US Politics: They're Gunnin' 4 Us

[Paxter]

1 minute ago, Mlle. Zabzie said:

Unclear on First Republic.  They have a lot of backing from JPM/Chase because of a synergistic relationship between the two banks.  The Fed's expansion of emergency lending helps as well.  But agree, it could go.  The more people chatter about it, the more likely it is to happen.  So, we should stop chattering about it.

Fair call.

It's just one of those banks that looks like it has a flighty deposit book (lots of uninsured money). Let's hope Signature is the last.

[Kalbear]

I love a good 'told ya so' from Elizabeth Warren.

Quote

I wish I’d been wrong. But on Friday, S.V.B. executives were busy paying out congratulatory bonuses hours before the Federal Deposit Insurance Corporation‌‌ rushed in to take over their failing institution — leaving countless businesses and non‌profits with accounts at the bank alarmed that they wouldn’t be able to pay their bills and employees.

S.V.B. suffered from a toxic mix of risky management and weak supervision. For one, the bank relied on a concentrated group of tech companies with big deposits, driving an abnormally large ratio of uninsured deposits‌. This meant that weakness in a single sector of the economy could threaten the bank’s stability.

Instead of managing that risk, S.V.B. funneled these deposits into long-term bonds, making it hard for the bank to respond to a drawdown. S.V.B. apparently failed to hedge against the obvious risk of rising interest rates. This business model was great for S.V.B.’s short-term profits, which shot up by nearly 40 ‌percent over the last three years‌ — but now we know its cost.
...
Had Congress and the Federal Reserve not rolled back the stricter oversight, S.V.B. and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks. They would have been required to conduct regular stress tests to expose their vulnerabilities and shore up their businesses. But because those requirements were repealed, when an old-fashioned bank run hit S.V.B‌., the‌ bank couldn’t withstand the pressure — and Signature’s collapse was close behind.

 

[Paxter]

Nailed it EW. This looks like a straightforward failure of regulation and supervision.

A legacy of successful lobbying during the Trump and Obama years.

[ThinkerX]

3 hours ago, Mlle. Zabzie said:

Unclear on First Republic.  They have a lot of backing from JPM/Chase because of a synergistic relationship between the two banks.  The Fed's expansion of emergency lending helps as well.  But agree, it could go.  The more people chatter about it, the more likely it is to happen.  So, we should stop chattering about it.

That random nonprofessionals idly discussing publicly available information on websites like this could cause a major financial catastrophe is a bit of a mind blower.

It also argues for massively incompetent top level management at the institutions in question.

[felice]

23 hours ago, Ser Scot A Ellison said:

Can we agree that Crypto is looking more like a ponzi Scheme this week than last?

I'm not sure how you get more than "completely"...

[Mlle. Zabzie]

53 minutes ago, ThinkerX said:

That random nonprofessionals idly discussing publicly available information on websites like this could cause a major financial catastrophe is a bit of a mind blower.

It also argues for massively incompetent top level management at the institutions in question.

Well, it isn't exactly that any one of us idly talking about it is the problem, it is when the collective starts talking about it that is the problem.  The psychology of this kind of thing is weird.

[Mr. Chatywin et al.]

6 minutes ago, felice said:

I'm not sure how you get more than "completely"...

It was always the pet rock of financial investments.  

[Ser Scot A Ellison]

4 minutes ago, Tywin et al. said:

It was always the pet rock of financial investments.  

There is a reason I have never and will never buy crypto.

[Mr. Chatywin et al.]

17 minutes ago, Ser Scot A Ellison said:

There is a reason I have never and will never buy crypto.

Idk how everyone didn't see it as an immediate scam. It makes no sense and has no backing. Crypto was only a good idea if you got in on the ground floor and had money you could set on fire. Otherwise it was a terrible idea.

Also didn't help for me that the people pushing it mostly came across as the type that couldn't pass a remedial economics or finance course. 

[James Arryn]

Every now and then I wonder if MAGA is to Corporate America what the Dothraki were supposed to be for Dany’s invasion. It does sometime seem like the two most likely outcomes for America are for the proto-fascist elements that have always formed a large part of their core finally fully form the exterior and try to replicate Augustus or for the words Corporate America to change from being a label describing an aspect of America to being used the way ‘Democratic France’ or ‘Autocratic China’ are used. 
 

