[HN Gopher] Joint statement by the Department of the Treasury, F...
___________________________________________________________________
Joint statement by the Department of the Treasury, Federal Reserve,
and FDIC
Author : FormerBandmate
Score : 1658 points
Date : 2023-03-12 22:23 UTC (1 days ago)
(HTM) web link (home.treasury.gov)
(TXT) w3m dump (home.treasury.gov)
| Dem_Boys wrote:
| With this news, I'm opening a bank. Here is my business plan:
|
| 1. Make risky investments and offer better terms than other banks
|
| 2. Watch business flock to me
|
| 3. Get filthy rich on yearly bonuses
|
| 4. 10 years later my risky investments blow up (Make sure to sell
| stock before)
|
| 5. Get taken over by the FDIC
|
| 6. Don't return those years of bonuses
|
| 7. Let other banks pay for my wrongdoing with a "special
| assessment"
|
| 8. Walk away as a filthy rich failed bank executive
| dpkirchner wrote:
| 9. Get hired by another bank as CFO (See Lehman Brothers/SVB
| for a tutorial)
|
| 10. Repeat
| oldgradstudent wrote:
| Not very original. It's been done over and over again during
| the S&L crisis and later.
|
| The Best Way to Rob a Bank is to Own One.
|
| https://www.brookings.edu/bpea-articles/looting-the-economic...
| paulddraper wrote:
| Presumably, #2 is only possible with a government guarantee for
| depositors.
| IAmGraydon wrote:
| This is really the typical arc of a hedge fund far more often
| than banks.
| BCM43 wrote:
| Is this any different without steps 5 and 7? I don't understand
| how the FDIC actions change the incentives here.
| rullelito wrote:
| A lot of people would lose money and the system would have to
| change.
| fidgewidge wrote:
| Way fewer people hate you at the end, which is a meaningful
| disincentive otherwise.
| Dem_Boys wrote:
| The FDIC's actions indicate that the insured deposit limit is
| really unlimited instead of the advertised $250,000.
|
| This takes away a huge risk associated with recklessly
| handling depositors money because now the FDIC will swoop in
| and make ALL depositors whole.
| paulddraper wrote:
| Presumably, #2 is only possible with a government guarantee
| for depositors.
| auntienomen wrote:
| Can't do 8 without those!
| dustedcodes wrote:
| One rule for you another for them.
|
| It's literally capitalism for the poor (students, diabetics,
| people being priced out of their homes) and socialism for the
| rich.
| graderjs wrote:
| This is a fricking miracle! Wonderful! Thank you US government
| for saving the depositors!
| [deleted]
| IAmGraydon wrote:
| The market is buying this up, failing to realize that things will
| continue to break as interest rates are increased further. The
| Fed isn't interested in saving banks. They're there to quell
| inflation.
| meltyness wrote:
| This may be in support of the 50bp hike the media was stuffing
| into Powell's mouth all last week after his statements before
| the Senate, find out where else powerful people have built crab
| traps.
| dragonwriter wrote:
| > The market is buying this up, failing to realize that things
| will continue to break as interest rates are increased further.
|
| Expectations of Fed action haven't changed, expectations of
| FDIC/Treasury action to protect banks have. The information not
| already priced in is positive.
| IAmGraydon wrote:
| That's incorrect. Last week, the market was expecting a 50BPS
| increase. Now it has suddenly decided there is a 0% chance of
| 50BPS, an 81% chance of 25 BPS and a 19% chance of no hike.
|
| https://www.investing.com/central-banks/fed-rate-monitor
| dragonwriter wrote:
| What I meant was that expectation of continuing increases
| wasn't new, but thank you for pointing out that, in fact,
| expectation of such increases is actually declining.
| bradleyjg wrote:
| So depositors at banks taking on big risks get elevated interest
| rates or other perks for years, and when the shit hits the fan
| depositors that put their money in prudent banks get to bail them
| out through higher fees.
|
| And people wonder why turnout is low. There's no way to vote for
| non captured politicians.
| LatteLazy wrote:
| Which banks were offering elevated interest rates in the last
| decade?! I must have missed that memo...
| anonymous_sorry wrote:
| SVB
| DubiousPusher wrote:
| Well, wealthy people weren't dumping their money into these
| banks above the 250k FDIC limit for no reason.
| hizanberg wrote:
| We weren't dumping money, SVB was our primary bank where
| sales we're collected. It's not hard to exceed 250k after
| 10 years of operations.
|
| We weren't getting any interest % on our deposit balance,
| the only reason we chose SVB was because it was recommended
| for Startups.
| DubiousPusher wrote:
| No offense whatsoever intended but I think you were
| following some very poor financial advice.
| hizanberg wrote:
| What financial advice was that? That SVB was a good bank
| for Startups to use? It was the recommended bank by our
| Merchant Provider Stripe.
|
| Sure it's easy to identify poor choices after the fact.
| DubiousPusher wrote:
| It seems like a bad idea to have a large amount of static
| cash sitting in an account unbacked by any asset,
| regardless of who is your primary bank.
|
| It seems to me, your financial advisor should've had a
| plan for rolling this cash through CDs or short term
| bonds and distributing it across multiple institution to
| decrease your exposure or at the very least increase your
| FDIC insurability.
| ctvo wrote:
| > It seems to me, your financial advisor should've had a
| plan for rolling this cash through CDs or short term
| bonds and distributing it across multiple institution to
| decrease your exposure or at the very least increase your
| FDIC insurability.
|
| Who do we hire to plan and manage this process to ensure
| we have adequate cash flow? Why would any small or medium
| size business take on this overhead? When some other part
| of the financial system endangers whatever mechanism we
| were using here, will you be back asking why we didn't
| just keep money in a bank somewhere?
|
| I'll be blunt: You're not that smart. You're not that
| experienced. You're not an expert on managing "FDIC risk"
| even if you read about it this weekend.
| DubiousPusher wrote:
| > When some other part of the financial system endangers
| whatever mechanism we were using here, will you be back
| asking why we didn't just keep money in a bank somewhere?
|
| No. The point is that a bank is better than a safe but
| that diverse assets are better than a bank.
|
| > You're not an expert on managing "FDIC risk" even if
| you read about it this weekend.
|
| Exactly. And this is why, if you have a critical business
| dependency you should hire an expert and not ask my
| advice which the parent poster did.
| hizanberg wrote:
| > you should hire an expert and not ask my advice which
| the parent poster did
|
| Sorry, who has asked for your financial advice exactly?
| DubiousPusher wrote:
| The commenter asked me what financial advice I thought
| was poor.
|
| > What financial advice was that? That SVB was a good
| bank for Startups to use? It was the recommended bank by
| our Merchant Provider Stripe.
|
| > Sure it's easy to identify poor choices after the fact.
|
| My reply was purely in the context of that question. You
| yourself asked further advise here.
|
| > Who do we hire to plan and manage this process to
| ensure we have adequate cash flow?
| hizanberg wrote:
| > The commenter asked me what financial advice I thought
| was poor.
|
| I did not, you had just assumed we followed some poor
| financial advice for having chosen SVB in the first
| place:
|
| > I think you were following some very poor financial
| advice.
|
| Which I asked you to clarify as we never sought any
| financial advice. SVB was chosen because it was
| recommended to use for Startups.
|
| > You yourself asked further advise here. > Who do we
| hire to plan and manage this process to ensure we have
| adequate cash flow?
|
| I never asked this, nor would I ever dutifully seek the
| financial advice from random internet commentators who's
| become experts at predicting bank failures after the
| fact.
| DubiousPusher wrote:
| My bad. I mixed up commenters on that last bit.
|
| > Which I asked you to clarify as we never sought any
| financial advice. SVB was chosen because it was
| recommended to use for Startups.
|
| Right. And what I'm saying is not that the bad advice was
| using SVB. Of course you can't predict which bank is
| going to fail. That's kinda my whole point.
|
| When I said I thought you got some poor financial advice,
| I was assuming you had a financial person who put your
| money in this vulnerable position. Which I guess wasn't
| the product of poor advice but of getting no advice at
| all.
| hizanberg wrote:
| All our efforts are spent on improving our products,
| we've never sought any financial advisors and spent
| exactly zero time worrying about the liquidity of the
| bank we're with. Any funds left over from business
| operations are simply left in the bank they were
| collected in.
|
| But sure after knowing this event is possible and that
| effectively all small US Banks are at risk of a Bank run
| we'll be moving to a top 3 bank that's too big to fail,
| then go back to focusing all our efforts on improving our
| products as usual.
| dboreham wrote:
| > we've never sought any financial advisors
|
| No accounting firm??
| hizanberg wrote:
| Our accountant helps facilitate our tax obligations, they
| don't provide financial advice on our banking choices.
| DubiousPusher wrote:
| For your own sake, pay someone to help you with this. It
| doesn't need to be someone full time. You can use a
| consultant. You are not protected even with a big bank.
| Given the way the political climate has developed, if
| there's another "big one" even a fraction of this size of
| 2008, it may be politically impossible to wrangle another
| bailout. Your only protection is diversification.
| hizanberg wrote:
| No, I don't need to pay for an external consultant's help
| to tell us to spread our funds over multiple accounts to
| fit within 250k FDIC insured limit. If any of the top 3
| "too big to fail" US Banks collapses we'll all have
| bigger problems resulting from the collapse of the US
| Banking system.
| DubiousPusher wrote:
| Cool. Suit yourself. You got lucky this time and are
| getting bailed out.
| jeromegv wrote:
| Love to see people coming AFTER, telling everyone how
| wrong they were.
|
| Did you short SVB? You must have known it was coming
| right?
| DubiousPusher wrote:
| What? I'm literally saying the opposite. Not that you
| should try to predict the future and pick a winner but
| that you cannot possibly know who is a winner and who is
| a loser and therefore you should be diversified.
|
| Just depositing all your money to one account seems like
| a neutral activity but it is not. It is in fact an
| implicit bet. It is a statement of faith in the
| institution who holds it, whether you realize it or not.
| moose_is_loose wrote:
| Yeah, shit is gonna hit the fan over this in terms of domestic
| turmoil. All those people who took PPP loans and Silicon Valley
| VCs getting bailed out who railed against student debt relief,
| it's just mind boggling. Just wait until student borrowers
| start getting squeezed and the Supreme Court nixes the debt
| relief. This is not good for long term political stability.
| avalys wrote:
| PPP loans were designed to be forgiven from the start. They
| were loans only in the technical sense. It was a mechanism
| for the government to allow companies to continue to pay
| employees during the pandemic lockdown, instead of firing
| them. Complaining about PPP loan forgiveness is disingenuous.
|
| As for student debt relief, there's a huge difference between
| someone depositing money in a regulated major bank and
| expecting that Federal regulators were doing their job and
| that their money would be safe, vs. someone taking out a
| $100,000 loan for their own benefit and expecting the
| government to essentially pay it off for them.
| djbusby wrote:
| Students took the loans before the expectation of
| government pay-off existed.
| komali2 wrote:
| For their own benefit? Seems like an educated population
| benefits everyone, hence why we spend a portion of the
| national and local budgets funding schools kids can go to
| for free. The big miss in the usa seems to be not extending
| this idea to higher education - perhaps this is why the usa
| is so dependant on immigration for jobs that require higher
| education.
|
| Student loan forgiveness seems to be one way to do that. I
| don't know why they don't just nip at the bud of the
| problem and subsidize education from the get go though.
| paulddraper wrote:
| I'm not a supporter of bailouts in any sense.
|
| But obviously there's a difference between fixing things so
| someone receiving what they signed up vs someone not paying
| what they signed up for
| matthewdgreen wrote:
| None of the SVB customers signed up (or paid premiums)
| for unlimited depositor insurance. Nonetheless they will
| now receive that, paid for by a new assessment (tax) on
| other banks and their customers.
| paulddraper wrote:
| They expected (with 99.8% confidence) to be able to
| retrieve their deposits in full.
|
| So the 0.2% scenario is turning out different.
| ok_computer wrote:
| > expecting that Federal regulators were doing their job
|
| Regulators set a framework that an industry should follow.
| It is incumbent on industry players to act in good faith
| and not operate on edge case regulatory compliance. It is
| not on the regulators that an agent lobbying against the
| very regulations for stress testing their balance sheet
| then turns around and does something dumb. Analogously the
| USDA and FDA aren't not doing their job if a food or pharma
| manufacturer intentionally labels dog food for human
| consumption and ships it.
|
| This type of accounting is criminal and needs
| investigation. So what if your cash isn't performing to
| make target yields. Its on you to responsibly manage it if
| that is your stated mandate. And fed rates didn't balloon
| overnight. J Powell forecasts weeks in advance.
|
| This is not on the regulators. The bank should have
| operated with a better risk profile. And all these
| disruptive companies need better financial sense than to be
| storing their >250K assets in a savings and checking
| account. I don't know what that answer is I haven't had the
| privilege.
|
| So what if Stripe recommends this bank to all their
| clients. Seems like their incentives need investigated.
| What did they have to gain by funneling a clientele to
| their bank.
|
| This isn't on the Fed or Treasury or SEC. Though their
| response may create future problems arising from this
| assurance.
| nemothekid wrote:
| > _As for student debt relief, there 's a huge difference
| between someone depositing money in a regulated major bank
| and expecting that Federal regulators were doing their job
| and that their money would be safe,_
|
| I've made a couple posts about this already but I don't see
| how people don't see the optics of the situation look
| incredibly bad. First off student debt is a special kind of
| debt, you can't bankrupt it and this has led to several
| adverse affects, namely skyhigh tuition prices and zero due
| diligence. You can't say in one breath that CEOs of tech
| businesses are completely helpless to audit whether their
| bank is trustworthy, and in another say 18 year olds should
| have understood the risk they were getting into.
|
| To you it's "disingenuous" but to everyone else it just
| looks like the haves play by a different system; rig the
| system against the have-nots, and then tell the have-nots
| they should been "more responsible".
| EFreethought wrote:
| WRT student loans: I am not clear why the law cannot change
| to allow them to be discharged in bankruptcy like every
| other debt. It seems to me that would make things better
| for everyone. I do not thing people w/huge student loans
| would all just a. immediately declare bankruptcy, and b.
| get their debt forgiven.
| bradleyjg wrote:
| Federal student loans can't, absent unusual
| circumstances, drive anyone into bankruptcy. The
| government offers income contingent payment plans. You
| only have to pay if you make enough income. The same
| thing that happens in a restructuring bankruptcy, which
| most people have to use after bankruptcy reform, already
| happens with student loans automatically.
|
| This is also why it is so nuts to suspend payments for
| three years "because Covid." Anyone that suffered
| financially already had their loan payments adjusted down
| and if you didn't suffer financially why can't you pay
| your loans?
| nemothekid wrote:
| Making student loans bankruptable has less to do with
| protecting students and more to do with 1.) reigning in
| tuition costs and 2.) forcing lenders to consider risk.
|
| The fact that an 18 year old can get any amount of money,
| no questions asked, means that institutions have all the
| incentive to charge whatever they want - their customers
| will pay almost any price.
| bradleyjg wrote:
| There are no lenders. That's been gone since the Obama
| administration. It's almost entirely direct government
| loans now. If you want them to consider risk or limit the
| lending amount you need to change the law.
|
| Biden's forgiveness notably does not come with any such
| legal change that would plausibly make the problem better
| in the future. It's purely a one time sop to
| constituents.
| bradleyjg wrote:
| _PPP loans and Silicon Valley VCs getting bailed out now
| railed against student debt relief_
|
| Contemporary debates are over *who* gets free money from the
| government. I'm sure this is going to end well.
| zamnos wrote:
| https://twitter.com/jason/status/1155224497714110464
|
| Jason Calacanis, specifically, was against help for
| anybody, especially banks (except his buddies's bank when
| it was their turn to be in trouble). If your position was
| that _no one_ is to be helped out, asking then, for help
| when it 's your turn is _should_ cause some self-
| reflection, or as least a bit of cognitive dissonance.
| Whether he is capable of even that much remains to be seen.
| nullc wrote:
| /How did it end? With thunderous applause/
| https://www.youtube.com/watch?v=Krq-GX1IhBc
| panarky wrote:
| I lost money on treasury bonds when interest rates increased,
| where's my bailout?
| umanwizard wrote:
| The bank, which is the entity that lost money on treasury
| bonds, is not getting bailed out. Its value is now probably
| zero.
| panarky wrote:
| Are you replying to a different comment?
|
| I didn't say the bank was getting bailed out.
|
| I was observing that ultrarich depositors with billion-
| dollar uninsured balances who would have lost money due
| to a reduction in the value of bonds are being made whole
| by socializing their losses.
|
| While I, someone who is not ultrarich, who is just trying
| to save for my family, will have to eat 100% of the
| losses due to a reduction in the value of bonds, and have
| zero opportunity to have someone else cover my losses.
| Willson50 wrote:
| He should have used someone else's money.
| ctvo wrote:
| Thinking the young people in the USA have the competency,
| discipline, means, and determination to even organize, let
| alone threaten "political stability" is a stretch. This has
| been happening for 20 years.
| moose_is_loose wrote:
| Yeah, it tastes a bit different after 2008. There's only so
| far you can push people before it snaps back.
| nebula8804 wrote:
| The revolution has already happened in the form of quiet
| quitting, reduced consumerism, forgoing creating the next
| generation indefinitely. The impact are not felt over
| night but will eventually be felt decades from now. There
| is no other way to fight back. You can't vote for anyone
| that isn 't captured, any form of violence and you will
| be shot on sight. What else is there?
| komali2 wrote:
| > What else is there?
|
| Flashpoint events that trigger social destabilizion imo.
| You never saw protests in the PRC until a bank screwed
| up, suddenly videos are coming out where a whole lot of
| citizens with good social credit scores are discovering
| the revolutionary spirit is absolutely dead in their
| country (watch the videos, their surprise at being hauled
| away by whiteshirts is genuine).
|
| So next is maybe a major bank failure, or a disease
| killing a crop or other food that skyrockets prices, or a
| constitutional crisis following an executive branch
| election, or a cop killing just the wrong person in the
| wrong place at the wrong moment. Then, the protests,
| then, someone somewhere, probably the PRC, seeing an
| opportunity for severe destabilizion, funding and
| prodding extremists groups like the proud boys, then lots
| of blood, maybe a worker's revolution, maybe a
| reactionary power grab, idk, just bouncing ideas based on
| how it's gone before.
|
| Fwiw I think direct action is still a valid option in the
| usa. The cops murdered a protestor at the cop city
| protests yes but the direct action is still getting tons
| of attention and by many measures, working. So, page out
| of extinction rebellion book, continue putting obstacles
| in front of the people destroying the environment or
| implementing fascism. At the very least it'll slow things
| down.
| nebula8804 wrote:
| >So next is maybe a major bank failure, or a disease
| killing a crop or other food that skyrockets prices, or a
| constitutional crisis following an executive branch
| election, or a cop killing just the wrong person in the
| wrong place at the wrong moment. Then, the protests,
| then, someone somewhere, probably the PRC, seeing an
| opportunity for severe destabilizion, funding and
| prodding extremists groups like the proud boys, then lots
| of blood, maybe a worker's revolution, maybe a
| reactionary power grab, idk, just bouncing ideas based on
| how it's gone before.
|
| Hasn't the US experienced and weathered all these events?
|
| >Fwiw I think direct action is still a valid option in
| the usa. The cops murdered a protestor at the cop city
| protests yes but the direct action is still getting tons
| of attention and by many measures, working.
|
| You referring to George Floyd protests? Your english
| seems a bit off so its unclear. If thats the case, the
| police responded nationwide by refusing to do their jobs.
| Crime skyrocketed and now progressive DAs are being
| recalled, people moving to conservatives states and
| everybody is worse off than before. The many layers of
| bureaucracy allowed the police to be "reformed" and not
| actually have to change anything at the same time. Its a
| serious failure of the US system.
|
| >So, page out of extinction rebellion book, continue
| putting obstacles in front of the people destroying the
| environment or implementing fascism. At the very least
| it'll slow things down.
|
| Please help me understand what if any obstacles have been
| placed in front of them in recent years? I can't think of
| any at all. This next election is looking to be a free
| ride for Biden to be re-elected and at the very worse
| it'll be Trump again or Desantis. Trump was supposed to
| be the outsider candidate but it was business as
| usual(but worse because we also got his loud mouth and
| racism). (this is coming from a Bernie guy).
| Zetice wrote:
| I'm sorry but if this "revolution" was designed to change
| behavior, it was an abject failure.
|
| "Quiet quitting" was concocted in a board room to get
| people to do their jobs and stop complaining. If you're
| an employer, you _want_ a team of "quiet quitters" who
| will do their job and nothing else. It's infinitely
| easier to manage...
| nebula8804 wrote:
| >I'm sorry but if this "revolution" was designed to
| change behavior, it was an abject failure.
|
| Like I said, it remains to be seen. The results of the
| loss of free extra labor (via quiet quitting), loss of
| employer power over wages (via a small replacement birth
| wage) and loss of profits (via less spending) take time
| to work their way through the system.
|
| The ultimate goal in my opinion is to allow workers
| barely enough to make ends meet and for them to not have
| any lasting wealth. Once they reach retirement age they
| are someone else's problem then(probably just go off and
| die somewhere).
|
| >"Quiet quitting" was concocted in a board room to get
| people to do their jobs and stop complaining.
|
| Im really just using the definition to describe the
| behavior of workers no longer bothering to over work
| themselves.
|
| >If you're an employer, you want a team of "quiet
| quitters" who will do their job and nothing else. It's
| infinitely easier to manage...
|
| Many employers would disagree and say you are leaving
| extra value on the table.
| Zetice wrote:
| No. Let me be abundantly clear; quiet quitting is a
| _blessing_ to employers, by about a mile and a half. It
| 's what they've always wanted employees to do, but now
| the employees think they're "sticking it to the man"
| by... doing their jobs???
|
| There is no loss of power, there is no dynamic shift,
| there is no loss of profits whatsoever.
|
| Many, many, many more employers would say that "quiet
| quitting" is great, like 100:1 outnumber those who are
| upset by it.
| nebula8804 wrote:
| >but now the employees think they're "sticking it to the
| man" by... doing their jobs???
|
| I think you got your definitions wrong. The definition im
| thinking of is skating by on the barest of minimums as to
| not arouse suspicion. Whether that is doing your job
| depends on who you ask.
|
| >There is no loss of power, there is no dynamic shift,
| there is no loss of profits whatsoever.
|
| You are essentially arguing that all the extra effort
| that employees expended to show that they are "go
| getters" amounted to no value creation at all. That is
| absurd just on the face of it.
|
| But lets say you are totally right...then good, its one
| thing that employees and employers can agree on then.
| Employees do that absolute bare minimum to not arouse
| suspicion and employers pay them.
|
| I'm looking forward to the multitude of innovations that
| employees will come up with to do the absolute bare
| minimum. Its like the area under a curve. We need to get
| closer and closer to the bottom of that curve. Thats
| where my favorite category of American innovation lies.
| Things such as the mouse jiggler are amateur hour.
| hypothesis wrote:
| Are you saying that "no losses will be borne by the taxpayer"
| is worded specifically to avoid saying anything about _costs_
| to said taxpayers? /s
| AdamJacobMuller wrote:
| Of course.
|
| If JPM and Citi et al receive a large special assessment as a
| result of this, where do you think the money comes from?
| Consultant32452 wrote:
| Also, the deflationary impact of all that wealth
| evaporating would have made my dollars more valuable. I was
| denied that benefit of keeping my money in a safer
| location. Not to mention the investment opportunities that
| may have come from the chaos.
| JumpinJack_Cash wrote:
| The US is not the frontier anymore.
|
| The last 3 years have proven that people who still want a
| shot at winning in the roulette of wealth , they'd have
| to move to a developing country.
|
| The Western World obsession with prioritizing stability
| over everything else is just making sure that the rich
| will stay rich forever and every roulette spin which
| doesn't end up in double zero gets void in the name of
| stability.
| ProjectArcturis wrote:
| If the roulette spin hit double zero and the government
| didn't step in, it's not the bank CEOs who would be
| eating cat food.
| JumpinJack_Cash wrote:
| Silicon Valley is the wealthiest area in the world. CEOs,
| founders, employees, janitors...etc.
|
| Nobody will feel sorry for them, the rank has no meaning
| whatsoever when you are aboard a golden ship.
|
| Everybody in the wooden and plastic fiber small boats
| around are cheering for the gold ship to go down with no
| particular attention given to the ranks.
|
| It's the same sentiment that has people cheering for the
| electric and fracking revolution to make countries like
| Qatar, UAE, Saudi irrelevant and poor.
| heartbreak wrote:
| The wealth didn't evaporate, it's just tied up for a long
| time. The actual costs to the FDIC will probably be
| pretty low for SVB's deposits.
| kgwgk wrote:
| The cost may be pretty low but not because the FDIC will
| somehow get the nominal price for those bonds. They are
| not worth more than what they are worth. (On the other
| hand, they are worth more now than they were on
| Thursday.)
| heartbreak wrote:
| Worst case scenario they'll probably end up sold to the
| Fed and held till maturity like all the MBS the Fed
| bought during the pandemic.
| kgwgk wrote:
| If I'm not mistaken those were bought at "reasonable
| prices" - not at par.
| pclmulqdq wrote:
| The FDIC will probably just hold them to maturity and go
| running to congress if they need more liquidity at any
| time.
| Consultant32452 wrote:
| There would have been a massive drop in asset prices for
| the companies impacted by losing their deposits.
| hcknwscommenter wrote:
| Your take does not seem to reflect reality to me. SVB did not
| offer particularly attractive interest rates to depositors. No
| one banked with SVB because of some extra APR on their
| savings/checking accounts. SVB mismatched interest rate risk
| and deposit flight risk, bungled a poorly timed asset sale and
| report thereof, and then compounded the problem with a few
| silly comments to the public at exactly the wrong time.
| moose_is_loose wrote:
| https://twitter.com/PeterContiBrown/status/16350630127753256.
| ..
| fasthands9 wrote:
| On some level I don't get this. Ultimately a bank is
| providing depositors a service. Maybe their interests rates
| weren't the absolute highest, but they were still solid AND
| they were able to spend a ton on marketers, engineers, reps
| etc. to keep clients happy.
|
| Presumably there was a reason so many people choose them.
| They could have said "hey in order to make sure your money is
| safe we are actually going to offer a slate of services on
| par with our competitors" but instead they said "we are going
| to offer a slate of services equal or better than our
| competitors in every category"
| cavisne wrote:
| No, they banked there because SVB would throw money at VC's
| and founders (ski trips, free meals, lines of credit) who in
| turn would recommend/force their companies to use the bank.
| For all the talk of being "friendly" and "relationships"
| thats basically it.
|
| The average american now has to cover the loss, either
| through eventual taxes, or through passthrough costs from
| their bank (who will not give them a free meal or ski trip).
| bengamin56_ wrote:
| [flagged]
| krsrhe wrote:
| [dead]
| hanoz wrote:
| The fact that thier motivations were convoluted should not
| make the tax payer any more on the hook for the consequences.
|
| A disgraceful bailout, if entirely unsurprising.
|
| Shades of _" The Times 03/Jan/2009 Chancellor on brink of
| second bailout for banks"_.
| seizethecheese wrote:
| Evidence that SVB paid higher interest than other banks? This
| doesn't seem to be the root cause here. They had a huge
| volatility in deposit base.
| [deleted]
| lxm wrote:
| Yeah, ironically had SVB had a strong consumer brand, they
| probably could've boosted their cash reserves by offering
| higher-yelding CDs to general public.
| ahepp wrote:
| My understanding is their cash reserves were part of the
| problem. They had too much cash to lend it back out at
| variable interest rates, so they bought long term
| government bonds
| lxm wrote:
| They had too much cash in 2020 and 2021.
|
| They suddenly needed cash in 2023, but the deposit train
| had run dry due to the general slowdown among their
| customer base, at which point they were forced into
| selling the assets they acquired in 2020-2021 and locking
| those losses.
|
| Had they attracted enough new deposits, they could've let
| their long-dated portfolio run its course. Maybe even
| sell parts of it a few years from now if the rates went
| back to 0% territory, making those long-term bonds
| attractive again.
|
| They weren't buying toxic assets or anything. Chase, BofA
| and Wells Fargo own long-term debt as well, just not to
| the extent SVB did.
| bcrl wrote:
| The scheme of getting new depositors to pay out existing
| depositors is better known by another name: a Ponzi
| scheme.
| ahepp wrote:
| The defining characteristic of a Ponzi scheme is that
| there is no underlying investment.
|
| Most banks make sound underlying investments, but even in
| SVB's case there were investments, they were just bad.
| tim-- wrote:
| Seriously, when you look into how banks are run, they
| really do start to begin looking like legal Ponzi
| schemes. https://www.bankrate.com/banking/cds/cd-ladder-
| guide/
|
| They take your deposits, use a bit to pay other people's
| withdrawals, promise an unrealized gain to money held in
| your account that they might not be able to pay if
| everyone pulls out their cash at the same time...
| ahepp wrote:
| Relevant graph of assets and deposits:
|
| https://i.imgur.com/d5b1CQV.png
| [deleted]
| hizanberg wrote:
| We banked at SVB and got 0% interest, it was just the bank
| recommended for Startup's to use.
|
| It seems the risk was not choosing a top 3 bank since no one
| can survive a Bank Run and the largest banks are too big to
| fail. Which is terrible for competition if everyone's
| essentially forced to use a top 3 bank just to have confidence
| for your money in a US Bank to be safe.
| Zetice wrote:
| It's not true that "no one can survive a bank run", though,
| and that's why SVB is at _fault_ here, and not just a victim
| of circumstance.
| hellcow wrote:
| Well, yeah, that's why SVB no longer exists, all the execs
| are canned, and shareholders are losing their shirts.
|
| But depositors trusting a highly rated bank with a 40-year
| history shouldn't be a "big bet" or gamble. For the risks
| startups take, this is about the lowest of the bunch.
| cma wrote:
| The risk is low because of the assumed bailouts.
| nostrebored wrote:
| SVB collapsed with 3% of depositors asking for their money
| back?
| hizanberg wrote:
| SVB failed after depositors tried to pull out 42B on
| Thursday, which small US bank has enough liquidity to
| satisfy 25%+ of all deposits in 1 day?
| nostrebored wrote:
| SVB locked in losses after a 3% run that caused them to
| seek outside capital.
|
| They couldn't cover a third of the previous mandatory
| fractional reserve without realizing losses. That's
| insane. Anyone banking with a bank that doesn't do
| liquidity testing is bonkers imo.
| hizanberg wrote:
| What is the exact % liquidity that your bank can
| withstand? Should it be the responsibility of every US
| person to independently and periodically validate their
| top US 20 Bank has enough liquidity to withstand
| unforeseen variable economic conditions that bank
| regulations are supposed to protect against?
|
| No, people are just going to move to a top 3 bank that's
| too big to fail to hold their business and personal life
| savings.
| lupire wrote:
| They were completely foreseen, and officially announced.
| hizanberg wrote:
| > They were completely foreseen
|
| Sure which is why their stock crashed 60% in 1 day and
| their entire 40 years existence wiped out within the
| week.
| bradleyjg wrote:
| _Should it be the responsibility of every US person_
|
| What percentage of Americans have $250,000 in cash?
| hizanberg wrote:
| No idea, how many? Up until now I would've thought
| keeping your money in a bank was the safest liquid asset
| class.
|
| Is 250k the threshold where you need become a financial
| bank analyst and independently validate US Banks
| liquidity tolerance to withstand variable economic
| conditions? If that's the case everyone's just going to
| consolidate to using a top 3 bank when exceeding that
| limit.
| bradleyjg wrote:
| Up until today that was the threshold. This FDIC limit is
| printed on every document from every bank, so you should
| have seen it before.
|
| As of today the rules were changed in the middle of the
| game and there is no limit. Must be great to have
| powerful friends.
|
| _If that 's the case everyone's just going to
| consolidate to using a top 3 bank when exceeding that
| limit._
|
| So what? How is this worse than the status quo?
| hizanberg wrote:
| > Up until today that was the threshold. This FDIC limit
| is printed on every document from every bank, so you
| should have seen it before.
|
| Right, so you are saying every person or business that
| reaches that limit needs to become an independent
| financial analyst on a bank's liquidity.
|
| > As of today the rules were changed in the middle of the
| game and there is no limit. Must be great to have
| powerful friends.
|
| What a condescending toxic tone, you're blaming the
| people and business that maintain their savings in failed
| banks for their failure? and accusing them of being apart
| of some interconnected powerful network of friends that's
| somehow instructed the FDIC to step in to strengthen
| public confidence in the US banking system?
|
| > So what? How is this worse than the status quo?
|
| If you can't see the problem with all but the 3 top US
| banks failing and forming an impenetrable oligopoly free
| from competition, nothing else needs to be said.
| bodhiandphysics wrote:
| Again this is not about people but about businesses... in
| this case startups which are somewhat unusual businesses
| since they have tons of cash an no income, and often
| don't spend money on things like CFOs that aren't really
| necessary for them yet.
| bradleyjg wrote:
| I would have said this shows that's are necessary but it
| turns out you're right. Who needs a CFO when you have the
| nation's politicians in your pocket?
| Ekaros wrote:
| IF they have tons and tons of cash they are rich. Which
| means they should know much better. They have less than
| zero excuses. They are often not making positive money so
| they should be extremely prudent with their finance.
| Tells a lot that nothing is expected from them and they
| should be treated like kids...
| bumbledraven wrote:
| > every US person
|
| Every US person with more than $250k in the bank,
| perhaps. That is a tiny percentage.
| freeopinion wrote:
| I've put my life savings in chickens. It has paid off
| fabulously this year.
| bagels wrote:
| Is this serious? You started a chicken farm or something?
| freeopinion wrote:
| Murray McMurray officially started his chicken business
| in 1917. He had always been interested in poultry as a
| young man and particularly enjoyed showing birds at the
| local and state fairs. He was in the banking business at
| this time and sold baby chicks through the bank to area
| farmers and hobbyists. When incubators became available
| he was able to purchase several small Buckeye incubators
| to hatch and sell his own stock. In 1919 he sent out his
| first catalog and price list and continued to carry on
| both the banking and the hatchery business. During the
| early stages of the depression his bank went broke. It
| was then he decided to go into the hatchery and mail
| order baby chick business full time.
|
| https://www.mcmurrayhatchery.com/history.html
|
| I was joking, but I didn't realize the tie between bank
| failures and one of the biggest names in poultry.
| isignal wrote:
| Did you consider buying us treasuries instead?
| hizanberg wrote:
| Never, the funds are just what's left over after business
| operations, the entire purpose of which is to
| conservatively reinvest back to help grow the business and
| build a buffer to withstand future economic downturns.
| ethbr0 wrote:
| > _Which is terrible for competition if everyone's
| essentially forced to use a top 3 bank just to have
| confidence for your money in a US Bank to be safe._
|
| Isn't that the whole point of this decision -- giving
| depositors at non-top banks confidence in the system?
|
| If the FDIC et al. had done the opposite here (let SVB
| depositors take losses) _then_ the takeaway would have been
| "bank only with a top-3".
| nafey wrote:
| But, crucially, the shareholders are wiped out. No CEO would be
| incentivized to repeat the SVB strategy if they stand to make
| no gains from it.
| bcrl wrote:
| Everyone got their bonus last year. Nobody cares about the
| future if they've got their cash in hand today.
| ineptech wrote:
| I don't think oversight comes from shareholders or the CEO,
| it comes from the customers, right? The desired outcome here
| is for the companies that banked with SVB to demand more
| caution from their next bank, meaning they'll pay higher
| fees; they have no incentive to do that if they don't lose
| any money in this mess.
| epvgwwqe wrote:
| You don't need to pay a bank higher fees for the bank
| executives to make adequate financial decisions
| dgacmu wrote:
| Kinda. As someone who banked at SVB, I would not willing
| put myself, my CFO, and my director of operations through
| this Friday + weekend again if you handed me a million
| bucks. We didn't lose money but we're going to have a lot
| of inconvenience and we had a lot - a lot - of stress and
| uncertainty and spent a lot of time making contingency
| plans. A very high cost for a 15 person startup.
| bradleyjg wrote:
| That's not true at all. The strategy is this:
|
| 1) form a bank
|
| 2) make imprudent investments, and offer better terms than
| other banks
|
| 3) watch the deposits roll in
|
| 4) collect fat bonuses every year
|
| 5) fifteen years later, get taken over by the FDIC
|
| 6) no need to return bonuses
|
| 7) other banks want to hire executives from failed banks, go
| do it again somewhere else
| refurb wrote:
| You know what's even better than "collecting fat bonuses
| each year"?
|
| Selling your equity compensation for even bigger returns.
|
| Compensation packages for CEOs are structured such that
| most of the money is at risk equity grants.
|
| They'd be nuts to lose tens of millions of equity in
| exchange for their base + bonus.
| bradleyjg wrote:
| It takes a lot of talent, hard work, and luck to be a
| successful bank CEO if you play by the rules. The invest
| imprudently while the sun is shining is a much easier
| strategy to pull off.
| refurb wrote:
| I dont follow. If youre already bank CEO then you've
| already "made it" in the sense of having a career that's
| paid you tens of millions of dollars.
|
| Why not just be prudent and keep making money rather than
| gambling it all on red?
