[HN Gopher] 30% of YC companies exposed through SVB can't make p...
___________________________________________________________________
30% of YC companies exposed through SVB can't make payroll in the
next 30 days
Author : saeedjabbar
Score : 251 points
Date : 2023-03-10 20:43 UTC (2 hours ago)
(HTM) web link (twitter.com)
(TXT) w3m dump (twitter.com)
| hubadu wrote:
| VCs have plenty of billions let's have them do the bail-out this
| time around.
| kneebonian wrote:
| > If you or your company are affected, I recommend that you reach
| out to your local congressman to get this on their radar TODAY.
|
| No this is complete and utter bull hockey, this is 2008 all over
| again in every concievable way except this time instead of
| mortagages and housing it is tech that is begging for a bailout.
| This is nonsense, for years all the SV tech bros were bragging
| about "changing the world through arbitaging pizza delivery
| misinformation ML." getting paid ridiculous salaries, and playing
| foosball. I don't have sympathy for them, at all.
|
| Most of the "startup" companies had the end goal of simply being
| bought out they never wanted to actually do anything they were
| just a get quick rich scheme.
|
| Quite frankly this correction was long overdue and obvious to
| everyone who thought about it for even a moment. Now that the
| limitless capital has stopped (because of the fed rate hikes and
| because of the boomer retirement) it turns out it isn't
| profitable to have a buinsess model where you are loosing money
| on every transaction.
|
| The curtain is pulled down, the emperor has no clothes, the
| chickens are coming home to roost. Deal with it.
|
| EDIT:
|
| As a followup I don't give a damn about the jobs lost, bailouts
| are the worst possible thing a government can do, all it does is
| screw the little people over while the owners keep the wealth and
| use it as an excuse to cut pay and lay people off.
| tekla wrote:
| This is nowhere NEAR 2008. The financial crisis affected pretty
| much every bank on Wall St. This is localized to a small
| network of regional banks. Absolutely nothing indicates
| contagion.
| vecter wrote:
| My understanding may be incorrect (if so, someone please
| correct me), but I thought this was caused by SVB buying long-
| term bonds which fell in value after interest rates went up. I
| don't think this has anything having to do with unprofitable
| zombie startups being kept alive by "free" money (which roughly
| ended at the end of 2021). It seems you're angry at tech folks,
| but they didn't do anything wrong. They're just the victims of
| SVB's bad bet.
|
| I'm not saying a bailout is justified either (I have no opinion
| on that), just pointing out who's responsible here.
| sangnoir wrote:
| Hear me out: shouldn't venture capital be providing backstop
| capital for it's ventures? The money is there, and will
| eventually be unfrozen; the individual startups only need
| access to make the next one or 2 payroll runs.
| ahzhou wrote:
| VC firms don't hold capital either - LPs do. They may be
| able to do a capital call, but it'll take time.
|
| Many SVB startups with more than 20 - 30 employees can't
| make payroll on Monday.
|
| Edit: It's also unclear today whether the assets held by
| SVB can cover all the missing deposits, since they will
| likely need to be sold under market rates to liquidate all
| of them in the near-term.
| sangnoir wrote:
| > VC firms don't hold capital either - LPs do. They may
| be able to do a capital call, but it'll take time.
|
| Are you (and the YC boss) suggesting that the government
| is more nimble than VC machinery at deploying capital
| when shit hits the fan?
|
| Re: your edit: how is it unclear? There are no
| allegations of fraud or other irregularities- the thesis
| that they put depositors funds in long-term bonds (with
| positive interest) and then had a run
| janee wrote:
| I don't think this is really comparable to 2008. Grossly
| simplified 2008 for me is more about bad debt, while this is
| around bad risk management...svb bought too many long term
| bonds which was a bad bet given current rates and an industry
| "correction" as you put it.
|
| They just didn't manage the risk of a market "correction" and
| high interest rates. The tech sector was/is due a correction,
| but this isn't 2008
| vecter wrote:
| I agree, but I didn't mention anything about 2008 in my
| comment. Did you reply to the wrong comment by accident?
| jmclnx wrote:
| >I thought this was caused by SVB buying long-term bonds
| which fell in value after interest rates went up
|
| I heard the same thing, but they took a gamble and lost. That
| is free enterprise. People who when to SVB will loose too,
| again free enterprise.
|
| It was no secret interest rates were going to go up, so 2
| years ago they should have sold those bonds and took a small
| loss.
| zpeti wrote:
| Also if the FDIC just buys these assets at non firesale
| prices, and eventually sells them to other banks, SVB
| depositors could easily come out of this whole, with no
| damage to anyone.
|
| I think everyone is being way too hysterical. This isn't a
| massive bank run.
| henrikschroder wrote:
| There are times when government intervention and bailouts are
| appropriate, in order to prevent some greater bad for society,
| or in order to ease the effects of some kind of large-scale
| economic change.
|
| Bailing out startups is dead last on that list. That is
| absolutely not something the government should spend tax money
| on.
| readthenotes1 wrote:
| "this is 2008 all over again in every concievable way except
| this time instead of mortagages and housing it is tech that is
| begging for a bailout. "
|
| not ironically, it is overpriced mortgages an interest rate
| increase that are at the heart of this catastrophe again.
| twelve40 wrote:
| not sure why all the schadenfreude, a bank going crazy and
| collapsing has nothing to do with quality of startups
|
| at any rate, at least in that thread he's not even talking
| about a bailout, but asking to speed up the usual FDIC process
| so that people can get at least a small part of their money
| back to make the ends meet:
|
| > make the receivership as short as possible
|
| doesn't seem like a great reason to gloat?
| gauravphoenix wrote:
| As of right now, yes. Give it a week, and it will get sorted out.
| In all likelihood, the bank will have a new owner by coming
| Monday/Tuesday and everyone will be able to make the
| transactions.
| paganel wrote:
| > the bank will have a new owner by coming Monday/Tuesday
|
| What due diligence can seriously be carried out by
| Monday/Tuesday? Especially for a messy "acquisition" like this
| one.
| hn_throwaway_99 wrote:
| Agreed. Given that this seems like primarily a timing issue
| (i.e. SIVB being forced to liquidate bonds at a loss because
| their tech-heavy depositor base needed their cash), I'd think
| that a better capitalized and more broadly diversified bank
| (i.e. not just tech or crypto depositors) would be salivating
| at the chance to buy these assets up on the cheap.
| bequanna wrote:
| Buy what assets? From what I understand, SIVB had paper
| losses which totaled maybe ~30% of deposits before the bank
| run.
|
| If 70% of depositors withdrew before the bank went into
| receivership there is nothing left.
|
| And the assets they held were primarily treasury securities
| and MBS. Why would anyone sell those "on the cheap" when the
| market is super liquid?
| alooPotato wrote:
| Seems unlikely 70% of companies were able to get their
| assets out. I guess its 70% of deposits so.... maybe?
|
| If there were assets on the books left, the gov't could
| purchase them at face value and just hold to maturity.
| t0mas88 wrote:
| The government buying those bonds at face value would be
| ridiculous. They're worth 80% of face value or less on
| the open market. So buying them at face value would be a
| 25% subsidy... Billions of tax money flowing to VC funded
| startups. That's an absolute no-go.
|
| The solution is to wipe out the SVB shareholders, that's
| the only way to make sure other banks don't have an
| incentive to do these things. Then pay the startups
| whatever part of the funds you can recover on the market
| (may be close to 90% if some comes from SVB
| shareholders).
|
| The VCs may have to step in at a few companies for
| loosing 10%, but that's likely the ones that weren't
| doing great anyway.
