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Clint Siegner: It turns out that Treasuries aren't risk-free after all
By Clint Siegner
Money Metals News Service, Eagle, Idaho
Monday, March 13, 2023
The high-profile collapse of Silicon Valley Bank last week is a story about bad debt, just not in the way most people think.
Bank executives didn't issue too many loans to poor quality borrowers. They made what they believed to be conservative investments in the safest of all assets. The bad debt turned out to be U.S. Treasuries - an asset class they assumed to be "risk-free."
This assumption was reinforced by regulatory requirements which artificially incentivize bankers to hold U.S. Treasuries as a tier one asset and bulletproof collateral.
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Today they are questioning the conventional wisdom about the risks of holding U.S. debt. So are investors and finance executives everywhere.
Rising interest rates led to catastrophic losses in SVB's portfolio of Treasury debt and mortgage backed securities. The losses created a capital shortfall and spawned a good old fashioned bank run. Regulators stepped in and closed the bank Friday.
The trouble is that SVB is not alone. Virtually every bank in the western hemisphere is holding the same debt to a greater or lesser degree, for the same reasons. Until this moment, few outside the community of goldbugs really bothered to reassess whether Treasuries are still risk free. ...
... For the remainder of the analysis:
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