| bradleyjg wrote:
| You become the CEO of a small regional bank. You can draw
| small regional bank pay for several years until they find
| someone else to be caretaker or you can invest
| imprudently, massively expand the size of the bank and be
| a growth CEO with growth CEO pay until the whole thing
| blows up.
|
| Which strategy has a higher expected value?
| worrycue wrote:
| To be frank, letting depositors get wiped out will not stop
| those executives from doing the same thing. Most depositors
| won't look too closely at what their banks do - heck most
| don't understand how banks work. Simpler to just create
| laws and ban executives who break them from ever working
| for a bank again.
| chitowneats wrote:
| Why do we keep speaking of SVB depositors with over 250k
| in deposits as if they are part of the hapless hoi
| polloi? These are founders who practice and preach
| capitalism with a capital C. They are part of a class of
| individuals with immense power and wealth in our society;
| or looking to soon enter that class. They deserve none of
| the type of sympathy you're extending towards them when
| it comes to matters of business and finance.
| worrycue wrote:
| Just because they have a lot of money doesn't mean they
| have the expertise to evaluate a bank's inner workings.
| Although I guess they could have hired people at
| considerable expense to do that ... and I think some of
| them did which was what exasperated the run when they
| mass redrew their deposits. That or I think they can buy
| insurance ... that said I wonder how many
| people/corporations actually buy insurance for their
| deposits above $250k.
|
| Still my point stands, having depositors drown won't stop
| others from pulling another SVB.
| chitowneats wrote:
| I love these metaphors that equate losing money with
| death. The whole point of capitalism is that people who
| make good decisions get to become rich and people who
| make bad ones don't. SV founders believe this at their
| core; at least they pretend to. No wonder people think
| it's a total scam the way it's currently implemented.
| worrycue wrote:
| Regardless whether you think it's "fair" or not. Letting
| depositors lose their money won't prevent another SVB.
| chitowneats wrote:
| Classic deontology vs utilitarianism. I doubt we'll ever
| convince each other. I appreciate the discussion though.
| chrsw wrote:
| > heck most don't understand how banks work
|
| Even before this week I already knew I didn't understand
| how banks worked, or finance in general. Which is why I
| keep what little cash I have in an insured account.
| [deleted]
| vkou wrote:
| The CEO may have made out like a bandit, but the
| shareholders lost everything, and the next set of
| shareholders will think twice before retaining a CEO that
| engages in high-risk activities.
|
| > 7) other banks want to hire executives from failed banks,
| go do it again somewhere else
|
| As a shareholder of another bank, why the hell would you
| want to hire someone who took stupid risks, and lost
| everything owned by their previous set of shareholders?
| freeopinion wrote:
| So your saying somebody like SVB would never hire the
| person at the helm of the Lehman Brothers implosion?
| mlyle wrote:
| > The CEO may have made out like a bandit, but the
| shareholders lost everything, and the next set of
| shareholders will think twice before retaining a CEO that
| engages in high-risk activities.
|
| OK, so you can only rip everyone else off massively once.
| vkou wrote:
| Yeah, and once you do that, the shareholders at other
| banks will be asking _their_ CEOs questions, like 'Prove
| to us that you're not doing the same shit that sunk SVB.'
| mlyle wrote:
| Yup. And so all the bank failures in the 1930s made sure
| that no one made the mistake again.
| tick_tock_tick wrote:
| Pretty much. I know you're trying to be sarcastic but the
| class of "mistakes" that took down banks back then really
| doesn't happen anymore.
| inferiorhuman wrote:
| True, we've invented new classes of "mistakes". It's
| fucking ridiculous. There's something very wrong with
| American banks and if the only solution we can come up
| with is further consolidation we're going to be in for a
| bumpy ride.
|
| ING, before they bailed on US retail operations, _only_
| offered adjustable rate mortgages. They were also the
| only financial institution I ever dealt with that
| required the use of separate credentials for external
| banking integration (e.g. tax prep, quicken, whatever
| shiny new app).
| Rury wrote:
| Eh, those mistakes happen still, we just don't let
| consequences of them happen.
| vkou wrote:
| SVB shareholders losing 100% of their investment seems
| like a consequence. They are probably kicking themselves
| for not doing more DD over the C-suite.
| Rury wrote:
| Sure. The point I was making that the mistakes which
| caused bank failures in 1930s and bank failures today, is
| fundamentally the same kind of mistakes. Ergo, we still
| make those mistakes; they still happen, we just don't let
| depositors bear the consequences of it anymore.
| linuxftw wrote:
| The 'shareholders' are all 401k fund managers. They make
| sure their CEO friends come in and get paid. It doesn't
| matter to the 'shareholders' if one or two companies go
| bust, they collect the fees anyway, and the losses are
| socialized across an entire country's retirement
| accounts.
| lupire wrote:
| Yeah, how much did I lose because these fraudsters mixed
| themselves into broad market indices?
| loeg wrote:
| $15.5B market cap Wednesday to S&P500's ~$32.3T. If you
| held the S&P500, you lost about 0.05% when SIVB got
| zeroed. In comparison, S&P500 was down 1.45% Friday.
| (Almost all of the impact to your retirement from SVB's
| failure will be from indirect effects, like downswings in
| other bank stocks, rather than direct losses from SIVB.
| Unless you held a highly concentrated position in SIVB.)
| lotsofpulp wrote:
| Why would #7 happen if shareholders get wiped out? Surely,
| people on the board and other C suite executives are big
| enough shareholders that they would care if their equity
| went to zero.
| nicklevin wrote:
| Matt Levine frequently discusses the fact that losing
| billions of dollars means at some point, someone trusted
| you with billions of dollars. Which new employers
| (especially banks) look on favorably.
| lupire wrote:
| In particular, because the people are management who
| don't lose anything when investors get wiped out. The
| solution is clawing back money that execs paid themselves
| with these embezzled (on a risk-adjusted perspective)
| funds.
| ZephyrBlu wrote:
| Fascinating, isn't it?
|
| You can apply the same thing to people management. Who
| cares if you're a shit manager, if you've managed 100
| people that's still going to be looked upon more
| favourably than someone who's managed 20 people really
| well for a 100 person management position.
|
| Applying it to execs is probably a simpler comparison.
| Shit exec means you were still an exec, so you can
| probably get hired somewhere else as an exec.
| BolexNOLA wrote:
| There is always an NFL team that needs a quarterback of
| any caliber!
| deepsquirrelnet wrote:
| In order to be trusted with a lot of money, you need to
| be _really_ bad with money.
|
| Guys, I'm starting to think the economy is sick...
| kamaal wrote:
| If you were running a cartel you would want to hire the
| best enforcers from the erst while cartels.
|
| I think in the World War Z novel they hired the best
| administrator from the Apartheid era to enforce Zones of
| containment.
| notch898a wrote:
| Because shareholders often think they can dump them on
| someone else before they go to zero. See shitcoins.
| blobbers wrote:
| Joseph Gentile (ex-Lehman Bros) has entered the chat.
|
| https://finance.yahoo.com/news/silicon-valley-bank-exec-
| lehm...
| waynesonfire wrote:
| Silicon Valley Bank exec was Lehman Brothers CFO prior to
| 2008 collapse.
| [deleted]
| bradleyjg wrote:
| https://m.economictimes.com/news/international/business/s
| vb-...
| mcny wrote:
| > Why would #7 happen if shareholders get wiped out?
| Surely, people on the board and other C suite executives
| are big enough shareholders that they would care if their
| equity went to zero.
|
| I remember reading about something called principal agent
| problem here in HN... I think almost ten years ago. It
| changed my life. I spend a lot of time thinking about it.
| Once you look it up, it is difficult to not see
| everything in life with this lens.
|
| Basically, the shareholders are not in control.
| Management is. And the management class has a special
| interest to protect "their own".
| [deleted]
| greenyoda wrote:
| > I remember reading about something called principal
| agent problem...
|
| A summary of the problem:
|
| _The principal-agent problem refers to the conflict in
| interests and priorities that arises when one person or
| entity (the "agent") takes actions on behalf of another
| person or entity (the "principal"). The problem worsens
| when there is a greater discrepancy of interests and
| information between the principal and agent, as well as
| when the principal lacks the means to punish the agent.
| The deviation from the principal's interest by the agent
| is called "agency costs"._
|
| From: https://en.wikipedia.org/wiki/Principal%E2%80%93age
| nt_proble...
|
| See also: https://www.investopedia.com/terms/p/principal-
| agent-problem...
| spaceman_2020 wrote:
| Why? You can cash out along the way - your stock would
| perform well since your growth metrics will be great.
|
| In fact, I'd say that CEOs would be heavily incentivized to
| follow this strategy. Their compensation is tied to stock.
| Stock price is tied to growth (not risk management). You have
| all the reason to pursue growth, show great performance,
| watch the stock go up and keep cashing out before the
| eventual collapse.
| urthor wrote:
| Think of it a different way.
|
| Wells Fargo/BoA are "too big to fail" institutions in the
| United States.
|
| They got _significant_ back hand, handshake deals, from
| Washington institutions to not only stay afloat, but for
| hundreds of little issues.
|
| In essence, the FDIC is a well crafted "redistribution," of all
| the under the table benefits Wells/BoA get from lobbying the
| Feds, to the smaller banks.
|
| The US has a _deep_ interest in keeping its smaller banks
| alive.
|
| I can say, in Australia, the small business lending market is
| hugely overvalued due to monopolist price gouging by a handful
| of large institutions.
|
| In Canada, I'm told the situation is similar. Costs to small
| business are _immensely higher than the United States_.
|
| Banks similar to Silicon Valley Bank are essential because they
| undercut BoA, and prevent the "Canada" situation.
|
| Unfortunately, SVB blew its top off. But the system itself is
| good.
| [deleted]
| BolexNOLA wrote:
| > Banks similar to Silicon Valley Bank are essential because
| they undercut BoA, and prevent the "Canada" situation.
|
| There are plenty of small banks that didn't ignore when
| Powell/the Fed were repeatedly saying "inflation ain't over,
| interest rate hikes are coming." We talked about this in
| another thread. What SVB did wasn't essential, smart,
| innovative, etc. There is a reason they are crumbling so
| catastrophically. And I'll give you a hint: it wasn't due to
| a bold vision or new ideas or being disruptive or whatever.
|
| Simply put: SVB was reckless and went against known
| information.
| jeremyjh wrote:
| BoA was never at risk of failing. They stepped in to buy
| Merrill Lynch because basically the treasury ordered them to,
| but they didn't need TARP to absorb the continued losses in
| that unit, and paid it back with interest as soon as they
| were allowed to.
| ProjectArcturis wrote:
| They weren't at risk of failing when TARP passed. If TARP
| hadn't passed, and a few of their counterparties had gone
| bankrupt, they might have been next as the whole system
| went under.
| jeremyjh wrote:
| Yes and that is why they did what the Treasury told them
| to. It was directly in their shareholder's interests to
| support the recovery of the banking industry. Ken Lewis
| still lost his job for doing it.
| dragonwriter wrote:
| > BoA was never at risk of failing.
|
| Yes, they were, that's why the systemic risk exception was
| invoked for them.
|
| > but they didn't need TARP
|
| They needed the systemic risk exception and their own
| specific, $20 billion capital injection and government loss
| protection bailout plan very similar to Citigroup's to be
| announced (the announcement itself stabilized things enough
| that they ended up not needing the bailout, which also
| happened with Wachovia's before Citigroup.)
| cm2187 wrote:
| They mostly get significantly more scrutiny and regulations.
| The sort of interest rate risk SVB took is shocking to anyone
| who works in a large bank.
| jgalt212 wrote:
| Indeed. This is a license for any small / mid-sized bank to
| take any crazy risk they want.
| plantwallshoe wrote:
| Is it thought? The shareholders of SVB are going to lose
| out big. The message this is sending to bank owners and
| investors is "the government may bail out your customers
| but you will lose everything."
| rvnx wrote:
| Lose everything ? The responsibility of the shareholders
| is limited to what they brought to the cap table, but the
| potential for upside is significant.
|
| If it fails, you can restart and recreate a bank, but
| you, your partners and your friends _keep_ all the profit
| and privileges that you collected before the failure.
|
| All that at the expenses of the government.
|
| Your main task is to not fail too early, so you can
| recoup your initial investment (and if it can last
| forever if you are lucky / well-managing the risk, then
| better for you!)
| lupire wrote:
| Shareholders lost all the money they spent on capital.
| That's a lot. Exec employees extracted a lot, and in a
| just world that would be clawed back.
| rvnx wrote:
| But wait, I see that SVB was paying 4.50% of interest per
| year to depositors (cf.
| https://www.svb.com/account/y-combinator )
|
| Even if depositors lose 5%. 5% that they shouldn't have
| earned because of the ultra high-risk position taken,
| maybe it's from them it should be taken...
| khuey wrote:
| A "money market" account means the money is invested in
| extremely short term government or corporate bonds. SVB
| probably wasn't paying that 4.5%, they were just passing
| through what the market is paying for money market funds
| right now.
| mlyle wrote:
| Imagine this scenario:
|
| You invest $1.
|
| Other people deposit $50.
|
| You take $51 to a Las Vegas roulette table and bet it all
| on black.
|
| 50-50 chance there's $102 afterwards and shareholders and
| employees get to share most of the $51 gain; 50-50 chance
| there's $0.
|
| Taking outsized risks with other peoples' money is a
| great gig for both stockholders and executives. We
| normally prohibit financial services firm from engaging
| in this kind of behavior, because the economic incentives
| favor outsized risk.
| worrycue wrote:
| So how would letting depositors get wiped out stop these
| executives and shareholders from repeating SVB?
|
| Better to just ban such executives from the banking
| industry and set up better monitoring of banks to catch
| those that are trying to pull a SVB.
| jgalt212 wrote:
| > So how would letting depositors get wiped out stop
| these executives and shareholders from repeating SVB?
|
| That would not be what I would argue for, but at 10%
| haircut for all depositors would create a nice incentive
| for reverse KYC.
| worrycue wrote:
| You know, I suspect part of the problem is the lack of
| diversity in SVB's depositor base. When the tech sector
| took a hit, a significant chunk of SVB's depositors
| started to redraw money, combined that with their reduced
| liquidity due to higher interest rates killing the market
| value of the long term bonds they held*, it lead to a
| run.
|
| * I don't really know if we should blame them for that.
| Who could have expected interest rates to rise so
| sharply, much less anticipate all the consequences from
| it doing so?
| TMWNN wrote:
| >Banks similar to Silicon Valley Bank are essential because
| they undercut BoA, and prevent the "Canada" situation.
|
| >Unfortunately, SVB blew its top off. But the system itself
| is good.
|
| Yes. Canadians who brag about how none of their banks had to
| be bailed out in the 2008 crisis are a) wrong (they received
| tens of billions from Ottawa, and US TARP money), and b)
| don't realize that the Big Five Canadian banks have far, far,
| far more market share than the US's Big Four. As you said,
| there is no equivalent of a Silicon Valley Bank in Canada.
| There are no regional banks whatsoever; no smaller player
| that may be more friendly to startups, or otherwise more
| flexible, than the Big Five.
| bcrl wrote:
| Canada is 1/10th the population of the US. We don't need
| regional banks. There are also plenty of credit unions for
| those of us that don't want to bank with the big banks
| which are just as capable as many of the larger banks.
| TMWNN wrote:
| Credit unions are by design not meant to serve business
| customers (some do, but they're the exception for a
| reason). Further, Canadian credit unions (with the kinda
| sorta exception of Desjardins) are insignificant in size,
| which is why I didn't bother mentioning them in the first
| place.
|
| Let me repeat: Canada lacks the equivalent of regional
| banks, and that's a problem for entrepreneurs looking for
| banking (let alone loans) for new ventures.
| Scoundreller wrote:
| Yeah, CDN banks got massive direct and indirect money from
| Ottawa: https://www.cbc.ca/news/business/banks-
| got-114b-from-governm...
|
| Canada also had its own duration mis-match crisis with
| Asset-Backed Commercial Paper where debtors expected to
| just roll over the paper every 30-45 days... until they
| couldn't and it froze up. Took a decade to unwind.
|
| https://www.advisor.ca/news/industry-news/lesson-to-learn-
| fr...
|
| > There are no regional banks whatsoever
|
| Sure there are. Laurentian Bank is almost entirely based in
| Quebec. National Bank of Canada has almost all of its
| branches in Ontario, Quebec and NB.
|
| Then there are the credit unions which are almost entirely
| provincial (with a riskier backstop than that of US credit
| unions).
| kwooding wrote:
| In fact, in many cases, deposits in provincial Credit
| Unions in Canada (e.g. Alberta and BC) are 100%
| guaranteed. (As opposed to the big banks, which are only
| guaranteed to $100,000). Some provinces hve other rules,
| but in general, deposits to Canadian Credit Unions have
| better deposit insurance protection than the big Canadian
| Banks.
|
| Source: https://www.canada.ca/en/financial-consumer-
| agency/services/... (and the marketing campaigns of the
| credit unions)
| Scoundreller wrote:
| Diff is that the feds have the ability to literally print
| money. Provinces would be limited to issuing bonds.
| lytfyre wrote:
| > There are no regional banks whatsoever
|
| That's inaccurate. They don't the market share small US
| banks do collectively, and none of them are particularly
| focussed on tech startup, but they do exist, alongside
| credit unions - https://en.wikipedia.org/wiki/List_of_banks
| _and_credit_union....
|
| The ATB seems particularly of note - directly owned and
| backstopped by the Alberta Provincial government, has ~15%
| of banking in the province.
| gizmondo wrote:
| Actually a lot of depositors would be happy with a narrow bank
| that takes no risk, just holds the money at the Fed. But the
| Fed decided it's too safe so narrow banking is essentially
| banned. Seems fair if they ensure safety of deposits in return.
| kazen44 wrote:
| before the 1980's, this was actually the case for a lot of
| countries. (the netherlands had the "spaarbank" for
| instance).
|
| This was a very boring system. You deposited your money, the
| bank held your money, you payed X for the account. You got
| some interested during the time this system was alive, but is
| far less then with other banks.
| selimthegrim wrote:
| Is this not "Sparkasse" in Germany as well
| bradleyjg wrote:
| We had a postal bank in the United States as well. https://
| en.m.wikipedia.org/wiki/United_States_Postal_Savings...
| beezle wrote:
| Are you also willing to pay a fee for that when interest
| rates are so low the bank does not earn enough spread to
| cover the costs of maintaining those accounts?
| hypothesis wrote:
| That would a reasonable ask for such a "clean" bank,
| especially when the upside is that there is no "special
| assessment" being imposed due to recklessness of other
| "dirty" banks.
| bradleyjg wrote:
| There ain't no such thing as a free lunch. You pay in fees,
| forgone interest, or risk.
| FpUser wrote:
| I am in Canada so not sure how it compares to the US.
|
| But yes, I'll sign for a Full-reserve banking if I had a
| choice. I've already invested in my own company. I have no
| desire for a bank sending my money elsewhere. Especially
| since the interest rate they pay to a person is laughable.
| JumpinJack_Cash wrote:
| How is that banned? The Fed Fund Rate is effectively the same
| as the 1yr Treasury Note, except even if everything collapses
| like the Black Monday, 2008 or March 2020 (trifecta of
| bonds,stocks and commodities collapsing) you (as a commercial
| bank) can always and in any event access those funds.
| [deleted]
| [deleted]
| barelysapient wrote:
| So now SVB is the _safest_ place for your money. Time to open an
| account.
| debacle wrote:
| How is this not a bailout?
| bo1024 wrote:
| Important to note shareholders, executives, etc still get
| nothing.
| loeg wrote:
| Well, the term "bailout" usually implies two facts:
|
| (1) Shareholders aren't zeroed in a bailout
|
| (2) The government pays for a bailout
|
| Neither is true here.
| dmm wrote:
| > (1) Shareholders aren't zeroed in a bailout
|
| If uninsured depositors took losses in the run on SVB, lots
| of other banks were going down too in the coming weeks. I
| think the argument is not that SVB is getting bailed out but
| investors in all the other poorly funded banks that won't
| fail.
| jen20 wrote:
| Because the shareholders lose their shareholding.
| unity1001 wrote:
| It is a bailout - the 2008 bailouts were done to save the
| deposits and investments inside the banks, not 'the
| shareholders' as so many seem to try to use as an escape
| argument. Its because if the banks' hollowed assets were not
| 'made whole', the depositors would not have their money
| anymore.
|
| Precisely the case with SVB as of this very moment - a sunken
| bank that does not have enough assets to cover its deposits is
| being bailed out by the state.
|
| By the state and taxpayer money, make no mistake - even if the
| funds will not directly come from the US govt., the fees that
| they will impose on the banks by using the nation-wide bank
| insurance fund will eventually get imposed on everyone with a
| bank account in the US by those very banks in turn. So again,
| the public will pay.
|
| Actually, its beyond using taxpayer money - if you are a
| taxpayer and your children have bank accounts too, they will
| also pay the fee instead of just you paying a tax.
| macintux wrote:
| Taxpayers are not paying for this, banks collectively are.
| [deleted]
| nostromo wrote:
| The Venn diagram showing federal tax payers and people with a
| bank account is a circle.
| JackAndJack wrote:
| After 2008 collapse and now this, what has government done to
| prevent this? Bailing out needs to be done to protect the
| depositors everyone sympathizes with small businesses. However,
| what safe guards were put in place or are being put in place for
| this to not happen again?
|
| I guess none.
| raydiatian wrote:
| > Today we are taking decisive actions to protect the U.S.
| economy by strengthening public confidence in our banking system.
|
| Ah cool, so you're:
|
| (1) revoking the bailout money you took from us for the 2008 and
| 2020 crises
|
| (2) disallowing overdraft fees
|
| (3) reimplementing glass steagall
|
| (4) firing yourselves and then immediately committing seppukku
|
| Like my God, can the wording get any more toothless and cynical?
| "We know you don't trust us, and you know we don't care, but for
| fear of the nameless void possibly transmogrifying into an angry
| mob of tens of millions of Americans, we will keep up
| appearances."
| cragfar wrote:
| It's pretty embarrassing how many people thought depositors
| should be on the hook for this. A banking system where companies
| or people would actually lose money due to bank failures
| (especially one caused by a run on the bank) would just lead to
| people only using BOA, JPM, and some merged WF/Citi/whoever else.
| corbulo wrote:
| There are risk profiles between crypto/sv banks and JPM & co.
| lol
|
| What is this sentiment called? SVCentrism?
| noitpmeder wrote:
| I think they are not completely blameless. Companies deposited
| money in a riskier-bank because they got more favorable
| terms/perks/... compared to other options. Now they don't have
| to bear the results of that risk because the Govt has stepped
| in.
|
| Similar to the current US discussion around Student Loan
| repayment. Bailing students out of loans disadvantages everyone
| else who did not take those loans, or who paid them off
| already, because they had the foresight to choose a less-risky
| option.
| cragfar wrote:
| > Companies deposited money in a riskier-bank
|
| It's a top 20 bank that had passed all regulatory compliance
| and has been around for 40 years.
| astrostl wrote:
| The depositors could and should have been aware of the 250k
| FDIC limit and employed widely-available countermeasures
| including (manual or as-a-service) account spreading and/or
| private insurance.
| lambic2 wrote:
| I have a feeling a lot of these people are Bitcoin maximalist.
| They want depositors to suffer so that they feel vindicated for
| their faith in Bitcoin.
| postalrat wrote:
| I for one just don't like to see the rules change every time
| the rich need a little help.
| cragfar wrote:
| If the treasury allowed a bank run to wipe out depositors,
| every single business would be transferring funds out of
| their regional bank Monday morning.
| postalrat wrote:
| And now they won't?
| kragen wrote:
| no, they aren't at risk that their deposits will
| evaporate because they were late to the bank run any more
| postalrat wrote:
| so why would they care if a bank run happens or not?
| seems like a pretty good time to make adjustments for the
| long term.
| kragen wrote:
| exactly, the idea is for depositors not to care if a bank
| run happens or not, because the way that bank runs happen
| is that depositors worry that a bank run will happen
| postalrat wrote:
| well we will see what happens over the next couple weeks.
| no prediction we make here is going to change it.
| kragen wrote:
| well, i kind of hope you're right about that
|
| it's going to be a pretty interesting couple of weeks
| jnwatson wrote:
| In defense of Bitcoin, it would have taken a decade to
| process the $40 billion of withdrawals from SVB on the
| blockchain, so a bank run couldn't have happened.
| kragen wrote:
| hmm, i saw somewhere that svb had some 37000 depositors
|
| there's no relevant limit to the amount of money in a
| bitcoin transaction, so this could have been one
| transaction with 37000 outputs, or 37000 transactions one
| output, or 370 transactions with 100 outputs, or whatever
|
| the latest block in the bitcoin blockchain is block 780'537
| https://www.blockchain.com/explorer/blocks/btc/780537
| containing 1788 transactions, totaling 4489.31 bitcoin,
| which is currently about 98 million dollars; the block
| weighs 1847 kilobytes
|
| most of these transactions had 2 outputs, though many had
| more (7, 8, 9, 20) and a few had only 1. if we estimate
| this block as containing 3700 outputs we wouldn't be far
| wrong. in that case it would take 10 blocks (a little under
| two hours) to process all 37000 withdrawals
|
| processing 200 billion dollars of transactions at the rate
| that money was being transferred in this block would take
| 2000 blocks, almost two weeks, because the average
| transaction size in this block was much smaller than svb's
| average account size; this is still less than a decade
|
| consider transaction a400f39693ab997c162156a09599557b26c7a6
| d1efa711c49f4ccf5b12505b66 https://btcscan.org/tx/a400f3969
| 3ab997c162156a09599557b26c7a... with 21 outputs. this
| transaction is 837 bytes, so it's a little smaller than
| average for this block despite its large number of outputs;
| an 1837-kilobyte block consisting only of such transactions
| would contain 2206 transactions, paying out to 46326
| different addresses
|
| so in fact the bitcoin blockchain could have processed all
| of svb's withdrawals in a single block
|
| the price of bitcoin would have to go up quite a bit for
| that to happen; bitcoin's market cap is currently only 389
| billion dollars, so this one piddly bank would have been
| more than half of it, and transferring such a large amount
| of bitcoin around at once would likely freak people out
| enough to blow the whole system up
|
| but there's no technical reason in the bitcoin blockchain
| that dissolving such a bank would be impossible or even
| difficult
|
| there have been any number of bank runs in bitcoin already,
| unfortunately
| spaceman_2020 wrote:
| For the record, no Bitcoin maxi I'ever ever met has asked to
| be bailed out for anything.
| lambic2 wrote:
| Exactly. They are very bitter at the thought of depositors
| (people who entrusted the U.S. banking system) getting
| bailed out.
| meltyness wrote:
| Maybe ideologically, but if you're still up on the
| inflation hedge narrative, I suppose you just let it
| happen.
| roflyear wrote:
| Nah they just don't want their taxes to pay for this stuff
| (tho it seems like they won't, I guess?!)
| huhneverthot wrote:
| [flagged]
| sriram97 wrote:
| As pointed out a totally avoidable problem. Glad Fed backstopped.
| Also dont like calling this a bailout - it's not.
| pdq wrote:
| Yet another new precedent by the Fed and FDIC. All depositors are
| now guaranteed their funds if a bank fails.
|
| This is the definition of Moral Hazard [1].
|
| [1] https://en.wikipedia.org/wiki/Moral_hazard
| oblio wrote:
| If payment is done by other banks, doesn't that serve as
| mitigation?
|
| Sure, when the government pays, it's super risky.
|
| However if other banks pay, for sure they'll either self
| regulate or push for better legislation.
| expazl wrote:
| > If payment is done by other banks, doesn't that serve as
| mitigation?
|
| Seems the exact opposite. Why would any bank ever conduct
| risk assessment if their potential failure will be paid by
| the industry as a whole. This effectively tells any other
| bank that might be fearing for a bank run to stock up on
| super risky assets and to let the dice roll to see if they
| end up winning big, or if their competitors end up paying for
| their losses.
| buffalobuffalo wrote:
| This is not the moral hazard risk he was referring to. The
| bank still has no incentive to load up on overly risky
| investments because in the case of an FDIC takeover, they
| (the investors and executives) will still loose everything.
| The moral hazard here is for depositors. They have an
| incentive to put their money in the bank with the highest
| possible yield no matter what the bank's investment
| portfolio looks like, since their deposits are now
| seemingly guaranteed by the banking system as whole.
|
| To be fair, I'm not sure if this is necessarily a bad thing
| for certainly types of very low yield accounts (checking
| accounts with no interest, etc). But there certainly is an
| element of moral hazard at play.
| post-it wrote:
| Because the owners of SVB lost everything, it's only the
| customers that are being made whole.
| shoxty wrote:
| "lost everything" -- they sold stock and received bonuses
| before the takeover.
| [deleted]
| travisjungroth wrote:
| It's really amazing the number of people that don't seem
| to understand that. It would be like if a dairy farmer
| overloaded his truck, crashed it and died. The government
| steps in and makes sure everyone gets milk while they
| sell off the cows. Then people say "this creates a moral
| hazard for dairy farmers to overload their trucks without
| consequences!". No, dude. He died.
| college_physics wrote:
| Dude, a depositor provides funds. Might get them back
| with interest, or not.
|
| Thats not the definition of a customer, thats the
| definition of an investor.
|
| The fact that it is supposed to be a low risk low return
| investment does not change that fundamental relation.
| travisjungroth wrote:
| Fine, lender. Doesn't change my analogy. My point is this
| question is easily answered.
|
| > Why would any bank ever conduct risk assessment if
| their potential failure will be paid by the industry as a
| whole.
|
| So the bank doesn't go under, causing them to lose their
| jobs and equity.
| t3rmi wrote:
| This is incorrect. The correct analogy would be if I set
| the speed of my automated truck to 20mph over the speed
| limit causing me to earn 10% more income for 10 years.
| Then the truck crashes and burns and my neighbors pay for
| it.
| travisjungroth wrote:
| Pay for it to who?
|
| I'd agree that's what happens with the big rescue loans
| that save businesses. But, that's not what's happening
| here. There just such extreme hyperbole about how this
| removes all risk for banks.
|
| I guess where I can meet you in the middle is that in
| this crash from excessive speed (not over the speed
| limit, but only because they lobbied to have the speed
| limit raised) the customers are getting taken care of,
| the business owner loses his business and his competitors
| have to pay for the cleanup.
|
| I'm curious how the banks feel about this. I _really_
| don't believe that doubt about the banking industry is in
| their favor, even if it could be a differentiator in
| theory. The amount they'll pay is a tiny fraction
| compared to the market cap lost this week.
| Cyph0n wrote:
| But it's not other banks - it's customers of other banks.
| yibg wrote:
| that seems like a bit of a silly argument. By that token
| any time we fine a bank we're not fining the bank, but the
| bank's customers?
| Cyph0n wrote:
| FDIC is arguing that taxpayers will not be affected
| because they are bankrolling this backstopping operation
| by forcing other banks to cover losses beyond the limit.
|
| But banks will most likely recover this imposed "fine"
| from customers, which means that customers (aka:
| taxpayers) are the ones who are ultimately bankrolling
| this whole fiasco.
| yibg wrote:
| I get what you're saying. But by that token any fines
| that are levied against banks are also paid by taxpayers.
| So if you're saying that this move is wrong since it puts
| the burden on taxpayers, then we shouldn't fine banks
| either?
| Cyph0n wrote:
| The only thing I'm saying is that - technically -
| taxpayers are footing this bill, even if FDIC claims
| otherwise. Whether or not this backstop should have even
| happened in the first place is a different issue.
| Ekaros wrote:
| Time to start the ponzi schemes. It goes on you win. When it
| fails any bank account holder pays. Win-win for everybody.
| Nothing wrong there.
| jnwatson wrote:
| No it isn't. In the history of the FDIC, no depositor has ever
| lost money, regardless of balance. The whole point of the FDIC
| is to avoid contagion, and they nipped this in the bud, again.
|
| Moral hazard is if they made the investors whole. They did not.
| Depositors are not investors.
| dragonwriter wrote:
| > In the history of the FDIC, no depositor has ever lost
| money, regardless of balance.
|
| This is false. No depositor has ever lost _insured_ money.
| Uninsured money has been lost.
|
| E.g., Washington Federal Bank for Savings failure in 2018 [0]
| has resulted in dividend payments for uninsured balances
| covering only 41.66% [1], and that took nearly three years.
|
| [0] https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
|
| [1] https://closedbanks.fdic.gov/dividends/bankfind/Dividendi
| nde...
| turingfeel wrote:
| I'm inclined to believe that may not be entirely true [1]. It
| seems there is some evidence of depositor losses but they
| have been incredibly rare and insubstantial.
|
| [1] https://money.stackexchange.com/questions/129772/has-
| anyone-...
| Rury wrote:
| >The whole point of the FDIC is to avoid contagion, and they
| nipped this in the bud, again.
|
| Maybe. Part of the problem here is related to Glass-Stegall.
| Depositors are essentially the ones backing the investors at
| a bank these days. So, they just shifted who's footing things
| here, from the depositors and investors at SIVB, to
| depositors and investors at other banks. This approach has
| essentially dispersed the risk into the broader economy. As
| so, don't be surprised if this ultimately _exacerbates_
| contagion in the end.
| nostromo wrote:
| > No losses associated with the resolution of Silicon Valley Bank
| will be borne by the taxpayer.
|
| Unless you're a taxpayer with a bank account.
| i13e wrote:
| Relevant: https://www.youtube.com/watch?v=qCGofLIzX6g
| cjbgkagh wrote:
| Isn't the creation of a new and easy way for banks to access
| liquidity a bailout by another name? And what happens to base
| money supply of tons of people withdraw cash?
| college_physics wrote:
| If I interpret the action correctly the Fed just granted all
| banks a giant put option to place any government securities at
| par for cash whenever interest rates move against them
|
| The only decent thing would be to remove the bank's freedom to
| (mis)manage interest risk altogether, have sovereign money
| deposits with the central bank and force private banks actually
| _work_ for their profits by properly managing risks
| bagels wrote:
| It's the only sensible choice with unlimited backstop. It
| should have already been happening, really because the only
| difference from last week is that the guarantee was made
| explicit and we don't have to wonder.
| ezekg wrote:
| > No losses associated with the resolution of Silicon Valley Bank
| will be borne by the taxpayer.
|
| Then how are they paying for this? Are they printing _more_
| money?
| xyst wrote:
| Crazy. I wonder how this will play out in the market.
|
| First Republic continues to drop. Trading at ~$28/share
| (previously ~$80/share on 3/10).
|
| Schwab is also feeling the pain. I guess their investments are
| tied up mostly in the tech sector?
|
| Either we will see a dead cat bounce in the next few months or
| continued hemorrhaging. I can't say for sure.
| [deleted]
| GreedClarifies wrote:
| This is unbelievable. SVB had services that others did not
| provide (in particular taking risky assets to secure loads or
| lines of credit). Those who partook in those services had to know
| that they made the bank more risky.
|
| Who comes up with these kinds of policies? My god. The moral
| hazard is unreal.
| Octokiddie wrote:
| Translation: the Fed is done raising interest rates. Period.
| Forget all of the tough talk by the team over the last few
| months. We raise until we break something. Now that we broke it,
| that's that.
|
| As for that inflation problem... It will require another
| solution...
| IAmGraydon wrote:
| Wrong. The Fed is well aware that things will break as they
| raise rate. That's the nature of what they're doing.
| SeanAnderson wrote:
| What other solutions are available?
| fullshark wrote:
| Wishcasting
| daxfohl wrote:
| Or maybe it's what they had to do to justify future rate hikes?
| I hope so, need some way out of this hole. But certainly
| billionaires are plotting how to capitalize on it. Feels like
| 2008 but in much slower motion so the wealthy can squeeze every
| dollar out of it on the way down.
| rubidium wrote:
| I just gotta say, banking has changed a ton since 1870. Then
| banks going bust was normal. Now everyone freaks out. It must be
| nice having a banking system where "bank loses my money" is not
| the major systemic risk.
| hardstartuper wrote:
| $42B was withdrawn from SVB on Thursday. That's a lot of $$$ in
| one day. No wonder this collapsed. CRO/CEO should be held
| accountable, including their poor messaging that started this. So
| should anyone who was spreading the panic including some VCs and
| startups.
| smoovb wrote:
| Poor messaging amplified by speed of light communications
| (twitter) and fast online redemptions. We're in a new era of
| flash mob bank runs. Likely time for a rethink on regulations -
| like moving to daily mark-to-market of bank security holdings.
| hardstartuper wrote:
| Well said
| [deleted]
| jijji wrote:
| its always fun when the cops show up to the bank and won't let
| you withdraw your own money.... I guess no one wants to address
| that issue.
| concordDance wrote:
| A lot of the comments here are reddit tier. Emotive simplistic
| statements by people who see an opportunity to fight the good
| fight.
| headsoup wrote:
| This seems like that thing with power companies offering varying
| rates based on demand, then when power failed people's bills went
| sky high and _someone_ just has to resume them.
|
| What I mean is, all this risk was baked in by design, with some
| stupid assumption of "well that won't happen." Now it's happened
| and the response is "well that's not supposed to happen, please
| rescue."
|
| Rules for me and not for thee.
| [deleted]
| divbzero wrote:
| To put things in perspective, the US government guaranteed $2.4
| trillion in money market funds after the Reserve Primary Fund
| broke the buck in 2009 [1] and that guarantee came directly from
| the Treasury.
