The nature of the Fed and what led to the bankruptcy of America's largest bank Silicon Valley Bank (SVB)

Since the 2007-2009 crisis, this is the biggest boom. once upon a time :

- There is a bank called Silicon Valley Bank, specializing in doing business with startups. He called it SVB for short

- In 2021, for many reasons, including cheap money flooding the streets, Mr. SVB received a pile of deposits from startups, from 60 billion in the first quarter of 2020 to more than 190 billion in early 2022.

- Because he didn't know what to do with all his money, he bought bonds, including many long-term bonds

- The problem is that you finance those long-term bonds with short-term deposits, which people can withdraw at any time.

- When people withdraw money, you have to sell bonds. If bond interest rates increase, he will have to sell at a loss.

- The problem started when the Fed increased interest rates at an unprecedented speed, and the bonds held by SVB began to lose heavily.

- And the spiral comes when last year's startup brothers didn't raise much money, this year they start to run out of money and have to withdraw money to spend. So the deposit of nearly 200 billion began to run out quickly.

- To solve liquidity, SVB had to sell bonds and recorded a loss of nearly 2 billion and needed to raise 2.5 billion in equity and debt to cover the loss this Wednesday (March 8).

- On March 10, FDIC told me to stop, I was no longer helping. Remove the tube.

- The question here is where to get the money to pay the sender. Of course, assets must be liquidated. His biggest assets are bonds.

- Among the bonds Mr. SVB bought, he classified some as available-for-sale securities (AFS), and some as held-to-maturity (HTM). Profit and loss of HTM bonds will not be reflected on the profit and loss statement. The profit amount will not reflect HTM's loss. (That means the previous loss has not appeared in the report)

The question is if you sell all of this and suffer a loss, what will happen to the US bond market?

In addition to other American banks, large Asian insurance companies and funds all hold many bonds, the selling force of SVB will cause the market to decline, and the pockets of giants will also decrease. To prevent contagion, many Wall Street guys are calling on the Fed to stop raising interest rates and bail out banks with problematic bond portfolios by jumping in to buy bonds again as before. But then cheap money continues to spin, these guys continue to take risks. Going back to the same story of Vietnam's real estate, that is to save or not to save, can you guess whether the FED will save??

"Combining Ignorance with Borrowed Money creates very interesting results"

Source: FB Ho Quoc Tuan, RKT