|
| Using tax payer money to save SVB shareholders and some
| VCs is ridiculous. These guys have enough money, they're
| all professionals, it's a risk they took and
| unfortunately they lost this round. Better luck next
| time.
| alooPotato wrote:
| Why is it so ridiculous to buy it at face value? They
| aren't losing the 25% you're quoting, they are just
| holding the bonds till maturity. In the worst case they
| are losing the what they could have "made" on that money
| in the interim. But realistically this is kind of the
| governments job no? Put cash where it can help society
| the most - making the depositors (who are mostly
| startups) seems like a great use of capital - it ensures
| employees get paid payroll AND makes sure a bunch of
| startups don't die (who would have gone on to create a
| bunch of value/jobs/etc).
| mike_d wrote:
| If this were the Bank of Omaha and a bunch of cattle
| ranches and soy farms were at risk, would you still feel
| the same way?
|
| It is in the governments best interest for people to have
| faith in banks, regardless of what industry they serve.
| The FDIC was created because a run on one bank, once it
| becomes public knowledge, always turns into a run on more
| banks. They don't want this turning into a line of
| dominoes.
| toss1 wrote:
| For now, there is nothing.
|
| A contact who has a college friend who works(/ed?) at SVB as a
| client service rep says that they were "specifically instructed
| to make or accept zero communications, emails, or phone calls
| with SVB clients."
| jzawodn wrote:
| Can't they just issue some crypto? :-)
| tiffanyh wrote:
| Why exactly can't they make payroll?
|
| Because their funds are frozen? Or they assume their funds are
| completely gone?
| hasseldahoff wrote:
| [dead]
| zamnos wrote:
| SVB's failure means that anything over $250k that a startup had
| there is not currently accessible. They'll probably be made
| whole in a couple of months by FDIC, but payroll, along with
| rent and the cloud bill won't wait and can't be paid via IOUs.
| nsnick wrote:
| Why would the FDIC make them whole? Doesn't FDIC insurance
| only cover $250,000?
| zamnos wrote:
| You're right that FDIC doesn't _have_ to, but it 's in
| everyone's interest that people keep keeping their money in
| a bank, so the long and the short of it is that the FDIC's
| playbook is to find another bank to buy SVB (for pennies on
| the dollar), and as part of that deal the purchaser bank
| will make them whole. FDIC doesn't _necessarily_ have to do
| that, but it 's what they've done in the past, so guessing
| that they will do something similar this time around isn't
| out of the question.
| honkler wrote:
| techbros.. did we get too cocky?
| damiankennedy wrote:
| In this situation, the reserve bank absolutely should take over
| SVB's assets and liabilities, that is what its for and what it
| can do easily and painlessly. The govt is not involved and no tax
| dollars are involved. No customer of SVB should be out of pocket
| and certainly no employee of a customer of SVB should be. The
| losers are the shareholders of SVB as their equity is wiped out
| and some of SVB's employees will lose their jobs.
| mehlmao wrote:
| Founders can take a loan on the IOUs from the FDIC from VCs and
| make payroll. Worth watching who goes this way and who holds out,
| doesn't pay their employees, and begs the federal government to
| pay them.
| raldi wrote:
| Forgive the naive question, but why did so many companies put all
| their cash in one account instead of spreading it between two or
| more independent banks?
| breck wrote:
| Some might say that this is another reason we need a public
| ledger where we could speak exactly about the facts rather than
| speculate on bits of information leaked by people with
| conflicts of interest.
| etchalon wrote:
| Because spreading out your cash like that is unmanageable.
| raldi wrote:
| It also sounded unmanageable the first time I heard the idea
| of consistently replicating databases across clusters in
| multiple availability zones, but ultimately the vast majority
| of tech companies nonetheless decide it's worth going through
| all that trouble to avoid existential risk in the event of a
| SPOF.
|
| I'm curious about the calculus that makes this tradeoff non-
| worthwhile when it comes to squirreling away an emergency
| payroll fund in a backup bank. What about that is
| unmanageable?
| mike_d wrote:
| Because corporate financial education isn't part of the YC
| curriculum and most small companies don't have CFOs.
|
| Large companies and smart individuals keep cash reserves in
| pass-thru depository products like CDARS which do exactly what
| you describe. You have a virtual account at Bank A that shows
| your balance, but the actual money is stored across hundreds or
| thousands of other banks across the US - each holding less than
| the FDIC insurance maximum.
| apnew wrote:
| Bold of him to assume 30% of YC startups not surviving means
| "mass extinction" of american startups!
| [deleted]
| dysonpunk wrote:
| These people love "creative destruction" except when it's
| happening to them.
| bpiche wrote:
| I think BruceS warned us all about this at south by about ten
| years ago [0]. Forget exactly where it happens in this talk
| but he basically tells the audience that if they want to live
| by disruption, they will die by disruption, and that they
| have built their castles on shifting sand. Great talk imho
|
| edit: this is actually a long now talk, will edit later if I
| find exactly the talk am looking for, but should be close
|
| [0] https://soundcloud.com/longnow/the-singularity-your-
| future-a...
| johnsimer wrote:
| This isn't "creative" destruction though. Purely destructive
| destruction
| woodruffw wrote:
| I, for one, feel my creative energy flowing while watching
| it.
| blibble wrote:
| this entire event was triggered by startups (YC and others)
| starting a bankrun
| aintgonnatakeit wrote:
| Given YC's obsession with web3, maybe it's a good thing.
| time_to_smile wrote:
| Though it is widely publicized that he was pretty aggressive at
| getting YC startups to move their money _out_ yesterday.
|
| It's not altogether unlikely that other groups of startups,
| without an aggressive push to pull out of SVB, are in more
| trouble.
|
| That is also a lot of startups in a very short window of time.
| Startups don't exist in isolation, and, for better or worse,
| often actively try to purchase each others products when
| possible. It is an ecosystem.
|
| I work at an IPO'd SaaS company, but a lot of our customers are
| startups. If 30% of our startup customers suddenly can't pay
| their bills that impacts us in a big way. On top of this, like
| most companies, we were already concerned about how we were
| going to meet profitability goals.
|
| And again, the short time frame means not a lot of time to
| respond and adapt.
| scotcha1 wrote:
| Given the # of startups the YC program creates with every new
| batch, and proportionally the success of YC to all other types
| of startups, this seems more fair to say, though it does seem a
| bit hyperbolic.
| JohnFen wrote:
| I find that statement fascinating. I assume that he made it
| because of the human tendency to generalize the personal.
|
| Most startups aren't even SV companies, let alone YC ones, but
| if your whole world is focused on YC/SV, it can be easy to
| forget that.
| [deleted]
| manquer wrote:
| It is not just 30% of YC alone. YC startups tend to be on
| average more successful than others, so number probably much
| higher for other startups.
|
| Not making payroll is just the first problem. Vendors are the
| next ,
|
| many startups provide critical services from healthcare to
| security to dozen other sectors if they cannot pay for their
| servers those services will go down too
|
| a lot of products such as saas apps , cloud services are sold
| to startups extensively.
|
| If collectively startups stop making payments, those businesses
| become unsound even big tech like AWS will feel pain and mean
| layoffs everywhere.
|
| Not making payroll for tech and tech adjacent people also means
| lot of local business will be distressed in those communities
| think your grocers and barbers etc.
| kazen44 wrote:
| > many startups provide critical services from healthcare to
| security to dozen other sectors if they cannot pay for their
| servers those services will go down too
|
| I don't know how this works in the US, but there not some
| kind of clause or law which basically prevents critical
| companies from becoming bankrupt like this?
|
| In my country, vital infrastructure is supposed to have money
| on hand to keep the infra chugging along while the company
| gets put under administration. (or nationalized, depending on
| the political climate and what it provides).