|
| [1]: https://www.cnbc.com/id/48578949
| kamikaz1k wrote:
| People who want a full picture and like listening to a
| conversation instead of an article can listen to the recent All-
| In Podcast episode which discusses root cause and options.
|
| https://youtu.be/CEee7dAk25c
| 0xDEF wrote:
| lol
|
| The right-libertarian techbros at All-In Podcast are the last
| people who will tell you the truth about this. They are at the
| core of the rot. David Sacks will probably do his usual
| monologue blaming dead Ukrainian children.
| [deleted]
| andersentobias wrote:
| Yesterday, high-profile investor types declared that the govt
| should definitely bailout SVB.
|
| Now the govt are "refunding" the depositors, but not the
| shareholders.
|
| In what way is this a bad thing, if someone is willing to play
| the devil's advocate for a second?
|
| Either these high-profile investors only want to save their own
| asses OR they ostensibly have a bigger plan to rescue the banking
| system in some unbeknownst way.
|
| I'm interested in hearing the rationale for the latter.
| pc2g4d wrote:
| Why involve the Fed? Doesn't FDIC have existing funding
| mechanisms since 1933 or so?
|
| Not an expert; just my personal model of history is being
| violated a little here.
|
| I just don't understand why invoking the Fed's infinite line of
| credit is necessary. It comes across as a vote of no confidence
| in existing precedent and process, which somehow got us this far.
|
| There's nothing unprecedented happening, so why is an
| unprecedented response needed?
| ElevenLathe wrote:
| I have a somewhat basic question that nonetheless seems to be
| difficult for a non-specialist to answer with just internet
| research. I am hoping someone here can answer it:
|
| I have my liquid savings in a local credit union (which therefore
| isn't insured by FDIC, but by NCUA). Will the bank fees mentioned
| in this letter ("Any losses to the Deposit Insurance Fund to
| support uninsured depositors will be recovered by a special
| assessment on banks, as required by law.") apply to my credit
| union?
| justinzollars wrote:
| https://twitter.com/AutismCapital/status/1635075450467926016
| mberning wrote:
| Nothing is going to change in this country until people start
| questioning how we have seemingly limitless money for foreign
| aid, wars, bank bailouts, etc. but we can't seem to get shit done
| for working class people. It's not a left vs right issue. It's a
| class and power issue.
| eatsyourtacos wrote:
| Infinite money to "save the system" but no money to guarantee
| basic healthcare to everyone.
|
| Gotta love it.
| [deleted]
| dcow wrote:
| What does it mean "Depositors will have access to all of their
| money starting Monday, March 13. No losses associated with the
| resolution of Silicon Valley Bank will be borne by the
| taxpayer."?
|
| How is the taxpayer not bearing the losses? Did the gov't just
| make a special exception to release the treasury bonds SVB has in
| order to provide the missing liquidity? What exactly is
| happening?
| campbel wrote:
| Yeah this all stinks. I think they are playing games with
| words. The US taxpayer was the beneficiary of those cheap
| bonds, so releasing them early IS the taxpayer footing the
| bill.
| dcow wrote:
| Well, not if the FDIC holds the bonds and floats the cash. I
| just wish the statement had more details.
| chernevik wrote:
| It's a bailout.
|
| They're putting the cost, presently unknown and probably not
| huge, on the other banks. But the message to depositors
| everywhere, of every size, is "don't worry about your bank's
| solvency, we'll protect you".
|
| So market scrutiny is removed as a discipline on bank asset
| strategy. That leaves regulation as the only control. That
| politicizes and bureaucratizes bank lending. And the general
| presumption that Big Government will protect you from yourself is
| extended just another smidge.
|
| If you had the wit to think "hey, maybe I should be careful with
| $5 million" and bothered to put it in T-bills or an insured
| sweep, you're just a nerd who should know the Government will
| take care of such things.
|
| It isn't the end of the world, but it's a sign of how corrupt and
| complacent we've become.
| ip26 wrote:
| _the message to depositors everywhere, of every size, is "don't
| worry about your bank's solvency, we'll protect you". So market
| scrutiny is removed as a discipline on bank asset strategy._
|
| Uhh.. isn't that FDIC's raison d'tere? (Aside from the 'every
| size' part)
|
| Bank runs are caused by low confidence. FDIC makes depositors
| confident.
|
| It's also interesting that failure is socialized among banks-
| who are equipped to judge the risk their peers are taking.
| chernevik wrote:
| Actually no. The FDIC was created to protect small depositors
| without the knowledge to protect themselves against bank
| failure. Larger depositors were expected to assess their
| banks or find ways of safeguarding themselves.
|
| One argument against deposit insurance was that it would lead
| to complacency and businesses offloading their responsibility
| to the government. And, here we are.
|
| 100% deposit insurance sounds great until you realize it
| leads to government regulation of 100% of the lending.
| TANSTAAFL. That is a very very bad outcome, there's very
| little room in it for a model like the Silicon Valley Bank,
| but that's where we are headed.
| vishnugupta wrote:
| +1.
|
| To add, now banks will have no incentive to be careful about
| who they lend to. In fact they will in all probability begin
| making riskier and riskier loans knowing fully well that if
| they make enough loans to become a "systemic risk" they will be
| bailed out by future tax payers.
| jijji wrote:
| It is wise for the FDIC, Fed and Treasury to make this joint
| announcement on the Sunday before banks/markets open on monday
| morning. The timing is crucial, because without such an
| announcement, there will likely be a run on all banks, not just
| SVB and Signature Bank liquidity problems. The liquidity
| problem would have a ripple effect to all banks. Why put money
| in banks, over $250k, if all the rest is going to disappear
| because of the ponzi scheme the bank is playing on the bank
| end. The banks don't have the money that the customers
| deposited, obviously.
| sanderjd wrote:
| Yeah unfortunately I think this is a good take, and it's a
| bummer. I'm glad for people getting their deposits made whole
| and happy everyone will be able to make payroll, but I would
| have really preferred a private sale, even with some amount of
| haircut, to further expanding the moral hazard in banking.
| tome wrote:
| Yup, I think this is the most accurate one-minute assessment of
| the whole debacle.
| chernevik wrote:
| I would add, it's just hilarious to see so many claim "it's not
| a bailout because shareholders were wiped out!" Everyone knows
| bailouts are bad, and that people shouldn't rely on them. But
| they want their money, so of course _their_ protection isn't a
| "bailout". It's just . . . depositors made whole!
|
| Yah. A "bailout" is any injection that makes whole any
| interested party facing losses. As in "The depositors were
| bailed out".
|
| The hypocrisy around this is really disappointing.
| phailhaus wrote:
| I don't understand. You think the depositors should be
| punished for...trusting SVB? Do you expect every startup to
| run their own little hedge fund to manage their cash?
| argc wrote:
| Agreed, in the abstract the system is better if people and
| businesses are more protected from events that are out of
| their control.
|
| The argument that the system should punish people for not
| risk averse enough to protect themselves against bank
| failures is like saying that languages with type checking
| are bad because they make soft programmers who can't
| protect themselves, even though the safer system is easier
| to use, and allows its users to focus on different, more
| important/business relevant problems.
| CyanBird wrote:
| > expect every startup to run
|
| Yes
|
| It is the most basic of business tenets to do risk
| assessment on strategic company decisions to reduce
| exposure to risk
|
| I am sorry you are offended by the fact that I look down on
| you for your lack of business competence. I used to expect
| better of people managing hundreds of millions of usd in
| capital, but I guess not
|
| It is due time for Silicon Valley to face some financial
| discipline
| klabb3 wrote:
| > Do you expect every startup to run their own little hedge
| fund to manage their cash?
|
| Don't startups already follow the standard model of
| whatever the VCs say is the right way to do it? As in--
| there's a tremendous amount of cargo culting, no? Or
| perhaps that the banks specifically require an exclusive
| deal. In either case, not an unsolvable problem.
| xdennis wrote:
| It's not punishment. You know that when you put your money
| in a bank there's a change you won't get it back. That's
| why you're supposed to pick a bank you're okay with.
|
| That's how it is with everything. If a farmer plants some
| crops but it drops in price to the point it's completely
| unprofitable, is he being punished for growing food? Does
| the government bail him out?
| zamnos wrote:
| Ah I mean if you really want to get into farming, farmers
| get paid by the US government and your taxes to _not_
| grow things.
| matheusmoreira wrote:
| > You think the depositors should be punished
| for...trusting SVB?
|
| Yes.
|
| > Do you expect every startup to run their own little hedge
| fund to manage their cash?
|
| I expect them not to trust banks.
| weixiyen wrote:
| There's some countries that work like what you propose.
|
| Those are not the countries Americans are flocking to for
| good reason.
| Aperocky wrote:
| The depositors didn't make the decision to turn deposits into
| low interest long term bonds, and hold it after interest
| rates have risen. They are at best a innocent party with
| slightly less awareness.
|
| If a drunk driver is doing 120 mph on a freeway and crashed
| into a normal motorist and sent him to the hospital. The
| right argument or response isn't that he should've seen it
| coming in the rare view mirror and moved a lane over.
| matheusmoreira wrote:
| > The depositors didn't make the decision to turn deposits
| into low interest long term bonds, and hold it after
| interest rates have risen.
|
| They lent their money to the bank. They are absolutely
| responsible.
| Aperocky wrote:
| To a degree yes, you're absolutely correct.
|
| That social model also brings great depression as a
| feature, and we decided to moved away from it because
| great depression bad.
| matheusmoreira wrote:
| Moved away from 1929 straight to 2008.
| Aperocky wrote:
| > Between 1929 and 1932, worldwide gross domestic product
| (GDP) fell by an estimated 15%. By comparison, worldwide
| GDP fell by less than 1% from 2008 to 2009 during the
| Great Recession.
|
| > The Great Depression/Peak global unemployment 24.9%
| 1933
|
| > Great Recession/Peak global unemployment 10% Oct 2009
|
| Not even closely comparable, thank you for nominating
| cases as to why the new model is superior.
| twblalock wrote:
| > But the message to depositors everywhere, of every size, is
| "don't worry about your bank's solvency, we'll protect you".
|
| Good, because that is the message the public needs to hear
| right now, if you don't want a domino effect to destroy the
| banking industry because customers freak out.
|
| Obviously some regulations need to change but it's not worth
| sacrificing the economy and hurting everyone to make that
| point.
| loaph wrote:
| I'm not saying you're right or wrong, but if this is true why
| have the $250k limit to begin with?
| twblalock wrote:
| Because most of the time when a bank fails it is obviously
| because of problems with only that bank (which is usually a
| small regional bank that just isn't managed very well), and
| it doesn't widen into a national banking crisis.
| seo-speedwagon wrote:
| > If you had the wit to think "hey, maybe I should be careful
| with $5 million" and bothered to put it in T-bills or an
| insured sweep, you're just a nerd who should know the
| Government will take care of such things.
|
| It creates the precisely wrong incentives. If you run startup
| and spend any time, effort, or money to mitigate these risks,
| you're being irresponsible. The Fed will bail you out, stop
| wasting your precious runway on nonessential things.
| eightysixfour wrote:
| Counterpoint - this is the type of risk that should be
| abstracted in our system. Screwing around with cash
| management for risk avoidance is yet another layer of effort
| that shouldn't be passed on to the consumer (business or
| individual) which is the result of an old system that doesn't
| exist anymore where a community bank had a comprehensible
| level of risk and reach.
| wharfjumper wrote:
| What is the purpose of having non Government owned banks in
| this scenario?
| zainhoda wrote:
| I think this is probably where we will end up: Deposits
| above the FDIC insured level have to automatically go into
| money market funds with a weighted average maturity of 5
| days or less instead of the loan portfolio of the bank.
| sneak wrote:
| It seems like raising the FDIC insurance amount to, say,
| $10mm USD fixes this for the general case.
| onionisafruit wrote:
| Why weren't they already advising their companies to not put
| more than they can afford to lose in a single bank?
| killerstorm wrote:
| Modern civilized societies enable specialization.
|
| You don't have to study plumbing, electricity, medicine, etc -
| you can buy all this stuff as a service. If something breaks, a
| person comes and fixes it.
|
| This allows you to specialize on whatever you want to do - say,
| build a startup. Software. Painting.
|
| This is absolutely, definitely more efficient than forcing
| everyone to learn plumbing.
|
| Financial system is basically plumbing for money. It should be
| easier than plumbing, as in plumbing requires us to deal with
| unpredictable forces of nature. Money is completely in our
| minds, so controlling it should be trivial in comparison.
|
| But it's not as reliable as plumbing. Which means it's poorly
| designed. People intentionally made it convoluted to make it
| possibly to fish in troubled waters.
|
| If you claim that only people with "the wit" deserve their
| savings to be safe, you're disgusting.
|
| The government is responsible for fiat money, by definition.
| They should make it safe. SVB problems were caused by insane
| interest rate jerk by the Fed. They caused the problem, they
| should fix it.
|
| How it should work: government money is safe, but inflationary.
| If you have "the wit" you can escape from inflation. Last time
| I checked, the government does not prevent anyone from offering
| inflation-hedged products. Financial institutions can use the
| entirety of math to offer whatever they want.
| vc8f6vVV wrote:
| You realize that if there was such a model SVB wouldn't have
| existed and startup founders would have to turn to e.g. BoA,
| which ... would have turned them down? So those startups
| wouldn't have existed in the first place just as SV as a
| whole. Problem solved! Back to the USSR!
| modeless wrote:
| Shareholders are wiped out, so there will still be quite a bit
| of market scrutiny on banks.
|
| Edit: just to point out that I'm not claiming this is "not a
| bailout because shareholders were wiped out". It's a bailout of
| course.
| dougmwne wrote:
| What about the VCs? Why were they made whole? They are the
| ones that owned all these businesses.
| modeless wrote:
| Why not? They're depositors like any other. The bank is at
| fault for making risky investments. VCs didn't cause that
| any more than the other depositors did.
| dougmwne wrote:
| The VCs took a risk by choosing to use the same bank, not
| insuring the deposits beyond the FDIC minimum, then
| stamping toward the exit every man for themselves instead
| of looking after their own community. Privatized gains
| and socialized losses.
| modeless wrote:
| Blaming depositors for a bank run is stupid. The bad
| investments and the lack of diversity in depositors are
| squarely the bank's fault. The bank does not deserve
| charity from its depositors.
| grahamstan wrote:
| In this case, the 'depositors' are wealthy companies and
| individuals, by definition holding >$250k, who could
| afford to do due diligence.
|
| Obviously they were getting perks working with 'Silicon
| Valley Bank' that didn't exist at say, Wells Fargo. No
| farmer in America was banking there because, hey, that's
| obviously kind of a sketchy bank.
|
| There was a reward being given to the wealthy depositors,
| and none bothered to investigate the associated risk.
| Well, actually, Thiel did, noticed the risk, and pulled
| out his companies. Why should we bail out the people who
| missed this?
| kortilla wrote:
| >No farmer in America was banking there because, hey,
| that's obviously kind of a sketchy bank.
|
| Wtf are you talking about? It was the 20th largest bank
| in the country. It wasn't some sketchy thing exclusively
| for startups.
| argc wrote:
| It doesn't matter who was banking there, from my
| perspective a society where we have to worry about bank
| runs and bank failures is worse than a society where we
| don't.
| xdennis wrote:
| > The bank is at fault for making risky investments.
|
| And the depositors (VC or not) are at fault for putting
| their money in a risky bank.
|
| The only people who are not at fault are the ones who are
| being forced to pay for the mistakes.
| chernevik wrote:
| As we've seen this week, the scrutiny of depositors is far
| more powerful than that of shareholders.
| modeless wrote:
| Shareholder scrutiny preceded and caused the depositor
| scrutiny.
|
| Edit: I guess the point is that without the threat of
| depositor scrutiny, shareholders would have no reason to
| care about SVB's poor investment decisions, since they were
| only a problem in a bank run scenario caused by depositors.
| Failing that, the only risk to shareholders would be
| regulators, and regulators weren't doing anything about
| this problem, they were enabling it. I think you're right
| about that.
| andrewjl wrote:
| We've seen the opposite since it started with a failed
| capital raise and double digit stock price declines.
| opportune wrote:
| Shareholders in SVB have already lost all their money, and
| approximately nobody is arguing for them to be made whole,
| so I'm not sure I understand this statement. The bailout is
| for depositors
| sudosysgen wrote:
| I mean yes? Don't worry about your bank's solvency is the exact
| reason why we _should_ have the FDIC. It fundamentally nips
| bank runs in the bud. Then it 's the government's
| responsibility to call out banks which are acting recklessly.
| realcul wrote:
| Totally agreed.bailout anyway you want to cut and slice it!
| they should have put a cost on the depositors! Why do banks and
| depositors of other banks have to incur the additional cost
| coming from here!
| leot wrote:
| If you've been privy at all to the conversations founders etc.
| have been having for the last 48 hours, I don't think they're
| going to come away from this feeling like "don't worry". There
| was never a guarantee that the fed would step in, and there
| won't be a guarantee going forward. Treasury management will be
| a thing that all VCs worth their salt will insist on going
| forward.
| kortilla wrote:
| But the message in this announcement is pretty clear, the put
| is there and none of that turned out to be necessary and
| won't be going forward. It will be financially worse for you
| to put your money into less liquid things.
| csomar wrote:
| This.
|
| It makes sense that someone with $1.000 shouldn't have to worry
| about T-bills, interest rates or splitting his risk across
| multiple banks. The $250k more than covers that.
|
| But someone that has $250m should be able to understand that
| money is not really the same at such scale and that storing it
| is not possible without exposure) to interest rates. He can buy
| T-bills, sweep accounts, or take the risk. But when your wealth
| is a few millions or you are managing a few hundred millions,
| you should know (or your money managers) better.
|
| Welcome to the new old world. Crypto is pumping 10% this
| morning on this news.
| jaxr wrote:
| Who scrutinizes the banks they make business with? To me, that
| is exactly the role of the regulators. Make sure the banking
| system is sound, and if you get the license to run a bank, you
| do it under certain rules that will protect depositor's money.
| I don't see how depositors should be held responsible in this
| case. And worst of all, you are actually punishing depositors
| who trusted the bank and the banking system, versus the ones
| that caused the run. Which in my view are also not to judge,
| since they were only protecting their assets.
| pclmulqdq wrote:
| If you're depositing $10 million, you should be willing to
| spend $100k reading a few balance sheets. That's why the
| limit is $250k.
| danielmarkbruce wrote:
| The CFO at any reasonable company can read the balance
| sheets of a few banks in a few hours and will need to do it
| 4 times per year. It's days of work, not more. And if the
| company is big enough, this job will be in the treasury
| team and again, it's certainly less than $100k worth of
| work.
| danielmarkbruce wrote:
| People with money and a brain. Smart businesses have a
| treasury department, one job of which is to look at the risks
| of where their money is.
| bpodgursky wrote:
| It's an incredible waste of time and energy for every
| business to do this.
|
| Imagine if every company was responsible for making sure
| their catering services didn't poison their employees.
| Technically, every company could hire a food safety
| department to validate that every catered lunch wasn't
| toxic.
|
| It would be a stupid waste of resources! Businesses should
| be able to just buy food that isn't toxic! Likewise, they
| should be able to simply put their money somewhere that
| isn't dangerous! So they can focus on the solving new
| problems that every isn't solving pointlessly in parallel.
| danielmarkbruce wrote:
| The amounts of money involved, the relative infrequency
| required and the relative ease of doing it mean it's
| absolutely not a waste of time. And it's done by smart
| companies all around the world today.
|
| Talk to anyone in the treasury function at any company of
| any reasonable size, most of them will be doing it.
| leehuffman wrote:
| I think you're missing the piece where "company" means
| any registered legal entity. This can be a single human
| to <= 8 employees to <= 50 employees to >= 1000.
|
| You're getting lost in the current context of what you
| assume to be SVB's majority customer; the banger
| 'unicorns' we've all read about over the last decade, who
| would/should have this 'treasury department' you're
| referencing.
|
| Zoom tf out, remove SVB, and tell the guy who fixed your
| fucked plumbing last go around that his lack of a
| treasury department and/or insight into what his primary
| bank is doing with their deposits is a major problem and
| they deserve to eventually get fucked because of it. I'll
| wait...
| danielmarkbruce wrote:
| FDIC insurance is up to 250k. It's covers the plumber.
| Any small business (and most consumers) doesn't need to
| think about this stuff.
|
| The comments above are about companies with millions of
| dollars. It starts with someone talking about $5 million.
| [deleted]
| killerstorm wrote:
| An average house costs more than $250k. If the system
| cannot secure a typical transaction people make, it's a
| shit system.
| zfell wrote:
| Another concerning factor is that many large VC firms sent
| emails to their portfolio companies (hundreds or more at a
| time) warning them to withdraw funds, triggering the run.
|
| An alternative could have been for this group of already
| closely connected individuals to call an emergency meeting and
| agreeing to send the opposite message to their portfolio
| companies to avoid the crisis. Given SVBs issue was really
| about profitability and not solvency without the bank run.
|
| I'm skeptical a real lesson will be learned here, and we lose
| the opportunity to build scar tissue. Instead, we wake up from
| a nightmare, brush it off, and move on.
| throw123123123 wrote:
| If a VC firm tells you to keep your funds in a bank that gets
| a run, and you lose access to it, that VC firm destroys its
| reputation forever.
|
| Please think about the payoff matrix and the fiduciary
| responsibility of the actors.
| standapart wrote:
| This is a significant simplification of the matter. I doubt
| it works in reality.
|
| Replace the words "VC firm" with "Sequoia" in the previous
| statement and see if it rings true that Sequoia's
| reputation would be destroyed forever.
| srcreigh wrote:
| It's kinda like prisoners dilemma, except the prisoners can
| meet and discuss a cooperative strategy.
| weixiyen wrote:
| > the general presumption that Big Government will protect you
| from yourself is extended just another smidge
|
| What would be a better alternative? Asking a top 20 bank for
| their data room whenever I need to deposit something over
| $250k?
|
| At some point, there needs to be some level of trust with
| simply putting money in a place and not a single cent
| disappearing. That should be a reasonable expectation in any
| functional society.
|
| Anything otherwise would be highly inefficient, creating
| unnecessary work that produces little to no value.
| HPMOR wrote:
| The discourse on this thread and Twitter is astoundingly inept.
| If the FDIC had permitted uninsured depositors to not be made
| whole, there would've been a systemic risk to American banking.
| Confidence in the banking system is critical to its well
| functioning. Quite literally banks are built by confidence that
| their depositors will get their money back. Discussing whether
| SVBs depositors should've taken a haircut misses the point
| entirely.
| sanderjd wrote:
| I don't get how your comment demonstrates that the rest of the
| conversation is inept. The whole conversation everywhere has
| been about this trade off.
| HPMOR wrote:
| People are arguing whether SVB depositors should've been
| permitted to take a haircut. This not a discussion. Had
| depositors lost a SINGLE penny, there would be a very
| widespread run on bank deposits as people try to get below
| the $250k figure. There was never a question that the
| Treasury was going to ensure that uninsured depositors were
| made whole. To argue about whether the depositors should've
| been made whole or not is tantamount to arguing whether we
| should willfully inflict a depression worse than 1929 on
| American citizens. It's unconscionable and profoundly stupid.
| sanderjd wrote:
| I think this is that rare case where "begging the question"
| is actually apt! You are taking this as an inarguably
| factual premise:
|
| > _" Had depositors lost a SINGLE penny, there would be a
| very widespread run on bank deposits as people try to get
| below the $250k figure."_
|
| But whether a federal bailout was necessary to avoid that
| is exactly the question that people have been debating all
| weekend. It isn't an inarguably factual premise, it's the
| thing that is being discussed.
|
| For my part, I think that if 1. A private purchaser had
| been found or 2. A bunch of jackasses with huge social
| platforms hadn't spent the weekend demanding they be bailed
| out, then your premise would have been false.
|
| Both of those different outcomes was plausible on Friday.
| But in the universe that actually played out, I tend to
| agree that the bailout ended up being necessary.
|
| But I still think it's bad that it was. And not just bad
| for everyone else, bad for us, here, many of whose
| livelihoods depend on the continued thriving of an industry
| that has sadly just demonstrated itself to be (to borrow a
| word) inept and unworthy of sympathy.
| FormerBandmate wrote:
| Exactly. The VCs were right, this saved a lot of regional banks
| and may just stave off a major recession
| eschulz wrote:
| Is a recession this year still not considered likely, even
| before this SVB meltdown?
| pm90 wrote:
| The labor market numbers have been strong despite rising
| interest rates and inflation has been falling (albeit still
| somewhat high). The signs seem to indicate a soft landing
| is possible.
|
| However: widespread bank failures and panics can change the
| situation in an instant. If belief in the banking system
| evaporates, its not just a recession but likely a total
| meltdown that we're looking at.
| kzrdude wrote:
| Shouldn't the goal be to create a bank ecosystem that is more
| robust? So that the failure of one does not lead to a domino
| reaction of failures?
| danans wrote:
| > Shouldn't the goal be to create a bank ecosystem that is
| more robust?
|
| You are seeing the robustness in the actions taken by the
| FDIC right now. Not all failure modes can be prevented ahead
| of time. There is no failure-proof banking system structure.
|
| > So that the failure of one does not lead to a domino
| reaction of failures?
|
| The "domino effect" in the context of bank runs is a result
| of human psychology, specifically herd panic behavior - not
| something that can be changed by the financial system. At
| best it can be tempered.
| cheeseomlit wrote:
| Maybe people should have the option to save their money in
| a bank that doesn't loan out their savings at all? Does
| such a thing exist? I would be willing to pay a flat
| monthly fee to keep my money in a bank and use their
| services in lieu of receiving their paltry interest on my
| savings account, in exchange for the knowledge that they
| actually have my money. I know this system of massive loan-
| to-deposit ratios is conducive to economic growth,
| nevertheless I get the impression we're all being scammed
| on a fundamental level by the banking system at large- and
| any suggestion of meaningful change is always dismissed as
| if this house of cards is just the way things have to be,
| and always has been
| hypothesis wrote:
| According to some comments here, such a narrow bank was
| proposed, but was denied license by the Fed, which
| apparently even fought in court to uphold the denial.
| paulddraper wrote:
| > Confidence in the banking system is critical to its well
| functioning
|
| Some might say that confidence created this situation in the
| first place.
| rybosworld wrote:
| Confidence fell in _SVB_ specifically.
|
| We did not see broad bank runs because confidence in the
| banking system did not fall. And now we can see why: because
| the FDIC backstopped depositors.
| Willson50 wrote:
| When the future cannot be predicted accurately, it may be wiser
| to prioritize making prudent decisions that benefit everyone,
| rather than seeking retribution against wrongdoers. It's
| important to consider that both bank shareholders and senior
| management could face significant losses and lose their
| positions.
| bagels wrote:
| Why? It's completely unnecessary that bank deposits should
| face this much risk.
| supertrope wrote:
| To play devil's advocate:
|
| Toilet paper consumers should know the risk of not having 30
| rolls of toilet paper stashed at all times and should face
| the consequences for that risk.
| eloff wrote:
| That's pretty extreme. There's plenty of blame for SVB, but
| the depositors? That's victim blaming.
| HPMOR wrote:
| No, they don't know about the risks and they're shouldn't be
| any to the depositors. Banks are highly regulated
| institutions and the creation of the FDIC was intended to
| prevent a systemic bank run, with people shoving cash into
| their mattress. This is precisely what would've happened had
| SVBs depositors taken any form of haircut.
| [deleted]
| [deleted]
| fidgewidge wrote:
| It is not inept. People aren't however pointing out the actual
| switcheroo here: by the definitions everyone was using just 48
| hours ago SVB was _not_ systemically important nor did it post
| systemic risk. That designation was meant to be for financial
| institutions that were directly depended on by other financial
| institutions. Nobody is saying that 's true here.
|
| What Yellen has done now is redefine "bank that poses systemic
| risk" to mean "any bank at all", which in turn shows that the
| insurance limit was never real, and that in turn the winners of
| the system are those who don't believe in the rules, but rather
| those who gamble on duplicity and the socialist leanings of
| government employees. Those who tried to believe in the honesty
| of the system got burned, again, and those who bet on it being
| meaningless won, again. The long term consequences are fearful.
| HPMOR wrote:
| You're correct, in that it was not immediately clear whether
| SVB warranted the systemic risk declaration. However, it
| should appear clear that fear is very contagious and it has
| never been easier to move tens of billions of dollars of
| deposits with just a few button clicks. This poses a sincere
| risk to banks not already declared Systematically Important
| Banks (SIBS). The Treasury and Federal Reserve correctly
| intuit that it would cost far more to the real economy, and
| to tax payers to cover the cost of SIBs then it would be to
| signal that uninsured depositors will be made whole.
|
| Your claim that "those who believed in the honesty of the
| system got burned again", is not entirely true. Equity and
| debt holders have been completely wiped out. Compared to the
| Trouble Asset Relief Program (TARP), in 2008, this barely
| constitutes a bailout. Furthermore, if the Frank-Dodd stress
| test requirements for banks with greater than $50 billion had
| not been relaxed in 2018 to $250 billion, then SVB and
| Signature bank would have been seized and sold off well
| before there was this bank run. It is clear that even smaller
| regional banks need to face the same rigorous stress tests
| that SIBs face.
| fidgewidge wrote:
| _it should appear clear that fear is very contagious_
|
| This can be true, and the Fed's move can be the right one,
| and it can still be case that the system has been
| dishonestly socialized by the back door and that this will
| have terrible long term consequences. It can also be that
| the Fed's fears were overblown and that in fact letting SVB
| and a few other similar banks fail would not wreck the
| entire system.
|
| _Equity and debt holders have been completely wiped out._
|
| Only those who were bag holding at the moment of collapse.
| There will have been plenty of equity and debt holders who
| profited from SVB's risk-taking behavior and got out in
| time to realize that profit. The lesson bank equity holders
| will learn here is _not_ that banks need to be more
| careful. It 's that you can set up a bank, drive custom and
| profit with hyper-risky tactics, and as long as you sell
| your stake before the fraud collapses you'll not only get
| away scott free but nobody will even care because the large
| numbers of angry people who might organize politically to
| get justice will all be bought off by taxes on everyone
| else.
| dannykwells wrote:
| Precisely. This was not about SVB, or any morality tale on VC
| etc. Any other action would create systemic contagion that
| could spread far and wide.
| CSMastermind wrote:
| > Any other action would create systemic contagion that could
| spread far and wide.
|
| They could increase the FDIC coverage limit to a level that
| would avert a run, shoring up public confidence in other U.S.
| banks.
|
| The BTFP if I'm reading this correctly values assets _at par_
| instead of face which is wild. It 's not just providing
| liquidity to banks but rather giving them free money.
| HPMOR wrote:
| The Bank Term Fund Program (BTFP) allows banks to pledge
| their underwater MBS as collateral to borrow at par value
| from the Federal Reserve. This lending facility is a stop
| gap measure and still requires repayment from the banks if
| they utilize this facility, within a one year time. If the
| banks do not pay back the loans, then that means they have
| defaulted and will be seized by the FDIC or Federal
| Reserve. The Treasury department has promised to cover $25
| bn in losses for this program to the Federal Reserve but
| it's unlikely this fact will be used. This program is
| giving free money in the sense of providing below market
| cost of liquidity but, it is not even close to the Troubled
| Asset Relief Program in 2008 or Payroll Protection Program
| in 2020.
| CSMastermind wrote:
| I see, thank you for clarifying.
| optimalsolver wrote:
| How long until the usual crowd are back to full Ayn Rand/rugged
| individualist mode after getting their asses saved by the Fedora
| Reserve?
| not_the_fda wrote:
| Probably Monday.
| jen20 wrote:
| Seeing how quickly David Sacks turned from anti government to
| practically begging the government to save him was one of the
| highlights of this weekend for me.
|
| It's almost a shame they couldn't carve out a few exceptions
| for those who don't believe in regulation.
| MagicMoonlight wrote:
| But don't they have assets equal to their deposits? So why the
| fuck do they need bailing out? Tell the bank runners to get
| stuffed and wait for the assets to be sold.
| FormerBandmate wrote:
| It was announced as a footnote in this Treasury announcement ,
| which also guarantees 100% deposits for both SVB and Signature
| Bank above 250k
| jmclnx wrote:
| So we have a bailout. In case you missed it, SVB successfully
| lobbied Congress to weaken dodds regulations. So in a way,
| similar to 2008, Main Street pays so the rich will not loose
| their funds.
|
| https://www.theguardian.com/business/2023/mar/11/silicon-val...
|
| https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-g...
|
| https://www.dailymail.co.uk/news/article-11847295/CEO-collap...
| colinmorelli wrote:
| This is not a bailout in the historical sense of the word.
| Equity holders in the bank are getting nothing. They'll be
| wiped out. Senior leadership has been removed.
|
| All this did was protect _depositors_, the people who put
| their money in the bank and thought it would be there
| tomorrow. And it's being done by dipping further into the
| FDIC fund, which is paid by banks. It will reach down to
| taxpayers likely through reduced rates or increased fees.
| zzleeper wrote:
| Well you are bailing out unsecured depositors who should
| have known what they were doing.
| ITB wrote:
| Why are people so freaking obsessed with passing
| responsibility onto depositors. It's perfectly reasonable
| for the government to be responsible for protecting money
| as property, just like we do with every other property.
| Unlike a house which needs maintenance, money is a
| virtual good. There's nothing I should have to do to
| maintain my claim on my bank account.
| college_physics wrote:
| > There's nothing I should have to do to maintain my
| claim on my bank account.
|
| Thats a wrong statement. You are thinking of money as a
| public good and thats how it should be, but thats not
| what it is now. Your claim is against a private
| enterprize.
|
| You could have access to risk free sovereign money with
| the central bank and its entirely possible. But private
| banks are livid against it because it would deprive them
| of precisely the kind of game that blew up in their face
| with rising interest rates and discounted government
| securities.
|
| Ultimately this is not about idiot VC depositors and
| whether they deserve a haircut or not. Its about idiot
| bank managers and whether they deserve extracting rents
| from the entire economy doing basically nothing.
| colinmorelli wrote:
| It is absolutely in the collective market's best interest
| to retain confidence in the bank infrastructure of the
| nation. There were already people lining up at First
| Republic over the weekend, Signature Bank was shut down
| as part of this same announcement, and almost certainly
| more would have come in the following week.
|
| The collapse of a ~$200B bank was going to have
| significant ripple effects that would almost certainly
| have exceeded the fees that banks will pay to fill in any
| shortfall resulting from this backstop, whether they're
| ultimately charged down to account holders or not.
| christkv wrote:
| It's not a bailout it's a backstop. All shareholders of SVB
| are done for.
| unity1001 wrote:
| Bank bailouts in 2008 were not made to bail out 'the
| shareholders'. They were made to bail out the sunken assets
| inside the banks so that those banks could continue
| operating, including still 'having' the depositors'
| deposits. Because if the bailout was not made, all of those
| deposits would go away due to there not being assets enough
| to cover the deposits.
|
| That's what a bailout is. And this is precisely that.
| londons_explore wrote:
| > Finally, the Federal Reserve Board on Sunday announced it will
| make available additional funding to eligible depository
| institutions to help assure banks have the ability to meet the
| needs of all their depositors.
|
| This tells me there were other banks in a similar position, and
| those other banks are being offered free money... And those banks
| don't even have to get rid of their shareholders, bondholders, or
| upper management.
| everybodyknows wrote:
| An analogy: Smart guy is on the freeway when he's passed by
| someone going 90. Smart guy pushes up to 90 also, but stays 1/4
| mile back. A lot of miles later, flashing blue lights pull up
| behind the leading speeder. SG slows to the limit and
| congratulates self on the early arrival.
| ChatGTP wrote:
| Unregulated capitalism is good when you're making money,
| socialism is good when you've lost your money...
|
| God bless America!
| codeddesign wrote:
| 97% of accounts are not insured. The whole point of the $250k
| rule is so you don't wake up and are homeless.
|
| This is a corporate bail-out.
|
| 1. FDIC revoked the limit and is ensuring unlimited funds.
|
| 2. Providing funds to other banks that may be in distress.
|
| 3. This guarantees banks have no accountability & the govt will
| cover all losses.
| azundo wrote:
| Sort of burying the lede - also states that all SVB depositors
| will be made whole along with Signature depositors.
| refulgentis wrote:
| Oddly, that's whats happening on Twitter too: the haute couture
| space ppl ran to start a space and frame it as "the contagion
| beginning"
|
| I find this to be an odd moment in internet history, a lot of
| its senior elders seem to have forgotten the odd effects it has
| on discourse and are unintentionally leaning into it
| ummonk wrote:
| Signature Bank going under is proof that contagion was indeed
| happening, contra what some people (e.g. Paul Krugman) were
| saying.
|
| This decisive action by the government (both ensuring
| depositors will be made whole immediately, and the Federal
| Reserve giving out extra liquidity) should ensure that the
| contagion doesn't spread any further though, an banks like
| First Republic will avoid going under as well.
| archgoon wrote:
| [dead]
| FormerBandmate wrote:
| I could have sworn that was already posted here, my bad. Can
| mods change the thread title?
| clessg wrote:
| It's early enough that you _might_ still be able to do so
| yourself. I 'm not sure, though. Cmd-f (or ctrl) edit! :)
| FormerBandmate wrote:
| Good catch
| mightybyte wrote:
| I'm not quite sure of that interpretation of the text. Here's
| the quote:
|
| > We are also announcing a similar systemic risk exception for
| Signature Bank, New York, New York, which was closed today by
| its state chartering authority. All depositors of this
| institution will be made whole. As with the resolution of
| Silicon Valley Bank, no losses will be borne by the taxpayer.
