I do not think this is a problem of mortgage-backed securities.

The problem is that SVB tied up their liquidity for 10 years at a yield far lower than they would get with more secure investments after the FED's rate hikes.

The specific assets they invested into are immaterial.

Aye, the mistake was the duration, not the instrument. I hope nobody would take 60% of their brokerage account and invest it in a 10 year bond either, ladders exist not just to manage liquidity but also to limit the duration you have to suffer low yields with.

Yep. Let's not forget this same thing pretty much happened last year in the UK - pension funds got margin called because they borrowed money to buy gilts (UK gov bonds). Low interest bonds, money tied up, messed them up when interest rates rose.

Come on, where else would they put your money ? When are retail going to understand handling and parking and securing and regulating money has a cost and interest rate have to be chased somewhere.

Narrow banking never works because at the first regulatory lapse (my employer got fined 200M because we used whatsapp, not even for committing crimes), BAM no money left for deposit liabilities.

And dont forget here that as long as people eventually pay their mortgage in the expected default risk, the money will eventually come back, at an opportunity cost.

This has nothing to do with MBS in particular, it is a fundamental aspect of the fixed income market.

This isn't an MBS problem. It's just a poorly performing asset problem.

This is a symptom of the problem of middle class single family home residential real estate being treated as an unreasonably-price-increasing bubble inflated investment and not a place for people to live in.

The irrational exuberance in price increases in this segment of the market over the past 4-5 years is not sustainable.

It is not logical, sane or normal for houses that were valued at $150k five years ago to now be valued at $400k in some suburbs and metro areas.

It's logical or sane if you think capital investment options in New areas is going to dry up and existing assets are the best opportunity for preserving or growing your money.

How much would you spend on the house if you're only alternative is to watch your capital disappear

> How much would you spend on the house if you're only alternative is to watch your capital disappear

If I'm worried about 10% or 20% disappearing to inflation, I'm certainly not paying 2x on an investment to prevent that.

What if it is 10% per year until it is all gone?

How many people think inflation is going to go to 10% and stay there for a decade or longer? Are they enough to drive up real estate this much?

Maybe not 10%, but I don't think we will see deflation anytime soon so cash will always lose value. Sometimes faster sometimes slower.

Capital needs somewhere to go as long as money keeps being printed. If there is more capital than profitable investment opportunities, it will flow into housing.

As a thought experiment to illustrate the point, imagine a world where there are no investment opportunities and the only place to store value is cash or housing. In this case, housing prices will continue to climb because money keeps being accumulated and there is no place to put it.

Of course this is a hyperbolic example, but I think our world is moving closer towards it as truly valuable Investments dry up. Certainly in the short term, and possibly in the longer term as well