Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse - Slashdot
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Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse
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Last week, the risk premium on a widely followed Bloomberg index of agency MBS hit its highest level since October, when climbing interest rates turned global markets topsy-turvy. The move reflected fears that other regional banks might have to sell their holdings, bond-fund managers said. [...] When benchmark interest rates rise, bonds that were sold at times of lower rates lose value. Prices of such "low coupon" agency MBS started dropping about a year ago, when the Federal Reserve raised rates to fight inflation and indicated it might start selling MBS it owned. Some of the bonds lost 15% or more in a matter of months, trading as low as 80 cents on the dollar, according to data from FactSet.
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I am sure some rich person somewhere is throwing a fit over this.
This means nothing to me.-
Means a lot to people's pensions and retirement unless they plan to work until they drop dead.
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by orlanz ( 882574 ) on Tuesday March 21, 2023 @01:06PM (#63387955)
No, it doesn't. It only impacts people who need to cash out some bonds for their expense needs now. And even those should have divested when the Fed started warning about rate hikes 4 years ago. If your financial advisor has not been providing guidance to you over the last 4-5 years that people who need cash from their bonds in 4-8 years should reduce their exposure to rate increases... well congratulations, you found a Finance Advisor who can't read.
Those who have cash needs 5,10,15,25 years down the line... nothing has changed for you. Especially the 15-20 year people, go build up your Bond portfolio over the next 3 years.
Bond futures are heavily predictable because they are telegraphed so much. This transparency is the reason why they are considered the safest of securities.
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That is an option? I not planning on retiring as I am pretty sure what ever I save wont be enough anyways and they are going to get rid of the retirement age and then die.
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It will mean something to you if the FED keeps cranking up rates, causing more of these bonds to be unsellable, thereby causing more banks that are holding on to these things to be unable raise their liquidity.
You know, exactly how SVB got beshitted.
Yet more awesome unintended side effects of purposefully cranking up interest rates beyond the known problem of rising interest rates: rising unemployment.
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Oh yes, a bank, one of the most conservative things out there, was "too woke"
You fucking anti-Woke idiots are beyond retarded. You know why "wokeness" is a thing right? Because you keep clicking on the stories to hate read them. So into the machine you go. Fucking moron. Y'all should've ignored them for what most of them were. Twitter numbskull wanting clicks.
But no, fuck heads like you and DeSantis have now made it a cause and I have to deal with both camps of complete stupid fucking garbage.
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The national real estate sale is almost here!
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I bet the opposite happens. Real estate prices are about to collapse catastrophically. This was always destined to happen as baby boomers age. They own the vast majority of homes today in all parts of the nation and are reaching their life expectancy Remember, over 50% of baby boomers are still alive, but fewer than 25% will likely still be alive by 2033. We are going to see millions of baby boomers kick the bucket each year across the nation, and they will almost all have homes that will flood the market a
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Betting on population declines hasn't been the most successful strategy over the past century.
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Not so much of a population decline but the rest of the population just does not have the wealth to give the going rate. As the average affordability of the population goes down, the price has to come down. A lot of wealth from the current and next generation has already been diverted to the BBs via infrastructure maintenance costs, housing prices, education costs, healthcare costs, loss of pensions, lower general tax rate, and social security age hikes.
As a current home owner, I am waiting for the prices
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Your child-like view of the real estate market is, in a word, fascinating.
Baby boomers have been dying "by the millions" for several years, and it has not resulted in excess housing inventory which would drive down valuations. You seem to ignore the millions of young home buyers starting families, moving frem rentals to home ownership, etc.
The thing that will drive down home prices is the lack of "cheap money" as mortgage rates increase as the Fed tries to reign in inflation.
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You seem to ignore the millions of young home buyers starting families, moving frem rentals to home ownership, etc.
That's because they don't exist. Young home buyers are kept out of the market [washingtonpost.com] as the sold homes are instead being snapped up by largely foreign-own conglomerates and converted into permanent rental properties. [nytimes.com]
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Real estate prices are about to collapse catastrophically....
That's because they don't exist. Young home buyers are kept out of the market as the sold homes are instead being snapped up by largely foreign-own conglomerates and converted into permanent rental properties.
