[HN Gopher] U.S. officials weigh protecting all deposits at Sili...
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U.S. officials weigh protecting all deposits at Silicon Valley Bank
Author : VagueMag
Score : 20 points
Date : 2023-03-12 18:45 UTC (4 hours ago)
(HTM) web link (www.washingtonpost.com)
(TXT) w3m dump (www.washingtonpost.com)
| alecco wrote:
| https://archive.ph/WZ5mg
| eqmvii wrote:
| Designating SVB as systemically important and freeing up taxpayer
| money to backstop uninsured deposits seems like a big stretch
| politically. I have no doubt they're examining the legal
| authority, but I'd be very surprised if the Biden administration
| goes down that path.
| gsibble wrote:
| The fact that VCs would rather have taxpayers save their
| investments rather than pony up themselves really tells you all
| you need to know about fucking VCs.
| gruez wrote:
| >really tells you all you need to know about fucking VCs.
|
| That they want government intervention when it benefits them? I
| think that describes most people, not just VCs.
| gsibble wrote:
| Most people lack the ability to help themselves when they
| need government intervention.
| gruez wrote:
| Yeah but conditional on being able to "help themselves",
| most people still would want government intervention when
| it benefits them. For the /r/personalfinance users that
| have a 6 month emergency fund, I doubt they'd turn down the
| stimulus checks that the government was handing out, for
| instance.
|
| So overall all we figured out were:
|
| 1. VCs "can help themselves" (aka. are rich)
|
| 2. VCs, like most people want government intervention when
| it benefits them
|
| Not exactly a groundbreaking discovery that requires a
| crisis to unearth.
| dragonwriter wrote:
| The observation that the elites in capitalist society
| consistently seek to privatize the upside and socialize the
| downside of their investments (while opposing that approach for
| other segments of society) is...not new.
|
| _The problem is that we all too often have socialism for the
| rich and rugged free enterprise capitalism for the poor._ --
| Rev. Dr. Martin Luther King, Jr., February 23, 1968
| gsibble wrote:
| Well put.
| rvnx wrote:
| It would be a mistake.
|
| It's not the hotdog seller on the streets that has to pay for the
| mistakes that the high-risk ventures bank did.
|
| Here, we talk about private guys doing deals together; it's a
| specialized corporate bank, made for high-risk ventures.
|
| So, its main customer base are companies that are funded by VCs.
|
| The fact is that many VCs already pulled out billions in profit
| by doing successful exits with their startups.
|
| If the VCs want to continue to have more successful exits, then
| their own interest is to support or save SVB.
|
| If the VCs don't save SVB, then they know that their future
| return on investment on non-exited ventures will get unlikely.
|
| VCs already have incentive to save the companies that were
| dependent on SVB (or to directly save SVB) to maximize the
| chances of getting a return.
|
| All of that means that VCs or other capital sources will anyway
| take the opportunity to offer loans at outrageous rates to these
| companies to "save them", and happily say "hey, we at VC [ABC],
| we support our companies so much that we negotiated new issue of
| convertible notes".
|
| At the same time, they should offer not too outrageous
| conditions, to not demotivate the founders.
|
| It's not the role of the government to sponsor the profit of the
| VCs, and to take all the losses when things go sour.
| Kukumber wrote:
| The USD($) wants to commit double suicide, that's impressive
| Octokiddie wrote:
| > "This isn't a systemic event. This is a midsize bank that was
| badly managed," he said "It may be a little messy. But that's
| different than if you have somebody at the core of the financial
| system stop making payments to somebody else at the core of the
| system and then the core implodes."
|
| This is the dilemma for _any_ nascent panic. Do nothing so as not
| to alarm markets, and the thing goes down the tubes, potentially
| dragging many others along with it through a chain reaction.
|
| Do something and spook the markets because you need to explain
| why you're taking the extraordinary action.
|
| This was exactly the problem during the opening phases of the
| GFC.
|
| The other problem is the populist outcry of fat cats getting a
| free ride on the backs of working people. Stories like this one
| of bonuses paid out just before the implosion don't exactly help
| the medicine go down:
|
| > Silicon Valley Bank employees received their annual bonuses
| Friday just hours before regulators seized the failing bank,
| according to people with knowledge of the payments.
