If you boil it down, the LDI and SVB crises were caused by margin calls — the crystallisation of mark-to-market losses on government bonds.
Not sure I’d call a loss crystallisation a margin call. Might lead to one but they’re not, I think, the same thing.
Agreed. Crystallisation is when you sell the holdings. A margin call is to cover the potential growing losses of the party who has lent to you
Aren’t they calling a margin call a crystallisation of losses (so far) which it kind of is, not the other way about, which as you point out ain’t.
That’s news to me and unlike this idiot, I actually understand what a bloody Margin Call is. Seen nothing at all about trading in market traded securities being the root cause of problems there (although given their incompetence, it wouldn’t surprise me that there are aspects of dodgy trading in the mix). For the most part it seems like losses were piling up and couldn’t be ignored further.
No expert I, but doesn’t a margin call happen when you’ve bought an asset, typically shares, with borrowed money and the lender asks you to reduce the size of the loan, presumably either by paying a bit off or offering another asset as security. If you do neither then the lender will sell some of your shares to reduce the size of the loan outstanding.
If I’m wrong please do correct me.
Dearime. Pretty much bang on. SVB wasn’t about margin at all but LDI was. Both meant forced sales which means crystallised losses. So the writer isn’t miles off. Key is owing cash and not having cash means selling stuff to get cash at whatever price you can sell for.
Pension schemes had gilts repo marked to market daily. Gilt rate up means gilt value goes down so loan is too large, So pay the loan down aka pay cash back to repo counterparty on daily basis. Banks have access to secured lending via the central bank which takes their assets at a large haircut to the current market value which was lower than the amount SVB needed as SVB didn’t daily margin