The buried lede on #SBV is that they got caught sideways on losses in relatively safe mortgage backed securities. They made a 10 year bet that went south on interest rate increases. It was interest rate risk not credit risk.
Now how many other banks made this mistake?
— Edward Dowd (@DowdEdward) March 11, 2023
In other words they got the macro wrong and suffered the tyranny of bond math. When rates go from zero to 5 % in a year it’s devastating.
This is just getting started and many others likely screwed this up.
Unrealized losses system wide.
— Edward Dowd (@DowdEdward) March 11, 2023
I don’t expect a cascade of bank runs immediately and the Fed & Government will respond over weekend. However the fuse has certainly been lit.
— Edward Dowd (@DowdEdward) March 10, 2023
Again I don’t know the speed of this unraveling but the standard playbook is they step in (usually) and folks feel better for a bit but it doesn’t last longer than a few days or a few months then we begin again until eventually headlines “the world is ending.” Then you buy.
— Edward Dowd (@DowdEdward) March 10, 2023