| iamdbtoo wrote:
| We used to use regulations to limit this kind of damage,
| but those have been removed to allow for money to be made.
| So instead of proactively preventing these tragedies the
| government is there to help clean up the mess.
| manquer wrote:
| It is very hard to keep supply chains segregated like that
| and also expensive.
|
| Even military industrial complex which have a sharp focus
| on kind of independence and budgets to see it through trips
| up constantly and just find out some core components are
| coming from foreign sources that can be fragile or threat .
|
| Just as we are discovering last couple of years whether
| with baby formula or chips sometimes there are risks in the
| system which no one knows or can't do anything about .
|
| Not to mention such reliability costs money no one is ready
| to pay for .
| breck wrote:
| > It is not just 30% of YC alone. YC startups tend to be on
| average more successful than others, so number probably much
| higher for other startups.
|
| It's the opposite. 99% of startups do not bank with SVB
| and/or have less than $250K in SVB.
|
| If this were a public ledger we could talk about exactly what
| the situation is. Instead we'll get lies and half truths from
| those jockeying to tilt things in their favor.
| 3wolf wrote:
| 30% of all YC companies, or 30% of YC companies banking with SVB?
| The phrasing implies the latter.
| nedwin wrote:
| It's the latter.
| pkaye wrote:
| The FDIC will be working over the weekend to audit things and by
| Monday have enough funds released so customers aren't totally
| stuck.
| dragonwriter wrote:
| The FDIC will be working over the weekend to sort out account
| ownership by ownership category to establish which balances are
| insured and which are not, and taking the administrative steps
| to stand up a new Depository Insurance National Bank to take
| over administering SVBs business. Access to all _insured_ funds
| should be available Monday, and depositors with uninsured funds
| should get a mix of some funds and "receivership certificates"
| for the uninsured balances.
|
| So, yeah, not "totally stuck", but anyone with balances over
| $250K may be...largely stuck.
| kragen wrote:
| sanitized link:
| https://nitter.fdn.fr/garrytan/status/1634286688922132481
|
| i wonder where garry is getting this 30% number or if he just
| made it up
| mattkrisiloff wrote:
| YC sent out a survey this morning to all companies asking if
| effected
| kragen wrote:
| thanks, did it ask specifically if they couldn't make
| payroll, or just whether they were affected?
| cedricd wrote:
| It asked specifically if they couldn't make payroll for the
| next 30 days
|
| Also -- it's 30% of those who responded to the survey. So
| lots of startups could be banking with SVB and have not
| bothered to fill it out. Maybe those less likely to make
| payroll would be more likely to fill out the survey
| kragen wrote:
| thank you very much
| DWqRdped wrote:
| Founders lie on those surveys. I bet its closer to 50% who
| can't make payroll for a month if they only have access to
| 250k
| Turing_Machine wrote:
| At the median Silicon Valley engineering wage, $250k would
| be enough to pay about 100 engineers for one week, or 25
| engineers for a month.
|
| Yeah, $250K isn't going to go very far.
| kragen wrote:
| most california companies issue paychecks every two weeks
| Turing_Machine wrote:
| Okay, then. 50 engineers for two weeks. I'm not sure why
| that matters?
| spamizbad wrote:
| Thinking back to the financial crisis when the idea of protecting
| home owners was floated and we had to endure finance guys ranting
| about greedy home owners and their 2nd bathrooms.
| kingstoned wrote:
| Going to the nanny state to bail them out of the consequences of
| their bad choices
| nodesocket wrote:
| Gary is currently on CNBC giving a pretty good interview. He's
| actively pitching for government intervention and bailout. I'm
| torn on this stance, why should taxpayers bail out banks who
| continue to make poor decisions, but as a small business owner
| and former SVB customer I completely sympathize with the plight
| of the founders. They did nothing wrong, they followed the rules,
| they thought they were being responsible using SVB, and here we
| are the small companies, founders, and potential employees pay
| the price.
|
| Ultimately I am sick and tired of my hard earned money going to
| the government for them to redistribute it, whether it be
| bailouts, stimulus payments, student loan forgiveness.
| mikeyouse wrote:
| They wouldn't be bailing out the bank here.. at least not in
| any normal sense of the word. People who owned the bank (equity
| holders) are going to be zeroed out, people who lent money to
| the bank (creditors) are going to be nuked too. The people
| being bailed out are individuals and companies who had deposits
| with them.
|
| If the government can make all of the depositors whole, take
| the associated amount of capital off their balance sheet and
| hold onto it until it matures, thus costing the taxpayers $0,
| that seems mostly okay to me? There's the opportunity cost of
| money blah blah but total increase to the deficit would be $0
| and all of these companies would be able to continue operating.
|
| What's the point of a Federal gov / lender of last resort if
| they can't keep depositors in solvent banks whole?
| tekla wrote:
| There is a reason why the FDIC limit is $250k and not a
| infinity symbol. The Fed's job is not to bail out every
| single entity that knowingly held assets in a risky manner.
| tannhauser23 wrote:
| Keeping your money in a bank is acting in a risky manner?
| tekla wrote:
| It is if you keep it all in cash, ignoring the FDIC
| limits. Every single bank can suffer a run, its your
| responsibility to be able to survive it.
| mikeyouse wrote:
| Seems super short sighted - there's no real world benefit
| into forcing companies to spread their checking accounts
| over hundreds or thousands of banks. Also seems like a
| good way to ensure that all of the business concentrates
| with the biggest banks.
|
| The only people doing anything risky were the executives
| at SVB, and they're going to be wiped out completely. Its
| a terrible idea to punish depositors for the crime of
| leaving their funds in a checking account at one of the
| top 20 largest banks in the country.
|
| I suspect we'll see a "Fannie Mae" for checking accounts
| in the future and that seems like a good idea.
| engineeringwoke wrote:
| If you are risk averse have your money at a big global
| systemic bank with a big customer base and therefore
| deposit base, not a bank focused on holding money for
| high-risk ventures.
| halfmatthalfcat wrote:
| Why bail out what are essentially high risk ventures? Seems
| like the money would be much better spent with the
| aforementioned loan forgiveness to people who are actually
| hurting rather than 20-something YC founders who will easily
| land on their feet.
| itronitron wrote:
| >> They did nothing wrong, they followed the rules, ...
|
| Most people are willing to follow the rules for what is
| essentially 'free money'.
|
| If the reason things don't work out for them is beyond their
| control that _still does not mean_ they should be bailed out by
| the 99% of people who would never have used their product in
| the first place.
| kazen44 wrote:
| Also,
|
| what about people losing their housing, financial security
| and destroyed their lives during the great recession? they
| also played by the rules. Why did they not receive a bailout,
| but SVB somehow does?
| muzz wrote:
| They made poor decisions on where to store their money.
|
| Why should they get bailed out, when every 401k retirement
| account that lost money in the stock market today isn't getting
| bailed out?
| dragonwriter wrote:
| > He's actively pitching for government intervention and
| bailout.
|
| FDIC takeover _is_ a government intervention and bailout. One
| systematically programmed and under rules laid out in advance,
| but an intervention and bailout nonetheless.
| mellosouls wrote:
| I think the idea that tech is going to be set back a decade if a
| load of YC companies fail is an interesting assesment from the
| head of YC, and might be interpreted by some as hyperbolic and
| self-aggrandizing.
| philkuz wrote:
| YC isn't the only set of companies that used Svb, they're
| probably representative of the distribution of startups that
| need banking
| kahrl wrote:
| This is complete hyperbolic bullshit with the sole purpose of
| pushing a narrative, getting the right people concerned about
| their political image, and getting parachute out of this mess
| fast.
|
| Can't blame the guy for doing his job, but you can call
| bullshit on him.
