Paul Krugman

@paulkrugman ↗

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Last Checked April 3, 2023

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Sat Mar 11 11:08:45 +0000 2023

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Paul Krugman @paulkrugman

So it was basically a kind of carry trade. The problem is that there was a reason long-term rates were higher than short-term. Wrote about it back in 2008: strongly upward-sloping yield curve is inevitable when short rates are near the zero lower bound 9/ https://t.co/JwmEKMfSep — PolitiTweet.org

Posted March 11, 2023

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Paul Krugman @paulkrugman

SVB had little of this. It was sitting on a huge pile of cash, without good places to put it to work. So what it did was put a lot of money into long-term securities, which at the time were paying much higher interest than short-term assets, incl deposits 8/ https://t.co/Yo7HotBmqt — PolitiTweet.org

Posted March 11, 2023

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Paul Krugman @paulkrugman

The reason is option value: short rates can go up but not down. Which means that betting on the spread is risky. If and when short rates go up, you're in trouble. They did, and SVB was. 10/ — PolitiTweet.org

Posted March 11, 2023