Michael Milken on what landed banks in trouble

You shouldn't have borrowed short and lent long.  Finance 101.  How many times, how many decades are we going to learn this lesson of borrowing overnight and lending long?  Whether it was 1970s, the 1980s, the '90s and again here.  The banks have enough credit.  They had enough equity.  The had enough ability to absorb credit losses that are coming.  

However, what they did was doubled, tripled, quadrupled their size by borrowing overnight at artificially low rates and buying intermediate securities.  There's $30 trillion of them out there and let's say they're worth 85 cents on the dollar.  Who has an unrealized loss of  three trillion dollars?  What we know, number one, is the Fed has the largest share of that loss, $800 billion or $900 billion, but they can print money so that isn't an issue...  What we saw here is organizations - great companies - like Silicon Valley Bank, like First Republic, what they turned themselves into was adding to income by borrowing short and lending long.  In the case of Silicon Valley, really government agencies, municipals, in the case of First Republic, fixed-rate mortgages with floating rate liabilities.

So this is Finance 101.  People are so focused on credit risk, etc., but one of the great risks is interest rate risk. 

~ Michael Milken, CNBC interview, 1:15 mark, May 2, 2023