Needless to say neither of these developments bode well for us up here in Canada. 

[Mlle. Zabzie]

47 minutes ago, Chataya de Fleury said:

All thanks to @Mlle. Zabzie who pinged me on to one of my favorite hobby horses. 

Audits are NOT meant to find fraud or mismanagement. Audits SOLELY (and this is in the audit opinion!) are conducted so that the auditors might state whether or not the financial statements were prepared in accordance with GAAP - generally accepted accounting principles (in the United States). 

I am going to rant, here, probably because my bonus is completely screwed and I’m in financial services, with 10 years in audit background, a good few of which were Big 4-

In this instance, how the FUCK were the auditors supposed to assess that holding the safest fucking investments created and / or traded within our lifetimes - T-bills and Agency RMBS - was “risky”? IT WAS NOT.

Yes, there was a risk mismatch. Assets held should theoretically have been RISKIER to compensate. That risk mismatch was not a goddamn issue until some PE firms went all “omg, their investments underlying the bank are not sufficient because currently mark to market on these 3% Agency RMBS is at 80% of par because….duration risk.”

So, SVB had not properly hedged for duration risk which means Jack crap if you’re looking at stability because those 3% fucking mortgages are going to more likely than not pay out at par.

Panties were gotten in a wad and there was a run on the bank.

I’m sorry, but if you DO NOT WANT A BANK TO HOLD THE SAFEST ASSETS ON THE PLANET THEN WHY ARE WE HERE???

To be fair, the opinion also should flag going concern risk and insufficiencies of internal controls. But yes, to all of this.  

[James Arryn]

1 hour ago, Chataya de Fleury said:

Totally have no idea where you are going with that or why. Other than politics, yay, your side wins a somewhat moral victory?

I personally think that you do only know what you are talking about, and I don’t usually say that.

I don’t give a shit which side wins, I generally support the Dems (have voted that way for 30 years) but not seeing where this gets you??

Other than NOT HELPFUL.

This (financial services niche) is literally how I pay my mortgage, so I feel quite strongly.

Other than that you clearly think I have somehow been unhelpful to someone or some situation, I honestly don’t understand the nature of what your, I think, objection with me or my post is. My side…in what? I honestly have no idea what you mean here. 

[ants]

26 minutes ago, James Arryn said:

Other than that you clearly think I have somehow been unhelpful to someone or some situation, I honestly don’t understand the nature of what your, I think, objection with me or my post is. My side…in what? I honestly have no idea what you mean here. 

I've got to admit, I simply didn't really understand what you were trying to say in the first post. A bit of clarification would be helpful. 

[karaddin]

I'm not really sure either, but my guess was that corporate America thought it could use the MAGA political movement to get the representatives it wanted in Congress without having to give them anything, but it turned out they didn't want to be controlled... And then really not sure on the second half of the post. If MAGA wins that fight then the US goes full fash, if corporate America wins then you'll have the likes of nestle owning all essential resources.

Not sure how that's connected to current SVB stuff though.

It would be more relevant to the crypto side of the discussion as that shit is pure toxic capitalism, delivering nothing of value to anyone, merely existing as a scam to siphon money from others.

[Wilbur]

2 hours ago, Chataya de Fleury said:

All thanks to @Mlle. Zabzie who pinged me on to one of my favorite hobby horses. 

Audits are NOT meant to find fraud or mismanagement. Audits SOLELY (and this is in the audit opinion!) are conducted so that the auditors might state whether or not the financial statements were prepared in accordance with GAAP - generally accepted accounting principles (in the United States). 

I am going to rant, here, probably because my bonus is completely screwed and I’m in financial services, with 10 years in audit background, a good few of which were Big 4-

In this instance, how the FUCK were the auditors supposed to assess that holding the safest fucking investments created and / or traded within our lifetimes - T-bills and Agency RMBS - was “risky”? IT WAS NOT.

Yes, there was a risk mismatch. Assets held should theoretically have been RISKIER to compensate. That risk mismatch was not a goddamn issue until some PE firms went all “omg, their investments underlying the bank are not sufficient because currently mark to market on these 3% Agency RMBS is at 80% of par because….duration risk.”

So, SVB had not properly hedged for duration risk which means Jack crap if you’re looking at stability because those 3% fucking mortgages are going to more likely than not pay out at par.

Panties were gotten in a wad and there was a run on the bank.