I realize that you're not the GP commenter, but since you've jumped in to attack the rebuttal, I'll remind you that you've just conceded that residential real estate prices are not about to collapse catastrophically because the hypothetical
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Lots of states are playing with laws that prevent ownership of properties within the state from other countries, and in some cases from other states. Because a lot of the available property today is being snapped up by foreign investors, then rented out to people that can't afford to buy. Which drives the market into feeding frenzies when something does come on the market, and has seen us getting random calls with somebody offering about twice what our house is currently worth to buy it sight unseen. Which
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What would drive down prices is building enough supply to meet demand.
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Why world the fed pay a 100% premium for bad loans? I would say rgey'd pick em up at a discount of let's say 40% of book value
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For the same reason the Fed has done just that with government 10 year Treasuries held by banks, to try and prevent the bond market from collapsing, which it totally should, instead the Fed will buy any bad outstanding long term government debt from the banks that hold it at 100%. The banks should be selling it to the Fed now, turning around and buying 10 months T bills to get 4.5%.
The Fed will do the same thing of-course, there is nothing that is political in nature that it will not do.
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Because everything is connected. Say you own shares worth $1000 in your brokerage account and everything is great. The moment someone sells their shares at 40% discount, your account lost $400. And, if you happened to have a margin loan with these shares as a collateral, your brokerage will liquidate the rest of your shares and you are broke. Fed is frantically working to make sure that scenario does not play out with banks.
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What you are describing doesn't happen. Stocks don't fluctuate in price that much. At least not those traded on public markets. Nobody will sell at a 40% discount. And I'm not aware of any brokerages that would allow buying bonds with margin since the margin loan rate is higher than the ytm on any non-junk bonds.
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Because if they don't, the economy has a far greater chance of collapse and we're all fucked?
The Fed is not a for-profit bank.
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The Fed shouldn't do this... but who knows what fine line the Fed will walk. Its been weird over the last 20 years. But if they do it, they will do so knowing that they are setting up something many times bigger than the 2006 housing bubble burst. One that their immediate decendents will not be able to handle.
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TL;DR: Why would you think that real estate prices would continue to rise while demand falls?
Expanding: with interest rates going up, the amount of buyers that can afford $1M+ homes greatly contracts. Less demand means that real estate doesn't sell without the asking price coming down to where there are more people in the market that can afford it. Moreover, bank underwriters aren't a big fan of writing loans that are not properly secured by the appraised value of the home, and appraisers aren't just goin
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Passive income is already heavily taxed. Are you suggesting a national property tax? The more you tax rental property, the higher rents will be. You won't actually be taxing the rich people you will be taxing their tenants.
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Except, as shown in various news reports over the past several years there's ways around that, the big one being taking out a loan out while using an equivalent asset as collateral and then just not paying the loan back. Because it's a loan it's not "income" and because you defaulted on the loan and lost the asset, you get to write off the potential income from that asset as a "loss" which you can use against any "income" you have to generate that year for whatever reason thereby reducing, avoiding, or eve
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> national property tax? The more you tax rental property, the higher rents will be.
Mostly only tax large holdings, such as real-estate income above X dollars. This will discourage real-estate hoarding by the rich, as more middle-class investors buy it instead.
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Or the hoarders raise rents to cover the taxes, and lower-income renters just get shafted more.
Tell us you don't know anything about business, without telling us you don't know anything about business. This makes as much sense as the people that want a $16/hour minimum wage, and then cry when jobs are eliminated or prices go up. Or both.
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Real estate is a very bad investment right now because the national population is flattening out and will start declining in the 2030s.
Buying real estate in America today as a business investment is like buying real estate in Japan in 1992. Have fun! -
We do not currently have a "wealth tax", we don't tax people on their net worth, we tax income. Do you really think homeowners should pay taxes on the equity in their home? On the value of thier unsold stock holdings?
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Yeah, because property owners are just going to eat higher taxes and absolutely won't pass them along in the form of higher rents.
Congratulations, your "solution" just made the problem worse.
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30-40% of the sales are cash sales to multinationals. They don't have any debt to speak of, and they'll get bail outs from their buddies so they won't need to drop their stock. If anything they'll go on a buying spree during the recession.