|
| To me, that last sentence about SVB is distinct and separate
| and not implying that the previous sentence about Signature
| depositors applies to SVB. But you could be right as well, I
| don't think it's clear.
| kgwgk wrote:
| The "also announcing a similar" bit is a subtle hint that one
| may also want to read the previous paragraph :-)
|
| "After receiving a recommendation from the boards of the FDIC
| and the Federal Reserve, and consulting with the President,
| Secretary Yellen approved actions enabling the FDIC to
| complete its resolution of Silicon Valley Bank, Santa Clara,
| California, in a manner that fully protects all depositors.
| Depositors will have access to all of their money starting
| Monday, March 13. No losses associated with the resolution of
| Silicon Valley Bank will be borne by the taxpayer."
| heartbreak wrote:
| It's pretty astonishing reading the comments in this thread
| just how many people have not read this press release. It's
| not even a complicated message!
| kragen wrote:
| i thought it was an unnecessarily ambiguous way to phrase
| it; 'fully protects all depositors' and 'will have access
| to all of their money' doesn't explicitly say that they
| won't take a haircut; after all, after a haircut, you
| still have access to all of your money, it's just that
| 'all of your money' is less than it was before
|
| it relies on the following paragraph to be explicit that
| all depositors will be made whole and will not lose any
| money
| kgwgk wrote:
| > fully protects all depositors
|
| > will have access to all of their money
|
| Maybe the should have added
|
| > will not lose any money
|
| Third time's a charm!
| whodidntante wrote:
| And we wonder why people are turning to marxism. If the "people"
| are being forced to bail out a bunch of rich people who create
| self serving incestuous relations between their companies to game
| the system and bend and break laws when it suits them, why not
| just have the "people" own everything ?
|
| As a capitalist, I am appalled by the behavior of the VC industry
| and the government that enables them.
|
| And, yes, it is a bailout. There may not be any taxpayer money
| front and center, but this will be paid by the average person in
| some way, and not by the people who created this fiasco, or those
| who are going to benefit from it.
| swyx wrote:
| > After receiving a recommendation from the boards of the FDIC
| and the Federal Reserve, and consulting with the President,
| Secretary Yellen approved actions enabling the FDIC to complete
| its resolution of Silicon Valley Bank, Santa Clara, California,
| in a manner that fully protects all depositors. Depositors will
| have access to all of their money starting Monday, March 13.
|
| this is also material. means the fear for SVB depositors being
| unsecured creditors stops today.
| tazjin wrote:
| There used to be a TV show in Europe called "Domino Day", where
| teams competed to build very elaborate domino structures. Used to
| love the sound of the dominos falling ...
| oblio wrote:
| If you don't know what the other dominoes are or when they'll
| fall, it makes for a very boring game of dominoes.
| refurb wrote:
| Looking forward to the Econtalk podcast on this.
|
| Russ Roberts usually has some pretty knowledgeable people on who
| know behind the scenes stuff.
|
| Should be fascinating what comes out over the next few months.
| mkmk wrote:
| "After receiving a recommendation from the boards of the FDIC and
| the Federal Reserve, and consulting with the President, Secretary
| Yellen approved actions enabling the FDIC to complete its
| resolution of Silicon Valley Bank, Santa Clara, California, in a
| manner that fully protects all depositors. Depositors will have
| access to all of their money starting Monday, March 13. No losses
| associated with the resolution of Silicon Valley Bank will be
| borne by the taxpayer."
| mihaaly wrote:
| When I read the first sentence of the statement, but knowing
| ahead its generic content from news summary, this sentence:
|
| > Today we are taking decisive actions to protect the U.S.
| economy by strengthening public confidence in our banking
| system
|
| I laughed.
| FormerBandmate wrote:
| This should stop the contagion, hopefully. No losses to
| depositors, so no risk of depositing at regional banks
| kqr2 wrote:
| This special fee will most likely be passed onto bank account
| holders either through lower interest rates or higher fees, so
| most taxpayers with bank accounts will likely be affected
| indirectly.
| jachee wrote:
| Wonder how it applies, if at all, to credit unions.
| mixdup wrote:
| it does not, credit unions are not members of the FDIC.
| They are members of the NCUA, which serves the same purpose
| as the FDIC for credit unions
| bombcar wrote:
| If anything they'll benefit slightly by being able to
| offer slightly higher rates.
|
| Though hopefully the total cost after everything is
| worked out is vanishingly small - otherwise we have a
| much larger problem.
| chernevik wrote:
| It does not, as they are far too small to be
| "systematically important". If they fail and their assets
| cannot support their deposits, their depositors will get a
| haircut.
|
| This will not go unnoticed by depositors.
|
| It's one of the clearer unfairnesses of this bad decision.
| ummonk wrote:
| They'll be less affected than they would have been if
| contagion had been allowed to spread unchecked. All banks
| have a vested interest in the stability of the financial
| system in general.
| postalrat wrote:
| That risk still exists next week.
| humanistbot wrote:
| "Too big to fail" is such a bullshit argument, and doesn't
| make it any less of a bailout at taxpayer expense. Finance
| is structured so that every time this happens, it just so
| happens to be a forced choice between a bailout and "nice
| economy you have there, it'd be a shame if something
| happened to it..."
| macintux wrote:
| It seems to me that, just like just-in-time inventory
| control, we've chosen an economic model that maximizes
| growth but also incurs significant risks to stability.
|
| And with a global economy, and global Internet, and
| social media giving everyone around the world an
| opportunity to escalate internal dissension, those risks
| are escalating.
|
| I have no idea what the right answer is.
| kazen44 wrote:
| > we've chosen an economic model that maximizes growth
| but also incurs significant risks to stability.
|
| You mean the same economic system that has been in place
| since the industrial revolution?
|
| Sure, the US tried softening it a bit during the
| aftermath of the great depression, but in the end, this
| is just a free market economic behaving as expected?
|
| The one thing that keeps surprising me is the belief that
| the US seems to have in self regulation, which has failed
| time and time again?
| tome wrote:
| That's a complete misunderstanding of JIT. If SVB were
| running according to JIT principles it would have matched
| the duration of liabilities (deposits) to the duration of
| assets (the bonds it held). In fact it held long-dated
| bonds, which is analogous to keeping a lot of inventory
| on hand for a high-throughput manufacturing process: the
| complete opposite of JIT.
| astrange wrote:
| The bank doesn't exist anymore and its shareholders got
| nothing. The customers' reward is they can make payroll.
| What bailout?
| _heimdall wrote:
| The word bailout seems to be getting redefined a bit
| here. The government is stepping in with short term
| funding to guarantee all uninsured bank deposits. This
| isn't a matter of another bank buying the failed SVB and
| the government acting as an arbitrator, the government is
| setting up the program and footing the bill until they
| can press the cost on to other banks.
|
| This isn't a shareholder bailout and they say the bill
| ultimately won't sit on tax payers,but it's a bailout
| none the less.
|
| edit: to clarify I don't mean it's being redefined by the
| parent post here, bailout is being redefined for the
| whole SVB situation to avoid using a term that people
| respond poorly to.
| hnaccount141 wrote:
| > The bank doesn't exist anymore and its shareholders got
| nothing. The customers' reward is they can make payroll.
| What bailout?
|
| Depositors knowingly took a risk by keeping more than
| $250K in an individual bank account. Rather than allow
| depositors to face the consequences of that decision, the
| government will now be making an exception to their own
| rule and covering depositors' losses. That's a bailout.
|
| If a company would have been unable to make payroll
| because of this, it would have been a direct result of
| their failure to adequately assess and mitigate risk.
| tome wrote:
| But more affected than they would be if depositors finally
| learned the lesson that bank deposits are not risk free.
| furyofantares wrote:
| No, depositors learning that banks aren't safe is in fact
| real bad for banks (and everyone else).
| tome wrote:
| Is it? Why?
| ummonk wrote:
| No that's exactly the lesson that they (the banks and the
| government) don't want people to learn. That lesson had
| started causing a run on every single bank except the
| very largest mega-banks.
|
| Stability and trust in reputable banks is not zero-sum -
| it benefits everyone.
| tome wrote:
| I suppose it's possible that they don't want people to
| learn it, but if that's really true then the western
| banking system is in a lot more trouble than I even
| thought. The idea that learning a basic truth should
| completely undermine confidence is shocking. Perhaps I've
| been wrong to be a cryptocurrency skeptic all this time.
| The28thDuck wrote:
| I feel like the global banking system is surfing a wave that's
| just about to pull all of us under. I wonder if today will be an
| entry in a Wikipedia page.
| shagymoe wrote:
| While I'm glad that no depositors will lose even a single dollar,
| can anyone justify how banks and the astonishingly rich
| continually take large, greedy risks only to be bailed out when
| they fail? I can't imagine the twists of logic it would take to
| accomplish that.
|
| So, the government presumably creates money to cover, inflates
| the supply and the tax payer pays for the bailout and also gets
| punished with inflation. Say what you want about this being good
| for the depositors but it can't be sustainable. At some point,
| people and corporations need to be held accountable, monetarily,
| , suffer the consequences of their actions and be allowed to
| fail.
|
| [edit] It seems that it's not a "full bailout" as shareholders
| won't be made whole but if the assets don't cover all the
| deposits, where is that money coming from?
| serf wrote:
| > No losses associated with the resolution of Silicon Valley Bank
| will be borne by the taxpayer.
|
| i'm out of touch with how much of this works, can someone explain
| how this is paid without burden to the taxpayer?
| AmericanOP wrote:
| SVB has assets but not liquidity. This is not like 2008 where
| the assets themselves are worthless.
| YZF wrote:
| Aren't they (at least some large portion of the assets)
| mortgage backed securities, i.e the same sort of stuff like
| 2008? If the economy collapses and the housing market
| collapses then they can become worthless. Very different than
| lessay US government bonds. Right now they're worth their
| market value which right now isn't worthless but also isn't
| enough...
| morelisp wrote:
| It's coming out of the insurance fund, which is paid into by
| banks. So the cost is still ultimately borne across a wider
| sphere, but not the government per se. (This is what's meant by
| "Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks,
| as required by law.")
|
| The costs aren't borne by "the taxpayer", but an awful lot of
| taxpayers who had nothing to do with this or even purposely
| avoided it may be paying higher banking fees as a result.
| yadoomerta wrote:
| yupppp
|
| at least they have to pay lipservice now and not just
| printing billions and handing them straight to the rich
| salawat wrote:
| Translation: cost is being bore by the taxpayer but people
| are staking out the stop posts on their analysis to avoid
| admitting it.
| arunabha wrote:
| Mentioned later in the announcement.
|
| > Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks,
| as required by law.
| MuffinFlavored wrote:
| which banks will recoup by higher interest rates/fees? :P
| jakubadamw wrote:
| Not an expert either, but this:
|
| > Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks,
| as required by law.
|
| suggests other banks will effectively pick up the bill?
| kypro wrote:
| What you don't pay for in tax, you will pay for in inflation,
| basically.
|
| > The additional funding will be made available through the
| creation of a new Bank Term Funding Program (BTFP), offering
| loans of up to one year in length to banks, savings
| associations, credit unions, and other eligible depository
| institutions pledging U.S. Treasuries, agency debt and
| mortgage-backed securities, and other qualifying assets as
| collateral. These assets will be valued at par. The BTFP will
| be an additional source of liquidity against high-quality
| securities, eliminating an institution's need to quickly sell
| those securities in times of stress.
|
| https://www.federalreserve.gov/newsevents/pressreleases/mone.
| ..
|
| They're basically going to allow banks to post treasuries as
| collateral in exchange for cash. Making this effectively a
| form of QE.
|
| To understand better, banks don't hold the cash you give
| them. They take it and invest it in "safe" assets like
| treasuries and mortgage backed securities. But because rates
| have sky rocketed US banks are currently sitting on hundreds
| of billions in loses on these investments.
|
| That's generally not a huge problem though because so long as
| the banks can hold these assets to maturity they'll
| eventually get their money back. Problems only occur when a
| large number of customers start demanding their deposits back
| ASAP. If enough customers want their deposits in a short
| enough window then the bank will be force sell those
| investments at a loss so they can return cash to customers.
|
| To avoid this scenario the Fed are basically saying, if a
| bank is ever forced to realise loses, then the Fed will take
| those loses and "print cash" to make them whole again.
|
| It's probably the right thing to do given the systemic risk,
| but this is inflationary.
| peyton wrote:
| How is allowing banks to borrow at par value by pledging
| assets they already value at par value to back demand
| deposits inflationary?
| kypro wrote:
| Customer has $100.
|
| Customer deposits this $100 at a bank.
|
| The bank now has $100, and the customer has $0.
|
| The bank uses the $100 to purchase a treasury bill.
|
| The treasury bill falls in value and is now worth $80 on
| the open market.
|
| The Fed says, it's cool, just pretend it's worth $100
| because it will look bad otherwise.
|
| Customer says, I want my $100 back.
|
| The bank is now forced to sell the treasury bill and
| admit that it's actually worth $80.
|
| Fed says, it's cool, just give us your $80 treasury and
| we'll print $100 and give it to you.
|
| There now exist, a $80 treasury (held by the Fed) and
| $100 in cash which is given to the customer.
|
| Where is this $180 of value coming from?
|
| ----
|
| Its inflationary in two ways.
|
| Firstly, money in the economy is created via debt, and
| Fed in this case is creating a debt which increases money
| supply. Secondly, the Fed is exchanging the bank's assets
| at an above market price and taking the loss onto its
| balance sheet.
| peyton wrote:
| > The bank now has $100, and the customer has $0.
|
| This is wrong.
|
| Edit: I see. I think you're missing the full accounting
| picture. When somebody moves $100 of petty cash into a
| bank, they don't have $0. They have $100 of cash. The
| bank has an asset and a liability. Rinse and repeat with
| the bank and Fed transactions. There's not an $80
| treasury note anywhere because those aren't MTM.
| kypro wrote:
| It's a simplification, but I agree, it's not fully
| accurate.
|
| I'm guessing what you're getting at here is that bank
| would technically have a $100 liability with the customer
| and $100 in cash on its balance sheet.
|
| The point I was trying to make is that there's just $100
| of spending power in this hypothetical economy.
| pbhjpbhj wrote:
| So taxpayers will pay, but through their bank deposits and
| mortgages?
|
| It's hard not to see how this will be "private the profits,
| democratise the losses".
| rtpg wrote:
| The important part here is that SVBs assets are basically
| guaranteed to pay out, you just have to wait it out. It's
| fairly likely that there are basically no costs (excepting
| costs to service the insured 250k in the first place, so no
| marginal costs)
| umanwizard wrote:
| A dollar in ten years is not the same currency as a
| dollar today. It's absurd to say that there is "no cost"
| to holding bonds that pay 1% interest for years when you
| can now buy bonds that pay multiple times that.
| rtpg wrote:
| For the FDIC I think that "1.01 dollars in a couple of
| years" is good enough when talking about a bailout.
| temende wrote:
| Yes, every part of the economy is indirectly connected.
| Profits are also democratised via income and capital gains
| tax, even if it's not at a high enough level that people
| feel good about.
| xyzzyz wrote:
| "Privatize the profits"? What are you talking about? The
| owners of SVB are wiped out, they will not see any profits,
| they lost their entire equity in SVB.
| YZF wrote:
| Aren't lots of us owners of SVB? I really don't get this
| "it's ok to wipe out the shareholders", i.e. all of us,
| "but it's not ok to wipe out the depositors" (e.g. Mark
| Cuban's 10M or so). Why should I lose money because of a
| run on this bank? If you're already bailing the bank out,
| oust the management, claw back what you can, but don't
| wipe out share holders or bond holders.
| xyzzyz wrote:
| No, this is not how the deal works. We do not reimburse
| investors for wrong, or just plain unlucky investment
| decisions. Our financial-regulatory system treats banking
| and speculative investment differently, and this is by
| design.
|
| > If you're already bailing the bank out, oust the
| management, claw back what you can, but don't wipe out
| share holders or bond holders.
|
| You don't get it: the bank is bailed out _using funds of
| shareholders and bondholders_. Taxpayers aren't bailing
| out SVB, _you are_. If you don't like it, well, I
| recommend selling your investments and keeping your money
| in regular savings accounts: the deal is, at the basic,
| very simple: if the company you own screwed up, your
| entire equity may be used to made those whom it screwed
| up whole, _and you should be happy that your liability is
| limited to your equity only_.
| YZF wrote:
| It's not clear whether the assets are enough to make the
| depositors whole. It sounds like the FDIC is making up
| the difference. Which it normally would not.
|
| That's the bailout part. If the government is stepping in
| to _bail people out_ via making up for any difference of
| _uninsured deposits_ from FDIC funds then it 's no longer
| a question of risk/being wrong/luck. The depositors were
| taking risk just as the shareholders were taking risk. If
| they didn't like it, well they could have kept the money
| in their mattresses.
|
| I'm totally with you that everyone has to accept the
| risks they're taking. This is creating a distortion field
| here for certain types of risk taking.
|
| Even if we ignore the bailout, I don't think the story is
| as simple as you put it. There was a run on the bank with
| VCs telling companies to withdraw their funds. From a
| stock market perspective this could be considered
| manipulation.
|
| When I invest in a bank I'm also relying on the
| government's role as a regulator. If they failed in their
| role, or the government actions contributed to the
| failure of the bank, or they had other courses of action,
| why should I be on the hook for the consequences?
|
| Maybe this course of action was necessary to stabilize
| the situation and protect against more bank runs. It
| still doesn't feel right. It feels like something we'll
| pay for in the future.
| xyzzyz wrote:
| > It's not clear whether the assets are enough to make
| the depositors whole. It sounds like the FDIC is making
| up the difference. Which it normally would not.
|
| Sure, which is why I'm not opposed to depositors taking
| _some_ haircut. But that's only _more_ reason to wipe the
| shareholders to the last penny.
|
| > The depositors were taking risk just as the
| shareholders were taking risk.
|
| No, they were not, that's the whole point. They took
| completely different kinds of risks. Irrespective to what
| degree the taxpayers are encumbered with extending the
| bail out loans, shareholders are the ones who are
| expected to foot any bill first and foremost.
| unity1001 wrote:
| > "Privatize the profits"? What are you talking about?
| The owners of SVB are wiped out
|
| The depositors took risks by lending their money to such
| a risky bank for better returns in lieu of the risk. It
| doesnt matter whether SVB gave 0% interest. It provided
| other amenities, services and opportunities instead -
| things which other banks could not take the risk to do.
| Now these banks who played by the rules and the rest of
| the people and businesses who played it safe, will have
| to foot the bill for the risk that those depositors took.
| This literally says "If you are big enough you can take
| any risk to win big and have the public pay for it if you
| screw it up". That's something not afforded to a small
| business owner. So people who say that there is one rule
| for the ultra rich and another rule for the majority,
| they are right.
|
| Additionally removing the burden of the deposits from SVB
| will allow it to recover some of its lost asset value.
| The state took over its liabilities now.
| xyzzyz wrote:
| The depositors "took risks" by literally keeping their
| cash in a bank? This is ridiculous. What was the safe,
| responsible thing to do? Put it in one of the "too big to
| fail" banks instead, given that those are guaranteed to
| be bailed out should they encounter difficulties? Assume
| that the entire banking regulatory system is a sham, that
| the whole Dodd Frank system of regulators overseeing the
| books and running stress test is not worth shit, and then
| what? Pay their employees in crypto? Stuff their cash
| into a mattress? Please. Let's not pretend that literally
| keeping cash in a savings account is irresponsible risk
| taking.
| noitpmeder wrote:
| "The depositors "took risks" by literally keeping their
| cash in a bank?"
|
| Yes. They noticed other banks would not take their money,
| but SVB would. There is a reason SVB was willing to take
| their money while others would not.
| unity1001 wrote:
| > The depositors "took risks" by literally keeping their
| cash in a bank? This is ridiculous
|
| Its not ridiculous. Its how the free market works. Its a
| choice. There were other banks that were compliant with
| the regulation that !protects! the bank and its
| depositors. This bank wasn't one of them. People put
| their money in this bank anyway. It makes little
| difference if many startups were forced by their VCs to
| put their money in that bank - they chose to go with
| those VCs.
|
| > What was the safe, responsible thing to do? Put it in
| one of the "too big to fail" banks instead, given that
| those are guaranteed to be bailed out should they
| encounter difficulties?
|
| The first thing to do was to put their money in banks
| that have not lobbied for exemption from the regulations
| that protect the bank and its depositors' money from
| exactly what is happening right now.
|
| The second thing would be to put it in multiple banks
| that are not exempt from that regulation to spread around
| the risk.
|
| The third thing would be to spread the risk around many
| investment tools and banks.
|
| It turns out that there ARE startups that did precisely
| that, and they were not affected by the SVB thing in the
| slightest manner.
|
| > Let's not pretend that literally keeping cash in a
| savings account is irresponsible risk taking.
|
| It is unless it is a state run bank, period. This is the
| free market, and if the organization that you are putting
| your money into is a private organization, you are simply
| taking a risk. If that does not sound good, then it means
| that all the rhetoric about free market vs government
| should be revised.
| spaceman_2020 wrote:
| you mean to say taht the owners of SVB never sold any of
| their stock even as the price went up from $15 in 2009 to
| $750 in 2021?
| ttymck wrote:
| No profits? None, ever?
|
| https://www.livemint.com/market/stock-market-news/svb-
| chief-...
| celestialcheese wrote:
| You think that won't get clawed back if there was
| something illegal?
|
| This isn't crypto, you can guarantee that these sales
| will be investigated extensively.
| xyzzyz wrote:
| And how much stock he has left that he didn't sell, and
| lost entirely a few days later? Is this really the best
| argument for the "privatize the profits" narrative, that
| someone picked up a few pennies from in front of $6B
| steamroller?
| roflyear wrote:
| Kinda... but not really.
| ummonk wrote:
| People would have been paying much more through their bank
| deposits and mortgages if this contagion had been allowed
| to spread unchecked. Banks benefit from stability in the
| financial system. They'll happily pay a small special
| assessment to stem loss of confidence in the banking
| system.
| swyx wrote:
| idk if the numbers exactly add up here or if there are other
| sources of funding but the I in FDIC is Insurance, which is
| already paid for - the FDIC has money from insurance premiums
| to cover expected cost of losses
| UncleOxidant wrote:
| It does have a fund of money to cover such losses, but the
| document also says:
|
| > Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a _special
| assessment_ on banks, as required by law.
|
| So banks are going to have to cough up extra money beyond
| their normal FDIC premiums for this.
|
| But it's not like those costs will be passed on to
| customers, right? /s
| [deleted]
| dathinab wrote:
| Because SVB lacks the liquidity to pay out the bank run but
| doesn't lack the assets, at least as long as you only pay out
| deposits (which is what they are doing i.e. "Shareholders and
| certain unsecured debtholders will not be protected.").
|
| The thing is that without this decision there would be two
| problems:
|
| 1. deposits would only re-accessable much later, too late for
| most small Companies to survive
|
| 2. depending on law/regulation aspects I don't know much about
| it also may have been a possibility that Stockholder get payed
| out first and similar
| morbidious wrote:
| Printing money has always been the solution to all of America's
| problems. Not for long. Enjoy while you still can :)
| shippintoboston wrote:
| How exactly are they guaranteeing all deposits? They claim to not
| be bailing them out and they haven't found a seller. I'm smelling
| bullshit.
| nemo44x wrote:
| [flagged]
| idiotsecant wrote:
| This isn't reddit.
| pcl wrote:
| "Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks,
| as required by law."
| scatters wrote:
| The rest of the industry is paying. "Any losses to the Deposit
| Insurance Fund to support uninsured depositors will be
| recovered by a special assessment on banks, as required by
| law.". RIP the $250k FDIC limit, I guess.
| colinmorelli wrote:
| Dipping into the FDIC pool beyond what's needed to cover the
| $250k. That, combined with the ability to sell of SVBs assets
| must give confidence to cover all deposits without burdening
| taxpayers.
| [deleted]
| taeric wrote:
| My understanding is that all of the assets are still there.
| Moreover, many of them were expected to be safe for long term
| holding, such that anyone that can play a long game with a
| diversified portfolio could welcome these assets onto the
| books.
|
| Problem, of course, is that they were some massive assets and
| adding them to a book without unbalancing it is going to be
| difficult to do.
| xenadu02 wrote:
| The assets will take a few years to fully wind down but are
| likely to payoff anywhere from 80-98% so the actual haircut
| won't be that large. The insurance fund will float the money
| until final resolution, then increase insurance premiums if
| needed to makeup the difference.
| loeg wrote:
| I take Treasury statements at their word, and I'm not sure why
| you wouldn't too. We'll find out the details soon enough.
| t3rmi wrote:
| You know what they say, if it looks like shit and smells like
| shit. It's shit.
| mactitan wrote:
| At no cost to the tax payer? I keep on reading bail out but I'm
| inclined to think it's going to more like a bail in. Depositors
| transformed into shareholders. I read about these possible type
| of changes after the last banking crisis.
| jacobgorm wrote:
| https://www.youtube.com/watch?v=QM5tLcik_Pw
| wheelerof4te wrote:
| So, a long-winded way to say:
|
| "We will bail you out."
| s1artibartfast wrote:
| So, it turns out that the taxpayers are footing the bill to make
| the depositors whole.
|
| Good day to be an account holder, bad day to be everyone else.
|
| I am sympathetic to the account holders, who are at low fault,
| but still not happy that the cost gets foisted on the public, who
| is even less at fault.
| nemo44x wrote:
| All depositors will be made whole. Good news. Wonder how many
| more will still fail this week.
| morelisp wrote:
| Given that the reasoning for dipping into the insurance fund is
| to prevent anything else from failing, if any more do this is
| just SV getting into the grift on the ground floor again.
| AmVess wrote:
| 9 more are on the edge.
| zrail wrote:
| Cite?
| celestialcheese wrote:
| Does Signature failing mean crypto in the US is finally dead?
| Silvergate and Signature both going to $0 is a strong signal.
|
| Why would any bank want to work with crypto after this?
| 0xDEF wrote:
| The Feds just saved a lot of crypto startups by doing this
| bailout. The crypto scam industry will be around for a few
| years more unfortunately.
| mtillman wrote:
| " no losses will be borne by the taxpayer" seems to have gotten
| lost in the media cycle.
| winstonprivacy wrote:
| TIL that most of HN has no clue how banking or finance works.
| akulbe wrote:
| I'm waiting for the other shoe to drop.
|
| There's no way they do something like this and it have no effect
| on the taxpayer.
|
| Nothing is free.
| tgsovlerkhgsel wrote:
| The load bearing statements seem to be these:
|
| > Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks, as
| required by law.
|
| To me, this one sounds like "we'll cover even the uninsured
| amounts and make all banks pay for it"?
|
| > Finally, the Federal Reserve Board on Sunday announced it will
| make available additional funding to eligible depository
| institutions to help assure banks have the ability to meet the
| needs of all their depositors.
|
| This one sounds like it may mean "we'll print money so no bank
| goes bankrupt"?
| beezle wrote:
| How is this for comedy:
|
| CNBC: 2023/03/09 "Wells Fargo says buy Signature bank the last
| game in crypto-town
|
| JPM: 2023/03/09 "JPMorgan predicts customers will migrate to
| Signature Bank's Signet payments network. Cryptocurrency firms
| can incorporate the Signet network into their platforms using
| application programming interfaces.
|
| However, Signature also faces pressure to minimize crypto risks
| and recently announced that it would cut crypto deposits by $10
| billion. Coinbase recently switched to Signature for its Prime
| customers."
|
| Barrons 1/19/23: After Silvergate and Signature Earnings, the
| Worst Might Be Over for Crypto Banks
| obblekk wrote:
| The Fed is giving banks an infinite credit line at par value of
| their assets.
|
| This allows them to borrow and cash out any customer who wants,
| so long as they have assets.
|
| This program would have saved SVB last week.
|
| People may continue moving around money, but the runs are over.
| No1 wrote:
| "no losses will be borne by the taxpayer"
|
| "Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks"
|
| So you as a taxpayer will not have to fund this bailout, unless
| you're the kind of taxpayer with a bank account, in which case
| you're going to be paying for it.
| noelsusman wrote:
| It's a bit embarrassing to have to invoke the systemic risk
| exception when regulations on these banks were relaxed in 2018 on
| the theory that they wouldn't pose a systemic risk if they got
| into trouble. This should spark some serious soul searching from
| everyone involved in that effort, but I'm not holding my breath.
|
| Anyway, I'm happy for all the depositors.
| mortenjorck wrote:
| I think there was an air of "hey, it's been ten years since
| 2008, the system is working; we can relax Dodd-Frank a little
| bit."
|
| After March 2023, the message should be an unequivocal "no, not
| even a little bit."
| [deleted]
| ummonk wrote:
| Possibly, but Dodd-Frank wouldn't have prevented what
| happened at SVB.
| heyoni wrote:
| Wouldn't SVB have to go through the rigors of the stress
| tests mandated by Dodd-Frank?
| twblalock wrote:
| What makes you think the regulators wouldn't have given
| SVB a passing grade?
| heyoni wrote:
| You mean besides the fact that FDIC just took them over?
| wskinner wrote:
| How did the relaxation of Dodd-Frank lead to what happened at
| SVB?
| frankbreetz wrote:
| From what I understand there use to be a stress test. I.E.
| government employees would hypothetically withdraw a lot of
| deposits and see what would happen. The threshold for the
| test was recently changed from 50 billion to 250 billion
| AUM, so SVB no longer met the threshold and didn't have to
| do the stress test. I have heard the stress test would have
| caught this.
| dilyevsky wrote:
| Dodd Frank != stress testing and nobody was ever stress
| testing regional banks. Maybe they should start now given
| that depending on the region bank failure can have
| national security consequences
| thedougd wrote:
| From my experience at a regional/super-regional bank,
| CECL and CCAR were absolutely happening in banks around
| the 200b mark.
| beezle wrote:
| It should not have taken a stress test for the FRBSF or
| CA State Examiners to see the high risk to solvency a run
| would create for SVB given the size and state of their
| HTM portfolio.
| 2OEH8eoCRo0 wrote:
| No more polio! We can stop getting polio vaccines!
| hammock wrote:
| [flagged]
| Waterluvian wrote:
| Seatbelts and airbags are a leading cause of auto
| accident injuries. They need to go.
|
| (I know you're saying that tongue-in-cheek. I'm just
| being a stinker)
| hammock wrote:
| Not saying anything tongue in cheek.
| https://www.npr.org/2019/11/16/780068006/how-the-oral-
| polio-...
| dev_tty01 wrote:
| That article says nothing about the relative risk of no
| oral polio administration vs. the small number of people
| who can get polio from it. The level of death pre oral
| polio vaccine vs after is clear.
|
| The article is simply pointing out that it would be
| better if everyone could get the vaccine without live
| virus because the live virus oral version is beginning to
| have some unintended issues. The use of oral polio
| vaccines has saved huge numbers of lives but it needs to
| be modified now. It is not speaking against vaccines in
| general.
| Waterluvian wrote:
| I wonder if not using the vaccine would result in more or
| fewer total cases over a period of time.
|
| (None of which is to say we shouldn't always try to
| design safer seatbelts and airbags)
| isaacg wrote:
| Most cases of Polio are actually caused by vaccines -
| it's not a case of confusing cause and effect:
| https://en.wikipedia.org/wiki/Polio#Epidemiology
|
| This is only the case because the vaccine has been so
| effective that the disease is close to being infected,
| and a vaccine-caused case is much less severe than a wild
| case, but they're still looking into a different vaccine
| type that will lower the risk of vaccine-caused
| infections.
| Waterluvian wrote:
| Hence the comment about seatbelts.
| matheusmoreira wrote:
| Fractional reserve banking doesn't pose a systemic risk, it
| pretty much _is_ the systemic risk. The system will never lobby
| against itself. There 's too much money to be made in risking
| other people's money.
| nipponese wrote:
| It's not just the profit incentive.
|
| Imagine a world without lending against liabilities: yes,
| some people will be able to buy a home, pay for college, buy
| a car without a loan, but the financial friction will keep a
| vast majority of people in poverty.
|
| And then it's going to be someone's full-time job to manage
| those liabilities. Should they do it for free?
| klabb3 wrote:
| > Imagine a world without lending against liabilities
|
| FRB isn't creation of wealth, it's plain old
| redistribution. In other words--welfare for those who can
| haul in the biggest loans, at the expense of those who
| earn, work and save up. What would those people do, if they
| got a chance? What are the compound effects of that over
| time?
| sanderjd wrote:
| A _bit_ embarrassing?
|
| But yep, I'm happy with the ends, but honestly not that happy
| with the means.
| bagels wrote:
| Of course the people lobbying for that knew it was a lie to
| make more money.
| AH4oFVbPT4f8 wrote:
| Why are you happy for the depositors? They took a risk
| depositing more than what was covered by fdic.
|
| to clarify, i'm happy for the employees, workers, etc that will
| remain employed while their company made poor decisions. My
| beef is that companies knowingly took risks. Would this even be
| an issue if all the VC companies didnt all try to pull their
| money out on Thur/Fri ?
| drstewart wrote:
| Why are you happy for the employees? They took a risk working
| for a company that was depositing more than what was covered
| by fdic.
| AH4oFVbPT4f8 wrote:
| The same way I feel bad for someone who is at fault in an
| accident and gets hurt. I don't like seeing bad things
| happen to people or see people suffer. Those employees who
| work for these companies don't have a lot of say where the
| company keeps their money.
| drstewart wrote:
| The companies who deposit money in these banks don't have
| a lot of say where the bank invests their money.
| eksx wrote:
| Genuine question but if a company has 10 million where or
| how do they deposit it for it to be insured?
| bart_spoon wrote:
| Are you aware of how your employer's cash and assets are
| held?
| drstewart wrote:
| Are you aware of how your bank's cash and assets are
| invested?
| zachrip wrote:
| I'm very ignorant on the subject - what else would they do
| with the money?
| NoboruWataya wrote:
| Buy safe, highly liquid securities like t-bills, commercial
| paper, money market funds etc.
| erik_seaberg wrote:
| People have pointed out brokers that will shotgun your
| deposits across _many_ banks to game the deposit insurance
| limit, and apparently the FDIC is fine with that. But if
| every employer needs to do this, they can't vote with their
| feet anymore, and I'm not sure there's still a reason for
| separate banks to exist and compete.
| hobo_mark wrote:
| Buy treasury bills?
| Me1000 wrote:
| As others have pointed out there are of course options:
| multiple accounts, buying safe bonds, etc. But those are
| all pretty unrealistic for most small businesses. Startups
| with 3 or 4 people aren't going to spend a lot of time
| learning all the ins and outs and risks of the options
| available.
| toomuchtodo wrote:
| This is a reasonable middle ground. Depositors are made whole
| and taxpayers aren't on the hook directly (although this will
| filter down to them in aggregate in a de minimis manner).
|
| To those with large amounts of fiat hanging around: please
| don't fuck around again. Spend a few hours with your finance
| team to minimize risk. It is straightforward and well within
| the means of anyone with these cash or cash equivalents on
| hand (sweep accounts, short dated treasuries, etc). Build it
| into your runbook. Costs are minimal, consider them an
| insurance premium.
|
| Edit: if you don't have a finance team, you can get the same
| help from a contract finance professional. There is some
| responsibility that must be taken.
| lacker wrote:
| _Spend a few hours with your finance team to minimize
| risk._
|
| That's great for people who have a finance team, but a
| startup with over $250k in the bank can easily be just one
| or two people who raised money and have no particular
| finance expertise.
|
| Personally I think we should bump the limits - it should be
| reasonable for a startup that just raised $10m to be able
| to put that money somewhere safe, and pay rent, payroll,
| and an AWS bill with it, without having to hire a "finance
| team".
| jnwatson wrote:
| Exactly. Having to split your money among multiple banks
| should be a mature/medium-sized company problem, not a
| mom-and-pop or 30 person startup.
| laboratorymice wrote:
| This is setting a very low bar for entrepreneurs. What
| else should be only a "mature company" problem? Should
| startups also not have to care about doing a good job in
| other fields orthogonal to the product itself like
| recruiting, marketing, governance, accounting, security?
| These are all things that come with the territory of
| starting your own company. Managing your own finances is
| just one of them, and it absolutely should be the
| startup's responsibility. It can delegate if it wants to,
| but "I'm too small to address it at all" is just naivete
| or incompetence.
| eropple wrote:
| Few "mom-and-pop" companies get to the point where they
| have $250K in liquid business cash without hiring an
| _accountant_. A "30 person startup" is waving around the
| cash supplies of a much, much larger actual-business and
| if those very sage VCs cannot guide them to safeguard
| that investment I am at a loss as to why every other
| depositor should do so for them.
| eropple wrote:
| _> it should be reasonable for a startup that just raised
| $10m to be able to put that money somewhere safe, and pay
| rent, payroll, and an AWS bill with it, without having to
| hire a "finance team"_
|
| Aren't VCs supposed to support their investments with
| expertise? This is eminently socializable expertise.
|
| Nobody has made a real case substantiating why the entire
| economy does not need to insure upwards to protect
| startups that don't understand how to secure a giant sack
| with a dollar sign on it.
