Izabella Kaminska writing at Politico.eu, March 16:
The man who predicted the 2008 banking crisis has a new blip on his sonar screen: "underwater" bonds that he says make up a dangerously large chunk of the sector's assets.
Nouriel Roubini, professor emeritus at the Stern School of Business of New York University — a.k.a. Dr. Doom — warned this fatal flaw in bondholdings, which lay at the heart of the sudden downfall of Silicon Valley Bank last week, could could cause any instability in the U.S. or European banking sectors to quickly spiral into a rout. Pension funds, asset managers and other large investors are also at risk, he warned.
Markets are jittery after SVB collapsed last Friday, in the biggest bank failure since 2008. U.S. agencies scrambled to contain the damage, but banks' share prices on both side of the Atlantic took a beating, with long-troubled Credit Suisse finding a new record low on Wednesday, prompting a lifeline intervention from the Swiss National Bank.
Roubini zeroed in on the heart of the problem. SVB had built up a big bond portfolio while interest rates were near zero, but the value of those bonds plunged when rates rose and newly issued debt became far more attractive to investors. The old bonds started to represent "unrealized losses."...
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And at her personal site, The Blind Spot:
The below is the transcript to Friday’s impromptu Spot Markets Live session.