| sp332 wrote:
| It was the 14th largest bank in America. This is the second
| biggest bank failure in history.
| cloverich wrote:
| Yes but if companies collectively recover 80-90% of the
| capital, the additional context is extremely relevant.
| Asparagirl wrote:
| There is absolutely no evidence people above FDIC limits
| will recover "80-90% of the capital". It's a guess, a
| crapshoot, and it's not taking into account historical loss
| rates for banks of this size that were seized by the FDIC.
| See also: IndyMac, WaMu, etc.
|
| And whatever they do get back above FDIC limits, it will
| not be immediate. Months at a minimum.
| TheAlchemist wrote:
| Are you guys serious ? I saw this and David Sacks tweet with
| similar message.
|
| When times are good - they are the first to criticize government
| reach and taxes which are spend on other people. 100% capitalism
| etc.
|
| When times get bad - we need government to step in and save us !
|
| Ridiculous.
|
| Besides, it seems the situation is nowhere near as bad as he
| paints it.
| corbulo wrote:
| Well, the situation was created by the government (fed raising
| rates). I don't see it as hypocritically as you do.
|
| SVB is kindling a bank run right now.
|
| https://nypost.com/2023/03/10/nypd-called-to-silicon-valley-...
| afavour wrote:
| If it was caused by the government why wouldn't other banks
| be experiencing the same issues SVB are?
| boc wrote:
| The FED isn't quite the government. If the government
| controlled monetary policy directly things would be way, way
| worse.
| bloodyplonker22 wrote:
| Indeed. The situation was caused by a combination of the
| reckless investing that SVB did, the FED failing to raise
| interest rates earlier, and irresponsible amounts of
| government spending.
| jkaplowitz wrote:
| The situation was _triggered_ by the government 's rate
| change, but not really _caused_ by it. The government did a
| normal fiscal policy action and effectively set off a land
| mine that SVB had set up for itself and its depositors.
|
| The situation was created by SVB irresponsibly locking most
| of their money into 10-year mortgage-backed securities a
| couple of years ago when interest rates were historically
| low, plus the affected startups irresponsibly locking most of
| their cash into a single bank that took such irresponsible
| actions, without that one bank being systemically too-big-to-
| fail from a nationwide policy perspective.
|
| Expecting the government to keep interest rates historically
| low for another decade or else to bail the bank out is an
| unreasonable expectation on the part of SVB and the ecosystem
| that over-relied on it, not the fault of the government.
| wankerrific wrote:
| Socialism for the rich, capitalism for everyone else.
| dougmwne wrote:
| Oh no kidding. Here they were during the good times:
|
| https://www.wired.com/2008/05/peter-thiel-makes-down-payment...
| eddsh1994 wrote:
| Sorry but government bailout to support tech startups that are
| known for tax avoidance once they're successful is ridiculous.
| resource0x wrote:
| This is not the only candidate for a bailout. There's a
| potential for contagion here.
| https://www.marketwatch.com/story/20-banks-that-are-sitting-...
| ofchnofc wrote:
| [dead]
| greesil wrote:
| Just as ridiculous (or not ridiculous) as bailing out Wall
| street back in 2008. Silicon Valley is officially too big to
| fail.
| eastbound wrote:
| "It will create jobs!"
| fsdalfdsklkj wrote:
| SV isn't known for creating jobs either. Google, a TRILLION
| dollar company, won't even employ overseas tech support
| staff, let alone domestic.
| cinquemb wrote:
| Prob should reach out to SBF, he has a lot of political
| connections and familiar with these kind of situations
| balls187 wrote:
| It was bound to happen.
|
| The rest of the world weathered the pandemic; it's time for tech
| bubble to burst.
| newaccount2023 wrote:
| Call your member of Congress...to see about "socializing" this on
| to single working moms
| dysonpunk wrote:
| [flagged]
| danhak wrote:
| But it's fun to watch them fail to circle the wagons when
| it's Theranos or FTX or Y Combinator.
|
| Ummm...one of these things is not like the others
| newaccount2023 wrote:
| [flagged]
| hristov wrote:
| Regarding "socializing" I should point out that silicon valley
| bank had about 34 billion more assets than deposits at the time
| they were taken over by the FDIC. In percentage terms their
| assets were 119% of their deposits. So not only are they not in
| the red, there is a 19% cushion.
|
| So I am not sure there even are losses to socialize. There is
| the uncertainty with marking to market instead of marking cost
| of purchase but even then I am not sure the assets will shrink
| to the point where anyone is losing money.
|
| Furthermore, from everything I have read about it the assets of
| the safest type. They are either US treasuries or Fannie and
| Freddy issued mortgage backed securities. Even if marking to
| market would make these be worth less than they were initially
| purchased for, there is little doubt that they will be paid
| back in full if held to full term, and thus eventually make
| more money than they were purchased for. The problem is that it
| will take a while for that money to be paid back, while all the
| depositors want to withdraw their money now.
|
| So I understand that people are still feeling anger from the
| 2008 bailout. But this is not the case here (as far as I know).
| There has been no excessive risk taking, there are no hidden
| losses. It is just the well known case that even the best and
| best run bank will fail if all their depositors decide to
| demand their money at the same time.
|
| The FDIC should take over the assets and pay the depositors as
| soon as possible. If necessary, the FDIC should take a loan
| from the FED against the assets. And no, it does not seem that
| there will be any cost to the taxpayer.
|
| It may help to call your congressman, to urge the FDIC to move
| fast and make people's money available quickly. It may also
| help to try to nudge your congressman to urge the FED to stop
| this interest raising cycle which is obviously affecting the
| health of the banking system.
| version_five wrote:
| Right. Everyone's a libertarian when the upside favors them and
| then suddenly a socialist when they actually experience
| downside.
| quickthrowman wrote:
| Privatized profits, socialized risk. The VCs have plenty of
| money to backstop a month of payroll for their portfolio
| companies, taxpayers should not be paying for this one.
|
| It sucks for customers that SVB chose greed over risk
| management, had they invested in short duration treasuries
| they would be fine. It's time to let risk actually have
| consequences instead of big daddy Fed/Gov coming to the VCs
| rescue.
| dysonpunk wrote:
| Six words explain 99 percent of what it takes to succeed in
| business:
|
| Heads, I win; tails, you lose.
| ipaddr wrote:
| Wouldn't a libertarian take the upside socialist give away
| but set their own rules so they limit their downside?
| xupybd wrote:
| Exactly if we don't let the market fail it can't self adjust.
| ezekg wrote:
| Per the CEO of your favorite orange site, if somebody here
| doesn't know who this is (I didn't).
|
| Things don't look good right now.
| phphphphp wrote:
| Garry has an incentive to say the sky is falling because the
| sooner this is resolved the less pain it'll cause, but to say
| this is an industry extinction event is a stretch.
|
| Even if the extremely unlikely scenario plays out and companies
| are unable to make payroll, employees are very unlikely to walk
| out, it would make an inconvenient situation (no pay) much worse
| (terminated) in an already challenging economic climate. Anybody
| with the financial means to walk away because payroll has been
| missed is someone with the financial means to ride out a few
| weeks waiting to be paid.
|
| We will see many startups fall in the next few weeks + months,
| and many will attribute it to the failure of SVB, but SVB's
| failure is a symptom of the broader economic environment, not a
| cause, and the same factors that caused SVB to fail are _already_
| hurting startups -- like the difficult fundraising environment at
| the moment. SVB will be an easy scapegoat, "we didn't fail, it
| was SVB's fault!"
|
| Most any startup that attributes its failure to SVB's collapse
| would have been dead in a few months anyway.
