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I wonder if it’s correct to also think about it in this way: idle cash devalues over time. Coupled with interest (no matter how small) that they pay out to thei

I wonder if it’s correct to also think about it in this way: idle cash devalues over time. Coupled with interest (no matter how small) that they pay out to their depositors, this exposes banks to future liability. To counter that, they have to give “jobs” to as much of this cash as possible so that they can make those payments while also pocketing a profit for themselves.

q7xvh97o2pDhNrh 4y ago
This is indeed a reasonable way to think about it. A dollar tomorrow is worth less than a dollar today. You might enjoy this light reading: https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp
- startupsfail 4y ago
  There are plenty of instruments though with different maturity dates, from a single day to decades. There is no reason to lock money in 10 year notes, it can stay as cash or go to money market or short term obligations.
  - a1445c8b 4y ago
    Too much idle cash is a wasted asset. As for money markets, don’t those get invested in treasury bills/notes anyway? Why go through a “middleman” when one has enough volume to invest directly? Short-term obligations may not provide the yield that their financial structure requires. 10-year notes, in certain situations, provide an optimal combo of yield and risk. Provided, of course, that nothing major happens to the economy which wasn’t the case here. Then again, who’s good at predicting that? In the end, it seemed like, given what was true at the time the decision was made, SVB made a rational choice.
    - howeyc 4y ago
      > As for money markets, don’t those get invested in treasury bills/notes anyway Yeah, but the market price basically stays at $1 and whenever they "break the buck" it's a huge deal. 10 year loans "break the buck" so often that it's extremely strange SVB didn't do anything about it. Basically they should have invested in securities that were safer and fluctuated less, but they got greedy chasing yield and got found out.

q7xvh97o2pDhNrh 4y ago

This is indeed a reasonable way to think about it. A dollar tomorrow is worth less than a dollar today. You might enjoy this light reading: https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp

startupsfail 4y ago
There are plenty of instruments though with different maturity dates, from a single day to decades. There is no reason to lock money in 10 year notes, it can stay as cash or go to money market or short term obligations.
- a1445c8b 4y ago
  Too much idle cash is a wasted asset. As for money markets, don’t those get invested in treasury bills/notes anyway? Why go through a “middleman” when one has enough volume to invest directly? Short-term obligations may not provide the yield that their financial structure requires. 10-year notes, in certain situations, provide an optimal combo of yield and risk. Provided, of course, that nothing major happens to the economy which wasn’t the case here. Then again, who’s good at predicting that? In the end, it seemed like, given what was true at the time the decision was made, SVB made a rational choice.
  - howeyc 4y ago
    > As for money markets, don’t those get invested in treasury bills/notes anyway Yeah, but the market price basically stays at $1 and whenever they "break the buck" it's a huge deal. 10 year loans "break the buck" so often that it's extremely strange SVB didn't do anything about it. Basically they should have invested in securities that were safer and fluctuated less, but they got greedy chasing yield and got found out.