Two career economists (not the ones minted last week on twitter) explain what happened at SVB, and what could be done.
Their books are delightful reads, but this post creates clarity in 5 minutes. Share and enjoy.
https://stephaniekelton.substack.com/p/magical-thinking-monetary-thinking?post_id=1091874
@Migueldeicaza IMO it's a pretty bad article. It tries to blame the Fed for everything, ignoring what was happening in the economy overall.
Like, it blames the Fed for the 70s recession, ignoring years of double digit inflation. It also seems to want to blame the fed for the 2007/8 crash, ignoring the NINJA mortgages and credit default swaps.
The fed isn't blameless, but what mostly killed SVB: only 2.7% of deposits were covered by the FDIC. Chase and BoA are at about 30%.
@Migueldeicaza Perhaps you should re-read it?
The title is "Magical Thinking at the Fed Killed SVB". That's not what killed SVB.
As for blaming the Fed for the Great Recession:
"In 2004, the Fed began a series of rate hikes that eventually culminated in the Global Financial Crisis... The rate hikes rippled through the financial system, driving mortgages underwater and pushing the economy into the most protracted economic downturn since the Great Depression."
@Migueldeicaza I'm not saying the Fed had no role in causing the Great Recession, but the NINJA loans, credit default swaps, etc. were a much bigger issue.
Interest rate hikes can add fuel to the fire, but the fire existed because the bankers were pyromaniacs.
Miguel de Icaza ᯅ🍉
Merc