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.

[Kalnestk Oblast]

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 But because those requirements were repealed, when an old-fashioned bank run hit S.V.B‌., the‌ bank couldn’t withstand the pressure — and Signature’s collapse was close behind.

 

Edited March 13 by Kalnestk Oblast

[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.

[Madame deVenoge]

2 hours ago, Paxter said:

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

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

She nailed it; however, hindsight is 20/20.

[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.

[Tywin 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.

[Tywin 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. 

[Madame deVenoge]

6 hours ago, A wilding said:

Just in passing, and speaking as a layman; does anyone really still take auditing seriously? I certainly get the impression that numerous companies have failed despite having being audited, and that the audits essentially seem to prove nothing. They do rather feel like a convenient money-spinner for the big 4 accountancy firms, or perhaps a foot in the door.

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???

[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. 

[Madame deVenoge]

10 minutes ago, James Arryn said:

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. 

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.

Edited March 14 by Chataya de Fleury

[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.  

Edited March 14 by Mlle. Zabzie

[Madame deVenoge]

32 minutes ago, Mlle. Zabzie said:

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

It absolutely already does.

Going Concern on all audits and Internal Controls especially on SOX audits (not all companies are subject t to SOX, but suffice it to say that all banks are, and all larger midsize and above companies). Beyond that, Critical Audit Matters are now a required part of any audit opinion - “what keeps the auditor up at night”. 

I’ve even written going concern footnotes in financial statements…on companies that are still here, 10 years later. And thriving, because now, lumber is selling. 

This is not audits nor the market - this is what the Fed wanted is now happening. The recession bookmark is here. Liquidity is cracking. 

Edited March 14 by Chataya de Fleury

[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. 

[Madame deVenoge]

15 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 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”?

Edited March 14 by Chataya de Fleury

[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.