They bought $80b of fixed-rate bonds at historically and artificially low interest rates in a time of massive QE. Even based on the information available at the time, this is not a surprising outcome at all.
In retrospect, the Chief Risk Officer leaving and not being replaced immediately was a bad sign: https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
100% speculation: the CRO told them loading up on long term bonds was crazy, and that they'd just have to eat lower earnings. The CEO/CFO disagreed, and the CRO didn't want to have any part of it. Hindsight is 20/20, but... this really was a disaster waiting to happen.
"A risk officer typically anticipates and manages regulatory, operational, competitive or other risks faced by a firm."
That looks like _non-financial_ risks. If that was the role of the CRO at SVB, the risk for this event probably should have been with the CFO?
The charge of "manipulating bond markets" is pretty absurd - their mandate is to influence inflation and employment via interest rates. Of course it has an impact on bond markets.
>They did a pretty good job during COVID
One word: "transitory".
Note all the months since July 2022. It's good to read the source material rather than hyperventilating news articles.
* 2016: 0.01
* 2017: 0.20
* 2018: 0.27
* 2019: 0.10
* 2020: 0.21
* 2021: 0.30
* 2022: 0.61
* 2023: 0.27
Raw monthly data: https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_...
I was skeptical that month-over-month CPI had come down to reasonable levels over a wider time window, but it is much lower than the same period a year ago, and close to recent historical norms outside that inflationary spike. I am eager to see Tuesday's numbers for February inflation.
I just don't know if I'd call it a "pretty good job," is all. They were caught-off guard and didn't move quickly enough.
The idea that they aren't doing a good job because they aren't perfectly precise with their timing is misguided. It's a crazy hard job.
You'll have to support thay with something. Again, the language of their correspondence over the past few years says otherwise.
Unless, of course, you are expecting the Fed to predict the war in ukraine, the energy crisis, etc.
And in any case, people who take the Fed's predictions at face value, and base their financial positions on it, can only blame themselves when the Feds do something contrary (as they are always entitled to). These predictions aren't promises.
It has been. We're barely at 1.5-2 years in length and it looks to be either stabilized and perhaps dropping.
A number of folks estimated that the COVID recovery stimulus would take about this long to work its way through the system, using Korean War spending as an analogue:
* https://www.piie.com/blogs/realtime-economic-issues-watch/in...
The fact that energy and food prices spiked due to geopolitical events threw a monkey wrench in the works temporarily, but now that those have stabilized, so has inflation.
The first half of stopping a panic is always easy if you're the Fed with the exorbitant privilege to print money with virtually no immediate ill effects. The second half is the hard part and they've failed 11 times out of 10.
They acted as aggressively as possible to remedy a short term problem, which just created longer term problems. Its easy to throw money at a problem and worry about the consequences later.
SVB wouldn’t have failed if the Fed hadn’t artificially suppressed rates to the extent they did, for example. And Id venture there’s a lot more to come on the economic front. Many assets became extremely overvalued which makes the larger downside on price more disruptive… commercial real estate is a big one to watch in the coming years
If inflation remains entrenched we may require a GFC style hard landing to quench it.
The fed did head off an immediate disaster through suppressing the rapidly widened credit spreads, but everything after that will likely be remembered as a failure
Because after all the purpose of society is to serve the market, not the other way around, right?