We're about to have "interesting times". Rents are higher than most mortgages, but Jerome Powell is engineering a mass recession with minimum 3.5 million layoffs. He was asked what his plan was to stop the spiral of layoffs once it started. He didn't have one.
In 200-
rents will come down in those places where unemployment actually ticks up. There is no point in charging so much rent your tenants are frequently delinquent and short paying because they can't earn enough to make the rent or having empty units because people have fled the locality for greener pastures and the remainers rent from your competitors because their rates are better.
Its better to lower your rates than have a bunch of bad debt you can't hope to collect or total loss of revenue on empty stock.
Some l
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There is no point in charging so much rent your tenants are frequently delinquent and short paying because they can't earn enough to make the rent or having empty units because people have fled the locality...
Sure. Large enough companies use this to force a "loss" on certain properties and reduce their tax levels. [propublica.org]
Real life Stephen Ross, who founded Related Companies, a global firm best known for developing the Time Warner Center and Hudson Yards in Manhattan, was a massive winner between 2008 and 2017
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You're assuming the owners will reduce rent because they want to fill those units. But what if they instead take the "Apple Computer" approach to business and instead choose to price higher while selling fewer Units?
If I have 3 Units I can rent for $2000/mo and I leave one empty, but to fill that Unit I have to drop the price to $1000/mo I'm losing money ($4k vs $3k). More, because it costs money to have a renter (albeit not all that much) and you save that money.
Meanwhile there's a software program that lets renters collude. [arstechnica.com]. So they know exactly how many units they can leave empty.
Big Data + zero anti-trust enforcement + right wing state gov'ts fighting rent control means none of this can be fixed by market forces or traditional gov't action. it's going to be a *mess*.
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Cash sales to multi-nationals will end poorly when rates drop and the dollar drops in value relevant to their home-country currency
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An insane bubble built by lies & deception by realestate companies and the banks went along with the scam
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100% correct. This is the reason the Republicans' repeal of Glass-Steagall in 1999 was such a bad idea. We've seen the repeated bubble-bust cycles ever since. It's time to re-enact Glass-Steagall so coke-addled bankers no longer get to gamble on the stock market with other people's savings.
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What? Have you forgotten which President signed the repeal of Glass-Steagall? In 1999, Bil CLinton was President - did he veto the move? Did the Republicans override his veto?
Did you forget that Glass and Steagall were both Democrats?
How can you single-out Republicans for a Democrat bill signed into law by a Democrat President?
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There's no inconsistency here.
1. Glass-Steagall is the regulation that got repealed.
2. The Republicans took over in 1994.
3. Clinton was a DINO. Remember, this is the guy who signed and took credit for kicking people off welfare.
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What we really need is a government willing to stand up to the Boomers and older Gen Xers and just loudly say "your house is not an investment asset." Government policy should actively restrain housing prices to reasonable levels above their cost to build, maintain and put to productive use (ex gardening or farming). Housing should be a boring market. When it's a boring market, loans on it have very stable collateral value which makes them a natural safe harbor. People are getting antsy here because they know there's a good probability that not too far from now, the collateral's value is going to drop substantially and make these bonds a whole lot more dangerous.
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The government created this shaky and brittle economic situation, and your solution is...to give government MORE control?
jfc. And the retards around here gave you mod points for that little pearl.
We deserve everything that's going to happen to us, you and yours most especially.
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Yes, because us little folks down here at the bottom have absolutely zero power to enact these kind of changes on our own.
Prior to Regan and Trudeau Sr., yes nearly everything wrong today can be traced back to the "Reganomics" changes implemented both in the US and Canada back in the '70s, we used to have sane housing regulations which prevented the type of environment we're seeing. The problem is the damage done by corrupt politicians who found the legal loopholes deliberately created so the wealthy could
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The government created this shaky and brittle economic situation, and your solution is...to give government MORE control? jfc. And the retards around here gave you mod points for that little pearl.
Indeed, grand parent post doesn't realize that property/long term home owners provide a source of stability to an area and create the positive economic impact that lifts all boats. You won't get that from a roving band of mad max type nomads moving from area to area like locusts. So sure make home ownership even-
Home as investment makes home ownership attractive, but it's impossible to make it a stable.