I’m sorry, but if you DO NOT WANT A BANK TO HOLD THE SAFEST ASSETS ON THE PLANET THEN WHY ARE WE HERE???

The issue is that the partners in a lot, if not most, public accounting firms are interested in maximizing their profits on each engagement.  The best way to accomplish this is to staff the audit with the cheapest possible handle, and managers that are efficient at driving that handle to the execution of replicating the prior year audit as fast as possible.

And the implementation of SOX was hijacked early on by the Big 4 to steer it into a control-based assessment that is easy to define and audit as quickly as possible, basically a huge invoice-and-PO-matching exercise spread across the entire balance sheet.  All this did was reinforce the idea that efficiently matching those POs to invoices, or the equivalent in other F/S line items, is the source of the public accountant's ability to opine on the F/S.

So the inexperienced handle see a bunch of T-bills on the balance sheet, and they see that the board approved the purchase of Treasuries, and they whip that information into the exact same format as last year, and the manager pencil-whips the review notes, and hey, presto, alles ist gut, sign off on that year's F/S and ship that handle off to the next client, just as ignorant of the risks of that last client as they were when they walked in the front door.

And the audit manager doesn't know anything about it either, and the partner's only insight is based on the fewer and fewer board committee meetings he or she is invited to - after all, he or she has no real insights into running the business better.

Are the F/S presented in accordance with GAAP?  Probably.  Can the public accountants speak to relevant enterprise risks for the company?  Doubtful.

[Paxter]

I am not aware of any issues with SVB's accounting.

This just looks like poor market risk management (overexposed to an IR rise) coupled with obscenely poor preparation for and management of a liquidity crunch. At fault are the management team and the regulators. 

[James Arryn]

6 hours ago, Chataya de Fleury said:

I admit that I saw your initial comment as the typical snide remark Montrealers used to throw at me over the years about how fucked up the US is is (any time there was a mass shooting in the US, for sure). I was a Temporary Resident of Montréal on a work visa for two years, so basically lived there.

I then combined that with my frustration on how many people on the Board see “late stage capitalism” (aka the current US economy) as “MAGA”, which is just not so. That foregoing is super personal to me, while I believe the above would be familiar to any American who has significant cross-border ties.

Seeing the U.S. as some sort of “doom and gloom no matter what turns out” is what I call “unhelpful”. Sure, you can’t vote here or influence what happens here, but not even a “thoughts and best wishes”?

Ah, okay. It was both more and less than your initial reaction suggested. Less in the sense it was not in any way a snide remark or intended to take a swipe, and moreover it was only tangentially connected to this latest bank crisis. It was more that I had been thinking about recent events….East Palestine, the banks, etc. and it was starting to seem to me to be approaching a kind of inevitability for Trump to win; all the excuses are there for one of those classic ‘let’s get back to the objective business adult in the room who can make the tough choices’ Schlick which almost always means ‘rich man’ regardless of how he got it or how far he deviates from the actual conservative model’ moments in US/western history. And the resultant I.R. assessment/father of 3 year old girls/nuke anxiety/China ~ escalation kind of boiled my fears down to their essences, which was what I described is in my initial post. 
 

Moreover my Canadian comment was absolutely not meant in the ‘looking down my nose’ way’…I am guilty of occasional outbursts of serious criticisms I have of especially US foreign policy, but this wasn’t that. This was very much more ‘this affects us all’ kind of sharing the dread kind of comment, especially as it’s mainly domestic problems recently. I suppose if I dig deep enough there will probably be some anger at the constancy of being in a situation where US fuckery negatively affects so many people around the planet who have no voice in the lunacy unfolding regardless of how it affects them (which often exceeds how much it affects Americans themselves) but I swear that’s just something I feel I’ll be able to find because I’ve felt it many times before*, but it was not at all how I was feeling when I posted above. 
 

But, lastly, about the ‘but not even thoughts and best wishes’ because I can’t vote/ergo non-American: is this the standard for commenting on the political situation in the US in a US Politics thread? No? What about if it is interpreted of being critical of the US? Still, no? So what is it about me or my comment’s not being ‘thoughts and best wishes’ that makes that the bar I’m supposed to meet? Something about…not voting there? Something about criticizing the US and not being American? Well, if so this has got to be a first for me, never met an American who gets super hostile at the criticisms of their country’s actions by foreigners regardless of how much those actions do or could affect non-Americans. This might even be the first time anyone has encountered this phenomenon, if that’s what this is, I’m still not 100% sure I’m reading you right here.
 