| JumpCrisscross wrote:
| > _will see many startups fall in the next few weeks + months_
|
| A lot of start-ups avoiding down rounds just got a great excuse
| to raise operating capital under the veil of liquidity.
| d136o wrote:
| Wonder if any of the SVB owned private equity or debt will be
| sold off or marked down because of all this.
| Asparagirl wrote:
| Gonna be some new faces at some board meetings soon!
|
| And by new I mean a buncha old guys from Wall Street or
| private equity who are going to buy a seat at some
| "disruptors" and then explain how things are going to work
| now.
| woodruffw wrote:
| Excellently said.
|
| On top of that: there is no meaningful risk that these startups
| will not be made whole in the coming weeks. Given the absence
| of risk, there will be _plenty_ of lenders competing to provide
| these companies with liquidity for a relatively small slice of
| the pie, should it even come to that.
| sp332 wrote:
| To be clear, you think the FDIC will be able to sell enough
| bank assets to cover 100% of deposits?
| woodruffw wrote:
| No, I think they'll recover a large percentage of it, and
| that the difference won't matter.
| Danieru wrote:
| I don't think "being made whole" means what you think it
| means.
| time_to_smile wrote:
| > there is no meaningful risk that these startups will not be
| made whole in the coming weeks.
|
| Wow, two very bold claims here:
|
| 1. they will be made whole
|
| 2. in a few weeks
|
| For 1. I think this is very unlikely to happen. Absolutely
| account holders will get _some_ money back, but I would be
| pretty surprised if it was 100%. Regarding number 2. I would
| be even more shocked if anything more than the FDIC insured
| amount was returns within "a few weeks".
|
| However you are claiming that there is "no meaningful"
| probability these will not both happen. Do you care to
| elaborate on this more because I have heard nobody with any
| experience in this space making claims like this?
| kweingar wrote:
| > Even if the extremely unlikely scenario plays out and
| companies are unable to make payroll, employees are very
| unlikely to walk out, it would make an inconvenient situation
| (no pay) much worse (terminated) in an already challenging
| economic climate. Anybody with the financial means to walk away
| because payroll has been missed is someone with the financial
| means to ride out a few weeks waiting to be paid.
|
| Even if employees don't walk out, they can file a wage claim
| and collect penalties. Any retaliation for filing a wage claim
| is illegal and would result in more penalties.
| bombcar wrote:
| FDIC isn't stupid; they're issuing IOUs and these companies
| can borrow against the IOUs. It's not like this is a minor
| bank failure; everyone knows about it.
| dragonwriter wrote:
| > FDIC isn't stupid; they're issuing IOUs
|
| "Receivership certificates" aren't really IOUs (they are
| more "defunct entity owes you"). The DFPI takeover and FDIC
| receivership is, effectively, a kind of "bankruptcy" for
| the bank.
|
| > these companies can borrow against the IOUs.
|
| What amounts to an IOU from a bankrupt entity is...not very
| good collateral for a loan.
|
| > It's not like this is a minor bank failure; everyone
| knows about it.
|
| Right, and everyone who isn't already exposed wants to stay
| out of the blast radius, not jump into it.
| gizmo wrote:
| Oh come on, uninsured creditors will get back at least
| 90c on the dollar when the dust has settled. Likely 100c.
| So yes, they can absolutely use the IOU to cover short
| term expenses.
| Asparagirl wrote:
| Dude. Could you please tell us how much money the
| thousands of depositors (both individuals and companies)
| who were above the FDIC limits at IndyMac Bank lost in
| total, when the bank was taken over by FDIC in 2008?
|
| (hint: three comma club, easily)
| sp332 wrote:
| They're going to send out some money this week, but the
| value of the IOUs will depend on how much they can sell the
| bank's assets for. Certainly less than face value. It's
| going to be hard to borrow against that.
| bombcar wrote:
| I don't think anyone think's that _all_ the money is
| gone, so borrowing $1m against $100m IOU shouldn 't be a
| major issue.
| kragen wrote:
| this week ends in 34 hours, so this is unlikely
|
| the ious are actually receiver's certificates, and as i
| understand it, borrowing against receiver's certificates
| is a commonplace thing to do in cases like this
| jonahbenton wrote:
| Smells like blame shifting to me. He shouted the sky is
| falling. Maybe it was, maybe it wasn't. SVB was a pretty big
| bank and was clear in its representations. Maybe he shouldn't
| have played Chicken Little, initiating the precise scenario the
| bank warned against.
| robbiet480 wrote:
| Do keep in mind that at least in California unpaid wages are
| one of the only things that pierces the corporate veil, so
| management and investors are on the hook for them personally.
|
| editing to add citation: California Labor Code Section 558.1
| julienb_sea wrote:
| Realistically this encourages immediate furloughs, layoffs,
| firing or bankruptcy proceedings. There isn't a world where
| the companies actually get to the stage of "unpaid wages",
| there are many steps they can take to avoid getting into that
| legal boondogle.
| sethev wrote:
| Normally, yes. But in this case isn't it the upcoming
| payroll that's the problem? That work has already been done
| by employees, so the wage is already on the books. If they
| can't come up with the money, they'll have unpaid wages no
| matter how many people they fire. Right?
| Me1000 wrote:
| Sure, but then they'll just furlough or lay off everyone.
| So employees get one payroll paid out, but then they
| don't get anymore, and the company and all the economic
| activity it produces are gone too.
| zuminator wrote:
| If your company is economically unviable, it's going to
| eventually fold anyway; that's not the workers' fault.
| But if it's profitable and just has fallen temporarily
| behind in payroll, then it's not like it has to pay back
| wages all at once, it can make arrangements to pay them
| back over a period of weeks or months. But what it can't
| do is just decide not to pay people for the work they
| have performed.
|
| People are acting like there's some set of circumstances
| that makes wage theft reasonable. Situations where
| management forces the employees to work for free under
| threat of being fired are exactly why the corporate veil
| should be pierced in these matters.
| Me1000 wrote:
| If this happens the companies will immediately close up shop.
| So you get your last 2 weeks of pay then no more, no
| severance, nothing.
| muzz wrote:
| If a company wants to shoot itself in the foot like that
| eddsh1994 wrote:
| Does that work even if the companies incorporated in
| Delaware?
| aaomidi wrote:
| California fortunately doesn't give a shit.
| anon291 wrote:
| Yes, Delaware has no jurisdiction over events that take
| place in California, or vice versa. A delaware corporation
| hiring an employee in California means that it is subject
| to the laws of California solely when it comes to its
| relationship with that employee.
| bcrosby95 wrote:
| Labor law generally applies where the employee lives.
| Otherwise companies would just incorporate in <fucked
| country> and be able to do whatever they want.
| stingrae wrote:
| yes.
| xenospn wrote:
| Wouldn't be very effective if it didn't.
| eddsh1994 wrote:
| Well an amendment in 2017 to the General Corporation Law
| of the State of Delaware added Section 115 which
| explicitly permits Delaware startups to adopt in its
| certificate of incorporation a requirement that all
| internal corporate claims are exclusively held in front
| of a Judge in Delaware. Several cases in California have
| upheld this. So it's not exactly a crazy question to ask
| if this would work for YC startups employees.
| [deleted]
| dragonwriter wrote:
| Internal corporate claims are claims _by_ the corporation
| _against_ officers and shareholders with regard to their
| duties to the corporation.
|
| It does not apply to claims by employees against the
| corporation under foreign state wage and hour laws, nor
| could it.
| eddsh1994 wrote:
| Thanks!
| dllthomas wrote:
| On the one hand, of course in this case it applies. On
| the other hand, let's not pretend CA government doesn't
| sometimes pass things that aren't very effective.
