Isn't the relative outperformance of USDT also a function of growing US regulatory risk? After all, it appears there's a reasonable chance that the FDIC seized SBNY because of crypto activity, not solvency.
A transparent financial system, with well-regulated & liquid markets -- if we can keep it!
Many have said it...another context is Post 80's to current day its been the "Socialization of Risk" both government and private sector with political actors picking there own tribal-winners with the pendulum never stopping or balancing out and given the intricacies of technology memes like A.I., this dynamic of socializing risk will only continually rise in scale/methodology. Universal Health Care, Social Security, UBI, Job Guarantee, Subsidies, Trade Wars, Taxes, Bank/Depositor Rescue, Global CB's..its all the same dynamic....no belief or argument here, just an observation!
From what I (tried to) understand about bank reserves it's also mostly a "pretension regulated" matter?
For the USD mandated part it's posting collateral that is considered "safe" - but SVB has laid bare the risks in not hedging appropriately for short-term liquidity risk, since it seems hedges are not checked together with collateral - and in EU you have Basel III, which supposedly is considered more stress-resistant. Not sure how collateral holds up there, but my guess is it just takes a big enough event of liquidity dry-ups and that's that as well and we're back in 2008 but with a much larger altitude in debt leverage? ECB is way in deeper on so many levels due to the setup of a central currency with no central budgeting. If another Greece happens - next up, Italy potentially or maybe France then that's that.
Generally, how much more can you regulate before breaking something else and making the taxpayer the lender of last resort whenever something new pops up you didn't really think possible and you'll need to write a bigger check, not knowing if you'll ever see the whole sum coming back?
And tearing down existing financial instruments or MMF liberties you'll be fighting uphill against lobbies of "market liberalization" agenda people who were responsible for a lot of what happened in past systemic events in liquidity - either finding a "gaming the regulation" approach or working actively on syphoning arbitrage off of it.
This really is "living in interesting times" as per the chinese proverb I guess...
Excellent analysis, as always! When it comes to SVB, the picture just might be slightly more complicated. Common knowledge seems to be that SVB had just mismanaged the duration risk of otherwise pristine quality agency MBS and treasuries. Having no detailed insight of the SVB's assets, one could speculate based on the FDIC announcement (https://www.fdic.gov/news/press-releases/2023/pr23023.html) that there were significant portion of other assets that had a lot lower value than accounted for in public financial reports. Many SVB depositors that decided to flee where also those that had better than public's knowledge of SVB's lending practices as they themselves had (at various times) taken out substantial loans from SVB. Further, the duration risk of agency MBS and treasuries in combination with selling off the duration hedges was known for awhile based on the public disclosures, and yet no run happened. Hence the common knowledge of duration risk of agency MBS and treasuries may have been an accelerant (together with sale of portion of those assets and associated capital raise) for the run but the trigger may still be the content of muddy waters. Interestingly though, there seems little appetite to analyze the mud
There's a book called "China: The Bubble that Never Pops" for a reason. In a closed banking system like China's, it is very difficult to get a banking crisis like 2008 in the US.
And as far as housing bubbles go, you know that there has been talking of a real estate bubble in China for the last 10+ year right? Watch videos like this one on YouTube (note the upload date). There are lots of similar videos that all aged quite badly.
Isn't the relative outperformance of USDT also a function of growing US regulatory risk? After all, it appears there's a reasonable chance that the FDIC seized SBNY because of crypto activity, not solvency.
A transparent financial system, with well-regulated & liquid markets -- if we can keep it!
Many have said it...another context is Post 80's to current day its been the "Socialization of Risk" both government and private sector with political actors picking there own tribal-winners with the pendulum never stopping or balancing out and given the intricacies of technology memes like A.I., this dynamic of socializing risk will only continually rise in scale/methodology. Universal Health Care, Social Security, UBI, Job Guarantee, Subsidies, Trade Wars, Taxes, Bank/Depositor Rescue, Global CB's..its all the same dynamic....no belief or argument here, just an observation!
I like to say, "falsity is just truth with an expiration date." Everything is true until it isn't.
One way to think about the flight to Tether, maybe?
• Tether is opaque to _me_. That is bad for me, because I don’t know what will happen in the event of a run.
• Tether is opaque to _other investors_. That is _good_ for me, because it makes them less likely to start a run.
Overall, point 2 might outweigh point 1.
From what I (tried to) understand about bank reserves it's also mostly a "pretension regulated" matter?
For the USD mandated part it's posting collateral that is considered "safe" - but SVB has laid bare the risks in not hedging appropriately for short-term liquidity risk, since it seems hedges are not checked together with collateral - and in EU you have Basel III, which supposedly is considered more stress-resistant. Not sure how collateral holds up there, but my guess is it just takes a big enough event of liquidity dry-ups and that's that as well and we're back in 2008 but with a much larger altitude in debt leverage? ECB is way in deeper on so many levels due to the setup of a central currency with no central budgeting. If another Greece happens - next up, Italy potentially or maybe France then that's that.
Generally, how much more can you regulate before breaking something else and making the taxpayer the lender of last resort whenever something new pops up you didn't really think possible and you'll need to write a bigger check, not knowing if you'll ever see the whole sum coming back?
And tearing down existing financial instruments or MMF liberties you'll be fighting uphill against lobbies of "market liberalization" agenda people who were responsible for a lot of what happened in past systemic events in liquidity - either finding a "gaming the regulation" approach or working actively on syphoning arbitrage off of it.
This really is "living in interesting times" as per the chinese proverb I guess...
Excellent analysis, as always! When it comes to SVB, the picture just might be slightly more complicated. Common knowledge seems to be that SVB had just mismanaged the duration risk of otherwise pristine quality agency MBS and treasuries. Having no detailed insight of the SVB's assets, one could speculate based on the FDIC announcement (https://www.fdic.gov/news/press-releases/2023/pr23023.html) that there were significant portion of other assets that had a lot lower value than accounted for in public financial reports. Many SVB depositors that decided to flee where also those that had better than public's knowledge of SVB's lending practices as they themselves had (at various times) taken out substantial loans from SVB. Further, the duration risk of agency MBS and treasuries in combination with selling off the duration hedges was known for awhile based on the public disclosures, and yet no run happened. Hence the common knowledge of duration risk of agency MBS and treasuries may have been an accelerant (together with sale of portion of those assets and associated capital raise) for the run but the trigger may still be the content of muddy waters. Interestingly though, there seems little appetite to analyze the mud
There's a book called "China: The Bubble that Never Pops" for a reason. In a closed banking system like China's, it is very difficult to get a banking crisis like 2008 in the US.
And as far as housing bubbles go, you know that there has been talking of a real estate bubble in China for the last 10+ year right? Watch videos like this one on YouTube (note the upload date). There are lots of similar videos that all aged quite badly.
https://www.youtube.com/watch?v=uxjwhk1ktNw
Minor typo?
"it is good when a bad banks fail"
Perhaps you meant:
"it is good when a bad bank fails"
or
"it is good when bad banks fail"
How we say in Spain, Ojos que no ven, corazón que no siente. Than you for another masterpiece TLBS!
"Tether may be swimming naked, but in muddy waters, no one knows for sure."
🙈🏊♂️ 😂🤣
I'm learning as I go here, but is the repo market signaling something right now or am I imagining it?
Minor typo?
"investors are relying the relative" -> "investors are relying on the relative"