Discretionary income and home prices need to track for stability.
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"Home Ownership" hasn't been a thing since the mid/late 1980s! Since then its been an "retirement vehicle" that has replaced Pensions. Unfortunately, it was mostly available for the Pensioners and after pensions went away, housing as a retirement investment mostly did too. Now its a security pretty much on par with a ponzi scheme... just trying to find the next sucker so its not you. It is heavily woven into the global economy completely reliant on the confidence in the US workforce. Its just a matter
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The reduction of value of labour relative to capital caused the instability.
The consumer class compensated by having multiple jobs per family, one that mechanism ran out the government compensated by allowing them to take on ever more debt.
The current level of production and consumption is not necessary to the owner class, the transition to more appropriate consumption and housing standard levels for the peons is a bit painful though.
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A house is most people's largest asset. Boomers and everyone else have depended on the rise in value, not to mention the possibility of rental income from said asset. Are you proposing price controls, or outlawing residential rental? Curious as to what you think the alternatives are?
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So you’d say everyone’s wealth depends on fucking the next guy?
Just the difference in my homes value 10 years ago from today would be a lot of money in my 401k or something. People could have bought the same house and invest the difference. Home fever is entirely PR driven.
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All you really need is for policies that allow enough housing to be built.
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What we really need is a government willing to stand up to the Boomers and older Gen Xers and just loudly say "your house is not an investment asset."
Speaking as either the youngest of possible X'ers or oldest of Millennials depending on who you ask, I can't agree with you on that, for two reasons. First we have looming retirement crisis already, the vast majority of Boomers and X's have no hope of maintaining the life style to which they are accustom if real-estate investments (be it their own homes, or REITs etc) prove bad. That is a recipe for big time social unrest. Alternatively it will mean younger generations pour their productivity out on their elderly relations and create economic inefficiencies. Alice stays in Kansas to take care of mom rather than going for that research job in Ohio because mom has literally no other options..
Second, government did literally everything anyone in government could imagine to manipulate the housing market and encourage people to over buy and over invest. Reversing course now would very much be an unfair 'rug pull'.
Government policy should actively restrain housing prices to reasonable levels above their cost to build, maintain and put to productive use (ex gardening or farming).
Heck no, government tampering with the housing market got us into this mess. More tampering isnt the answer. We need to GRADUALLY take the housing supports away. By gradually it probably needs to be done over a span of 50+ years with a published plan for the phase outs, you need to discourage speculators for thinking they could get rich quick or that they are going to build generational wealth by buying and holding acrages near some ex-urb; but also not trigger a rush for the exits.
Housing should be a boring market.
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Housing prices have jumped nearly 150% since the year 2000. That is an unsustainable and harmful situation. Ceasing policies that help create an unsustainable and harmful situation is not a rug pull.
With interest rates realigning closer to historical norms than the recent past, the rug is pulling itself.
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Hmm, I've been to a country where the taxes on property profits (a combination of local and national taxes) mean that property is not a speculative asset in the same sense as in the UK or USA. This means there is little incentive for people to spend money on their houses unless it directly impacts their immediate amenity. So there is little improvement in the housing stock. For example, lots of houses still have old wooden windows and doors because there's no value in replacing them.
This may not be as bad
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Yeah, they've been rock solid for all of, what? 15 years now since the last time they collapsed in flames. Woo-hoo! Go, mortgages!
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Let's see: we have a massive, global S&L banking crisis triggered when rating agencies designated by US law failed to do their fundamental job and accurately rate bundles of junk bonds as shit.
Following that collapse of a trust-based system, nobody was punished, nobody ended up in jail, and those agencies remain the designated official bond-rating agencies to this day. In fact, one of the scot-free culprits of the previous issue sits on the board of the SVB.
https://www.politico.com/news/... [politico.com]The flavor of this particular issue is slightly skew to the specifics of the previous one, but the lessons that we failed to learn the first time 100% still apply here.
Are we flabbergasted that the system doesn't seem to have worked....again?