| plonk wrote:
| Is it illegal to not be able to pay wages because the
| company's bank melted down?
| abeppu wrote:
| So ... San Francisco USD has had payroll system issues for
| more than a year which have continued to cause staff to
| sometimes not be paid, and sometimes be underpaid.
| robbiet480 said that the _corporate_ veil is pierced and so
| manager and investors are personally on the hook for SVB-
| related payroll issues. Should school principals, the
| superintendent or London Breed be personally on the hook
| for making up shortfalls? Are they literally committing a
| crime every pay cycle that the bugs in the payroll system
| continue?
|
| https://www.kron4.com/news/bay-area/sfusd-still-
| struggling-w...
| dragonwriter wrote:
| Yes.
|
| Rather, it is illegal to not pay wages timely. It is _more_
| illegal to do it intentionally /wilfully vs. not, but it is
| illegal in any case.
| ddtaylor wrote:
| It means damages are owed. In many states unpaid wages must
| be compensated at a multiple of the missed wage, like in
| Oregon it is 3X.
| robbiet480 wrote:
| Reading the law with the strictest interpretation says to
| me (IANAL): yes
| etothepii wrote:
| Why wouldn't they just resign as a director in that case?
| lovich wrote:
| I was unaware that after having committed a crime, that
| you could merely resign and say it's not your problem
| anymore.
| martincmartin wrote:
| As the OP says, yes. The CEO then needs to sell their house
| and use the money to pay wages.
| smabie wrote:
| Why the CEO? They just an employee too right
| anon291 wrote:
| No. A CEO is a corporate officer.
| shuckles wrote:
| Board members and executives are special actors in a
| corporate structure.
| stingrae wrote:
| > Even if the extremely unlikely scenario plays out and
| companies are unable to make payroll, employees are very
| unlikely to walk out, it would make an inconvenient situation
| (no pay) much worse (terminated) in an already challenging
| economic climate.
|
| I don't understand how you can say this is an unlikely
| scenario. It is very likely, because a large number of startups
| are using one bank and that 250k won't cover much of their burn
| rate.
|
| It also puts you in a terrible position to raise bridge rounds
| and other financing. Every investor and lender isn't
| incentivized to give good terms.
| phphphphp wrote:
| You're conflating the amount insured and the amount that will
| be recovered. SVB has failed as a bank, it hasn't failed as a
| place to have money. The money still exists, and while
| there's a hole created by recovering immediate access to that
| money, it represents a very small haircut -- maybe a few
| percentage points for each customer.
| stingrae wrote:
| sure it may (in the long term) be a few percentage points
| of a loss. The problem is the timeline on which you get
| access to it. If you are a larger company, 250k won't cover
| much of your payroll. No banks are going to rush to buy
| these low interest securities unless they get a steep
| discount.
| phphphphp wrote:
| A company spending millions of dollars per year on
| payroll will have the relationships necessary to weather
| a storm like this. SVB made some very poor investment
| decisions but they didn't light the money on fire: it's
| not going to take years to liquidate. There is huge
| upside opportunity for buyers of assets from a distressed
| bank: the assets are worth less than what SVB paid (hence
| the crisis) but are not worthless. We will have to wait
| and see, and perhaps my optimism is naive, but I struggle
| to see a situation in which these remaining assets can't
| be liquidated in the coming weeks. Even pre-crisis, SVB
| held less than $200bn -- that's a small amount of money
| in the context of the US banking system. Apple alone has,
| what, $100bn?
| omgJustTest wrote:
| The FDIC has taken control of the bank. In their last bond
| offering SVB lost 1.8bn$ from a 21bn$ sale. 8.5% seems like
| more than a haircut... and 8+% to get the money you need
| now is a steep cut that will result in larger consequences.
|
| 8% might seem like a stubbed toe, but these are _bonds_.
| You aren't suppose to lose anything. 8% inflation, 8% from
| bank failure and add-on the additional losses from non-bond
| related issues... S&P500 at 1% for the year but from
| mid-2021 it is down nearly 10%.
| JohnFen wrote:
| > but these are _bonds_. You aren't suppose to lose
| anything.
|
| If you hold them to maturity. If you sell them early, not
| so much.
| phphphphp wrote:
| 8% represents, what, a month of runway for most startups?
| That's not an extinction level event, it's a stubbed toe.
| anon291 wrote:
| The money exists sure, but wages have to be paid in hard
| cash, not treasury bonds. The cash does not exist.
| kypro wrote:
| > It also puts you in a terrible position to raise bridge
| rounds and other financing. Every investor and lender isn't
| incentivized to give good terms.
|
| Why wouldn't a lender lend in this scenario? It's almost zero
| risk.
|
| It wouldn't be a good negotiating position if there was no
| other lenders, but there would presumably be plenty of
| lenders interested in providing a "small" bridging loan in a
| situation like this. And those lenders will have to compete.
| blibble wrote:
| > Why wouldn't a lender lend in this scenario? It's almost
| zero risk.
|
| it's not
|
| you can't predict what the unwinding of SVBs positions will
| produce in 6 months time (or however long it takes)
| gordon_freeman wrote:
| [flagged]
| te_chris wrote:
| SVB's failure is only a symptom of the wider environment in as
| much as it failed because of a focus on handshakes over proper
| management. The comments on the FT are illuminating: bankers
| can't understand how they didn't hedge for interest rate risk.
| disgruntledphd2 wrote:
| As Michael O'Church often said, the VCs and (SV finance more
| generally) are the people who couldn't make it in investment
| banking or private equity
|
| Mind you, the FT comment section is always full of people who
| predicted stuff like this, rather like the comments on
| breaches around here.
| batmansmk wrote:
| In 2008, when startups started to fail, many colleagues left to
| work for large old established firms. Some others left banking
| on ne started new ventures. Turnover accelerated. If we go
| through an event of the same magnitude, the economy and people
| will adapt, because history taught us so.
| the_gipsy wrote:
| > Anybody with the financial means to walk away because payroll
| has been missed is someone with the financial means to ride out
| a few weeks waiting to be paid.
|
| I agree with the rest of your comment, but not the implication
| of this sentence. Riding out not getting payed is extremely
| risky with very low to no reward. Those that could ride it out
| are much better off quitting and making use of their time for
| interviewing - or anything but working for free.
| anon291 wrote:
| Yeah, I have years worth of runway and could probably retire
| if I wanted to live a more frugal lifestyle, but I don't work
| if I'm not getting paid period.
| alexpotato wrote:
| Isn't this a similar version of what happened in the Savings and
| Loans crisis [0]?
|
| Effectively, banks lent money at X%. Then the government raised
| interest rates. Therefore, you owed your depositors a higher
| interest rate than you were collecting from your loans.
|
| I know, not exactly the same but both related to the govt raising
| rates and banks not necessarily anticipating the move.
|
| 0 - https://en.wikipedia.org/wiki/Savings_and_loan_crisis
| rvz wrote:
| I guess SVB was too busy building the VC pyramid scheme to care
| about asset and money management.
|
| I wonder what the sentiment of YC startups that have access to
| bookface [0] is right now. I don't think it is happy days there.
|
| [0] https://bookface.ycombinator.com/
| not_enoch_wise wrote:
| Investor profits threatened by interest rates: "We're sorry we're
| laying you off, we take full responsibility, now gtfo"
|
| Investor profits threatened by unstable silicon valley financial
| system: "Think of the workers! The sacred obligation of payroll!"
| jjulius wrote:
| >All little startups, tomorrow's Google's and Facebooks, will be
| extinguished if we don't find a fix.
|
| This is what we call "hubris". Gary needs to settle down.
| cma wrote:
| It also kind of sounds like "look on the bright side" when you
| consider how often those example tech companies we'll be
| lacking a future replacement version of buy up small startups
| just to squash them or keep them out of hands of competitors.