|
| https://www.cnbc.com/2023/03/11/silicon-valley-bank-employee...
|
| This is all happening against a backdrop of futures markets about
| to open. The last thing any of these officials wants to see is a
| selloff in stocks.
|
| It's hard to see any other outcome but the depositors getting
| bailed out. Then again, bailout for Lehman seemed obvious, and
| yet things took a different path.
|
| FWIW, yield curves around the world have been screaming
| "Catastrophe Ahead" for months now. Sophisticated traders know
| this and it can't be lost on them this this is exactly the kind
| of setup that would be consistent with massive and prolonged
| curve inversions.
| gsibble wrote:
| This is the political/elite class of SF pressuring Treasury and
| the Fed to protect their investments in the startup world. We
| shouldn't stand for this.
| ProjectArcturis wrote:
| The reality is, $250k is a very low limit, even for a small
| business. Do we want to make it so every business has to do due
| diligence on its checking account provider? More importantly, do
| we want to start a bank run on every mid-sized bank in the
| country? Because if the depositors to SVB don't get 100% of their
| money back, every competent CFO in the country, in every
| industry, is going to take their business from the regional or
| local bank they've been with for years and switch to JP Morgan or
| another Too Big To Fail bank. There will be cascading bank runs
| everywhere.
|
| To be clear, SVB's investors should be zeroed out. They made a
| bad investment and should lose it all. But depositors must be
| made whole or the economy will be rocked. And going forward we'll
| either need to raise the $250k limit or create a second line of
| FDIC insurance for business accounts.
| kelseyfrog wrote:
| That misses the point that litterally everyone knows that
| anything above 250k is uninsured.
|
| Everyone learned this during the collapse of banks in the mid
| 2000s. Everyone knows that holding accounts at multiple banks
| is a way around it.
|
| This isn't something that's specific to businesses either - it
| applies to individual accounts the same. They took a risk by
| holding more than 250k in a single account and a risk isn't a
| risk if there's no chance of failure.
|
| I can't stress this enough, but markets do better when agents
| have skin in the game. Commercial survival of the fittest
| requires failure.
| FooBarBizBazz wrote:
| This applies individual-person logic to a company. Maybe a
| person can have a bunch of separate $200k accounts, but it
| would be strange for a company to do that. If you have a
| dozen engineers, that's just one month's payroll. I would
| _expect_ a company to have some buffer in its bank account,
| not to have literally 100% laddered rigidly in T-bills.
|
| This also doesn't reflect on the fitness of the companies in
| question. If you're starting a software company, you should
| be able to go to the bank and it should Just Work. If it
| doesn't, that's the bank's fault, not yours. You shouldn't
| have to think about the average duration of the bank's bond
| portfolio, or about how many interest-rate swaps it has on
| the books. That responsibility and risk should go with the
| bank. That's their role.
| kelseyfrog wrote:
| Ok, for one strange and legal are different axes, and
| companies are only constrained by what is legal. They have
| no reservations about the strange.
|
| Secondly, what a person or company thinks should happen
| bears no actual relation to what actually does happen. Why
| should we start giving credit to misconceptions? This is on
| par with someone arguing that it's ok to distribute
| copyrighted property for free because no one made any money
| on it and when confronted with the legal reality that the
| courts don't care, pleading, "but thats the way it should
| just work."
|
| Sorry, but that's doesn't reflect the reality of the terms
| of the banking arrangement. Excesses of 250k are not
| insured.
|
| There's a lot of things I think should just work, but using
| that as a justification is beyond logic.
| gsibble wrote:
| Can we just cut through the bull and admit the only reason the
| federal government is even considering this is because all the
| super wealthy who own all the startups and who had a lot of their
| own money in SVB are Democrats? If these people were all
| Republicans, we wouldn't be having this discussion.
|
| That doesn't make me comfortable.
| startupsfail wrote:
| Nah, Dems are too skittish to support their investments. If the
| Republicans investments were at stake the bank would have
| gotten their instant help, direct from taxpayers. Plus the
| setup would work in such a way that it's only the taxpayers in
| the Democratically voting states that would actually see the
| increase of their taxes.
| gsibble wrote:
| I think the downvotes prove my point.
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(page generated 2023-03-12 23:02 UTC)