They're providing funds based on the face value of the bonds purchased which won't reach maturity for 10 years instead of the actual market value of said bonds.
Imagine if you went into a bank to refinance and said you wanted the value of your home ten years in the future, would any bank accept such a deal?
In a capitalist system, everything is worth what the market values it at. That's why in the housing collapse in the mid-2000s people were upside down on their mortgages. The market correction caused the market value of those homes to drop below the amount owed on the existing mortgages.
What's going on with the fed and SVB is a distortion of capitalism and will only create bigger problems in the future.
It's only cheating if the fed overpays for them, isn't it?
That's exactly what's happening.
They're providing funds based on the face value of the bonds purchased which won't reach maturity for 10 years instead of the actual market value of said bonds. Imagine if you went into a bank to refinance and said you wanted the value of your home ten years in the future, would any bank accept such a deal?
In a capitalist system, everything is worth what the market values it at. That's why in the housing collapse in the mid-2000s people were upside down on their mortgages. The market correction caused the market value of those homes to drop below the amount owed on the existing mortgages.
What's going on with the fed and SVB is a distortion of capitalism and will only create bigger problems in the future.