| breck wrote:
| I disagree with his subpoints, but I love how Garry speaks from
| the heart and doesn't filter it through a PR firm or lawyers.
|
| I do agree with his main point: _make the receivership as short
| as possible_. I 'd hope everyone can agree on that. (Meanwhile,
| I'm still waiting months to log back into my https://ftx.us/
| account).
|
| I disagree with this: "This is an _extinction level event_ for
| startups and will set startups and innovation back by 10 years or
| more. " I could easily see it being the exact opposite.
| esotericimpl wrote:
| Can't believe VC has gone full communist. Socialize the losses it
| seems.
| dsfhakjhsf wrote:
| Fittingly, VC can either stand for "Venture Capitalist" or
| "Viet Cong". They want socialism for themselves and capitalism
| for the rest of us.
| somsak2 wrote:
| remember this is the same guy that titles his self produced
| videos things like "my $200m startup mistake" in reference to
| deciding to work at Microsoft
| doesnt_know wrote:
| > This is an _extinction level event_ for startups and will set
| startups and innovation back by 10 years or more.
|
| I didn't know there was a YC backed startup with an app that lets
| you directly inhale your own gas. I'm sure that one isn't at any
| risk of extinction.
| rexreed wrote:
| Go figure, one singular bank failure could wipe out so many
| startups. Pretty remarkable how fragile the ecosystem is if
| that's all it takes.
| muzz wrote:
| Also, how poor the decision-making must be at all those
| startups in regards to where they keep their cash.
| twblalock wrote:
| Startups are fragile by definition. Most fail.
| rexreed wrote:
| I wonder how many startups would have predicted "bank
| failure" as their root cause of failure. The problem is not
| the fragility of each individual startup, which _everyone_
| knows. The real issue is that one singular bank failure
| could tip so many over at the same time. Part of the issue
| is Silicon Valley-centric CEOs following guidance of
| Silicon Valley-centric VCs, who no surprise, recommend SVB.
| A little independent thinking goes a long way to make your
| fragile startup a bit _less_ fragile. All these startups
| would have had to do is hedge their bets a bit and not go
| all-in with Silicon Valley and their already fragile
| startups wouldn 't have been made that much more fragile.
|
| Besides, I'm talking about the fragility of the ecosystem,
| not just individual startups. While everyone knows each
| startup is just a flash in the pan, here one day, very
| likely gone the next, the same was not said about a whole
| ecosystem. Silicon valley as a whole seemed remarkably
| stable until recently.
| wellthisisgreat wrote:
| Gas in the blockchain sense I hope
| muzz wrote:
| Tan, Sacks, etc are basically practicing "never let a crisis go
| to waste"
|
| They only want to rig the game in their favor. These people
| weren't advocating things like tougher bank regulations that
| would have prevented this. They just happen to be on the losing
| side now and want a bailout.
| eksx wrote:
| FDIC mentioned that by Monday there will be access to accounts
| with 250k that is fdic protected. Does this statement take this
| into account?
| anon291 wrote:
| At my last place, my biweekly wage was over 10k, which means
| that at most you can have about 25 mes, and I am neither a
| particularly well compensated nor particularly senior engineer.
| There were many making more than that. Many companies have more
| than 25 employees.
| akavi wrote:
| To save people the math, that's 260 k$ in cash compensation
| (or ~mid FAANG L6 tier).
|
| I am confident in saying there were not many making more than
| that.
| minkzilla wrote:
| >biweekly over 10k
|
| >[not] a particularly well compensated
|
| You are living in fantasy land.
| disgruntledphd2 wrote:
| Yeah, it's called the Bay Area.
| jppope wrote:
| Doesn't Y/C have money for these sorts of things? ... seems like
| a bad situation for them as well since it will wipe out a lot of
| their holdings
| dysonpunk wrote:
| [flagged]
| ilyt wrote:
| How many companies have spare funds for event of bank going
| tits up ?
| adamnemecek wrote:
| This sounds like a huge amount of money and I can't imagine YC
| has that much cash lying around.
| throwaway81523 wrote:
| > This sounds like a huge amount of money and I can't imagine
| YC has that much cash lying around.
|
| And even if it had had the cash, the cash might have been at
| SVB.
| [deleted]
| jjulius wrote:
| Suddenly, "Hey, why isn't HN loading?".
| djbusby wrote:
| Capital call to their investor base?
| adamnemecek wrote:
| It's probably a lot more money than one can put together on
| such short notice.
| jppope wrote:
| sure, but they made it seem like they really just need a
| round of payroll for their companies and stuff can get
| sorted out after, or did I miss something?
| johnmaguire wrote:
| The most immediate problem is payroll, perhaps as
| immediate as Monday.
|
| But there's still no concrete end in sight for if and
| when non-FDIC insured amounts will be available.
| MichaelZuo wrote:
| Worst comes to worse, they can give up their shares in
| exchange for short term liquidity.
|
| More then a few entities have a few tens of billions of
| liquid cash.
|
| Though it would be pretty odd to see the Saudis owning
| most of YC.
| [deleted]
| mbil wrote:
| If so hopefully it's not in SVB
| anononaut wrote:
| What is your congressman going to do?! Nothing meaningful unless
| society starts calling for the end of fractional reserve lending.
| shmatt wrote:
| This is just a subtle way of a millionaire telling founders
| "don't worry, only poor people are allowed to lose money"
| irjustin wrote:
| I get the idea but what good is putting my money under the
| couch? Inflation will just eat it away.
| anononaut wrote:
| Assets, my brother, assets. Real actual things.
| irjustin wrote:
| How do you expect those assets to grow if they can't get
| access to capital?
| djbusby wrote:
| They will. This SVB thing is a short blip. Zoom out.
| irjustin wrote:
| I think you're replying to the wrong thread.
|
| This one is talking about removing lending in general.
| tgv wrote:
| Do you think SVB would have been better off if they hadn't had
| any liquid reserves?
| vkou wrote:
| > What is your congressman going to do?! Nothing meaningful
| unless society starts calling for the end of fractional reserve
| lending.
|
| ... What?
|
| If you think this is an economic catastrophe, just wait until
| you see what happens if we get rid of fractional reserve
| banking. It'd be a nuclear bomb in a china shop.
|
| The 'cure' is way worse than the disease.
| anononaut wrote:
| Only because we allowed it to get this bad. End the Fed.
| david927 wrote:
| If only we had thousands of years of history showing that
| this happens every time.
|
| Every. Single. Time.
| mr_00ff00 wrote:
| "End the fed"
|
| Do you remember what monetary policy was before the fed?
| Because calling to end the fed are like the anti-vax
| movement. They understand only what is told to them online
| and then think it means they know as much as professionals.
| maxilevi wrote:
| Can you provide any arguments as to why?
|
| I don't see how it can make things worse in the long run
| irjustin wrote:
| If you remove fractional reserve lending there's almost no
| loans available. Access to capital is one of the keys too
| allowing a company or asset grow.
|
| All growth stops and you get deflation. Which isn't healthy
| either.
| maxilevi wrote:
| Would a system with full reserve banking really have no
| loans?
|
| Aren't most businesses nowadays funded by stock sales and
| investments instead loans either way?
| irjustin wrote:
| Yes full reserve banking is only for people with excess
| capital. And the number of those is small in comparison.
|
| Must people don't want it can't have their money tied up
| the full length of the loanWhich then shrinks who
| actually lends.
|
| This creates wealth inequality by only allowing allowing
| the biggest guys too lend and access capital.
|
| Small businesses can't get off the ground because they
| need a loan to buy a machine that helps automation is a
| classic example.