| AH4oFVbPT4f8 wrote:
| Why are VC giving money to a company who can't manage it?
| nrmitchi wrote:
| I completely agree with your point here, but I also don't
| agree with this announced decision.
|
| There should definitely be a place for a company to hold
| $10M without risk. Maybe $20M.
|
| That doesn't mean that it needs to be the same place for
| a company to dump $3B.
|
| My point is that there is a lot of room between the
| (previous?) $250k "limit", and the apparently new
| "infinity" limit.
| eropple wrote:
| _> There should definitely be a place for a company to
| hold $10M without risk. Maybe $20M._
|
| There is. It's called a T-bill. I know how to buy them,
| and I am not a hotshot startup CEO. I think it's okay to
| expect some level of maturity out of somebody handed That
| Kind Of Money.
| eropple wrote:
| _> To those with large amounts of fiat hanging around:
| please don't fuck around again._
|
| They are going to. The smuglord backpatting on social media
| has already begun.
|
| But I admire your optimism.
| gizmondo wrote:
| Why bother? It seems all deposits are in fact insured
| regardless of what rules say.
| toomuchtodo wrote:
| The wheel will not always land on zero. Everyone got
| lucky there was will to bend the rules.
| gizmondo wrote:
| Everyone will now act as if all deposits are insured,
| because the authorities demonstrated that it's true. This
| in turn will make any other decision in the future even
| harder, it's kinda self fulfilling prophecy.
|
| Seriously, you'd have to be stupid now to buy deposit
| insurance.
| hoytschermerhrn wrote:
| It's simply unrealistic for businesses to not exceed the
| $250k insurance limit.
| gameshot911 wrote:
| You can buy insurance to protect amounts above $250k.
| AH4oFVbPT4f8 wrote:
| Exactly this, take out insurance, open additional
| accounts so that the companies livelihood is not
| dependent on a single bank. What about all the companies
| who funded all these 'companies' ? Why aren't they
| stepping in to clean up the mess?
| tomp wrote:
| Which insurance company can pay out a $40bn risk event?
| joshuamorton wrote:
| Reinsurance literally exists for this purpose. It's what
| Berkshire Hathaway does, for example.
| trogdor wrote:
| When Lehman Brothers collapsed, the associated insurance
| payouts totaled ~$100 billion.
| christophilus wrote:
| Berkshire Hathaway could. They probably wouldn't have
| insured SVB, though.
| avalys wrote:
| And who ensures that the insurance company has enough
| capital to pay out on that insurance?
| [deleted]
| consumer451 wrote:
| I had no idea that was an option. My google-fu is failing
| me, what is that called? Who are the providers? Seems
| like it would be a mega capital intensive insurance
| product.
|
| edit: this is way out of my wheelhouse, so an actual
| answer would be educational.
| Kortaggio wrote:
| The term to google for is "insured cash sweep", but the
| specifics depend on the particular financial institution
| you work with. Instead of a single insurance provider,
| your cash is sharded behind the scenes among many member
| institutions. Here's one bank I picked at random from
| Google[0]. Brokerages like Schwab[1] and IBKR[2] also
| have a private insurer (both use Lloyd's of London) they
| offer as a service to customers.
|
| [0] https://www.stearnsbank.com/personal/high-balance-
| deposit
|
| [1] https://www.schwab.com/legal/sipc-account-protection
|
| [2] https://ibkr.info/node/2012
| consumer451 wrote:
| Thanks for pointing me to this!
| spiralx wrote:
| Try searching for "reinsurance" as in insurance for
| insurance, Swiss Re and Lloyds of London are the two big
| names I can think of, I don't know much other than that.
| ummonk wrote:
| That just moves the source of risk to the company selling
| you that insurance. If they go under as well, then that
| insurance is worthless.
| noelsusman wrote:
| We solved this problem decades ago, these businesses chose
| not to use the tools available to them to protect their
| money.
|
| https://www.intrafinetworkdeposits.com/
| peyton wrote:
| It's silly. Either way, the money's coming from the
| insurance fund. FDIC claims insurance is "at least" 250k.
| ericpauley wrote:
| The point is that diversifying deposits across banks
| reduces the risk of failures happening in the first
| place, reducing FDIC payouts. This incentive structure
| completely breaks down if there's no cap.
| eropple wrote:
| Both insured sweep accounts _and_ non-FDIC depository
| insurance exist.
| [deleted]
| Me1000 wrote:
| I can't believe we're on day 3 of this and it still has to be
| explained. SVBs depositors were mostly companies. Companies
| don't go to new banks every time their account balance
| reached $250k. If these deposits were not honored thousands
| of companies would not be able to make payroll.
| noelsusman wrote:
| https://www.intrafinetworkdeposits.com/
| ericpauley wrote:
| The number of comments (including from high-profile
| people) that completely ignore the fact that _deposit
| sweeps exist_ in the past few days has been astounding...
| dlubarov wrote:
| Is it really a desirable solution though? Seems like
| gaming the system, and if the end result will be that
| effectively all deposits are FDIC insured anyway, why not
| just get rid of the $250k limit?
| noelsusman wrote:
| It spreads the risk out among a bunch of different banks,
| thus drastically lowering the odds that the FDIC will
| have to pay out on the full amount deposited.
| morelisp wrote:
| I can't believe we're still on day 3 and people are still
| arguing with the strawman that you'd have to open an
| account per $250k to mitigate the risk. (You need to open
| two or three accounts total, and beyond that you're big
| enough to start buying your own T-Bills. And no, that
| doesn't mean you do that at $750k. Christ, it's a
| distributed systems problem, you guys should be able to
| figure this out.)
| Me1000 wrote:
| A 3 person tech startup with more than $750k is not going
| to buy treasures.
| tome wrote:
| Why not? Some private individuals with $10k to invest by
| treasuries.
| danans wrote:
| Startups aren't investing their money. They are drawing
| on it for payroll.
| tome wrote:
| Sure, and T-Bills are easy to draw on for payroll. It's
| basically the most liquid market in existence.
| Taniwha wrote:
| Many banks offer ways to get around the $250k limit,
| sometimes it's as simple as to open an account in another
| version of the same bank chartered in a different state
| unyttigfjelltol wrote:
| I would put it differently. SVB was a bankers' bank, _i.e._
| , venture capital. Venture capital now is systemically
| important, having initiated their own bank run.
| tomato_123 wrote:
| There are a zillion ways to deal with this. Split up your
| cash. Buy private insurance. Whatever. They agreed to a
| particular contract---deposits insured up to $250,000, and
| then ex-post, when it turns out they should have done
| something different, they want special favors.
| eric-hu wrote:
| Are you aware that SVB had exclusive banking clauses that
| preclude opening accounts with other banks?
|
| https://www.cnbc.com/2023/03/12/silicon-valley-bank-
| signed-e...
| dragonwriter wrote:
| > Are you aware that SVB had exclusive banking clauses
| that preclude opening accounts with other banks?
|
| That, in and of itself, ought to be a negative inducement
| to bank with them, and I think a good case could be made
| that such clauses should be prohibited by policy, as
| customer diversification across banks makes the financial
| system more resilient.
| MrMan wrote:
| those clauses are a sign that SVB and the VCs are in bed
| together and if you take their money and agree to these
| terms you are complicit too. the VCs used SVB loans to
| their portfolio companies to magnify the effective size
| of their funds without themselves taking on that
| leverage. SVB got massive interest income.
|
| this is corrupt, the whole thing is corrupt.
| thedougd wrote:
| Sure, fine, but you're paying for my deposits insurance.
| Banks can and will purchase insurance for large
| depositors when they want their business.
| morelisp wrote:
| The depositors were largely those with means to manage risk but
| not doing so. Surely you mean you're happy for the workers,
| clients, contractors, etc., not the depositors? Right? The
| backstop was sold on the backs of those people, and if they're
| not the overwhelming beneficiary it means the depositors might
| not have been totally honest with us about their motives!
| kgwgk wrote:
| > Surely you mean you're happy for the workers, clients,
| contractors, etc., not the depositors?
|
| Why would anyone be happy for the workers of a bank that
| won't exist anymore in any form once the liquidation is
| sorted out?
|
| [Edit: Nevermind, my dumbass didn't understand that those
| were the workers of the depositors, the clients of the
| depositors, etc.]
| [deleted]
| ummonk wrote:
| Regarding the workers of SVB itself, I'm not sure what will
| happen once the receiver process is finished, but for now
| workers are being given 1.5x pay by the FDIC for staying
| on. Hopefully they'll be able to stay on afterwards via an
| acquiring bank.
| JamisonM wrote:
| You could be happy for most of the workers of the bank
| too... it is not like the tellers and loans officers were
| managing the systemic risk of the bank! I am happy for them
| if they have jobs tomorrow if they were doing their jobs
| well given that we know that the C-suite and board were
| screwing stuff up.
| kgwgk wrote:
| The point was that they won't have a job soon.
|
| To be fair maybe some activities may still be sold to
| third parties - I have no idea.
| JamisonM wrote:
| That wasn't the point and also they will still have jobs
| because by in large SVB will continue operations.
| kgwgk wrote:
| Are you telling me what was _my_ point when I asked why
| would anyone be happy for the workers of a bank that
| won't exist anymore in any form once the liquidation is
| sorted out?
|
| What makes you say that SVB will continue operations?
|
| SVB will cease to exist: it's being liquidated.
| JamisonM wrote:
| > SVB will cease to exist: it's being liquidated
|
| This isn't like when Best Buy went bankrupt, the banking
| operations will continue, the branches will still run. It
| will take a long time to absorb SVB's operations into a
| larger entity, the larger entity may choose to run them
| as a subsidiary. You are making assumptions about the
| operations and staff based on no information, if SVB is
| going to be open for services on Monday as the regulator
| has promised everybody will have to show up for work.
| kgwgk wrote:
| > if SVB is going to be open for services on Monday as
| the regulator has promised
|
| What do you think that the regulator has promised
| exactly?
|
| The only promise I see is that people will be able to
| access all their money at the Deposit Insurance National
| Bank of Santa Clara (DINB).
| JamisonM wrote:
| "Silicon Valley Bank had 17 branches in California and
| Massachusetts. The main office and all branches of
| Silicon Valley Bank will reopen on Monday, March 13,
| 2023. The DINB will maintain Silicon Valley Bank's normal
| business hours. Banking activities will resume no later
| than Monday, March 13, including on-line banking and
| other services. Silicon Valley Bank's official checks
| will continue to clear. Under the Federal Deposit
| Insurance Act, the FDIC may create a DINB to ensure that
| customers have continued access to their insured funds."
|
| They are running it under a new name. I understand how
| this can be confusing but they have to keep everything in
| place so that the systems will all still work and people
| can get their money, payroll systems, internal systems
| and processes all still work. And when a buyer for their
| operations is found it will keep on running and slowly be
| incorporated into the acquiring entity because it will in
| effect be a very large bank merger that will take time
| and effort.
|
| https://www.fdic.gov/news/press-
| releases/2023/pr23016.html
| kgwgk wrote:
| Thanks. It makes sense and I guess that someone wanting
| to buy (some of) it may appear more easily now. Let's
| see. (But if I were a client I don't think I'd be
| inclined to wait.)
| JamisonM wrote:
| I don't want to beat a dead horse here too much but part
| of what I hope folks will understand is that any
| potential buyers also know what I know, they all know
| that once the liquidity crunch is resolved this is a
| viable business with good operations that ran profitably
| for a long time and the regulator would put a continuity
| plan in place immediately. It is not the case that
| "someone wanting to buy [..] it may appear more easily
| now" - all the potential buyers have clear expectations
| of continued operations. This is a matter of
| understanding banking as currently practiced,
| unfortunately there are a lot of folks 'round here that
| think this is like a retail bankruptcy and are spouting
| off on that basis instead of deferring to experts.
|
| Depositors might choose to run, but any business that
| runs their payroll though SVB is going to ask their CFO
| what to do and that guy is going to say, "We're full
| guaranteed, how much money to you want to spend to
| accomplish nothing?"
| ghettoimp wrote:
| The depositors did nothing here but put their own money in a
| bank account?
|
| What possible nefarious motive are you implying?
| luckylion wrote:
| Bank offers you very favorable rates for cash, better than
| competitors.
|
| You put lots of cash into bank account, "what could go
| wrong?"
|
| Bank implodes.
|
| Federal government bails you out and goes to collect the
| money to do so from other banks who offered more reasonable
| rates and thus didn't get your business.
| jnwatson wrote:
| They didn't offer interest on their deposits.
| rottencupcakes wrote:
| Can we all just be reasonable here? There is no black and
| white.
|
| SVB clearly offered services that other banks couldn't or
| wouldn't provide - whether that be loans, credit cards,
| interest, or anything else.
|
| They clearly fought to not be subject to specific
| regulations that bigger banks were subject to.
|
| Was every depositor thinking about all this when choosing
| their banking decisions or were they just going with the
| bank their VC recommended? Probably the latter, but
| there's definitely some wiggle room here.
| gusgus01 wrote:
| Elsewhere it looks like SVB was required to be used as
| per other commenters in this thread:
| https://news.ycombinator.com/item?id=35129692
|
| So yeah, not a better interest rate but the ability to
| get a venture debt line at all was predicated in banking
| at SVB.
| luckylion wrote:
| I should've said "terms", I suppose. They were offering
| package deals where you have to exclusively bank with
| them and in return you get below-market loans, line of
| credit and potentially investments, and allegedly also
| for your personal financing needs. Give all your cash,
| accept the FDIC-limit risk, get favorable terms in
| return.
|
| Why else would anyone put all their money into a single
| account, and why would VCs even enforce doing so
| contractually?
|
| When someone offers you something the market doesn't, you
| should understand that there's risk attached, especially
| when you're a company with millions or hundreds of
| millions in cash. When someone falls for some crypto "18%
| per year, no risk" scam, that's how we view it.
| mikeyouse wrote:
| Exactly right, these were mostly just people wanting a
| place to pay vendors and payroll. Millions of dollars in
| 0% interest checking accounts.
| capableweb wrote:
| > The depositors did nothing here but put their own money
| in a bank account?
|
| I'm guessing the mistake parent is implying to is that they
| put more than what was insured, knowing very well the risk
| that if the bank fail, they might only get back 250K USD,
| as it's only insured up to that.
|
| Well, in theory at least. In practice it seems the
| insurance was actually a unspecified "unlimited" amount, as
| they'll get all their funds back now.
| MrMan wrote:
| this is so fucked I hate these evil SV libertarian crooks. this
| is wrong
| ZachPruckowski wrote:
| > "Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks, as
| required by law."
|
| Very curious to see who ends up paying this special assessment.
| Are we all going to pay in lower deposit/investment interest from
| banks? Are bank shareholders/profits gonna eat it?
| loeg wrote:
| The balance sheet hole is likely to be relatively small.
|
| > Are we all going to pay in lower deposit/investment interest
| from banks? Are bank shareholders/profits gonna eat it?
|
| Some combination of this, I think.
| mskec wrote:
| > Shareholders and certain unsecured debtholders will not be
| protected.
|
| Shareholders and bondholders will likely lose everything as
| nothing will be left after selling off assets.
| akavi wrote:
| My reading is that the "assessment" (tax) will be borne by
| _all_ banks, not just the bank that fails.
|
| My gut says that the incidence will fall primarily on deposit
| holders (likely in the form of marginally lower interest
| rates), and not significantly on bank equity holders, but I
| suspect it'd take an econ phd to fully parse that out.
| ummonk wrote:
| Bank market caps had fallen something like 100 billion last
| week. Compared to that the cost of any special assessment will
| be miniscule.
| abcleb wrote:
| Can crypto currencies solve this problem? Why yes and why not? I
| am still learning and my first impression is it could work if
| done correctly and transparently.
| likeabbas wrote:
| A bail out for the Bay Area. Should've just let them bust tbh
| selimnairb wrote:
| What if the Federal Reserve offered retail banking. Would it
| stabilize the banking sector? They wouldn't be forced to try to
| find loans to pay interest on deposits. Where do private banks
| add value over what the Fed could do. ELI5.
| corbulo wrote:
| Thats what China does and what CBDCs are about. See: Tofu Dreg
| projects and social credit score system. With privatization you
| get decentralization.
| rashkov wrote:
| What do tofu dreg projects (poorly constructed buildings)
| have to do with banking in China?
| corbulo wrote:
| It's the state giving itself no bid contracts. There's no
| financial risk (except to the buyers) and the officials who
| secured it get the money. The buildings aren't made to a
| high standard because there's no accountability for when
| they fail. The officials who would hold them accountable
| are the ones who assigned the nobid. The people who got it
| built already made their money.
|
| Thats what ghost cities are about. CCP financing cities
| almost no one will live in to make money off the no bid
| contracts. People buy property in the ghost cities to move
| in and/or as an investment (its government-secured right?
| what could go wrong?) but then housing prices crash
| (because supply far exceeds demand), the lower classes are
| left holding the bag and legally prevented from
| refinancing. So they're making payments on a property that
| they bought at $300,000 even though it would only be worth
| $50k if they got it appraised & refinanced.
|
| It's only possible if the government is also the bank. It's
| a totally conflicted situation.
| selimnairb wrote:
| The Fed is already decentralized, no? There are branches in
| different regions throughout the country with their own
| governance, and a central board of governors to oversee the
| whole thing. I guess what I am asking is, why not treat
| banking like the utility that it is. Their is a natural
| monopoly on currency issuance after all, no?
| corbulo wrote:
| Is it? The Chinese already do this. Go look at how its
| working out for them, the pros and cons are clear and
| obvious.
| bombcar wrote:
| The banks don't want the competition but in theory it could be
| done, perhaps through the USPS, and as a modified form of
| I-bonds or something.
| selimthegrim wrote:
| Was this not tried with little uptake? Or am I thinking of a
| Treasury Direct product?
| bombcar wrote:
| You may be thinking of iBonds themselves. Universal banking
| has been proposed a number of times and the banks squeak
| each time (the last time resulted in changing how
| overdrafts were calculated iirc).
|
| Some other countries already provide banking via their
| postal system. And the US has a toe in there with postal
| money orders.
| loeg wrote:
| Banks use deposits to extend loans to other customers. A narrow
| bank wouldn't do that.
| selimnairb wrote:
| Couldn't the Fed just offer retail loans at the Federal
| Reserver rate, with maybe some kind of premium if inflation
| is high, or discount if inflation is low? What am I missing?
| Why do we need all these banks, some of which
| catastrophically explode every decade or so?
| loeg wrote:
| I mean, you would be substantially increasing the size of
| government. The federal government currently employs about
| 3 million workers. The banking sector employs 1.4 million.
| To perform similar functions, the US government would need
| (at least) a similar number of employees. That is probably
| politically disagreeable.
| selimnairb wrote:
| They would be employees of the Fed, not the Federal
| Government, no? Also, I am not afraid of a big government
| so there's that. Also, they would be paid well, but not
| get insane bonuses, etc. so that's a distributive plus in
| my book (i.e., less wealth concentrated in a tumescent
| financial sector).
| [deleted]
| scrlk wrote:
| > Banks use deposits to extend loans to other customers
|
| "Money creation in the modern economy" from the Bank of
| England is worth a read - it explains why this isn't the
| case.
|
| https://www.bankofengland.co.uk/quarterly-
| bulletin/2014/q1/m...
| pgwhalen wrote:
| This is nitpicking. While that paper is a good read and
| important to understand how banking works, the parent
| commenter's point about how money creation works, and how a
| narrow bank would not participate in it, is valid. Deposits
| _are_ a source of funding that a bank considers when making
| loans, even if a bank does not "turn deposits into loans."
| lbsnake7 wrote:
| I have been reading about this topic recently and still
| don't really understand how 'new money' is being created.
| In a loan, the bank creates an IOU that didn't exist before
| and doesn't point to a stack of $$ on the shelf. But it
| does point to the bank, and the bank itself has tons of
| customer deposits. And if I take that IOU and give it to a
| car dealership who puts it in their bank, for the transfer
| my bank will take actual money from the general pool of
| customer deposits. AND I have to pay back the loan which
| goes into the general pool. So while specific money isn't
| earmarked, the IOU represents money that the bank has
| right?
|
| I guess a way to ask the question would be: if i were to
| liquidate all assets of a bank and call in every loan,
| would that be >= all customer deposits?
| scrlk wrote:
| For a solvent bank, assets >= liabilities. Customer
| deposits are liabilities on a balance sheet.
| rashkov wrote:
| Also been thinking about this. If you look at this
| article, read section titled "money creation process"
| https://en.m.wikipedia.org/wiki/Fractional-
| reserve_banking
|
| If I deposit $5 in my bank account, and then the bank
| keeps $1 in reserve and lends out $4, then they just
| added $4 to the money supply. I can withdraw my $5, and
| the loan-taker can withdraw their $4. This is possible
| because there's a reserve pool of money which is not
| loaned out, and because people tend to just leave the
| money in their account.
|
| At least that's my understanding. Happy to be corrected
| mason55 wrote:
| Yeah, if there's too much cash sloshing around then this idea
| helps because the banks don't need to find places to put all
| their deposits.
|
| What happens normally though is that everyone banks at the Fed
| and the banks don't have any deposits and so loans freeze up,
| which is bad.
| ivoras wrote:
| A colleague said it best: Looks like freedom-loving tax-hating
| tough-love VCs have found communism this weekend.
| cultureswitch wrote:
| The more things like this happen, the more I get the sense that
| the medieval Muslim world did this right: your market can only be
| free if the state does not intervene whatsoever in matters of
| debt or interest. Someone doesn't pay, that should be the
| creditor's problem, they shouldn't get to use the government as a
| recollection agency.
| seo-speedwagon wrote:
| This is 100% a bailout and the wording that "no losses [...] will
| be borne by the taxpayer" is a shameful misrepresentation. Just
| because a bunch of VCs and founders didn't realize they were at
| risk of this happening if they kept all their money in one bank,
| they still bear the responsibility of their losses. Looking
| forward to this new future where uninsured deposits are actually
| 100% backed by the FDIC, so actually if your company spends any
| money to diversify or de-risk your banking posture based on how
| the rules are written, you're a rube and potentially being
| irresponsible towards your shareholders
| dodgerdan wrote:
| Not really. If 5 or 6 more regional banks fail next week due to
| depositors seeking the safety of big banks there won't be
| enough money to guarantee deposits for more banks.
|
| If they didn't guarantee the SVB depositors that outcome would
| have been almost guaranteed, the train wreck would have
| impacted de-risked companies too, because the entire regional
| banking system would implode.
|
| Not acting now to stop contagion because of some idea of
| fairness is short sighted.
| postalrat wrote:
| And if it doesn't then what?
| Jabbles wrote:
| One of the key components of a bailout is that the company
| still exists. In this case, the company does not exist any
| more, and all shareholders have lost their stock.
|
| So whilst there may be some superficial appearance of a bailout
| (and we don't yet know how much that is, as we don't actually
| know the value of the assets that are recoverable), it is
| inaccurate to say that this is "100% a bailout".
| chernevik wrote:
| It's been fun watching the special pleaders redefine
| "bailout", as if the term could only apply to equity or
| bonds.
|
| It can apply to any interested party. As in "The depositors
| were bailed out".
| [deleted]
| seo-speedwagon wrote:
| I'm talking about the uninsured depositors. Who are first in
| line after the DINBoSC liquidates SVB's assets. And it
| doesn't matter what actually shakes out in the end; even if
| some miracle occurred and the FDIC convinced some other bank
| to buy out the rubble of SVB, or they managed to sell off
| SVB's assets without taking a loss (virtually impossible),
| that does not change whether or not this was a bailout.
|
| Because _before any of that was announced_ , the FDIC and
| Treasury said that no matter what, _they_ will guarantee
| uninsured depositors will be made whole. That is not what the
| rules are, those depositors are getting special treatment not
| afforded to anyone else. They gambled (and most apparently
| didn 't know it), lost, and the FDIC are going to make sure
| they don't take a haircut.
| coffeebeqn wrote:
| What's the moral hazard in the FDIC insuring a much larger
| number than 250k?
| yadoomerta wrote:
| exactly what the parent comment said - an incentive to not
| take steps to reduce your risk, leading to more situations
| like this
| lp4vn wrote:
| Seriously, I really wished this were an inflammatory hippie
| talking point but unfortunately it isn't: the truth is that for
| saving the rich, the whole system moves. When the financial
| world is at risk, there is never ever a lack of money for
| bailing it out.
|
| Now on the other side, the federal govenment has no money for
| paying its own employees decently:
| https://www.govtech.com/em/preparedness/low-pay-high-risk-le...
|
| I'm not even american, but it looks like it's like that
| everywhere.
| AbrahamParangi wrote:
| You're being bailed out too. You just don't understand how.
|
| Signature Bank failed and they didn't tell anyone. A half dozen
| more would be dead by noon on Monday. Good luck to rest of the
| financial system, and good luck to the rest of the economy.
| Willson50 wrote:
| We're not bailed out if we're under $250k.
| ladon86 wrote:
| The US has over $9tn of deposits and the entire FDIC
| insurance fund is only $121bn, which is less than the total
| assets of SVB alone. FDIC insurance can cover a few bank
| failures, but not dozens.
| AbrahamParangi wrote:
| What about your employer? Would they still have money to
| pay you?
| Willson50 wrote:
| If your employer doesn't pay you, then you find a another
| job.
| AbrahamParangi wrote:
| Bold of you to assume that work will be available to you.
| Willson50 wrote:
| The alternative is the rich forever get bailouts.
| AbrahamParangi wrote:
| This isn't bailing out _the rich_ this is businesses. If
| you want businesses to not exist, fine. I suggest you
| find some communist utopia and go live there.
| bobberkarl wrote:
| One of these times where you can see how the
| concentration of quality reasoning on HN decreased with
| time and popularity. People think hurting businesses will
| not affect them. Incredible.
| Willson50 wrote:
| You're right, this place is just Reddit now.
| ghettoimp wrote:
| How do we know this is a "shameful misrepresentation" until we
| see how it pans out?
| reso wrote:
| I am also confused about where the money is coming from to
| cover SVB's losses, if not from the taxpayer.
| cragfar wrote:
| The FDIC can tell banks they need to pay more into it to
| cover the losses.
| geodel wrote:
| The pay is then collected from depositors by banks.
| gruez wrote:
| 1. FDIC reserve fund (from the premiums they collect)
|
| 2. "a special assessment" aka a tax on member banks directly
| perryizgr8 wrote:
| > 2. "a special assessment" aka a tax on member banks
| directly
|
| And if some bank doesn't have enough to cover everything
| they can get freshly printed USD courtesy of BTFP:
| https://www.wsj.com/livecoverage/stock-market-news-
| today-03-...
| dodgerdan wrote:
| 3. SVB's assets. They actually have enough assets to pay,
| but it will take time for those bonds to mature.
| gruez wrote:
| Having to wait for the bonds to mature is arguably a
| haircut. Otherwise you can for example, justify a 10%
| haircut by saying that you can take that 10%, buy some 5
| year treasuries with it, and get back your money once
| those bonds mature.
| Khaine wrote:
| So much for moral hazard.
|
| Capitalism is supposed to be about profit and loss, you bail out
| the losers, there is no end to the loss.
|
| I guess we still haven't learned the lessons from 2008. Effective
| regulation should have been put in place to oversee that banks
| are effectively managing their risks. Not bailing out companies
| whenever times get tough.
| dehrmann wrote:
| > you bail out the losers, there is no end to the loss
|
| The difference here is that the "losers" made was supposed to
| be an incredibly safe bet. The people who made the actual bad
| bets are all losing their jobs. Shareholders are getting
| nothing (ish). It's the _customer_ who 's getting protected,
| here.
|
| > I guess we still haven't learned the lessons from 2008
|
| Not my observation, but it's more like we were fighting the
| last crisis. Stress tests were focused more on bad assets, not
| safe assets in an environment with rapidly raising rates.
| Regulation and oversight only work for failure modes you're
| looking for. A handful of short sellers spotted this earlier in
| the year, but what happened is only obvious in hindsight.
| Khaine wrote:
| When a building company, building my house goes bust. The
| government doesn't step in to get someone to finish building
| it. When I order goods from a company and it goes bust, the
| government doesn't step in to ensure I get my goods.
|
| Engaging with any third party entails a level of risk.
| Mountain_Skies wrote:
| There are thousands and thousands of banks to choose from.
| Why did they pick this particular bank? High rates?
| Connections to the right people? It's not like it's the only
| bank in the Valley, much less the country. They chose to be
| with that bank above all others. That was their freedom,
| their choice. Now everyone with a bank account anywhere will
| have to pick up part of the cost for that choice.
| erik_seaberg wrote:
| https://news.ycombinator.com/item?id=35112295 talked about
| how SVB was one of a very few banks whose staff understood
| startup problems. And they didn't fail because of bad loans
| to customers! Instead they had too many deposits locked
| into long term bonds, interest rates spiked, and some
| customers panicked.
| Uvix wrote:
| > The difference here is that the "losers" made was supposed
| to be an incredibly safe bet.
|
| It's not a bet if it's impossible to lose.
| jmull wrote:
| LOL.
|
| Everyone is going to get their full deposits and taxpayers don't
| have to bail anyone out.
|
| The sky wasn't falling.
|
| I was unbelievable how quickly people called for the government
| to whip out the checkbook and sign a blank check.
|
| I wonder how many are going to opt to pay for depositors
| insurance for amounts over $250K? (practically zero?)
| deevolution wrote:
| The problem here is a fundamental flaw in the design of bonds..
| They're non fungible by design. Why not make their yields fixed
| to the current fed funds rate regardless of when they were
| issued? That would eliminate market dislocations like what was
| experienced by SVB where their 1% yeilding bonds lost tremendous
| value.
| startupsfail wrote:
| Should the title of HN post be changed to the "Joint
| statement..."
| indigodaddy wrote:
| Anonymous treasury official alluding that other banks might be in
| similar situations:
|
| https://twitter.com/sonalibasak/status/1635059528546000897/p...
| lapcat wrote:
| Socialism for VC but not for thee.
| AviationAtom wrote:
| I'm surprised the top comment wasn't focusing on this bit of the
| statement:
|
| "We are also announcing a similar systemic risk exception for
| Signature Bank, New York, New York, which was closed today by its
| state chartering authority."
| cragfar wrote:
| This is probably why they had to make this announcement.
| Regional banks were going to be a bloodbath tomorrow morning.
| chrisgd wrote:
| Crypto focused bank and pretty small, even in consideration of
| historical bank runs
| umanwizard wrote:
| Signature had 100Bn in assets and is the third-largest bank
| to have failed in US history (after WaMu and SVB).
| AviationAtom wrote:
| I was just surprised crypto hasn't caused more carnage in
| the banks. SBF had more or less made that small bank his
| and was pumping massive amounts through it. I feel like
| that couldn't have been the only bank tied up with crypto.
| chrisgd wrote:
| Apologies. Thought it was something else. Much bigger than
| I thought.
| umanwizard wrote:
| I suspect you're confusing it with Silvergate, another
| crypto-focused bank that is in the process of going out
| of business.
| MihaiSandor wrote:
| Now, back to building!
| tobias3 wrote:
| Looking at the bigger picture, I do not know if this was the
| correct decision. The depositors were bailed out (it wasn't just
| a liquidity issue) and the FDIC is paying for it.
|
| This means all FDIC members will need to pay less interest on
| deposits to make up for increased FDIC insurance cost.
|
| This will increase the speed with which people take out deposits
| and put it into e.g., short term treasuries because they get more
| interest. Enabled by easy-to-use fintec made in Silicon Valley.
|
| This will decrease bank profitability.
|
| And this is on the "Liability" side of the balance sheet. If the
| FED is successful in causing a recession surely there will be a
| lot of insolvencies (people swimming naked etc.) and there will
| be problems on the "Asset" side as well.
|
| How can this end well? We just failed at most easy hurdle here.
| whatever1 wrote:
| Nice thing is we know exactly who caused and participated in the
| run.
|
| Why not charge them for the mess they caused ?
| [deleted]
| somewhereoutth wrote:
| > Depositors will have access to all of their money starting
| Monday, March 13. No losses associated with the resolution of
| Silicon Valley Bank will be borne by the taxpayer.
|
| Not convinced both those statements can be true.
| tome wrote:
| Yes, there's a lot of sleight of hand going on here. This is
| also highly suspcious:
|
| > Finally, the Federal Reserve Board on Sunday announced it
| will make available additional funding to eligible depository
| institutions to help assure banks have the ability to meet the
| needs of all their depositors.
| chernevik wrote:
| They're passing any cost on to the other banks, who will pass
| those costs on to their various customers.
| ETH_start wrote:
| These bailouts are very good for me in the short run, as I'm
| exposed to USDC, but they teach the wrong lessons, by
| redistributing the cost of a lack of depositor due diligence, to
| the general public.
|
| This will only encourage more high-risking banking practices - by
| both the banks and their customers - in the long run. Regulatory
| regimentation is a poor substitute for meaningful market
| consequences.
| spaceman_2020 wrote:
| Can anyone help me understand why would any bank practice proper
| risk management after this?
|
| SVB took on risk by catering to high risk clients (startups).
| Growth metrics were great as a result. And stock performed
| spectacularly (up nearly 6x from April 2020 lows at ath).
|
| More conservative banks like JPM, however, saw modest growth.
|
| If you're a banker and your salary is tied to stock performance,
| why not just adopt the SVB playbook, take on riskier clients,
| show strong growth, cash out your stock options, and when it all
| ends, just walk away without any guilt since the government will
| bail out your customers anyway?
| furyofantares wrote:
| > More conservative banks like JPM, however, saw modest growth.
|
| Also they continue to exist.
| spaceman_2020 wrote:
| Why should that be any concern if you're not the founder and
| are just exec #107?
| furyofantares wrote:
| It is probably a concern to the founders or others with the
| most power, as you imply. Sure, I guess once we get to,
| let's see you said exec #107? That's pretty far down,
| they're maybe not too different than any other employee,
| though they still might not want their stock to vanish and
| they still might wish to continue their current career path
| etc.
| tome wrote:
| > why would any bank practice proper risk management after
| this?
|
| The incentive for depositholders to exercise oversight has been
| removed, but the incentive for shareholders seems strong now!
| t3rmi wrote:
| This looks like the playbook for small scale banks now. Just
| gamble and say oops I fkd up, can the govt pretty please make
| my clients whole?
|
| 2 years later bam start the same bank again 2.0.
| chernevik wrote:
| It won't.
|
| A bank will have to justify its investments to its regulators.
| And if those regulators have any helpful suggestions about
| "under-banked sectors" that could use additional capital,
| management will be very attentive.
| spicyramen_ wrote:
| [dead]
| comment_ran wrote:
| What's the impact of this, from a "normal" personal point of
| view, in US, Canada, or China?
| version_five wrote:
| So they made their decision, everyone can move on. I just hope
| nobody forgets how prominent VCs behaved during the brief period
| of uncertainty. The idea of some noble class of investors
| championing disruption is dead. They're just a bunch of rent
| seekers like everybody else. For some silly reason I had some
| respect for the startup industry before this, now I see it as a
| joke.
|
| It's great at a personal level that "founders" and startup
| employees didn't have to do without. But it's important to
| remember that they no longer automatically deserve any credit for
| taking risks and doing something new. It might as well be a bunch
| of FAANG employees
| dccoolgai wrote:
| Now they are going to see the light and give the employees the
| same "bailout" they got when times got tough in the form of
| "not getting laid off" right? .... Right? Because everyone
| deserves a break, right?
| lanza wrote:
| > I just hope nobody forgets how prominent VCs behaved during
| the brief period of uncertainty. The idea of some noble class
| of investors championing disruption is dead. They're just a
| bunch of rent seekers like everybody else. For some silly
| reason I had some respect for the startup industry before this,
| now I see it as a joke.
|
| You have some serious disillusion.
| huhneverthot wrote:
| Who would've thought post-hand-wringing-over-poor-300k-salary-
| tech-workers realizing their disposability that we would have
| another event reminding HN just how different the rules are for
| capital owners than the rest of us.
|
| Why is that tech workers, many of whom easily have earned over
| a million dollars in salary over the past few years can't be
| told to "live within their means"?
|
| Why is it that the same VCs that rallied against student debt
| relief think their poorly run bank should be bailed out?
|
| I know why, this thread is chalk full of it. "We were smart, we
| were playing the game with the advantage we were told made us
| untouchable, we can't fathom _gasp_ 'negative consequences'
| whatever those are".
|
| I'm sick of it and thankful to see people seeing through this a
| bit more than usual. Downvoting isnt going to change a damn
| thing, click your hearts out and enjoy the dissonance. See ya
| in the next too-big-to-fail-as-a-result-of-unchecked-corporate-
| greed thread. lmao
| DennisP wrote:
| Yes, regular people get their bank accounts automatically
| protected, and the capital owners had to sweat for a few
| days.
|
| The bank is not bailed out, it's out of business, its
| shareholders get nothing, and its execs just lost their jobs.
| The bank's _customers_ got bailed out.
| stametseater wrote:
| [dead]
| birdymcbird wrote:
| > Who would've thought post-hand-wringing-over-
| poor-300k-salary-tech-workers realizing their disposability
| that we would have another event reminding HN just how
| different the rules are for capital owners than the rest of
| us.
|
| no offense this comment shows lack of even basic
| understanding of situation.
|
| SVB collapse a zero impact on big tech workers earning $300k.
