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So, the actual explanation of the banking problem

And now for the real, real problem

OK, so who else has done this? That’s what is collapsing bank stock prices across the markets and country. We don’t know who else faces such problems. Those Hold To Maturity losses don’t have to be declared as they happen. They’re not subject to mark to market. Except in one juddering change, when they might be.

There are rumours out there that there are $1 trillion of such losses inside American banks. Rumours only, I hasten to add. And the stock problem is not just that we don’t know whether that is true, but even if it is, we don’t know where they are.

As investors, what now?

As depositors we’re fine. If the Administration, Treasury and FDIC all tell us that depositors are safe, then they are. But stock, well, that can still go to zero even as that is true. Bonds can also be more than a little weak in such circumstances.

There is a way to try to get a clue. Here’s the SIVB 10-Q – on page 13 we get an idea of the holdings of “investment securities”. And that’s the thing we’ve got to do. Haul through these filings for each bank and try to work out whether they were long tenor (i.e., long-dated bonds, which then suffer greater price falls as interest rates rise) or not.

Well, you know, good luck. But that is also what all stock analysts in America are trying to do right now – work out who might have lost the bank’s capital by chasing yield in long-term bonds and who forsook earnings now for the ability to have any earnings at all in the future.

There’s no reason why we’re not as good as they are at this same task.

Which is, after all this, the game to be played.

8 thoughts on “So, the actual explanation of the banking problem”

  1. SVB announced their unrealised losses in their last set of financial details, back in January I think. It was all there, c.$15bn of unrealised losses vs $16bn of bank capital. And the markets send the stock soaring from $250 to over $300. So much for ‘efficient markets’………..sometimes I think Tater has a point. Markets aren’t efficient, they are just a crowd rushing hither and thither like a bunch of twats, chasing whatever shiny thing that interests them, or running from whatever shadow has spooked them. Rational analysis of all relevant information in front of them not so much.

  2. So much for ‘efficient markets’………..sometimes I think Tater has a point. Markets aren’t efficient, they are just a crowd rushing hither and thither like a bunch of twats,

    IANAE but I don’t think “efficient” means “happens instantly”. Eventually the bunch of twats stops rushing, and where the majority of them end up is the new market position. The efficiency is in the shaking out of the new position (hopefully sooner than later), as opposed to a Fat Controller somewhere waiting for the start of the next 5 year plan to reset the market.

  3. Anybody who has eyes and is sentient knows that modern markets aren’t efficient, aren’t fair and there certainly isn’t some mythical ‘level playing field’.

    Between the various Governments with their thumb on the scales, as well as trans national corporations and hedge funds manipulating the markets, rational, value based investing has been impossible for quite some time.

    As they say, “sow the wind, reap the whirlwind”

  4. Amusing that Apple was sitting on about 17Bln unrealised losses in sovereign and (mainly) corporate fixed income holdings around end-September last year.

  5. Jim, the collective wisdom of the market factors in the rushing about & even the twats. The trick of playing the market is working out how much has been factored in & what hasn’t. Hence buyers & sellers.

  6. Northern Rock presaged the fall of Bank of Scotland, Royal Bank of Scotland, Lehman Bros, WaMu, Bear Stearns, Merrill Lynch, UBS, the Icelanders, Anglo Irish, …

    I wonder how people feel today about Credit Suisse, say, or Deutsche Bank.

    If you don’t need the return don’t take the risk.

  7. The efficient market hypothesis is *a hypothesis* that enables people to develop theories relting to stock market investments. *Some* of the resultnt theories are useful. It’s a bit like using Euclidean geometry on the surface of the earth which isn’t a plane – that works pretty well until you get to distnce long enough for the curvature of the earth to make a difference. EMH-based theories don’t allow for irrational behaviour by controlling shareholders, defaults by governments of debts due in their own currency or indefinite closure of markets.

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