| blibble wrote:
| if you want a mortgage you have to wait until we dig enough
| gold out of the ground to give it to you
| vkou wrote:
| You tell me - what do you think would happen to the economy
| if lending ground to a stand-still (Which is exactly what
| would happen, with a double whammy of the money supply
| massively contracting[1] as loans are paid off, but not
| rolled over)?
|
| Like, sure, I'm willing to entertain the idea that its
| possible to come up with some kind of planned steady-state
| economy that does not require speculative allocation of
| capital to drive production. But you're going to have to
| present a much more compelling vision of that future than
| 'Just get rid of lending.'
|
| (Also, housing prices would collapse overnight[2], boomers
| and other retirees will lynch anyone responsible for
| something like that.)
|
| For another argument, note that the health of the economy
| is a function of how quickly money moves through it.
| Fractional reserve banking is the engine that moves that
| money. Stop the movement of money, and you'll stop the
| economy.
|
| All in all, I think we're better off with having the
| occasional bank go bust, and its customer funds getting
| frozen for a few weeks while the FDIC unfucks the bank's
| balance sheets, pays dollar-for-dollar cash for its
| illiquid, currently underwater long-term bonds, holds them
| until maturity for a profit, and then destroys the money
| they made in that profit. It's an infrequent failure case,
| it doesn't result in money getting lost, and the bank gets
| punished enough that most of its compatriots think twice
| before YOLOing the farm on long-term treasuries.
|
| [1] This is called deflation, and if you think inflation is
| bad, imagine living in a world where nobody spends or
| invests money on anything, because you can become richer by
| doing nothing, and just sitting like a dragon on a hoard of
| gold.
|
| [2] Heaven knows, I rail against housing price inflation
| all the time, but you are going to have a bad political
| time if you just pull the rug out from under homeowners.
| maxilevi wrote:
| You are attacking a straw man. I never said get rid of
| lending
|
| Just get rid of fractional reserve banking.
|
| Have banks offer either interest via full reserve banking
| where your deposit is locked or storage for a fee.
|
| Therefore if you are a startup and just need to store
| money a risky bank going under won't affect your
| existence.
| vkou wrote:
| The rate of lending will drop by an order of magnitude
| without fractional reserve banking. As will the money
| supply (hence, defulation), because most of the world's
| money is created by fractional-reserve lending.
|
| > Have banks offer either interest via full reserve
| banking where your deposit is locked or storage for a
| fee.
|
| Why would you need a bank to do that, you can go buy
| treasuries on any brokerage that have that property right
| now.
|
| The problem wouldn't be on the deposit side, it would be
| on the lending side.
|
| No bank would offer a prime + 3% mortgage without
| fractional reserve lending. Housing prices would
| _immediately collapse_.
|
| No bank would offer anyone a low-APR loan - you'd only
| get utterly usurious terms. How well do you think the
| economy would react to the cost of borrowing money going
| up by 5, or 10%?
| maxilevi wrote:
| Okay I can see that. So is the issue that we are so deep
| in a fractional reserve system that any change would
| cause a blow up?
|
| In other words could an economy started from scratch
| function with a fully backed reserve system?
| halfmatthalfcat wrote:
| All respect to Gary, I feel like "extinction level event" is
| quite hyperbolic. Obviously he cares about seeing YC companies
| survive but this is not going to wipe out the US startup scene.
| j_crick wrote:
| After reading that and playing some Kojima games lately, all I
| could think of was a _Funds Stranding_ game.
| version_five wrote:
| As bad as it sounds, even if it was an ELE*, I think killing
| off what has become a monoculture will not necessarily be all
| that bad for innovation or the ecosystem (it will be bad for
| the people at the companies that die obviously).
|
| Tan makes it sound like it will favor the balance of power to
| big tech. I think big tech is irrelevant here, and it may
| actually shift the balance of power away from SV stereotype
| startups and give some oxygen to other businesses.
|
| * honestly I think most solvent startups will find workarounds,
| it's more going to be a big stress than actual destruction
| [deleted]
| dysonpunk wrote:
| [flagged]
| muzz wrote:
| He wants "Depositors must be made whole" by the government.
|
| Amazing how quickly capitalists turn to socialists
| formvoltron wrote:
| Are there dedicated companies that want to continue if they could
| move key employees to a low cost, high productivity location? I
| suggest Maine.
| more_corn wrote:
| It will be open Monday morning. Deposits are safe.
| tekla wrote:
| Good stuff, let it burn. The system is working as intended.
| People who made very very risky dumb bets are getting punished
| heavily for it.
| Ancalagon wrote:
| How is this good? This means companies will fail and employees
| won't get paid through essentially no fault of their own?
| esotericimpl wrote:
| [dead]
| wellthisisgreat wrote:
| Businesses with more than 250k in the account should have
| diversified. Employees are at no fault of course but so are
| tax payers.
|
| YC companies that have been exposed so badly through this are
| probably non-essential.
|
| My company is also exposed and we will suffer, because we
| were stupid but luckily not complete morons
| [deleted]
| kazen44 wrote:
| welcome to a capitalistic economy in which the free market
| reigns supreme.
|
| This is part of a healthy economic market according to market
| economic theory.
| ilyt wrote:
| Teaching companies lesson about diversifying their finances
| is probably worth few startups going down (...which they
| might anyway). VS robbing taxpayers for another private
| corporation mistake
| rexreed wrote:
| I know this is (was) downvoted a lot, but I understand this
| sentiment. If you read the comments above, it's a "sky is
| falling" situation for many startups in the Silicon Valley
| sphere of influence. How is it that the silicon valley tech
| ecosystem could be in a position where one singular bank
| failure could wipe out so many startups? Pretty remarkable how
| fragile the ecosystem is if that's all it takes.
| dragonwriter wrote:
| > I know this is (was) downvoted a lot, but I understand this
| sentiment. If you read the comments above, it's a "sky is
| falling" situation for many startups in the Silicon Valley
| sphere of influence. How is it that the silicon valley tech
| ecosystem could be in a position where one singular bank
| failure could wipe out so many startups?
|
| From most accounts it seems to be a very _tight_ ecosystem
| with a lot of close relationships between VCs, service
| providers, and serial founders. Very easy to see how it could
| develop high-impact dependencies that are very close to
| single points of failure.
| rexreed wrote:
| Much of the Silicon Valley ecosystem are these sort of
| tight loops: VCs / law firms / banks / accounting firms /
| HR firms / marketing agencies / senior management / key
| hires / etc. It's a tight clique. If you're in with the
| right circles, you're in with all of it. For a community
| that prides itself on innovation and disruption, there's
| remarkably very little of it when it comes to operations.
| Much of it is herd mentality, from the investing decisions
| to even the structure of HR. C-level execs also float
| between these circle of companies, bringing the same
| decisions with them everywhere.
| blibble wrote:
| seems as if banks don't want VC startups as customers
| rexreed wrote:
| Is this from personal experience? I can tell you a lot of
| East Coast, Southern US, non-Silicon Valley and non-US
| Startups have no problems finding banking partners outside
| of SVB. The adage that only SVB knows how to bank startups
| hasn't been true for decades.
| [deleted]
| boc wrote:
| SVB didn't make a risky bet- they did the opposite and locked
| deposits in a very conservative bond strategy.
| tekla wrote:
| No it wasn't conservative. It was very risky completely based
| on assuming almost 0% interest rates over 10 years and fully
| locked in. That's clearly a crazy position to take. Every
| small increase in interest rates has a outsized effect on
| these bonds.
| murderfs wrote:
| Sorry, are you saying that depositing money in a bank account
| is a risky dumb bet?
| tekla wrote:
| When the majority is uninsured, yep.
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