Paul Krugman

@paulkrugman ↗

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Last Checked April 3, 2023

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Sat Mar 11 11:11:17 +0000 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

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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

It's not at all clear whether SVB was inherently insolvent. The market value of its investments fell when long rates rose, but its earnings may still have been enough to cover interest on its deposits. But big deposits made it vulnerable to a classic bank run 11/ — PolitiTweet.org

Posted March 11, 2023