Then again, what they invested their money in was government bonds, which lost value due to the government increasing the interest massively after selling those bonds at a low fixed interest. If a business did that, they would win the scumbag of the year prize.
This is a separate concept from Credit Risk, which is how risky the borrower is. The bank did not manage its risks, but it was salvageable, they just needed to raise money, but then the VCs organized the bank run.
The bank run should have been neutralised by the Fed lender of last resort function.
The problem was that the bank didn't have the collateral or the income to pay the Fed's rate.
The assets the bank had were poor quality and didn't generate enough income. If the Fed won't lend, why would anybody invest in the bank. Far better to turn up at the auction and pick up the assets for cents on the dollar.
Yes, and government banking regulations seem to have been almost entirely focused on credit risk rather than duration risk because they were focused on the last crisis - banks were effectively actively penalised for keeping their money in higher credit risk but lower duration risk investments like corporate bonds instead of minimal credit risk but high duration risk ones like long-term treasury bonds and government-backed MBSes. There's been an entire wave of articles in the left-leaning parts of the press blaming this all on libertarians and corporations convincing the government to lift regulations created in the wake of the 2008 crisis and causing a repeat of it by doing so that just completely ignore this distinction.