| this problem effect small business, maybe 50-75 employee who
| did not risk they money. they literally put in bank to do
| thing like pay employees and other bills.
|
| start up employee is not earning $300k USD per year. start up
| hardly compete with big tech on any compensation. these
| people working hardest.. not rest and vest like big tech.
| bart_spoon wrote:
| How many startup employees do you believe are making 300k?
| That's FAANG, big-tech companies that were in no way affected
| by SVB going under. If anything, startups are known for
| paying below market rate because they have tighter margins
| and compensate with the tenuous promise that more money might
| be made in the form of stock options if the company makes it
| big, which usually doesn't pan out.
| [deleted]
| jongjong wrote:
| It's impossible to move on. There were insufficient funds to
| pay depositors; meaning, the money was gone - Since the money
| didn't vanish into thin air; somebody got that money through
| some scheme.
|
| Now taxpayers are going to be footing the bill... It's a
| government-ordained transfer of wealth from good, honest
| taxpayers to whatever (possibly malicious) entities got that
| money.
|
| It's theft. It's straight theft. Not even complicated. Theft is
| now legal depending on who you are.
| bradleyjg wrote:
| It's not strictly speaking taxpayers, it's anyone with a bank
| account at a U.S. bank. But same effect.
| jurassic wrote:
| > It's impossible to move on. There was insufficient funds to
| pay depositors; meaning, the money was gone - Since the money
| didn't vanish into thin air; somebody got that money through
| some scheme.
|
| There was no theft. The bank bought bonds that decreased in
| value rapidly due to rising interest rates. Pure
| mismanagement, but not theft.
| blackoil wrote:
| The whole business of a Bank is to manage interests and
| money. If a bank didn't consider interest rate and duration
| risks, it is such a gross mismanagement that it looks
| identical to theft. That is like a chef saying yeah we had
| best knife and utensils, we just didn't clean them and some
| mould was growing on them. On top of that is the suspicious
| sales of stock by CxOs.
| ok_computer wrote:
| The bonds are good to yield on the stated timeframe. You
| need to hold them to maturity. They bought long term bonds
| and tried to sell them after newer higher yielding bonds
| came out. Bad decision. Also lobbying to avoid stress
| testing below 250B instead of 50B.
|
| They could have kept deposits as cash and watched the value
| erode like a dumb retail consumer has an option to do. But
| that'd look bad for bank investors.
|
| So now the Fed and Treasury are responsible for negative
| yield on bad bets if that account crosses 100B. Cool. I
| only have about 100B to go before the US government cares
| about my negative position. 401K takes an L because
| interest rate rises and the SP500 being a stock buyback
| circus. That's on me I guess.
|
| Anyone saying well it's not using taxpayer dollars.
| Whatever, it is using our feds time. This whole thing is
| now J Powell and Yellen focusing on a cottage industry
| serving billionaire interests instead of using their time
| and agency to work for that dumb aforementioned retail
| consumer undergoing inflation and a pending recession.
|
| In an agency where any intervention sets a precedent this
| is now telling regional banks to go ahead and yolo your
| balance sheet. We got you.
|
| I want the startups to get their money through liquidation
| of the bank at whatever discount that comes to. 80c on the
| dollar, whatever it isn't your money anyway it's VC money.
| All savings accounts come with 250k FDIC insured. So play
| by those rules.
| jurassic wrote:
| SVB shareholders have been wiped out in this, and the
| prospect of that fate should motivate banks to try to
| avoid a similar outcome for their institutions going
| forward.
| jongjong wrote:
| It depends. It's likely that some of those big SVB
| shareholders were also shareholders of ventures which had
| deposits at SVB so they got punished and bailed out at
| the same time... Less punishment. Maybe even profitable
| for them.
| selimthegrim wrote:
| They did pass tax on buybacks
|
| Carried interest needs to be next
| [deleted]
| bloodyplonker22 wrote:
| You're going too far by calling VCs "rent seekers". They do
| provide value with other peoples' money to build companies. No
| matter how much people love to hate them, they are a necessary
| part of the startup ecosystem. Most of them fail and end up in
| tears in the long run -- it's just the nature of VC. There's no
| need to punch them when they're down.
| kazen44 wrote:
| in my personal opinion most if not all modern startups are
| seeking to create a system in which rent seeking behaviour is
| the end goal.
|
| The stereotypical SV playbook is to enter a market, don't
| give a crap about the local regulation or laws, try to get
| big by using your cheap money to outstrip to competition and
| do rent-seeking when you are the largest.
|
| Also, a lot of startups are solving non fundemental problems.
|
| We should be spending all that engineering effort fixing
| things like climate change, food security for the global
| south and a way to deal with the aging population in the
| western world instead of thinking about algorithms to get
| more clicks on ads.
| molsongolden wrote:
| A few companies have done this but calling it the
| stereotypical playbook is a bit over the top.
|
| Also, there are many startups building stupid junk to
| capture a piece of the pie but also many startups working
| on real problems.
|
| This whole comment is a reductive cliche at this point.
|
| Please start a company to work on fixing climate change,
| food security, aging, etc.
| fullshark wrote:
| I will never forget, they revealed their true faces. All these
| CEOs also. It's a big game, words are just tools to manipulate
| others into doing what you want them to do, nothing more.
| florakel wrote:
| There is nothing but economic interest. If you want to predict
| how any company, startup or not, will behave just look at how
| they make money. In 99% of the cases companies act according to
| their business model. It is that simple, there is nothing else.
| All the "we will make the world a better place" rhetoric and
| mission statements are just recruiting and PR BS.
| lambic2 wrote:
| I don't understand this comment. 1) SVB was not managed by
| VC's. 2) SVB went under because they bought US Treasuries, not
| because they took risky bets on startups.
| ajross wrote:
| > 1) SVB was not managed by VC's.
|
| I think this is very much in question. Silicon Valley Bank
| was _absolutely_ part of a cohesive microeconomy. There 's no
| other explanation for the absolutely uniformity with which
| all those startups were using it for what should have been
| 100% commodity banking services. Those startups all banked
| with SVB because their VCs told them to.
|
| And the VCs told their startups to bank with SVB because...
| we don't know yet. But any time you have a signal this
| strong, there's a driver.
|
| Add to that the fact that the moment all those startups
| seemed likely to lose banking services, however temporarily,
| those same VCs _freaked the fuck out of their minds on
| twitter_ and started shrieking in all caps about the end of
| western capitalism. That 's not mere concern for their poor
| startups (most of whom were going to fail anyway, after all
| -- they're startups!). These VCs were _exposed_ to the SVB
| failure. They were leveraged somehow and about to get caught
| holding the bag.
|
| There was some kind of insider dealing going on with SVB. It
| wasn't just a bank. We for sure know that much. Whether we
| have criminal fraud or not is an open question.
| nullc wrote:
| One element is that the banking industry as a whole behaves
| pretty chaotically with 'unusual' customers.
|
| Big wire in from a fundraising round? Account frozen. Big
| wire out for an acquisition? Account frozen. Bank learns
| your customers include cryptocurrency companies? Account
| frozen. Bank account balance huge relative to your
| business' cashflow? Account frozen. Random bank staff
| doesn't understand what you're doing? Account frozen.
|
| In that kind of climate its almost inevitable that VC's
| would recommend a single bank known to not behave
| erratically for the activities that are usual for their
| investments.
| belter wrote:
| Bill Ackman publicly admitted on Twitter to be on the hook
| for at least 10% of his assets.
| blackoil wrote:
| That most probably means, he and his companies kept his
| cash in SIVB and not that he has stake in it.
| qwertyuiop_ wrote:
| This a great point. Why did the VCs force startups to use
| SVB and not others for commodity banking ? Anyone know what
| SVB did and others couldn't?
| noitanigami wrote:
| SVB made loans to cash-rich companies approximate to their
| funding rounds, when they were least likely to immediately
| use the cash. These loans typically required the company to
| hold the money as a deposit in SVB. These deposits were
| used to buy long duration bonds.
|
| In other words, SVB used these companies to produce new
| money that they could earn interest on.
| ajross wrote:
| Yeah, that's the kind of thing I'm imagining. Though it
| doesn't explain the VC tweetpanic unless they were
| getting kickbacks. Is there a cite for that, or a story
| posted somewhere?
| noitanigami wrote:
| https://twitter.com/jonwu_/status/1634250770555219970
| notfromhere wrote:
| VCs started a bank run by telling all their portfolio
| companies to pull out
| lxm wrote:
| Yeah, but what are the specific cash amounts we are talking
| about?
|
| Such extreme exposure to interest rate risk would've blown
| up in some other ways - say, a large client processing a
| routine payroll, executing stock buyback, or investing in
| an entity that banks elsewhere.
| epvgwwqe wrote:
| No. SVB price crashed 50% in one day and got downrated by
| Moodys, which exposed a bunch of red flags that would have
| resulted in a bank run regardless of what VCs said.
| mrangle wrote:
| The stock crashed because of the initial pseudo bank run
| due to high interest rates on capital (at least that's
| the reason given for withdrawals), and the bank's
| subsequent failure to make up the difference after
| selling a treasuries portfolio. After which a real bank
| run occurred. Then the bank started down a path of a more
| desperate measure, and that's when they were shut down.
| At least that's what I got from an article.
| lambic2 wrote:
| That's just basic logic that anyone would follow to
| survive. VC's had nothing to do with SVB's bad money
| management.
| delfinom wrote:
| No small or medium bank in the US can withstand a bank
| run
| labster wrote:
| I see it the other way around. The VCs started a panic.
| Name one other bank that could survive $42 billion in
| withdrawals in a single day. Other than Bank of Zimbabwe,
| obviously. Even Wells and JP Morgan would collapse under
| that strain. The VCs caused their own pain.
| scopendo wrote:
| The panic was started by SVB, not VCs. Abstract this to
| any other bank and the reaction would have been the same.
| hello_moto wrote:
| They triggered the rush that exacerbate the downfall.
|
| If nobody is rushing, SVB could probably find ways to
| sell something before it's too late.
| vkou wrote:
| VCs started a bank run because the bank they were using was
| insolvent.
|
| _That 's not their fault._ Would you keep your money in an
| insolvent bank?
| WanderPanda wrote:
| I think they were solvent im the beginning of the week.
| But idk if it was just because they didn't have to mark
| their underwater investments to market
| opportune wrote:
| That's a peculiar definition of "solvent"
| loeg wrote:
| It's the one banks and regulators use, though!
| ssnistfajen wrote:
| SVB had risks, VCs did what they should do to respond to
| said risk. Would you blame regular working class people in
| a retail bank run scenario for wanting to save their money
| from potential risk?
| madelyn wrote:
| I believe they're referring to the bailout YC (and others)
| were asking for- going so far as to arrange a petition last
| night.
| seizethecheese wrote:
| YC asked for exactly what just happened. (Depositors be
| made whole.) They did not ask for anything beyond what
| regulators ultimately deemed reasonable.
| n3rv wrote:
| wasn't it ultra low interest investments, but very long term?
| They should have known it wasn't going to stay like that
| after the crazy 2020 ride. :/
| DennisP wrote:
| Yes, long-term treasuries which for years had been at very
| low interest rates. You're certainly right that they
| shouldn't have done that, but it doesn't invalidate GP's
| point.
| JamisonM wrote:
| "I just hope nobody forgets how prominent VCs behaved during
| the brief period of uncertainty."
|
| The point is that these VC's didn't act to support their
| investments, they flailed around begging for bailout (that
| they probably didn't need but they didn't understand banking
| well enough to know that or bother to consult any experts
| before making public statements).
|
| They behaved badly and should be embarrassed and everyone
| should remember it.
| adastra22 wrote:
| ...why? For asking for government intervention to protect
| the innocent and avoid contagion? Why should that be
| embarrassing?
| zamnos wrote:
| https://files.mastodon.social/media_attachments/files/110
| /01...
|
| Being against student loan forgiveness or any sort of
| help to anyone, ever, but then running to mommy Yellen
| the second _you_ get in trouble is just too hypocritical
| to believe.
|
| If that's where you (philosophical you, not you
| personally) landed on those two issues, you can get
| fucked.
| tomato_123 wrote:
| What innocent? They could have sold the uninsured
| deposits at a discount, made payroll, and let the equity
| eat the loss. Instead they went on an embarrassing
| bailout begging extravaganza and unfortunately succeeded.
| Nobody, ever, should take any of these people seriously
| again.
| wonnage wrote:
| This was an extremely obvious example of when the private
| sector could've collaborated to solve a problem. SVB was
| doing a capital raise just last week. Instead the VC
| community colluded to accelerate the problem and is now
| asking for a government bailout
| wmf wrote:
| VCs themselves could have fixed this problem (that they,
| in part, created) and some of them did but many did not.
| reaperducer wrote:
| _Why should that be embarrassing?_
|
| Because they preached for years that regulation is bad,
| and the government shouldn't be involved in their
| financial affairs.
|
| Then when something went wrong, they begged for a bailout
| from the very regulators they disdained:
| https://www.ycombinator.com/blog/urgent-sign-the-
| petition-no...
| WanderPanda wrote:
| They actually brewed up the contagion. Without the
| alarmism everyone would just assume that they get a
| 10-20% haircut and have most of their money back within a
| week
| arglebarnacle wrote:
| Why do you find it believable that they asked for
| government intervention to protect "the innocent" as
| opposed to simply acting to protect their own private
| financial interests, which seems to be the simplest
| explanation?
|
| I'm not even convinced that the depositors made whole
| here were innocent--they accepted a known risk by
| exceeding the risk-free FDIC limit. The sad part is that
| in our society, we have no qualms about literally turning
| working people out into the street when they make
| financial missteps, but the already-wealthy receive
| prompt intervention from the highest levels to protect
| them and other wealthy people from the consequences of
| their investment decisions.
|
| What argument is really left for this kind of
| intervention, besides appeals to the trickle-down system
| where the rich must be vigilantly protected since the
| rest of our society is set up to be disrupted when they
| fail. The whole system is morally and politically
| bankrupt.
| adastra22 wrote:
| > Why do you find it believable that they asked for
| government intervention to protect "the innocent" as
| opposed to simply acting to protect their own private
| financial interests
|
| They are the innocent party here though (well, except for
| maybe Peter Thiel). The depositors didn't cause this
| problem.
| JamisonM wrote:
| They begged for special dispensation that they didn't
| ever need. They proved themselves to be both selfish and
| ignorant and deserve any derision they receive.
| mbesto wrote:
| > not because they took risky bets on startups.
|
| SVB regularly provides credit to risky startups, which is why
| they existed in the first place (because other banks wouldn't
| lend at those rates). So, yes, they sorta did place risky
| bets on startups.
| lambic2 wrote:
| Source for this? All evidence show that their failure at
| least started with them owning a lot of "safe" bonds, whose
| value declined with increasing fed rates.
| mbesto wrote:
| https://www.svb.com/landing-pages/venture-debt
| mbesto wrote:
| To elaborate further with hard numbers. See #2:
|
| https://www.linkedin.com/posts/rich-falk-wallace_silicon-
| val...
|
| _#1: Mortgage backed securities: $82B (83% residential)
| #2: Direct loans: $74B (55% short term loans to VCs & PE)
| #3: Liquid assets: $55B_
| somewhereoutth wrote:
| My understanding is that it was in fact both:
|
| 1. If they had more short dated treasuries, they could have
| used them to fund drawdowns, and would not have had to sell
| their long dated treasuries, that went underwater as interest
| rates rise.
|
| 2. If they had not been overly exposed to one sector, a
| sector that largely existed due to 'free money' of zero
| interest rates, then large scale draw downs would not have
| happened as interest rates rise.
| Fede_V wrote:
| Joe Weisenthal (who is always worth listening too in matters of
| finance) put it well here:
| https://twitter.com/thestalwart/status/1634985524007157760?s...
|
| Some VCs were definitely better than others: the very worse was
| probably the All In Crew who were trying to spread a bank run
| to tie the government's hand. Truly despicable.
| birdymcbird wrote:
| saw their all in episode. definitely did not get signal you
| described.
| MaxHoppersGhost wrote:
| The All In Crew are the kings of rent seekers. Chamath
| himself made billions off the SPAC boom which should tell you
| all you need to know about them.
|
| Mr Libertarian himself David Sacks crying for govt
| intervention was hilarious. What a clown.
| WanderPanda wrote:
| Yes, this and his Solana pump (and dump?) really showed his
| true face to a point where I have to start questioning his
| qualities as a capital allocator
| WanderPanda wrote:
| Agreed, I'm a big fan of the all in podcast but this really
| showed them (especially Sacks) from their worst side. They
| clearly pressured the regulators by saying that everyone who
| has more than the amount insured by the FDIC in their account
| at a regional bank is stupid and reckless if they don't
| transfer it to one of the top four banks on Monday. The
| situation at SVB seemed very manageable but even a small
| chance of this ,,mind virus" spreading would be so
| devastating that they decided to backstop the situation.
| skwirl wrote:
| The people I lost respect for was a large portion of HN
| commenters calling on bank depositors - largely small
| businesses - to be snuffed out because there was a run on their
| bank. The comments have largely been factually wrong,
| misleading, and downright psychopathic. I am glad our
| government is not controlled by such people, but I question the
| value of this forum going forward given the large portion of it
| that is so incredibly toxic and so poorly informed.
| AlchemistCamp wrote:
| [flagged]
| greenyoda wrote:
| I'm pretty sure that calling your fellow commenters
| "trolls" and accusing them of having "psychological issues"
| also violates HN Guidelines, which say:
|
| > Be kind. Don't be snarky. Converse curiously; don't
| cross-examine. _Edit out swipes._
|
| > Please don't fulminate. _Please don 't sneer, including
| at the rest of the community._
|
| https://news.ycombinator.com/newsguidelines.html
| AlchemistCamp wrote:
| I suppose that might run afoul of the guidelines, though
| I did _not_ call out any specific commenters and I think
| we can all agree there were some trolls on that thread.
| You can look for yourself and see some newly created and
| quickly banned green accounts on it.
|
| The comment you're replying to was my honest assessment
| of the situation, given the many dozens of comments
| hoping for people to lose their bank deposits and for
| their businesses (or those that employ them) to fail.
| tomato_123 wrote:
| All of these companies could have sold their uninsured
| deposits at a discount, made payroll, and let their equity
| holders take the loss. This is what equity holders are
| supposed to do. Instead they went on an embarrassing twitter
| begging campaign and unfortunately succeeded. The whole
| "workers missing mortgage payments" or "destroying a
| generation of innovation" is an insane, buck-passing take.
| bryan_w wrote:
| These are the same people that influenced most of the recent
| opinions around Google, Amazon, Meta, etc. I'm not saying
| everything is peachy keen at those companies, but just keep
| this in mind next time you see the next "Google eats babies"
| or similar un-nuanced headline and comments section.
| ah765 wrote:
| Absolutely. People like Garry Tan, Sam Altman, Michael Seibel,
| Paul Graham, Mark Cuban, all pushed hard to keep their money,
| not caring if it's at taxpayer expense. Rich people tend to
| only care about helping others when it aligns with helping
| their own pockets.
|
| This may have been the most prudent decision by the government,
| though it'll be hard to say what would've happened otherwise.
| But in the end, it sounds like the average person will still be
| negatively affected, by having small accounts under the $250k
| limit subsidize insurance for larger accounts.
| tiffanyh wrote:
| Mark Cuban is a standup guy. Can speak from personal
| experience.
|
| Rest of your comment, I mostly agree with though.
| ah765 wrote:
| Wouldn't mind hearing your story!
|
| But by default, I assume everyone, rich or poor, acts in a
| selfish manner. They'll help others only when it helps
| themselves, often by taking an insignificant financial hit
| for a substantial reputational bonus. Many rich people like
| the ones I listed try to act like their overall goal is to
| help others, but their actions seem to always align with
| furthering their own interests. If Mark Cuban did something
| that did substantial damage to his own overall value
| (financially or reputationally) in order to help someone
| unrelated, I'd be pleasantly surprised to hear it.
| tiffanyh wrote:
| Short version: Mark realized a person needed help, even
| when those closest to that person didn't realize. He went
| above & beyond to help that person, someone who he barely
| knew.
|
| Note: cutting a check is easy. What's hard, is to give
| someone non-monetary help. Because it means you have to
| actually be involved if it's non-monetary. This was that
| type of help he gave.
| ah765 wrote:
| I assume there's lots of private details you can't share,
| so I can't judge much. But fair, if that's true, it would
| be good.
|
| It's not like rich people need to care about what I
| think, but I just argue that people should avoid
| glorifying them and believing claims that they want to
| help the world, as I've seen too many times that they are
| only interested in helping themselves. And the things
| I've seen Mark Cuban push for on Twitter are often pretty
| awful.
| garry wrote:
| [flagged]
| actuator wrote:
| Oh please, these are just excuses.
|
| If you want to reap the benefits of capitalism, you should
| also get punishment for not doing the job well. Getting a
| haircut above the insured amount was the sensible thing
| here.
| throwawaysleep wrote:
| The problem is that everyone now thinks of the haircut
| and flees any bank that its a fortress to make sure they
| don't face a haircut.
|
| I.e. you have a bank run on every bank under the largest
| 10.
| actuator wrote:
| If we are so fearful of this, and banks are so core to
| the economy, why not just have government owned banks
| then, since it seems like government has to subsidize
| mismanagement.
| adharmad wrote:
| Capitalism without bankruptcy is a bit like Christianity
| without hell.
| TMWNN wrote:
| Aaron Klein (former Treasury official, now with
| Brookings) agrees with you:
|
| >There are just under 5,000 banks in America ... the
| right answer for the number of banks to fail in a year is
| greater than zero. If you have no bank failing, then you
| probably have bigger problems in the economy. Look, the
| first time in American history you went a year without a
| bank failure was 2005. 2006 was the second year and the
| regulators told us at the time, that they'd won, that
| this was great regulation, see, no one was failing, the
| system couldn't be safer. Kablooey.
|
| <https://www.youtube.com/watch?v=rzQx4qmMcJI#t=4m5s>
| moshegramovsky wrote:
| And just look around. It's exactly this, everywhere.
| ah765 wrote:
| Sure, it's possible to justify that, and if I were in the
| Fed I might make the same decision. But how hard would you
| fight for this cause if it didn't benefit you personally?
|
| I want to hear those reasons from others, not from a bunch
| of rich people who would be personally profiting at the
| ordinary person's expense.
| nthngtshr wrote:
| I don't understand why so many people have such a hard
| time justifying this.
|
| * If the bank collapses then many startups shut down.
| This is bad, but okay, maybe you think startups are net
| negative. In addition to that thousands of people will
| lose jobs -- please explain how this is a good thing.
| Plus there's a potential for ripple effects from people
| not trusting banks anymore.
|
| * You say it's a bunch of rich people profiting. Who are
| these rich people you're talking about? Bank management?
| They went to zero overnight. Shareholders? zero. Who's
| left? Garry Tan? He has the same incentives as millions
| of Americans whose retirement savings are parked in VC
| funds.
|
| I want to say I'm one of those people who's not
| personally profiting from this, but I acknowledge that's
| not true -- the economy is connected and stable economy
| is good for everyone and we should celebrate people who
| push for it.
| tomato_123 wrote:
| "If the bank collapses then many startups shut down."
|
| No, the equity gets wiped out, and if it's a good
| idea/good business it persists and gets funding
| elsewhere.
|
| "You say it's a bunch of rich people profiting. Who are
| these rich people you're talking about? Bank management?
| They went to zero overnight. Shareholders? zero. Who's
| left? Garry Tan? He has the same incentives as millions
| of Americans whose retirement savings are parked in VC
| funds."
|
| The VCs and other equity holders of the SVB depositors.
| Financial markets work: they could have sold their
| uninsured deposits at a discount, made payroll, with
| equity eating the loss.
| ah765 wrote:
| I actually personally profit from this as a software
| engineer working at a startup, but I don't agree with it
| because I recognize it's unfair.
|
| Let's say my house gets burglarized. Everyone agrees this
| is a bad thing and unfair to me. However, my insurance
| only covers $2k, and I lost $20k of stuff. Can I expect
| the government to "backstop" me?
|
| It's bad that the bank got shut down and depositors might
| have lost some of their money, but it's not fair to
| expect the government (and the average person indirectly)
| to reimburse for this, particularly when that's not how
| the FDIC policy is written.
|
| Garry Tan and all the people I listed have a lot of their
| value in YC and startups which have direct losses and
| direct benefit from getting reimbursed for losses. If it
| weren't for reimbursement, the effective valuation of the
| startups would go down, and they'd have to invest more
| money to keep them afloat. So he has much stronger
| incentives than ordinary Americans.
|
| The stable economy might be good for everyone, but I
| certainly will not celebrate rich people that push for
| their own wealth.
| sebzim4500 wrote:
| The US economy depends on you trusting that your bank
| account is less likely to disappear than a pile of cash
| under your bed is.
|
| That's why the US government steps in for one case and
| not the other.
|
| There is also precident for the government to pay damages
| above insurance limits after natural disasters, which
| from the depositor's point of view this basically is.
| luckylion wrote:
| From what I understand: SVB offered below-market rates on
| loans and even personal financing for the founders of
| companies if you, in return, use them exclusively as your
| bank and put all your raised capital into an account with
| them.
|
| You buy favorable rates on loans with the increased risk
| of putting more than the insured amount into the account.
|
| When your house gets damaged in a flood and you've
| selected to insure it for $250k because that's cheaper,
| and you've knowingly built it in a floodplain, is the
| government still going to cover 100% of the cost of
| building it?
| blackoil wrote:
| > But how hard would you fight for this cause if it
| didn't benefit you personally?
|
| Why is that odd or bad? I don't see people in here
| discussing issues about Syria or Congo. I saw dozens of
| threads about Trump and relatively none about Bolsonaaro.
| Why are you discussing about Fed and Biden and not
| thinking of economy of Pakistan? People will be more
| vocal and active about issues in their proximity.
| selimthegrim wrote:
| Pakistan shoots itself in the foot in the same exact way
| every N years running up balance of payments, hiding
| foreign and military aid in Dubai and running to Saudis,
| IMF and China. It's not interesting when it's same old
| story.
| ah765 wrote:
| It might not be odd or bad if you consider that almost
| everyone is selfish.
|
| However, the fundamental problem here is that SVB lost $X
| billion dollars of depositors' money, and Garry et al.
| wanted the government i.e. taxpayers to pay for those
| billions instead of the depositors, hurting us for the
| benefit of him and his community.
|
| This is ordinary human nature and I don't care about
| Peter Thiel doing that because everyone already knows
| he's selfish, but some others want to act like they're
| selfless and be celebrated for it, and I don't accept
| that hypocrisy. Rich people should be assumed selfish
| until very strongly proven otherwise.
| tomato_123 wrote:
| There was plenty of private capital ready to step in and
| buy these deposits, at a discount of course, making it
| possible to make payrolls. You and your ilk just didn't
| like that the equity holders would have to eat the loss.
| Stop pretending this is about anything else.
| tome wrote:
| Hey Garry, did YC advise its startups about prudent
| management of their treasury? How come so many of them had
| more than $250k in their checking accounts? Do you think
| you could have advised them better?
| thuuuomas wrote:
| You're speculating. You have no experience with fiscal or
| monetary policy. You're a glorified salesman!
| hellold9302 wrote:
| [dead]
| sebzim4500 wrote:
| Should they not push for a good policy just because it
| benefits them? I don't really get the criticism, unless you
| think they were hiding the fact they had skin in the game.
| tempsy wrote:
| the long term fallout was never going to come from only getting
| 90 cents on the dollar vs 100%
|
| it's the fact that the lender most willing to work with non
| traditional borrowers eg tech startups is now gone, and there's
| no bank or lender that will replace them. if anything this will
| mean lending standards will tighten, and it will be very
| difficult for any customer with a SVB credit line to find
| another bank willing to lend to them on the same terms.
|
| this is also coming at a time when more startups relied on debt
| to fund their companies because the equity raising environment
| is so tough, so now many founders might be forced to attempt to
| raise equity in a tech bear market on very bad terms if they
| can at all
| seizethecheese wrote:
| Why the scare quote on "founders"? It makes your comment come
| across as motivated.
| ComplexSystems wrote:
| > It's great at a personal level that "founders" and startup
| employees didn't have to do without. But it's important to
| remember that they no longer automatically deserve any credit
| for taking risks and doing something new.
|
| Mm hmm. Yes, after all is said and done, the main take away
| from this is that startup employees and founders no longer
| deserve credit for taking risks and doing something new. Glad
| our priorities are straight here on hackernews.
| KRAKRISMOTT wrote:
| The founders and employees deserve credit, the VCs not so
| much. They were the ones primarily driving the fearmongering.
| threeseed wrote:
| The founders do need to wake up though.
|
| If you don't understand the basics of the US banking system
| then not sure you should be running a business.
| KRAKRISMOTT wrote:
| They don't have much agency in this. Go with a typical
| "small business account" meant for mom and pop shops at a
| bigger bank and you miss out on all the advantages of a
| more dynamic bank like SVB. Your investors would be
| asking questions. Collectively agree not to create a bank
| run, your investors would still ask questions.
|
| Unless you are fully bootstrapped with no major cashflow
| issues, there are no right answers to this.
| wpietri wrote:
| Oh, so they, wanting an advantage, made a choice that
| turned out to have some downsides as well? That sounds
| like a situation where they have plenty of agency to me.
| Especially when there are alternatives like putting their
| eggs in _two_ baskets.
| KRAKRISMOTT wrote:
| I bet you are one of those people who insist that
| companies making under 1mil ARR should support multiple
| auxiliary payment providers in the event you get your
| funds frozen by the Stripe/PayPal. The infrastructure
| providers need to do better, the burden should not be on
| small businesses to account for the cost of black swan
| structural failures. Words are cheap when you only work
| for well capitalized large corporations because your
| personal check book is rarely impacted aside from short
| term unemployment.
| wpietri wrote:
| What?
|
| The burden is not on small businesses. Most small
| businesses don't just have well over a quarter million
| dollars in cash just lying around collecting dust. And
| the few that do can open an account at second bank. It's
| not rocket surgery.
|
| Beyond that, if they have the kind of cash flow where
| they need millions in cash sitting around, they should
| hire a finance professional. For many, many reasons, bank
| failure risk being a very small part of it.
| paganel wrote:
| > on all the advantages of a more dynamic bank like SVB
|
| Then the CEOs/business owners going that way should fully
| ascertain and support the associated risks.
| KRAKRISMOTT wrote:
| SVB doesn't exactly go around publishing the details of
| their internal operations. Do you expect a small startup
| without significant ARR to question SVB's treasury
| managers before opening an account?
| adharmad wrote:
| No but their quarterly statements do have relevant
| information, if someone wants to dig around. One would
| assume that if people spend hundreds of thousands of
| dollars on AWS (someone to manage their compute), they
| would spend some time doing due-diligence on the
| financial institution where they choose to park their
| money.
| sebzim4500 wrote:
| What evidence is their that this due-diligence would
| conclude SVB was any more risky than a different bank?
| They bought US government bonds, this is not an FTX
| situation.
| throwawaysleep wrote:
| A prereq for running a business should be the ability to
| analyze and evaluate bank stability?
| dpweb wrote:
| VC insider types won this one in some sense but at the cost of
| some credibility (those most hysterically yelling om twitter at
| least)
| jraines wrote:
| > they no longer deserve credit for taking risks and doing
| something new
|
| What on earth. Putting money in the bank was never a risk
| founders were lauded for, nor should it be on the titanic list
| of things they have to worry about.
|
| We can brawl in the peanut gallery over FDIC limits and
| precedents and moral hazard (which lies with the banks, btw)
| but at the end of the day there can only be one "best country
| to start a startup" and whatever that is, it's definitionally
| one where you don't have to worry about getting rugged by the
| bank because someone you wouldn't know from Adam made a bad
| bond trade.
| paulddraper wrote:
| I learned that VCs are protective of their investments.
|
| Which, as an investee, is exactly what I want.
| giraffe_lady wrote:
| Does realizing this, that they were _always like this_ change
| your perception of the last decade in any particular way?
|
| I'm genuinely very curious. I've always considered them a bunch
| of smarmy opportunistic cutthroats, but that shift must be
| jarring right? Again I don't mean this negatively, genuinely
| interested in how it changes your understanding of the "startup
| era," pandemic, etc.
| anonu wrote:
| why conflate "startups" with "VC"?
| wilde wrote:
| Just think of this moment as a great interview question during
| the next upcycle
| tssva wrote:
| The thing I'm most confused about in this comment is that you
| ever believed that VC's and startups were some kind of noble
| class.
| labster wrote:
| Hey, there's nothing wrong with the government protecting
| people when they lose everything due to circumstances beyond
| their control. I'm glad to see VCs finally fighting for their
| progressive ideals.
| paganel wrote:
| Not the OP and I hadn't put them in the noble class category,
| but until a few years ago I had truly believed that the
| innovation that was still coming out of the US (and out of
| the West more generally) was in no small part thanks to SV
| startups (and hence thanks to the VC industry supporting
| them).
|
| The whole crypto fiasco plus a few other things (these SV
| people going from worshipping Musk to hating him in a very
| short period, for example) have convinced me that I was a
| holding a view that was not based on anything of substance.
|
| Which begs the question: where does real innovation come from
| in the US (and the West more generally)? The SV start-ups are
| not providing it, ditto for the FAANGs, what's left?
| nottathrowaway3 wrote:
| > _where does real innovation come from in the US (and the
| West more generally)?_
|
| Chinese-style surveillance tech, unironically. The next
| great experiment after social media is the increasing use
| of tech to control people with an personalized granularity
| that free-market capitalism (or even MMT) could never dream
| to achieve.
|
| In other words, the plot of MGS2.
|
| For obvious reasons all this is unpopular here. But
| regardless of feelings, it is the next logical step.
| paganel wrote:
| > Chinese-style surveillance tech, unironically
|
| Yeah, now that you mention it the one thing at which AI
| is really good at is image recognition.
|
| There was this drone video [1] of a busy intersection
| posted on my country's sub-reddit recently, and from
| second 0:11 or so the way that the software is able to
| "recognise" and assign an unique ID to each and every car
| from that intersection is very Minority Report-y. What's
| scarier is that this looks like consumer-level stuff, not
| some fancy state-run surveillance thingie.
|
| I assume the drone is Chinese-made, most probably also
| the software that made that identification possible.
|
| [1] https://old.reddit.com/r/Romania/comments/11p9o7w/int
| ersec%C...
| adhesive_wombat wrote:
| I cannot decide if the idea that VCs are some kind of
| kindhearted patrons and startups in general are all moral
| straight arrows dedicated to only good things is outright
| propaganda or just distilled Silicon Valley delusion.
| Hanlon's Razor indicates the latter, but I do wonder.
|
| For every one company that genuinely is working out of the
| goodness of their hearts, there are 10 serial founders
| seeking to inveigle their way into something as a middleman,
| sorry "disruptor", then cash out and go round again before
| anyone notices the cracks.
| moshegramovsky wrote:
| > For every one company that genuinely is working out of
| the goodness of their hearts, there are 10 serial founders
| seeking to inveigle their way into something as a
| middleman, sorry "disruptor", then cash out and go round
| again before anyone notices the cracks.
|
| Well said.
| dismalpedigree wrote:
| Agreed. This is what shocked me most. I have always thought
| VC = Vulture Capitalist.
| [deleted]
| threeseed wrote:
| I believed that VCs and startups were mostly good people
| trying to do the right thing.
|
| But what we've seen in the last few days is utterly
| despicable behaviour by many of the leading figures driven
| solely by greed and self-interest.
|
| I think increasingly startups will look to bootstrap in the
| coming years.
| hello_moto wrote:
| > I believed that VCs and startups were mostly good people
| trying to do the right thing.
|
| I have not seen one human being that didn't turn around
| because of greed.
|
| We are all vulnerable
| threeseed wrote:
| These aren't children. They are grown adults many in the
| later years of their life.
|
| Nobody is changing their stripes.
| violenceislaw wrote:
| [dead]
| thelittleone wrote:
| It takes a hobbit.
| magpi3 wrote:
| I imagine you are not looking too hard. I have met many
| people who have dedicated their life to service and not
| greed. Richard Stillman is one if you need an example.
| hnthrowaway0315 wrote:
| Most people are driven by greed and self interest.
| Especially VC and Startups, otherwise why did they join the
| business?
| lazide wrote:
| Literally the whole point of a startup is to make a lot of
| money?
| czbond wrote:
| Absolutely - because otherwise the risk to take them on
| is too high in all measurable terms (time, lost time,
| lost opportunity, lost capital, emotional toil)
| iancmceachern wrote:
| Not for many of us. I work in medtech, medical devices
| specifically. For me it's about bringing new medical
| treatments to market and therefore to be able to help
| people with those new devices. Large intrenched medical
| device manufacturers cannot innovate, they don't know
| how, so the only way to really innovate AMF bring new
| medical devices to market is through thr startup pathway.
| dismalpedigree wrote:
| Unfortunately the finance industry has perverted the
| purpose of startups and companies as a whole. While it is
| the way currently, it wasn't until the past 15 years or
| so. It used to be you solved a problem or met a need. You
| made money because of this. It makes me sick that
| companies' sole purpose now is to enrich shareholders.
| naet wrote:
| VCs have always been money managers looking to make a big
| return on their existing capital. No part of that has ever
| included being a good person or trying to do the right
| thing.