If wrong, sincere apologies but much confusion over what that last bit meant. Am having a really rough few weeks, at home, might be hypersensitive. 

 

*The late John Le Carre had a nice phrase for American attitudes towards the effects of their foreign policy on non-Americans from my POV, close as I can remember: ‘The victims who survive never forget because they cannot, but the conquerors forget, and all too quickly’.

[IheartIheartTesla]

According to a Daily Show segment, Fox News (this is second hand, since I would never watch F'N myself) thinks SVB failed because it was a 'woke' bank. One of the examples given was the month long DEI initiative they had just before it failed, no idea yet how they connected the dots between the two.

 

[DanteGabriel]

3 hours ago, James Arryn said:

nice phrase for American attitudes towards the effects of their foreign policy on non-Americans from my POV, close as I can remember: ‘The victims who survive never forget because they cannot, but the conquerors forget, and all too quickly’.

"The tree remembers, the axe forgets" is accurate to many human interactions, both individually and on a societal level.

[Wilbur]

7 hours ago, Chataya de Fleury said:

Exactly, no one should be asking auditors to also have an actuarial science degree and a risk management background. That’s not what they are there for.

Are the financials presented properly in accordance with GAAP? Well, great, let’s move on.

That does include a Going Concern analysis (all of which are bullshit) and any Critical Audit Matters, as previously mentioned.

The issue with this is that achieving the "F/S presented in accordance with GAAP" is well below the expectations set in the board meetings by the partners who presented their bid for the work.

The partners, at least one of which will never be seen again once the sales presentation is complete, promise that the public accounting firm will divine great insights based on their wide industry experience applied to the careful analysis of the financial records of our company.  They will be partners to us, providing us with invaluable guidance and counsel, sending to us staff with impeccable knowledge and experience, and performing their work with such tight scheduling and light touch that we will hardly know they exist until it is time to whisper their key business acumen into our shell-like ears.  Every member of the board can rest easy in the knowledge that the millions paid to the public accounting company will be repaid many times over in valuable wisdom and critical counsel.  Our business will become the world leader in our industry, and at least one of us will likely be elected Pope.

And at the end of their actual work, the CFO and controller remark that after a titanic struggle to get the audit staff to locate their own backsides with both hands, consistently appear at regularly scheduled meetings, complete work by mutually-agreed deadlines, provide clear status reporting, or actually read documents provided to them, the only item of any significance that came out of the public accountants' work was an argument over semantics that boiled down to the audit manager failing to keep on top of their email with our staff.

This mismatch between expectations and reality is the problem.  The managing partners of the Big 4 want everyone to perceive them as trustworthy business advisors with deep and extended experience, and that their ability to opine on the F/S is also the ability to provide surety to investors as to the value of the company.

But the actual things that they and their staff do don't support that image at all.  Partners took from the Arthur-Andersen-and-Enron-experience the lesson that it was critical to change the focus of SOX into something they could do cheaply and to use the Act as a gun at the heads of company boards to embed themselves to extract maximum cash.  Rather than using sections 2 and 4 to really do what they claim to do, they turned it into a self-licking ice cream cone.

And it is frankly soul-destroying work for anyone in the Big 4 who isn't a partner.  Staff approach our controllers or CFO staff and inquire about opportunities, and when I ask if they have any real technical skills, they answer is, "Not anything we don't already possess in our own team."  Do they have any leadership potential?  "Well, they work to deadlines replicating prior year work, so nothing I have seen."  Therefore if they come into our organizations, it has to be as an individual contributor to develop technical and industry skills and uncover any latent leadership skills, but this likely means they will not be paid as well as their current role.  And thus most Big 4 staff remain manacled to the mill until they find a place where they do have some sort of comparative or absolute advantage.

I am on this hobby horse again because I had lunch with the daughter of a friend recently who will graduate with her Masters and start with one of the Big 4 in June.  It didn't take the whole lunch before I could say to her, "I believe that you will be counseled out before two years, just based on your active personality and intellectual curiosity.  And if you aren't, get out just as soon as you qualify for your CPA, and go to work in an industry that interests you.  Don't get chained to the mill."