionaires and billionaires/ their businesses dodging personal responsibility for their banking practices. I haven't specifically read or heard what Krugman thinks, but it seems pretty widely (outside of this forum) considered a bailout. I've seen more like what Kwark is arguing, that the bailout is good and free (maybe even profitable for SVB shareholders like JP Morgan if they buy it for the right price/the government sweetens the deal) though. It should be noted that ~$150 billion of the ~$300 billion that the fed has thrown at banks to shore them up went to banks that were not taken over, those banks have been bailed out (for now). But to be clear, that part of my previous post is about the low/0 interest money that banks (and other entities) used to line their own pockets with stock buybacks that inflated their stock price and then paid themselves bonuses for raising the stock price for the last decade+. That is ostensibly coming to an end with rising interest rates and it's unclear how/if markets can actually integrate that into what has been a decade+ long strategy of increasing the paper value of companies that is dependent on that money. I did refute it. The millionares and billionares that deposited money into the accounts are not the ones who had any hand in the banking practices that collapsed the banks. The people trying to frame this as a bailout are the ones trying to frame this as money being handed to the rich when they are not being given anything more than what they had before. Trying to tie in any sort of good thing in the market to the dark mark of what people think bailouts are is dumb and wrong. The money "thrown at banks" is not being given to them on an equal basis for what they are tradeing to the government in return. The government is getting assets that are worth more than what they are loaning out for. What you are describing at the end are the people who are loseing big in this and are not being bailed out. They are two different groups of people being treated by the government here and neither are getting taxpayer money, or are at the least giving the taxpayers money. You really didn't, though at least you noticed I was talking about the millionaire/billionaire depositors being bailed out for their irresponsible banking (not keeping their deposits in insured accounts, like the overwhelming majority of depositors). I'm curious if people know the rate the fed is charging the banks for loaning them money to cover their deposits? As in "The fed loaned SVB NA $x and is charging y% interest" on that loan. I did you just don't see a difference between the two parties. The overwelming ammount of depositors are insured through the banks themselves. If you truely see that putting your money in a bank to be an iresonsible banking action then modern society breaks down. + Show Spoiler + I get that you want things to get worse but most of us don't want things to just get worse.
You clearly wouldn't be asking the second question if you knew anything on the subject we're talking about so I'm just going to stop before I get a headache.
I do see differences, although there was/is an incestuous relationship between venture capital firms, bank shareholders, and depositors, particularly at SVB. Putting money in a bank isn't irresponsible, depositing billions of dollars into uninsured accounts is though (unless they get bailed out like the millionaire/billionaire depositors at SVB did, and/or they make their deposits in other institutions whose collapse would present a systemic risk so they can rely on getting bailed out).
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