I'd say we should have been a shit-ton more anxious than we have been to date. -
The Fed can't raise interest rates high enough to stop inflation because the current inflation is related to supply issues and from profit-taking from greedy companies who are in no hurry to increase supply.
There are other tools to fight inflation but they are politically unpopular (such as raising taxes, especially on the rich: https://www.forbes.com/sites/q... [forbes.com]). These alternate strategies should be included as a broader inflation-fighting strategy, rather than just raising the interest rate over and over again (because that creates other problems, like this bond and banking issue).
The Fed could easily reduce the bond problem for banks by lowering the federal interest rate but there is fear that will further increase inflation.
The biggest problem is the stupid, greedy banks who should know that what goes down must come up and are happy to rely on the government to bail them out when their idiotic, risky strategies go down in flames.-
There are other tools to fight inflation but they are politically unpopular
Easiest way to kill inflation is for people to stop buying things. Demand plummets, companies need to get rid of goods by lowering prices.
But then, you did say politically unpopular, so obviously this will never happen. -
Fiscal policy would go a long way (i.e. balance the budget)
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by necro81 ( 917438 ) on Tuesday March 21, 2023 @12:34PM (#63387869) Journal
Now that the Federal Deposit Insurance Corp. has taken over SVB, investors expect the bonds to be sold off in coming months, adding supply to the weakened market and pushing prices lower.
As I understood the situation, SVB had assets that more-or-less matched its deposits. The problem came when SVB had to start selling its assets, mostly bonds, at a loss, to come up with the cash to give depositors making withdrawals. The reason the bonds were sold at a loss had to do with the low interest rate (yield) those bonds had built into them compared to the rising interest rates on new debt. (Rising yields = falling prices.)
But it's not like the bonds themselves failed. Had they been held to maturity, SVB would have continued to get (relatively low) interest payments and eventually the entire principle back. SVB couldn't hold those bonds indefinitely - they needed cash. But the FDIC doesn't need to sell those bonds to raise cash. The FDIC is swimming in cash from all other depositors' insurance premiums and, failing at that, the Fed can get them the money.
So can someone explain why the FDIC needs to sell the bonds it has received from SVB? It is just "well, the bank failed, so let's liquidate"?-
So can someone explain why the FDIC needs to sell the bonds it has received from SVB? It is just "well, the bank failed, so let's liquidate"?
Its an insurance organization. Really insurance (lets leave healthcare, non-term life out of this) works pretty much like banking. You have a bunch of people paying in and a few people making huge withdrawals when some calamity occurs. You need a certain amount of cash on hand to cover those payouts the rest you invest in things like bonds to generate revenue on..
Actuarial science is basically projecting the costs. The FDIC sees a lot more banks out there they see how much cash they have to turn loose of to make the insured depositors whole and they look at the likelihood of more forward bank failures. The obviously believe that they are likely to have make more payments than they safely have enough case to cover in the span of time between those events are expected to occur and premium revenue will fill in the gap. So they have liquidate assets.
In short there is at least a pessimistic vision of the future at FDIC more bank failures are on the way and soon and they have to be prepared if that comes to pass.
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The FDIC will sell the bonds for the same reason SVB would have sold them. To get money to pay depositors. The alternative would be for the FDIC to borrow money at 4% to pay depositors while holding bonds that pay 1%!
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They're using EXACTLY the same playbook that they used during 08-09. Let a few swimmers drown to make an example, and rescue the rest.
During the 08-09 crisis, they let Lehman die as an object lesson to the rest of the banking idiots. Then they bailed out the rest in order to prevent the entire system from burning to the ground.
This time around, SVB is dead. They'll be dismantled and the bank will dissappear, other than a note in the history books that says "don't be like those idiots". The rest will-
The problem with this, is that we allow pyromaniacs to still buy gasoline. I'd personally be much happier if part 2 of the strategy is to have Congress re-establish laws that prevent banks from splashing volatile flammable liquids all over the living room to begin with.
It's time to firewall off commercial banking from investment banking again. This experiment is now conclusive: allowing greedy fucker bankers to gamble with other people's money ultimately causes bank failures that spread far beyond the gre
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You are probably right in terms of policy but SVB was just a poorly run bank. There was no mixing of commercial and investment banking.
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