|
| It's convenient for tech companies that VC investment
| strategy involves giving seed money to some startups, but
| it comes at a price of the VCs having some say over company
| decisions and a high percentage of ownership (and therefore
| eventual value).
| alex_young wrote:
| What is the "utterly despicable behaviour"? Startups trying
| to protect their investor's assets? Banks trying to secure
| low risk long-term returns? Clearly they should have
| hedged, but is this really a moral failure?
| tome wrote:
| Yes, it's a moral failure. Fiduciary duty is often
| poorly-remunerated and boring. If you can't tolerate
| that, don't become a fiduciary.
| elbigbad wrote:
| I think of people like David Sacks preaching
| libertarianism and not taking money from the government
| until the moment things seemed uncertain at which point
| he's practically begging for government bail out.
|
| I think given his influence and hypocrisy this is
| despicable. But pathetic is another word that comes to
| mind.
| Apocryphon wrote:
| I think people are unhappy about the hypocrisy in the
| form of a special carve out. This class of people,
| despite their wealth and influence, aren't exactly
| lobbying for expansion of similar protections for the
| average person. In fact, who's to say if a lot of these
| startups weren't just laying off people as part of the
| crowd recently? So people are mad of the unfairness.
| alex_young wrote:
| How is it a special carve out? The FDIC protects
| literally all the other deposits already.
| dismalpedigree wrote:
| They quite literally made exceptions for SVB and
| Signature only.
| alex_young wrote:
| And all the average persons the OP mentioned were already
| protected. We'll see if this stops the contagion. It's in
| our collective interest that it does.
| ssnistfajen wrote:
| Most good people trying to do the right thing eventually
| reach the conclusion that they should leave the
| tech/startup scene altogether. There are so many problems
| in the tech world that we only overlook them because we
| have a stake in it.
| dj_mc_merlin wrote:
| The "changing the world" talk is just as hollow as
| corporate business talk. Just a way to talk about what
| you're doing without specifically mentioning that "we're
| doing this to get more money", which is the actual reason
| anyone ever does anything.
|
| Some founders/investors believe their own BS because that's
| what a good salesman does.
|
| Being practical and sugar coating words has been the way to
| do business forever. The startup speak is just a specific
| flavor of words that's popular in a region/culture now, is
| representative of the business culture to some degree, but
| is just as hollow as any pleasantry.
| briandilley wrote:
| > Just a way to talk about what you're doing without
| specifically mentioning that "we're doing this to get
| more money", which is the actual reason anyone ever does
| anything.
|
| blanket statement, also bullshit. Of course money is a
| driver, but if that's your only driver as an entrepreneur
| then you're likely not going to be very successful. In
| fact, this is the primary difference between VCs and
| builders.
| dj_mc_merlin wrote:
| Fine, humans are multifaceted creatures and some business
| owners do actually care about making a change in their
| market in a positive way. The moment you choose to start
| a private for-profit business however, you're still
| forced to optimize your business decisions to favor your
| own economic growth -- that will end up being the major
| driving factor behind most decisions. Few people let
| ideology come between them and large sums of cash.
| yucky wrote:
| > The "changing the world" talk is just as hollow as
| corporate business talk.
|
| The changing the world talk is just corporate business
| talk.
| throwawaysleep wrote:
| Why bootstrap? The VCs came through for their companies
| here. They got the government to change course. Many told
| their startups ahead of time to pull cash from a failing
| bank.
| dr_dshiv wrote:
| > Many told their startups ahead of time to pull cash
| from a failing bank.
|
| Still pissed about that. It was the proximate cause of
| the bank run.
| jackcosgrove wrote:
| > I believed that VCs and startups were mostly good people
| trying to do the right thing.
|
| I'm sure a lot of mortgage originators in 2006 thought they
| were doing the right thing by getting risky people into
| houses before prices rocketed into the stratosphere,
| because, you know, home values never go down.
| EGreg wrote:
| I used to believe it until about 7 years ago, when I started
| to build an open source alternative to the rentseeking Big
| Tech industry. Too much of Web2 and Web3 was based around the
| profit motive, and no one stuck around long enough to
| replicate their stack and give it to the people:
|
| https://github.com/Qbix/Platform
|
| https://github.com/Intercoin
|
| I believe in gift economies (science, wikipedia, open source)
| being superior to capitalism and private ownership of
| platforms.
|
| Instead of Zuck, Elon and Bezos we could use more Linus,
| TimBernereLee and Vitalik.
| WanderPanda wrote:
| I think as long as they don't get entrenched (usually by
| regulatory moats that prevent disruption) these go hand in
| hand. Creating a novel product/service and generating
| product market fit is kind if like science. Even if they
| get rich from it, now the whole world knows forever that
| this is a particular way to create value. As long as it is
| not driven by subsidies or caters other government linked
| industries that could skew/bias the value signal the
| demonstration as well as the offering of these goods and
| services is a net good imo
| lovich wrote:
| Not for nothing but literally every person you cited, good
| and bad, came from well off families who built that wealth
| via capitalism. We'd be better off fixing the wealth
| disparity and making it so there are more people with a
| safety net that allows them to engage in gift economies
| like the open source software world.
|
| It is difficult to be charitable when you have to worry
| where your next meal comes from.
| ssnistfajen wrote:
| A lot of people employed by tech companies are paid by
| their companies to contribute to open source projects
| which the company uses, so the gift economy is still
| deeply tied with capitalism despite the appearance.
| EGreg wrote:
| You're right. That's why I believe in UBI and Universal
| Health Insurance as well. I speak about this quite a bit,
| and build it too:
|
| https://community.intercoin.app/t/new-ubi-movement-
| mayors-ci...
|
| https://community.intercoin.app/t/fund-for-refugees
| bloodyplonker22 wrote:
| Most people that I have come across who are not experienced
| in tech startups seem to have some kind of holy image of VCs.
| They seem to think they're all "rich and successful". They
| think it is some kind of highly esteemed job to possess.
| Contrastingly, people who have been in the startup game for
| years know that VCs are just salespeople, and a great
| majority of them lose other peoples' money while just raking
| in a normal salary.
| ilamont wrote:
| That's how VCs and certain founders have been portrayed by
| mass media and even on HN for many years.
| whywhywouldyou wrote:
| And people don't question these portrayals? That's the
| surprising part.
| nottathrowaway3 wrote:
| I think anyone who watched _Silicon Valley_ has a more
| nuanced view of the VC industry than is being asserted
| here. And U.S. media coverage of tech in recent years has
| been overwhelmingly negative.
|
| That being said HN is one of the last great
| (mostly-)unmoderated forums on the internet. I personally
| think U.S. media has been almost unfairly negative about
| the whole thing.
| falcolas wrote:
| A lot of being repeatedly told to take the most
| charitable interpretation of peoples words and action.
| Hoping that folks are more than their animal instincts.
|
| Naive, eh?
| ilamont wrote:
| When's the last time you saw a critical appraisal of any
| senior YC people on this forum? For a long time, Wilson,
| Andreesen and other marquee names in the VC world were
| treated with similar deference on HN.
|
| Fawning media startup profiles and hagiographies are one
| of the reasons why Theranos, WeWork, and many smaller
| companies are able to thrive and even attract new
| investment and customers.
| paganel wrote:
| > When's the last time you saw a critical appraisal of
| any senior YC people on this forum?
|
| There was a post a couple of months ago asking what's the
| secret behind Sam Altman's excellent aptitude when it
| comes to grifting. Those weren't the exact words, but
| that was the general attitude of the post. But that post
| was part of the few exceptions that confirm the rule.
|
| Found the post [1]
|
| [1] https://news.ycombinator.com/item?id=34471720
| krapp wrote:
| To be fair, we're on a forum that was originally called
| "Startup News," created by a billionaire venture
| capitalist and run by a startup incubator. People do
| question the SV narrative, but this is still the lobby
| where all the people who drink the Kool-Aid hang out.
| ssnistfajen wrote:
| When maia arson crimew's site got linked here, she put a
| notice on top of her airline database hacking article
| with some disparaging commentaries about HN. Sure it may
| be a bit harsh for some people but she has got a point.
| This place is not immune to groupthink but in fact may
| actually be worse than forums with more diverse topics.
| lopkeny12ko wrote:
| What did VCs do wrong here? They warned of impending solvency
| problems at SVB and told founders to withdraw their money ASAP.
| And indeed, the bank failed the next day. The companies in
| trouble are those who _didn 't_ listen to the VCs.
| [deleted]
| femiagbabiaka wrote:
| Part of the issue is a common one: assigning blame for
| actions taken by individuals to the collective. It's a nasty
| internet trope. But these things are true:
|
| - the crisis was at the most caused and at the least
| exacerbated to the point of no return by the advice that some
| firms gave
|
| - the general zeitgeist amongst certain firms and from
| particular individuals in firms leaned towards libertarian
| ideology, which seemed to go out the window when ish hit the
| fan. I can really only find one prominent example of this, so
| I don't know if it's fair to paint all of VC-land with the
| same brush
|
| - it is probably the case that there are members of firms in
| both group one and group two, which looks bad, because
| panicking at the last second looks bad, especially when your
| panic screws (for your own benefit) a business partner of
| decades who was essentially only in a risk zone because they
| chose to do business with you. That's an oversimplification
| of course, but it all is
| sethev wrote:
| Everyone withdrawing their money ASAP is what caused the
| solvency problem. There's a big difference between warning
| people of a problem and encouraging them to behave in a way
| that creates it.
|
| No bank could survive this kind of run. See
| https://en.wikipedia.org/wiki/Bank_run
| tomato_123 wrote:
| They went around begging for bailouts when they could have
| just had the companies sell the uninsured deposit claims at a
| discount, paid their workers, and, as equity, eaten the loss.
| hello_moto wrote:
| VCs Group-A (who knew something) rushed the bank.
|
| VCs Group-B to Z were too late so they asked Govt to help
| them.
|
| It's not just founders who put their money there, VC funds
| are there as well and they are probably close to 100%
| uninsured (cause it's the Fund Series I - XXX).
|
| If you get your hands on the list of depositors, you'll see
| the list of Funds Series from VCs.
| mattzito wrote:
| Most VCs don't keep a substantive amount of their dry
| powder on hand, just a percentage. When they need money
| they make a capital call to their LPs.
|
| (At least, that's as I understand it from the VCs that I
| know it)
| maxilevi wrote:
| Basically lobbying the government for a bailout so that their
| startup investments don't go to zero.
| hello_moto wrote:
| > For some sily reason I had some respect for the startup
| industry before this, now I see it as a joke.
|
| 1. silly reason
|
| 2. It's a joke
|
| It looks like you just found your silly reason.
|
| The greed of startups have evolved to become bigger and bigger
| as years pass by.
|
| The romanticizing of startups came from propaganda. It's just
| that some of us were too young and naive to understand the
| puppetmaster while others had seen the puppeteer before...
| antibasilisk wrote:
| i don't think there's going to be very much 'moving on', in
| fact i think alot of 'moving backwards' is about to happen
| duxup wrote:
| >how prominent VCs behaved
|
| How did they behave? Try to pull their money out of a failing
| bank?
|
| I would too ...
| anigbrowl wrote:
| Running to the Fed for help as soon as shit got real; made a
| lot of the bootstrapping libertarian ethos stereotypically
| espoused by a certain of VC seem very hollow.
| theGnuMe wrote:
| This is why Thiel was first, he can stick to his
| ideological guns. He also forced Silicon Valley valley to
| setup the massive bluff that they were too big to fail (and
| maybe they are indeed to big to fail) that the government
| refused to call.
|
| So meat is back on the menu. No need for Ramen gents.
| moose_is_loose wrote:
| Can't wait to start seeing their tweets railing about how
| unfair student debt relief is.
| sokoloff wrote:
| Deposit money in a bank and expect to be able to withdraw
| it later as agreed seems compatible with borrow money for
| education and expect to pay it back later as agreed.
| moose_is_loose wrote:
| They benefited with White Glove treatment and easy access
| to loans. They weren't depositing it there out of the
| goodness of their hearts. That's why SVB was hunting for
| yield.
| object-a wrote:
| When you deposit money at a bank, it is made very clear
| to you that only $250K is protected by the FDIC. Any
| more, and you either buy insurance for it or take a risk
| on losing it in a bank failure.
|
| These depositors knew that and still acted irresponsibly,
| yet they are going to be made whole. It's not that much
| different from taking out a loan you don't understand.
| theGnuMe wrote:
| Here here.
| lovich wrote:
| Luckily you don't have to wait, guys like jason were
| already making those sorts of comments
|
| https://twitter.com/Jason/status/1561902763478396930
| https://twitter.com/Jason/status/1561899007256866816
| rodgerd wrote:
| Court records also show he spent months last year making
| suggestions to Musk on how to engineer a sufficiently
| hostile environment to mass-sack Twitter staff while
| evading severance arrangements.
|
| But sure, these guys are _so_ concerned with the
| posibility of ordinary people getting hurt.
| duxup wrote:
| I've got no problem with people wanting their money out of
| a bank.
| threeseed wrote:
| People like Jason Calcanis were screaming on Twitter like the
| world was going to collapse and that the contagion would take
| down regional banks hurting ordinary consumers.
|
| All because he wanted the government to bail out his
| startups.
| skwirl wrote:
| Did you miss the part of this press release where they
| announced that Signature Bank collapsed today? That makes
| it pretty clear that the contagion was real. Treasury's
| actions make it abundantly clear as well.
| threeseed wrote:
| There are 4,500+ commercial banks in the US with 70,000+
| branches.
|
| The idea that regional banks were going to collapse en
| masse because of the actions of one ineptly managed,
| highly unusual (in terms of customer and deposit mix)
| bank is ridiculous.
|
| And trying to deliberately create a scare campaign so you
| can put political pressure on the FDIC to cover uninsured
| amounts is insidious and frankly evil.
| skwirl wrote:
| Ok but did you really not address the fact that Signature
| Bank literally collapsed today? You know that is a
| different bank, correct? Did you see the stocks and
| sector ETFs for regional banks last week?
| delfinom wrote:
| ETFs have weightings. SVB actually was a big portfolio
| piece for some ETFs. Especially because during COVID and
| the money printer boom, SVB stock went to the moon and
| hit $800 / share at one point.
|
| I don't think ETFs are a good sign. One of my favorite
| bank ETFs, PGF is only down 6% on sentiment which isn't
| much.
| paganel wrote:
| One bank collapsing (because of crypto shenanigans, as
| I've read in another article) does not make for a
| contagion.
| tinco wrote:
| And you think Jason who-the-fuck-cares-about-what-he-
| thinks Calacanis somehow has a meaningful role in a scare
| campaign? He was just one of the scared people.
|
| And guess what, the FDIC and the administration actually
| _do_ believe there was a clear risk of regional banks
| going under. That 's literally the topic of the article
| you're commenting under.
|
| I feel this solution is too strong handed and I don't
| think the world would have ended if there wasn't a
| solution tomorrow and a hundred startups would have to
| take a 20-30% haircut on their raised funds by selling
| their claims, so I don't agree with Jason, but calling
| him evil for his standpoint and voicing it is what's
| ridiculous.
| duxup wrote:
| I see lots of screaming on twitter, I don't find this
| unusual or particularly bad.
|
| Everyone would want their money back ...
| flappyeagle wrote:
| But he was right? Certainly Yellen thought so. Why is
| screaming on twitter such a crime? Just block him.
| vkou wrote:
| > People like Jason Calcanis were screaming on Twitter like
| the world was going to collapse and that the contagion
| would take down regional banks hurting ordinary consumers.
|
| If the 18th-largest bank in the country were to be allowed
| to collapse, with depositors losing money due to something
| they had no control over, why would any non-insane
| depositor keep their money in the 17th, or the 19th largest
| bank?
|
| Any rational person will follow this line of reasoning to
| conclude that the only safe place to deposit your money
| would be a too-big-to-fail bank. And nobody wants to see
| that.
| theGnuMe wrote:
| FDIC insures accounts to $250k. Why would any sane and
| rational person put more than $250k in any one account?
| duxup wrote:
| Because you don't want a lot of accounts?
| ssnistfajen wrote:
| If SVB did fail with depositors not getting more than $250k
| back then it would be a contagion. I did find some VC
| tweets overly dramatic but the underlying messaging is
| still right.
| FooBarBizBazz wrote:
| What are you on about?
|
| The final decision was eminently reasonable.
|
| The bank's shareholders are getting wiped out. The depositors
| are protected. Banks -- who depend on the continued faith of
| the public -- chip in a little more in insurance. The taxpayer
| pays nothing.
|
| A bunch of software companies get to succeed or fail now on the
| basis of whether their business models and execution make any
| sense, as opposed to whether their bank bought enough interest-
| rate swaps.
|
| Small regional banks can continue to exist. This will not
| necessitate even more consolidation in American capitalism. And
| there will be no follow-on bank runs to jeopardize grandma's
| CDs.
|
| Seriously, what is there to complain about? The government did
| its job here. It governed. Fairly and competently.
| dns_snek wrote:
| > The taxpayer pays nothing.
|
| Money to cover deposits that didn't previously didn't exist,
| suddenly exists, and there are people like you trying to tell
| everyone else that everything is rosy and that it's not going
| to cost the taxpayers anything.
|
| It sounds like a revolutionary system that you're working
| with and if it truly costs "nothing", may I ask where I can
| sign up to have my bad financial investments refunded for
| free?
| FooBarBizBazz wrote:
| FDIC insurance is paid for by FDIC members (i.e., by
| banks), via an insurance premium. In this case, the FDIC is
| providing extra coverage, and charging member banks an
| extra assessment to pay for it. So the money comes from all
| the other banks.
|
| "The taxpayer will pay for it" only in the sense that maybe
| member banks will try to pass this on in the form of fees.
|
| "Bad financial investments" are almost 100% not being
| "refunded" to the bank shareholders. Their shares are, I
| assume, going to zero. The only way in which they are being
| protected -- the "almost" -- is in the fact that their
| shares go _only_ to zero, and do not become liabilities.
|
| Let us also consider what the investments were that went
| bad: Government bonds. So you could say that value flowed
| from the bank to "the taxpayer" (or to "the government")
| the minute those bonds lost value, i.e., the minute the Fed
| devalued them by hiking rates on newly-issued bonds. In
| that sense, the bank was already the bagholder for the Fed
| ("the taxpayer").
| LewisVerstappen wrote:
| > prominent VCs behaved during the brief period of uncertainty
|
| A ton of the prominent VCs were writing out checks from their
| personal bank accounts so that founders could meet payroll.
|
| > For some silly reason I had some respect for the startup
| industry before this, now I see it as a joke
|
| Wait seriously? You somehow lost more faith from this than you
| did from
|
| - crypto - Adam Neumann - $100m seed rounds
|
| and like 30 other things???
|
| > But it's important to remember that they no longer
| automatically deserve any credit for taking risks and doing
| something new.
|
| What are you even talking about?
|
| Having your bank account randomly disappear isn't one of the
| risks that anyone should have to take.
| tmpz22 wrote:
| > A ton of the prominent VCs were writing out checks from
| their personal bank accounts
|
| Is this true? I've been following this story pretty closely
| and haven't heard anything about that.
| mikeyouse wrote:
| Yep. A few dozen said so out loud, Sam Altman included.
| Mostly "publicized" via Twitter or other lower profile
| means.
| tomato_123 wrote:
| [flagged]
| Apocryphon wrote:
| Are these substantiated reports or just tweet promises?
| KennyBlanken wrote:
| A lot of prominent VCs were also screaming their heads off
| that other banks were about to fail.
|
| These people played a zero-sum game, purposefully generating
| as much panic as possible to force the fed to act.
|
| > Having your bank account randomly disappear isn't one of
| the risks that anyone should have to take.
|
| The fed has sat on its hands for decades and done nothing to
| mandate better protection for ACH transactions, done nothing
| to mandate phasing ou magstripe transactions (Europe has been
| on chip and pin for decades), our check cashing system is a
| complete mess in ways scammers take advantage of, and debit
| cards have a fraction of the protection credit cards do
| despite "real money" being involved instead of credit.
|
| But then a bunch of billionaires force hundreds of companies
| to do business with just one bank, that bank is outright
| incompetent in how it manages its funds and employed people
| who were central in the last financial crisis, and suddenly
| it's "well, we must act to protect confidence in the banking
| system"?
|
| I have zero confidence in the banking system. My money
| doesn't feel remotely safe from being stolen. I can't even
| find a bank that will do hardware 2FA instead of SMS 2FA,
| which is _worse_ than not having it at all.
|
| What is jpow doing about that?
| tomato_123 wrote:
| "Equity is when you take risks, except for the risks you
| didn't anticipate"
|
| Absurd take.
| snotrockets wrote:
| > A ton of the prominent VCs were writing out checks from
| their personal bank accounts so that founders could meet
| payroll.
|
| Because they have duty to do so, as (part) owners of those
| companies. They could face personal liability for being
| negligent enough. You'd think any company with non-trivial
| payroll should've known better than not to hedge on all the
| things, including their banking partner.
| jjb123 wrote:
| This is inaccurate. In no way did people have to turn to
| their personal finances to help companies that _their
| company_ invested in. That is like your banker, seeing your
| dire situation caused by a third party to you, and writing
| you a personal check... That is actually what happened
| across multiple situations I witnessed. Not saying these
| folks are saints but pretty unexpected to see.
| tomato_123 wrote:
| This is incorrect. Payroll pierces the corporate veil.
| jacquesm wrote:
| Not necessarily for investors, unless it can be shown
| that they have incurred liability beyond their
| investment.
| snotrockets wrote:
| Many investors like to have a board seat, which makes
| them an officer of the company
| jacquesm wrote:
| True, but getting a board to be liable has a very high
| standard of proof. If not then there wouldn't be any
| boards, the compensation would not outweigh the risks.
| snotrockets wrote:
| Given the choice between bridging some cash (knowing that
| the full faith and credit of the US government backs the
| funds being bridged), or having the possibility of
| getting dragged into proceedings in the future, which at
| best would increase my liability insurance premiums, I'd
| pick the former.
| bzax wrote:
| Board members have personal liability for payroll in
| California.
| threeseed wrote:
| > Having your bank account randomly disappear isn't one of
| the risks that anyone should have to take.
|
| But that is the risk founders chose when they put their money
| in (a) any bank and (b) specifically SVB.
|
| Your money is only insured to $250k. SVB had no CRO, lobbied
| against regulation, made no efforts to comply with Basel 3
| and was engaging in risky bets that many had previously
| warned about.
|
| CEOs have a fudiciary responsibility to understand and
| mitigate risks. And expecting taxpayers to bail you out
| (either directly or indirectly) when your incompetence causes
| harm is simply not fair.
| brigadier132 wrote:
| > CEOs have a fudiciary responsibility to understand and
| mitigate risks
|
| This is an impossible standard to hold founders of 10-100
| person startups to. Might as well say "CEOs should be
| omniscient"
| zx8080 wrote:
| If this leads to bailout then does it mean that taxpayers
| are effectively responsible for the CEOs decisions?
|
| If they are not, then it's 250k left from every account
| and all else is lost. And someone could be sued for that.
| Who should it be if not CEOs?
| Tempest1981 wrote:
| The $250k coverage (per depositor) is also funded by
| taxpayers, right?
| greenyoda wrote:
| No, the FDIC is an insurance pool funded by its member
| banks.
| threeseed wrote:
| That is the standard as defined by law and to which all
| directors sign up to.
|
| If you can't live up to that responsibility don't run a
| company.
| tomato_123 wrote:
| It's an impossible standard to hold founders to know that
| deposits are insured up to $250,000? This isn't exactly
| fine print. Just be minimally competent and not a clown.
| shrimpx wrote:
| You don't have to be anywhere close to "omniscient" to
| understand the concepts of risk and insurance. Every
| layman knows about FDIC limits. In addition, these CEOs
| are backed and advised by resourceful VCs. Those VCs
| wrote checks into SVB accounts and apparently didn't care
| to give any advice about protecting those uninsured piles
| of cash. Hubris or incompetence or both.
| klabb3 wrote:
| > Those VCs wrote checks into SVB accounts and apparently
| didn't care to give any advice about protecting those
| uninsured piles of cash.
|
| Worse, according to others in the thread they had it in
| the contract that they must use SVB exclusively.
| justinclift wrote:
| The CEO of a 10 person startup I could understand not
| being on the ball with this.
|
| But not the CEO of a 100 person startup.
|
| 100 people is large enough to have a substantial amount
| of human time available for use, and likely budget as
| well.
| brigadier132 wrote:
| You think the CEO of a 100 person startup should be
| worried about something like a bank run happening? It's
| not the 1920s. Most people don't ever consider that money
| in their bank could disappear for no reason.
|
| Next you should tell me they should worry about "the big
| one" hitting Silicon Valley which we know the actual odds
| for and people still seem to live there.
| phatfish wrote:
| Just wow. "Money Saving Expert", a UK website which gives
| pretty decent advice for the average person in the UK
| mentions the government provided insurance limit for
| deposit accounts (PS85,000). Anyone reading that site
| knows their money could be lost if they have more than
| the limit in any single bank (or multiple banks where a
| subsidiary shares the owner banks insurance).
|
| But then again it doesn't really surprise me that an SV
| CEO would have no concept of deposit insurance. They live
| in a different world.
| fomine3 wrote:
| Does average person read the website?
| swatcoder wrote:
| > Most people don't ever consider that money in their
| bank could disappear for no reason.
|
| Geez. Let's hope you're wrong. Financial illiteracy is
| bad news in a society built on markets.
|
| I can't speak for "most people" and especially not people
| in Gen Z, but otherwise, as a matter of fact, many people
| do think about that and manage their money accordingly.
| brigadier132 wrote:
| Bull shit, 99% of people that use the banking system do
| not worry about bank runs.
| [deleted]
| justinclift wrote:
| Do 99% of people have more than the $250k in their
| account?
|
| Of those who do, I wonder what percentage would be
| worried about that risk?
|
| Maybe more than 50%? 75%? 80%?
| rodgerd wrote:
| If a CEO of 100 person startup can't understand the
| concept of business continuity planning, what are they
| doing, exactly?
| sseagull wrote:
| No, a CEO of a 100 person company should be delegating
| stuff like this to people with expertise in such matters.
|
| A startup CEO isn't going to be an expert in everything,
| no matter how much some people worship them.
| sethammons wrote:
| I'm a nobody who got some startup lotto monies that were
| in excess of FDIC limits. You know what I did? I used
| multiple banks.
|
| If you are not planning for "the big one," you are,
| again, accepting risk. My parents did not have earthquake
| insurance in SoCal in 1992 and had to start thinking
| about how they were going to repair the collapsed chimney
| on our house. I also didn't carry earthquake insurance on
| my SoCal house, knowing full well it is a risk. My
| mitigation being stocking up on food and water and having
| alternative sources of heat.
| justinclift wrote:
| > Most people don't ever consider that money in their
| bank could disappear for no reason.
|
| The $250k FDIC account limit was _really_ well known, so
| I 'd expect someone in the CxO ranks to have it properly
| managed in a 100 person startup. CFO maybe?
|
| Several people have mentioned over the last few days that
| spreading $$$ across a bunch of ($250k limit) accounts at
| banks is a service offered by third parties, to address
| this very risk.
|
| Wonder what the cost of using such a service would have
| been, and how many SVB customers were using it?
|
| Anyway, with the current US regulatory approach of "oh
| shit, lets cover all deposits anyway" I wonder if those
| services have a future...
|
| > It's not the 1920s.
|
| Is that a good thing or bad thing? :)
| kreeben wrote:
| >> Next you should tell me they should worry about "the
| big one" hitting Silicon Valley
|
| The big one as well as this banking debacle should both
| be on your radar, yes. You are in this for the money. You
| have money but you want to increase the amount by orders
| of magnitudes. So you gamble.
|
| You gamble on lots of things so that you spread the risk.
| Gamble gamble gamble.
|
| Hey, you know what? I sat on three different poker tables
| this evening. Lost all. I'd like my money back. Now,
| please.
| hcks wrote:
| Yeah the absolute degenerate gamble known as putting a
| check in a bank.
| notahacker wrote:
| And most of the feasible scenarios in which banks start
| collapsing so quickly and widely that depositors end up
| with barely anything left bar the FDIC insurance are
| scenarios in which the economic outlook is so grim your
| startup that's relying on rapid growth and further
| funding to survive isn't going to make it anyway.
|
| Admittedly, picking a startup as a bank increases that
| risk somewhat, but so does picking a startup to provide
| your CRM system or web platform or other mission critical
| stuff that's a lot more likely to be shut down with
| minimal warning, or indeed choosing to raise funding from
| a VC that wants you to 20x or bust...
| shrimpx wrote:
| > You think the CEO of a 100 person startup should be
| worried about something like a bank run happening?
|
| Yes. Not specifically a bank run, but bank failure. Cash
| is the lifeblood of a company. Let's not worry about our
| cash becoming unavailable, in a bank that buys risky
| assets with our cash, in a perilous interest rates
| environment, "cuz it's not 1920."
| inferiorhuman wrote:
| You think the CEO of a 100 person startup should be
| worried about something like a bank run happening?
|
| Yes. A CEO should know where the money is, what the risks
| are, and how to handle them.
| dpkirchner wrote:
| I'm just some jackass that knows about FDIC limits and
| how they (used to) work, and I'm as far from a CEO as I
| can be. I absolutely expect CEOs to be thinking about
| this stuff.
| [deleted]
| throwaway81523 wrote:
| If you want your investments to be guaranteed by the US
| governent, that product exists (US Treasury bonds) and it
| is popular. The yields are pretty low though. People with
| megabucks to invest who put it in something other than
| treasuries do that because they chose to accept higher
| risks in order to chase higher returns. Except surprise,
| now the risk is socialized.
|
| No, people with deposits in SVB never faced having it all
| disappear. SVB was insolvent which meant that its
| liabilities were larger than its assets. That doesn't
| mean the assets were worthless. The FDIC process is like
| a bankruptcy. First, everyone gets restored up to the
| $250K insurance limit. Next, the remaining assets are
| sold off and the proceeds are divvied up among the
| uninsured depositors. So the depositors take a haircut:
| some fraction goes poof and they get back the rest. They
| don't end up empty handed. Figures like 90% (i.e. they
| lose 10%) were being thrown around this morning, before
| the bailout.
| brigadier132 wrote:
| [flagged]
| swatcoder wrote:
| Or perhaps "CEOs should hire a CFO"
|
| Founders are often coming into new levels of financial
| responsibility when they get funded and as their business
| draws in later rounds of investment and customer revenue.
| You can't assume $4M works the same way as $40k or your
| liable to lose a big chunk of it. Thankfully, there are
| professionals whose role is to help with that.
| ohdannyboy wrote:
| Or the VC companies that lent the money would pool
| resources and have one person handle a few smaller
| businesses using similar procedures to mitigate risk.
| Helping manage growth is part of what these companies are
| supposed to do and you'd think it would protect the
| investment (in a world where you thought the limit was
| actually $250k).
|
| Oddly though, a thing I've heard repeated over and over
| is "it was in our covenant to use only SVC."
| kreeben wrote:
| CEO's should read the god damn bank agreement. WTF.
| brigadier132 wrote:
| How does "reading the bank agreement" improve anything?
| Every bank has the same exact risk.
| kreeben wrote:
| No. Every bank does not impose the same risk.
| peanuty1 wrote:
| Regional banks like SVB have different regulations than
| other banks.
| theRealMe wrote:
| So many people in all these threads that are doing the
| Monday morning quarterback of startup founders and
| believing that they would have done things differently if
| only THEY had been the CEO.
| hcks wrote:
| Obviously the #1 top priority of the CEO of an early
| stage startup is to spend time assessing and countering
| risks such as bank runs, gross mismanagement at their
| bank, earthquakes
| iancmceachern wrote:
| This is reducto ad absurdum. The kind of risk management
| that would have saved startups here is basic, elementary
| business. Parking money at treasurydirect, firms that
| handle this kind of thing as a service.
| threatofrain wrote:
| What were the risky bets?
| moose_is_loose wrote:
| Don't forget the benefits they got from white glove
| treatment and easy access to loans. This wasn't a one way
| street, there was a reason they deposited the money there.
| scatters wrote:
| What loans? SVB's problem was that its customers didn't
| need loans, since they had VC money and just needed
| somewhere to put it.
| nkozyra wrote:
| This is a very weird blame shift. At 250k/account insured
| suddenly it's a CEOs fiduciary incompetence that a seed
| round isn't distributed amongst 16 banks?
| SaintGhurka wrote:
| You don't need 16 banks to eliminate all risk. You need
| one bank and a treasurydirect account.
|
| Anybody, including corporations and partnerships, can
| safely park excess cash at treasurydirect.gov. Buy short
| term treasuries and time the redemptions to coincide with
| next month's payrolls. The shortest bills are 4 weeks and
| they're paying like 4% right now.
|
| I honestly don't understand why more people don't do it.
| justin66 wrote:
| Treasurydirect is great and everything you say is true,
| but the poor user experience and the commonly reported
| difficulty involved in getting help if there is a problem
| make it more appropriate for personal finance than
| business, I would think.
|
| More generally the approach of using a cash sweep account
| in conjunction with t-bills held with a custodian bank
| seems like pretty sane advice. I don't think I'd
| emphasize "one bank," but otherwise, sure.
| jacquesm wrote:
| > suddenly it's a CEOs fiduciary incompetence that a seed
| round isn't distributed amongst 16 banks?
|
| That's not your only option and this is nothing new. Even
| I - arguably a very small business owner - spread my
| risk. Just in case...
| sealeck wrote:
| Um, yes? If you have several million dollars of deposits
| you should absolutely split them among a series of banks
| as well as money market funds. This is why you need to
| find a competent banker who can give you sound financial
| advice.
| fzeroracer wrote:
| So what exactly is a CEOs responsibility then? I feel
| like people are increasingly just removing any and all
| blame from CEOs for mismanaging their companies. Why
| should they even exist if they have zero
| responsibilities?
| chromanoid wrote:
| Idea guy? ;)
| seligerasmus wrote:
| lol @ the hackernews commentariat learning that the ideal
| CEO isn't just some ascendant version of a rockstar coder
| that makes gantt charts.
|
| > suddenly it's a CEOs fiduciary incompetence that a seed
| round isn't distributed amongst 16 banks
|
| Yes. There's no "suddenly" to it - you're describing
| well-established fiduciary responsibilities. A CEO's
| responsibility is to delegate those tasks to someone like
| a CFO, who _absolutely should_ incorporate a strategy
| that balances liquidity with stability. The CFO also has
| a responsibility to see just what, exactly, a bank is
| doing with their deposits and make a determination about
| the associated risk. And yes, it is very normal to park
| money in various accounts and instruments as part of that
| strategy.
|
| It is deeply distressing that half the comments here and
| abroad think this is some absurd, unattainable standard
| instead of the operative norm for the other 90% of the
| economy that doesn't get treated like a miracle baby for
| simply existing. You're not running a lemonade stand, and
| witnessing self-anointed "innovators" screech for a
| bailout because they somehow accrued millions of dollars
| in investments without ever learning about private
| deposit insurance or Cash Sweep or T-bills goes a long
| way to explaining why the majority of these goofs
| fashioned their Twitter bios into graveyards for failed
| ventures.
| nkozyra wrote:
| Look, I get that in hindsight the " _of course_ you
| should do this thing that historically you would never
| think of " thing makes sense, but my bigger point was the
| blame shifting.
|
| Sub-20 person startup CEOs didn't cause this problem.
| Saying "this is YOUR fault, person who just got their
| first seed round" seems to gloss over the large(r)
| issues.
| wil421 wrote:
| No it's the CEOs job to hire people who know like a CFO
| and everyone else in finance. Lots of companies make
| short investments with extra cash. No need to put
| everything in a single bank account.
| dlubarov wrote:
| Why would we want a situation where everyone splits up
| their cash into $250k accounts? Seems like that would
| waste a lot of time while removing competition (who cares
| what the bank is, any bank is fine for $250k). And it
| wouldn't ultimately save taxpayers any money, it's just a
| strategy for gaming the current FDIC guarantee.
| peanuty1 wrote:
| You don't need to limit your accounts to a maximum of
| $250k. You just need to use more than one bank if you're
| going to use a regional bank like SVB.
|
| Especially a regional bank like SVB that fought hard
| against regulation, caters specifically to herd-thinking
| VCs and startups, offered 4.5% APY, and went all in on
| mortgage backed securities shortly before the Fed hiked
| rates way up.
| tome wrote:
| Or just put into T-Bills, which private individuals can
| do from their phones.
| brigadier132 wrote:
| Except people that owned T-Bills that they bought through
| SVB also lost access to their money.
|
| Should they buy the T-Bills and hold the actual
| certificates under their mattress?
| tome wrote:
| > Except people that owned T-Bills that they bought
| through SVB also lost access to their money.
|
| I don't think that's the case, though I may be wrong and
| would appreciate correction if so. Anyone who held
| T-Bills at SVB as a broker should have been able to
| transfer them to another broker at no loss (but at a
| small delay), and the remaining $250k in their checking
| account should have been available within one business
| day.
| sseagull wrote:
| Or pay someone/some company to do it.
|
| You pay for AWS because you don't feel like managing
| hardware, why just assume you can manage 10s of millions
| of dollars?
| threeseed wrote:
| No whether you have $1 in the bank or $100 million is
| irrelevant.
|
| Your job is to understand and mitigate financial risk as
| is required by law.
|
| And in this case there are many options for managing this
| risk other than splitting it up manually into multiple
| bank accounts. Speaking with a financial advisor would
| help with this.
| eloff wrote:
| There's so much victim blaming in this comments section.
| I'm amazed.
| threeseed wrote:
| The real victims in all of this are the taxpayers who
| will cover the costs.
|
| CEOs who should have known better are not victims.
| eloff wrote:
| Taxpayers are not covering any cost. The banks will pay
| for it via potentially higher FDIC insurance premiums.
| It's possible they pass that on to customers, but there's
| no direct link here.
| boh wrote:
| "Having your bank account randomly disappear isn't one of the
| risks that anyone should have to take." Companies actually
| do. That's why they keep their assets as cash at a minimum
| and typically don't concentrate that cash in one institution.
| Risk management is a big part of institutional financial
| management. This isn't the first bank failure and this isn't
| going to be the last. This situation will, however, probably
| make bank bail outs less likely in the future. The political
| fall out will be huge. 100% this is a big point in the 2024
| election. (Having a bank named Silicon Valley Bank collapse
| couldn't be a better metaphor).
| wpietri wrote:
| > Having your bank account randomly disappear isn't one of
| the risks that anyone should have to take.
|
| I mean, having all your data randomly disappear isn't one of
| the risks that anyone should have to take. But if a company
| suffered systems failure without backups, what would we be
| saying? If a company had a breach and all their data got
| release or encrypted by ransomware attackers, would people
| seriously be arguing for a taxpayer-funded government
| bailout?
| bnralt wrote:
| > Having your bank account randomly disappear isn't one of
| the risks that anyone should have to take.
|
| Not only is it a risk many take, but many end up losing a
| significant amount. The FDIC actually has a list of the
| numerous failed banks they've helped depositors recover
| assets from here[1]. You can see that depositors often lose a
| lot when banks fail.
|
| Now I don't think this is a good thing, and I think it would
| be worthwhile to have a conversation about a systemic way to
| avoid this. But it was eye-opening to see so many not
| advocating any systemic approach, and instead just saying
| "the government should do whatever it can to cover all SVB
| loses because people like us are special."
|
| [1] https://closedbanks.fdic.gov/dividends/
| cactusplant7374 wrote:
| Startup founders are very sophisticated. Perhaps they were
| aware of the risks SVB was taking with their money?
| unity1001 wrote:
| > Having your bank account randomly disappear isn't one of
| the risks that anyone should have to take.
|
| Then you put your funds in less risky banks who did not lobby
| to get an exemption from the regulations that protect against
| precisely this kind of thing. Even, spread it around safer
| banks.
|
| Putting all of one's money in a bank because they have better
| returns or other investment opportunities is business. Not
| something that someone can be safe at the public's expense.
|
| The public, because the public will pay for this one way or
| the other - if this is paid from the insurance that insures
| all banks like how the statement says, then it will cause all
| the banks who pay into this insurance pool to reflect it on
| their customers with fees. So every single person with a bank
| account in the US will pay. Its still public money, but it
| doesnt come directly from the US govt.'s pocked, so its
| 'okay'.
| wpietri wrote:
| Especially given that an adequate alternative to putting
| all your money in one bank is to put it into two banks.
| Unless you're already on thin ice, that solves the short-
| term cash flow problem. Historically, even in bank
| failures, depositors get most or all of their money back,
| it just takes a while.
|
| And if that isn't adequate for a given company, it sounds
| like it's time for them to hire a finance professional who
| has experience with cash management.
| kam wrote:
| What large bank is not lobbying against regulations?
| unity1001 wrote:
| SVB didnt lobby to relax the laws against unpaid
| overtime, faulty advertising etc. Not any banal evil like
| that. SVB lobbied against laws that protected both the
| bank and its depositors from the very thing that
| happened. And succeeded to get an exemption for itself.
| [deleted]
| BoiledCabbage wrote:
| And here it starts.. Lots of prominent people have just been
| exposed by this whole fiasco. 100% truly exposed and they're
| not gonna like it.
|
| They're gonna want to try to rebuild their reputations.
| What's coming is a lot of "who are you gonna trust me or your
| lying eyes?". Starting soon you're gonna hear all the sob
| stories about how the VCs all this wonderful all did X and Y
| and Z. And nothing we just saw really mattered. And
| downplaying how as soon as the going got tough they abandoned
| all of their SV ethos and immediately went begging to the
| government to be bailed out.
|
| Be prepared because there will be a huge PR push soon like
| you haven't seen.
| nebula8804 wrote:
| Start collecting all the evidence that shows how bad these
| people acted before it disappears into the ether and
| prepare rebuttals that you can copypasta on Reddit, Twitter
| and wherever else they post their PR garbage...
| always2slow wrote:
| Could you post some example? I'm out of the loop. Who did
| what?
| Mistletoe wrote:
| Start at David Sacks and Bill Ackman twitter accounts.
| Add some Jason Calacanis and baby you've got a stew
| going.
|
| Hurry I'm sure they are deleting as we speak.
|
| https://twitter.com/BillAckman/status/1634564398919368704
|
| https://twitter.com/DavidSacks/status/1634382260433719298
|
| https://twitter.com/Jason/status/1634792355294515200
|
| > @Jason
|
| >YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW -- THAT IS
| THE PROPER REACTION TO A BANK RUN & CONTAGION
|
| >@POTUS & @SecYellen MUST GET ON TV TOMORROW AND
| GUARANTEE ALL DEPOSITS UP TO $10M OR THIS WILL SPIRAL
| INTO CHAOS
|
| This is one of the most irresponsible things I've ever
| seen tweeted. It's the equivalent of screaming fire in a
| crowded theater.
| TechBro8615 wrote:
| David Sacks spent the weekend advocating for the exact
| action that Janet Yellen just took. What's the problem
| with that?
| Mistletoe wrote:
| [flagged]
| smoovb wrote:
| Sorry, how is this irresponsible? Leaders that imagine
| and vocally describe a plausible negative outcome seems
| quite sensible.
|
| Seems the equivalent of screaming fire in a crowded
| theater, when there is an actual fire.
| zerocrates wrote:
| Bank runs are a psychological phenomenon.
|
| If you're looking at a bunch of companies you're invested
| in taking a 5, 10, whatever percent haircut on their
| deposits, it might be to your interest to take to the
| media and encourage everyone to panic, helping to create
| the very risk of contagion that you're talking about, to
| try to force the government's hand.
| csomar wrote:
| They are using their media influence to "threaten" a bank
| run. Aka, if you don't bail us out, then we might as well
| take the whole system with us.
| jacquesm wrote:
| No, this has the power to cause the fire to get _much_
| larger because the shout gets heard _way_ outside the
| theater.
| [deleted]
| mbesto wrote:
| > A ton of the prominent VCs were writing out checks from
| their personal bank accounts so that founders could meet
| payroll.
|
| Source? Who specifically, how much and can you independently
| verify that they actually did it?
| raspberry1337 wrote:
| >Having your bank account randomly disappear isn't one of the
| risks that anyone should have to take.
|
| This bank choose to _avoid_ safety regulations from the 2008
| financial crisis, which is completely open information. They
| used this avoidance to pursue greater risk.
|
| What is "randomly disappear" about putting your money into
| such a bank?
| theLiminator wrote:
| Glorifying founders has always been stupid, they're all trying
| to get rich, not exactly a noble cause. It's not something to
| demonize them for either, but founder worship is kinda gross.
| AYBABTME wrote:
| They might as well be FAANG employees if they're so risk averse
| that they can't deal with such casual occurrences as their dang
| banks failing.
| bart_spoon wrote:
| Why should they not get credit for taking risks or doing
| something new? How is that related at all? The risks they take
| are based on the viability of their product. It was never
| (supposed to be) based on the risk of if their banking
| institution could provide them with their cash as needed. None
| of that has changed.
| ChatGTP wrote:
| We'll because taking risks by definition means you could end
| up in a negative situation and so it should be more of a
| personal decision?
|
| It seems like SVB took a risk and lost.
|
| If the majority of Americans voted for SVB taking higher
| risks it would be understandable but now who comes up with
| the missing money ? The government, which is tax payers who
| are already probably getting the raw end of the stick
| financially compare to silicon valleys.
|
| I think this bailout will see a lot of political backlash.
| reducesuffering wrote:
| VC's and YC have burned a lot of credibility overnight with
| their tech employees during this mask-off moment. I wouldn't be
| surprised if this forum harbors long term resentment, lack of
| respect, and a more adversarial relationship going forward. I
| haven't ever seen such a large lack of respect for them as the
| past couple days. This industry has gone full Wall St. The next
| generation of individualist, regulation-disruption startup
| founders will be reconsidering the YC club a bit more...
| adharmad wrote:
| Now that the bailout is done, I hope these guys stop tweeting
| for the sake of everyone's sanity.
| blackoil wrote:
| > VC's and YC have burned a lot of credibility overnight with
| their tech employees during this mask-off moment
|
| Why? It should be other way round. They worked hard to make
| sure that payrolls are met and jobs are secure, that is my
| most important expectation from my management and investors.
| ldjkfkdsjnv wrote:
| The post by Gary Tan on here yesterday was actually shocking
| for me.
| alismayilov wrote:
| Would you mind to share the post?
| flappyeagle wrote:
| Why?
| macintux wrote:
| Link?
| syjer wrote:
| I think it's this one:
| https://news.ycombinator.com/item?id=35114009
| lazzlazzlazz wrote:
| An equally silly error would be concluding that all VCs are
| like this. Although we heard absolutely unhinged and insane
| panic from a few (like Jason Calacanis), and some milquetoast
| statements from others (Redpoint), we heard no panic from the
| largest players.
|
| I won't reshare anecdotes here, but I heard stories over the
| weekend about intense and direct conversations between the
| largest VCs and the Fed.
| hypothesis wrote:
| By any chance were those largest players part of bank run on
| SVB?
|
| [0] https://twitter.com/tomharari/status/1634577650856632321
| lazzlazzlazz wrote:
| You can probably infer who I'm talking about simply by
| noticing which major VCs were not part of the histrionic
| crowd.
| yawnxyz wrote:
| Incredible that this can just be done over a weekend. Is there a
| good writeup of (what I assume is a mountain-load of work) of how
| this works, and what happens during this process?
|
| Also, will the FDIC just eventually feed SVB's MBSs back into its
| insurance fund once they mature?
| hammock wrote:
| Lehman Brothers collapse, bailout negotiations and bankruptcy
| happened over a weekend. AIG also bailed out 24hrs later
|
| https://www.brookings.edu/research/history-credits-lehman-br...
| wmf wrote:
| People can work fast when it matters.
| https://patrickcollison.com/fast
| winterqt wrote:
| See https://www.npr.org/2009/03/26/102384657/anatomy-of-a-
| bank-t... for some more info on how efficiently the FDIC works.
| barelysapient wrote:
| Good to see the wealthy elites banding together to lookout for
| themselves!
| bengamin56_ wrote:
| [flagged]
| IAmGraydon wrote:
| Ban this scammer.
| twp wrote:
| tl;dr coin toss: heads SVB wins, tails you lose
| spdustin wrote:
| The "special assessment" is levied directly on banks, and is
| referenced in 12 U.S.C. 1817(b)(5):
|
| In addition to the other assessments imposed on insured
| depository institutions under this subsection, the Corporation
| may impose 1 or more special assessments on insured depository
| institutions in an amount determined by the Corporation if the
| amount of any such assessment is necessary
|
| (A) to provide sufficient assessment income to repay amounts
| borrowed from the Secretary of the Treasury under section 1824(a)
| of this title in accordance with the repayment schedule in effect
| under section 1824(c) of this title during the period with
| respect to which such assessment is imposed;
|
| (B) to provide sufficient assessment income to repay obligations
| issued to and other amounts borrowed from insured depository
| institutions under section 1824(d) of this title; or
|
| (C) for any other purpose that the Corporation may deem
| necessary.
| bombcar wrote:
| I love how (c) makes a and b pointless.
| Waterluvian wrote:
| Not a lawyer but a lawyer once attempted to explain this
| common legalese pattern to me. Here's my terrible attempt:
|
| It's not like a programming type system where C widens the
| type to make A and B meaningless. It's that A and B are
| communicating intent. "It's meant for these things... and
| maybe something else we don't yet know." Apparently this is
| important if you ever had to fight over it.
| maxbond wrote:
| Sort of like the "show and tell" technique in prompt
| engineering.
| bombcar wrote:
| Yeah it basically codifies "spirit" vs letter. Too far
| outside a reasonable mandate and it can still get
| challenged.
| jbaber wrote:
| I have a naive question. When I was a little kid and the FDIC
| only insured the first $100,000, I thought, "If I were rich, I'd
| have to have multiple bank accounts."
|
| Do big companies not do this with their liquid assets as a matter
| of course? Are there just not enough banks? Or would per-account
| fees unknown to me as a little guy eat into savings?
|
| I get that big companies directly hold a bunch of bonds, too. But
| if they use a bank so they can actually write checks, why not
| many banks?
| [deleted]
| PaulHoule wrote:
| See... I told you this would be resolved quickly.
|
| Trouble is that Silicon Valley should have learned the lesson
| that dogpiling into the same bank is systemic risk.
| rvz wrote:
| The regulators _panicking_ and putting a tiny backstop of $25BN
| vs $150BN+ of uninsured deposits to attempt to stop a run on
| the bank is a resolution?
|
| This is only to calm the markets before market open. We'll see
| if that enough to stop a bank run when this time _everyone_
| knows about the SVB situation and withdraws _all_ their money
| at the same time.
|
| Seems like this is an attempt to save the VC pyramid scheme
| that got caught up in the collapse and needed government
| intervention to 'save' them.
| cm2187 wrote:
| Instead they learned that donating to the democratic party is a
| good insurance policy.
| PaulHoule wrote:
| Yeah, Peter Thiel donates to the Republicans but he so quick
| on the draw he got his money out in time to not need a
| baiout.
| greatjack613 wrote:
| It's not enough for senior management to be removed. Malfeasance
| like this needs to have real life consequences.
| readthenotes1 wrote:
| misfeasance, in this case, more than malfeasance.
|
| And of course there are consequences to senior management.
|
| <s>
|
| Since they cashed out a bit and got their bonuses, they can
| probably take a vacation for a month or two and then come back
| and get a promotion in some other part of the financial
| industry. After all, they have learned a multi-billion dollar
| lesson. Don't want to throw that away!
| loeg wrote:
| It's not clear that there was malfeasance. Bad business
| performance isn't criminal.
| twiddling wrote:
| a stern talking to is in order
| weard_beard wrote:
| A stern talking to about using their infinite money wisely,
| and not charging customers for the convenience. Perhaps a
| finger wag about doubling overdrafts to pay for their
| infinite money. A _tsk_ for tripling monthly payments for
| student checking accounts.
| twiddling wrote:
| hmm. perhaps even a blue ribbon commission...
| moremetadata wrote:
| [dead]
| [deleted]
| brunooo wrote:
| Oh, surprising re Signature, but 100% backstop should calm things
| down.
|
| Any fiat <-> crypto rails left in the US, after the FDIC buries
| SEN on, I dunno, Tuesday?
| VagueMag wrote:
| So without Signet, does Circle have any means to satisfy USDC
| redemptions?
| wmf wrote:
| Wire transfers?
| AH4oFVbPT4f8 wrote:
| It was announced as a footnote in this Treasury announcement ,
| which also guarantees 100% deposits for both SVB and Signature
| Bank above 250k
|
| How?! Who is funding this and if they sell the bank assets who is
| covering the losses?
| xenadu02 wrote:
| If you look at the FDIC data for bank closures a lot of times
| the ultimate resolution is over 90% payback - the FDIC calls
| these "dividends". In some cases the payback is 100% to
| depositors and general creditors get some money. It just takes
| time - a 2009 bank failure may not finish dividend paybacks
| until 2014.
|
| The odds are the FDIC will ultimately (in the next 5 years)
| wind down SVB's assets with enough excess to nearly cover all
| deposits. The amount the insurance fund will eat isn't likely
| to be very large.
|
| The statement about an assessment on member banks is just how
| the fund works normally: whenever there's a large payout event
| exceeding normal reserves the fund recoups the money by
| assessing member banks.
| belter wrote:
| > whenever there's a large payout event exceeding normal
| reserves the fund recoups the money by assessing member
| banks.
|
| The point you are missing is that would be to pay the
| required excess to cover the 250K per depositor, but this is
| a bailout of all depositors money.
| fsckboy wrote:
| if this is the way we're going to behave, then cap the maximum
| size of accounts at the FDIC coverage limit (implement account
| software in Rust, not C, no overruns :) If you go over this
| amount, the bank should automatically create a new account for
| you and put the excess in there. done, you're 100% insured, we
| don't have to do anything special to protect you. . Probably that
| means (I don't know the regs) that the bank will have to hold
| more of your money as reserves in cash on their books and not put
| it at risk, possibly pay more in insurance premiums if that's how
| FDIC insurance works. Probably it would make things really
| inconvenient for Roku to keep $500million in their bank account.
| But at least we would then deal with it at the time it occurs,
| and not in an emergency.
| auntienomen wrote:
| It would have to be a new account at a different bank. FDIC
| coverage is per bank, per depositor, and per ownership category
| (e.g. single vs joint account).
| fsckboy wrote:
| i'm pretty sure you're wrong about that, but not invested
| enough to check.
|
| but if you're right, it seems a little silly, why impose that
| "diversification" on bank customers? if 100 millionaires live
| in a city, why should they all have accounts at all the
| different banks, as if that's somehow safer for the FDIC than
| have the same funds spread around in the same quantities
| across the same banks, just under different names.
| VoodooJuJu wrote:
| We deserve to see more useful top comments on this matter.
|
| The top ones in this and the main announcement thread [1] are
| just ad hominem complaining against some ostensibly "salty" or
| "cognitively dissonant" majority.
|
| Let's talk about skin in the game and bailouts. Explain to a
| peasant why he should have to share the risk you took with your
| money. Explain to him this game being played where he gains
| nothing when you win but loses when you lose. And please inform
| him the recourse he has should he disagree with sharing your
| loss.
|
| No moral appeals about making payroll, no ad hominems about non-
| positivism or cognitive dissonance, no complaints about
| "saltiness".
|
| I speak for many when I say I'd like to hear a proper explanation
| on this matter, in terms of skin in the game.
|
| EDIT: The above comment takes the following to be bullshit (from
| the article):
|
| "Yellen approved actions enabling the FDIC to complete its
| resolution...in a manner that fully protects all depositors...
|
| No losses...will be borne by the taxpayer."
|
| If these statements are true, can someone explain how it's
| possible that despositors are fully protected, far beyond what
| FDIC insures, without the taxpayer bearing any of the burden?
|
| ---
|
| [1] https://news.ycombinator.com/item?id=35096877
| mixologic wrote:
| All banks take risks with the money that their customers
| deposit with them.
|
| Sometimes those risks are bad, and banks cannot fulfill their
| obligations to their customers, so the FDIC, which is _funded
| by banks_ (its deposit _insurance_ ) steps in and fixes a bank
| so that customers of that bank do not get screwed by picking a
| bad bank.
|
| I dont see how any peasants are 'sharing any risk' here.
|
| Everybody who held _stock_ in SVB, just lost literally _all_ of
| that. They invested in a bank that failed. Just like if they
| invested in a company that failed. Nobody is bailing those
| people out.
| noobermin wrote:
| My understanding is the FDIC reimbursing up to 100K is fine
| and what you expect, it's just that many customers had
| balances exceeding that.
| RayVR wrote:
| Just note that the FDIC provides deposit insurance up to
| $250k per named individual on the account. So joint
| accounts with married couples would be $500k. You can add
| children to increase as well.
| noobermin wrote:
| Just shows how much I know...you can tell I'm not a rich
| man, I did not even realize it was increased to 250K in
| the wake of the financial crisis.
| tetrahedr0n wrote:
| Also, holding all of your fiat in a single bank or
| financial instrument is usually not a great idea.
| Diversification is important to any relatively stable
| financial position.
|
| E.g: Fiat over $500k in a single institution is likely
| not earning as much as it could and runs the risk of loss
| of access to funds for X amount of time if the bank
| fails, until reimbursement happens. But $100k each in 2
| different banks leaves you with $300k to invest however
| you see fit and still have enough liquidity to move
| quickly on opportunities.
| friend_and_foe wrote:
| Alright, now what about this:
|
| > Finally, the Federal Reserve Board on Sunday announced it
| will make available additional funding to eligible depository
| institutions to help assure banks have the ability to meet
| the needs of all their depositors.
|
| That sounds a lot like some type of bailout to me. What does
| "make funding available" mean? Where does _that_ funding come
| from? It 's going directly to banks, not to depositors. How
| does that work?
| tetrahedr0n wrote:
| I believe that would be the FDIC, which is funded by banks
| (its deposit insurance), right?
| azernik wrote:
| It's the Fed. It literally prints money and loans it out.
| And it's doing this to replace money erased during a bank
| run, so no inflation implications.
| friend_and_foe wrote:
| It wasn't erased, it's in peoples pockets in the form of
| cash, a la "bank run."
| jonhohle wrote:
| Printing money and loaning it out is literally monetary
| inflation.
|
| Money isn't erased during a bank run. It's given back to
| the owners who always had a right to have it. Fractional
| reserve banking is what erases money.
| mcv wrote:
| Printing money is not the same thing as inflation. It
| could cause inflation, but doesn't have to. And other
| things can cause inflation too. Inflation is merely the
| fact that stuff gets more expensive, but that can have
| many different causes. Excessive money printing is
| certainly the most notorious cause, but not all money
| printing is excessive. Sometimes printing money is the
| prudent thing to do because there's a growing need and
| therefore demand for money.
| jonhohle wrote:
| The definition of monetary inflation is increasing the
| monetary supply. That doesn't need to happen by starting
| a printing press. It could be someone typing a bunch of
| zeros on a keyboard somewhere to create new money out of
| nothing.
|
| I never said inflation was detrimental or harmful (my
| personal belief is that it is harmful, however), just
| that adding money to the supply is by definition monetary
| inflation (the origin of the concept of cost inflation
| which is what we're being asked to accept as the true
| definition). Putting air into a balloon doesn't mean it
| will pop; it's still being inflated. Hey, it's even more
| fun for a while ;-)
|
| I was responding to a parent who said printing money
| isn't inflation, when it's the literal definition of, and
| the origin of the term in monetary theory. It's not very
| constructive to conversation to attempt to change meaning
| of words to make one point or another.
| mcv wrote:
| I am sorry and you are correct. I blindly assumed that
| "inflation" means "price inflation", but you explicitly
| specified "monetary inflation", which is something
| completely different (though sometimes related).
|
| My apologies for reading incorrectly. My comment is true
| only for price inflation.
| hackernewds wrote:
| where is there any indication that money is being printed
| for this? if anything trillions have been printed to
| support the so-called "peasants" (hate that term) that
| kick-started the avalanche.
| jonhohle wrote:
| Read the parent comment: it states printing money is not
| inflation. The author either is being disingenuous or
| doesn't understand how inflation works.
| julienfr112 wrote:
| if the FED prints monney, it creates inflation. If it
| does not, it does not save SVB depositors.
| kfrzcode wrote:
| I believe the Fed is opening a new program to allow for
| "systemic risk" loans at typical Govt. interest rates; so
| there aren't any worries about running out of cash to give
| to customers having a panic
| nthj wrote:
| SVB has a ton of bonds that mature (will be cashable) after
| ten years, but nobody wants to pay for them today because
| they can make more money placing their cash in a savings
| account. For a silly analogy, imagine if you had a bunch of
| cash locked up in a CD, but also had a surprise medical
| bill. Our parents could very easily look at your books and
| say "huh, I can advance you 80% of your CD because there is
| really no chance the CD won't pay me back once it matures."
| Is this a bailout? I don't think so. It's different than
| paying off our drunk uncle's gambling debts for the 7th
| time.
|
| And also we probably don't want to say "haha silly SVB
| customers, they can wait ten years to get their money back"
| because none of us want to live in a world where most
| Americans, most of whom don't understand all these
| complexities, start runs on ALL the banks because they
| think this is the start of a collapse. It becomes self-
| fulfilling at that point.
| friend_and_foe wrote:
| I didn't ask about SVB.
| bentlegen wrote:
| In terms of real dollars, those bonds will be worth less
| in 10 years because of inflation.
|
| You're correct in highlighting that if they fronted the
| cash now the bonds would be less, but it is
| simultaneously true that they will be worth less "2023
| dollars" in 10 years.
|
| We are currently working with 2023 dollars.
| aziaziazi wrote:
| Your analogy is not only silly but naive. SVB is way
| closer to your drunk uncle saving in 30yo whiskeys pricy
| bottles than child savings.
| strbean wrote:
| Treasury bonds are wild and irresponsible investments
| now?
|
| Man, it's probably time to jump ship from the US economy
| all together.
| hamadj wrote:
| Treasury bonds are not irresponsible. What is
| irresponsible is to not hedge your interest rate risk in
| the form of interest rate swaps. Most other conventional
| banks do exactly that; they have a portfolio of held-to-
| maturity (HTM) securities that they hedge with interest
| rate swaps to avoid bearing that risk. In the financial
| sector, you only leave unhedged the investments you are
| _actually_ betting on; if you are to say that they were
| betting on 10y bonds (until maturity) holding the same
| value as the day they bought them, without any form of
| risk management, I would consider that irresponsible.
| lordfrito wrote:
| If you're a bank that can't differentiate/navigate long
| term vs short term debts while experiencing ballooning
| deposits, then yes I agree it's time to jump ship and
| find a new profession.
|
| I don't see how the US economy is to blame for the
| actions of a greedy monoculture based on "tech line go
| up". They made a long term bet on bonds with historically
| low interest rates, doubling down that the party would
| continue indefinitely. They didn't have a chief risk
| officer for 9 months! How is that the US economy's fault?
|
| There's a reason they lobbied congress to weaken risk
| regulations.
|
| I'm hoping people go to jail over this.
| mnadkvlb wrote:
| Its not as clear as treasuries are safe or not. The price
| function is clearly dependent on term.
|
| long term treasuries are extremely risky assets, by
| definition and move a lot on interest rates. whereas
| short term treasuries like less than three momths barely
| move on fed rates, hence much safer.
|
| Svb bank made the wrong choice of holding super long
| duration treasuries. They knew what they were getting
| into, and did it anyway for higher yield at that time.
| they could have put the money in 3 month expirations and
| wouldnt have been in this situation.
| Lionga wrote:
| Anyone having a bank account will pay for it trough the banks
| fees/rates etc. Yellen avoided directly using tax money for
| the bail out, but it just is the next closest thing.
| tgma wrote:
| It really isn't though. Sure, at some level of abstraction,
| someone, somewhere, will have to pay for it, but this is
| clearly distinct from one's capacity as a taxpayer. All
| banks, however, benefit from the trust in banking system,
| so make sense for them to foot the bill. It's unclear how
| much of that will directly materially affect the average US
| depositor compared to letting SVB clients lose their shirt
| and thus erode the trust of the entire banking system.
| RandomLensman wrote:
| If in the end the government is needed to (at least
| temporarily) backstop any deposits anyway, then why have
| commercial banks for deposits in the first place? Might
| was well give anyone an account at the Fed or something
| like that and fund loans and other assets at commercial
| banks out of bonds, CDs, etc. and never deposits.
| toyg wrote:
| _> Might was well give anyone an account at the Fed or
| something like that_
|
| That's an interesting proposition, that was simply
| unfeasible from a practical perspective until very
| recently.
|
| A consumer bank needed branches, and tills, and vaults,
| and all sorts of things to serve customers, so it was
| just unfeasible for most nation-states to eat the costs
| of all that - while private entities were incentivised to
| set all of that up so that they could raise money to
| invest for their own profit.
|
| Now that money is increasingly a purely digital
| construct, a true National Bank could actually be
| feasible at low cost, providing a 100% safe deposit
| system for consumers that will never pay any interest.
| Private banks would likely still exist, they'd just
| provide more incentives to depositors (i.e. higher
| returns). This would make private banks a bit less
| central to the whole system, and make society a bit more
| fault-tolerant in this area.
|
| It's an interesting policy proposition, and maybe talking
| about it would be a bit more productive than the average
| thread on banks.
| pengstrom wrote:
| Exactly, this seems like such an obvious solution. What
| is the (non-ideological) catch?
| CTDOCodebases wrote:
| The fed would have to service the entire population of
| the USA and provide customer support services for all
| those individuals.
|
| They could put the onus of control of the funds/account
| into the hands of the depositor and use a CBDC but trust
| in government is an issue here.
| hackernewds wrote:
| [flagged]
| op00to wrote:
| The absolute worst assessment for FDIC insurance for the
| riskiest banks is ~.042% of [assets - equity]. For every
| $100 of deposits, the riskiest banks pay 42 cents in FDIC
| assessments. The safest banks pay about ~.005%. Pick a safe
| bank. Or don't. The cost doesn't really matter.
| noobermin wrote:
| A charitable response I think is that depositors did not choose
| to make risky bets, the bank did. It's a shame really. So,
| you're blaming the wrong party.
|
| Somehow, the bank definitely needs to be punished, but I'm not
| sure how or if that can happen in this current system.
| bagels wrote:
| We could learn the lesson of 2008 again, but this time
| actually regulate banks instead of just saying we should
| regulate banks more.
| irdc wrote:
| Hush. Now is not the time. Our thoughts should not be
| distracted by politics but be with the victims of this
| horrible event.
|
| (/s)
| eru wrote:
| Depositors aren't forced to bank with a specific institution.
| Just like shareholders aren't forced to hold specific shares.
|
| Depositors can pick the banks whose risk profile they prefer.
| xapata wrote:
| Yes, but depositors are generally not expected to be
| sophisticated investors in the context of bank liquidity
| abd solvency. You don't get a prospectus of the bank itself
| when you consider opening an account.
| eshnil wrote:
| "KYB" now means "Know Your Bank". :-D
|
| More seriously, you don't need to do extra due diligence.
| Just buy insurance for your funds above $250K. Or use
| standard treasury methods like using institutional
| insured liquid deposits or sweep accounts.
| eru wrote:
| The prospectus is easily available, for all the good it
| would do.
|
| In any case, you don't need to be a sophisticated
| investor as a depositor. Ordinary market participants
| manage 'flights to quality' just fine, even if they are
| not sophisticated investors. See
| https://en.wikipedia.org/wiki/Flight-to-quality
|
| If you want to have a stable financial system, you
| shouldn't suppress the incentives for people, including
| depositors, to look for safety. Just the opposite, you
| should have them sensitive so that they make moves (on
| the margin) long before danger is serious. Have people
| move their deposits _before_ it's too late.
| Lionga wrote:
| But someone that has over 250K in a bank can be expected
| to understand that FDIC insurance is (or better was,
| effective now it is unlimited) 250K, right?
| [deleted]
| tetrahedr0n wrote:
| I might be missing something, but not sure why this was
| downvoted.
|
| Deposits <$250k are FDIC insured. One could say those
| accounts didn't evaluate the institution that held their
| funds and didn't really need to. But were they aware of
| FDIC limits? IMHO, they should have been and likely were.
|
| Depositors >$250k are well aware of FDIC and the risk
| associated with money in their bank. They really should
| think about the banks they work with and understand their
| risk profiles.
|
| Subjective, but I understood how FDIC worked when I opened
| my first bank account that was no where close to 250k. If
| it was greater, I would optimize my holdings across
| different institutions and instruments.
| eru wrote:
| Yes. Though as a normative statement, I would prefer if
| they would abolish FDIC.
|
| That way small time depositors are also drawn into the
| ranks of the watchmen of the financial system.
| tetrahedr0n wrote:
| In a more perfect world, I totally agree. But with
| American average savings so low and with the average
| level of financial literacy so low, expecting half of
| America to join the ranks of financial system watchmen
| is, IMHO, a tough hill to climb.
|
| [study on financial literacy from
| 2022](https://gflec.org/wp-content/uploads/2022/04/TIAA-
| Institute-...)
| logifail wrote:
| > depositors did not choose to make risky bets, the bank did
|
| Umm, _any and every_ bank deposit in excess of the deposit
| insurance limit has a risk associated with it.
| sebzim4500 wrote:
| And the US government should do whatever they have to do to
| make that risk zero. I have enough problems to worry about
| without having to assume that even my bank balance can
| disappear at any moment. I certainly can't read through
| thousands of pages of SEC filings from whichever bank I use
| to assess risk, and even if I had done that I wouldn't have
| seen government bonds and thought it was a red flag.
|
| If that means we get less interest on savings accounts then
| so be it.
| logifail wrote:
| > the US government should do whatever they have to do to
| make that risk zero
|
| Errm ... there are _an awful lot of people_ who will
| never, ever, in their entire lives, have anywhere close
| to $250,000 on deposit at one bank.
|
| Q: Why should all those people backstop your investment?
|
| Given that, is it perhaps possible that _you_ should take
| responsibility for _your_ investments which exceeed
| $250k?
| sebzim4500 wrote:
| Those people are probably not a significant portion of
| the tax revenue, so that argument cuts both ways.
|
| I had zero dollars in SVB, and I would probably be less
| affected than the average person if there was a full on
| banking collapse.
|
| I'm still not stupid or capricious enough to oppose this
| 'bailout' though.
| creato wrote:
| What greater penalty for a bank or any other corporation is
| there than what has already happened to SVB? The shareholders
| are wiped out. The only thing left would be pursuing
| individual executives for... something, but aside from
| possible insider trading it's not clear what.
| thallium205 wrote:
| Damn bank executives buying risky treasury bonds! Arrest
| them! /s
| subsistence234 wrote:
| poor me I'm just a lil smol bean executive who didn't
| understand why the other banks didn't take the same risks
| and I didn't want to ask either.
| thallium205 wrote:
| Case in point: First Republic Bank needed a $70B loan
| this morning to not go the way of SVB.
| thallium205 wrote:
| Other banks _did_ take similar risks. Why do you think
| the fed setup a facility large enough to serve the
| _entire country_ to prop them up?
|
| The only risk is trying operate in a broken banking
| system.
| wheelerof4te wrote:
| I'll just copy one of my previous comments on this, but this
| time I'll leave out the /s
|
| "Hey, the FDIC coould raise the limit to, say, 10 million, and
| just let the FED reserve print out the moneys to everyone. Not
| much different than what the US government is already doing.
| Reached the debt limit? Just raise it again, lol."
| sebzim4500 wrote:
| This but unironically. In Germany the government guarantees
| every deposit in a regulated bank. The US should do the same,
| even if that means substantially tightening the regulations
| on banks.
| op00to wrote:
| > can someone explain how it's possible that despositors are
| fully protected, far beyond what FDIC insures, without the
| taxpayer bearing any of the burden
|
| Depositors are made whole. Shareholders are not. There were
| enough assets sold over the weekend to cover deposits.
| astrange wrote:
| Does this comment really start by complaining the rest aren't
| "useful" and then immediately switched to assuming it knows
| better than Janet Yellen about whether something will cost
| taxpayers?
|
| Also, there isn't a bailout - protecting unnamed bank
| depositors is not a useful definition of a bailout.
|
| Also, you spelled "depositors" wrong.
| chucklenorris wrote:
| The taxpayer won't bear the burden, at least theoretically. The
| money still exist in the form of bonds which are not liquid
| right now. The FDIC will provide the liquidity so one of the
| most important sector of the us economy doesn't implode. This
| is not the same situation as FTX
| epvgwwqe wrote:
| Making depositors whole isn't coming from taxpayer money, it's
| coming from FDIC and potentially higher fees on banks if it's
| needed as a function of the end result of SVB liquidation.
|
| But even if the only option was to use taxpayer money, clearly
| it would be need to be done. If depositors weren't made whole,
| this week would've been a disaster with multiple bank runs that
| could cause a huge systemic issue. Eventually the fallout from
| such an event would bite the economy and the average taxpayer
| very badly.
|
| The amount of money required to make depositors in SVB whole is
| negligible compared to the potential damage not doing so would
| cause, so it doesn't really matter where that money comes from.
| 317070 wrote:
| That sounds an awful lot like "too big to fail". Are we here
| again? Why do we still have companies that big?
|
| Why do we let companies grow that large then? Or maybe the
| FDIC protection should be increased for everyone?
|
| I don't disagree that what you say is right when the argument
| doesn't go beyond the short term. But I expect to see protest
| against this from tax payers whose wealth is lower than the
| FDIC limit. Again.
| hackernewds wrote:
| to add, note SVB did "fail". investors, shareholders,
| executives (bar the insider selling) lost everything. so
| clearly they weren't "too big to fail".
| epvgwwqe wrote:
| The 2008 financial disaster led to regulations on banks
| which largely seem to avoid the need for govt bailouts of
| the big banks, but these regulations only patched up the
| type of issue 2008 posed, in particular working for banks
| where the majority of holders have below $250K.
|
| In the cases of SVB you have a totally different kind of
| bank with 90%+ of the capital in accounts well above $250K.
| And the size of the bank was right below where regulations
| kick in, so the issue here is not that the bank in itself
| was too big, if anything it was too small, it's that if
| this previously top notch regional bank failed in a way
| that hurt depositors, a slew of other regional bank runs
| would follow.
|
| Not sure what the long term solution is, but there will
| probably be additional regulation to patch up this kind of
| issue and at the least any VC will ask startups to prove
| that their capital is diversified as a condition for
| investment.
| gnz11 wrote:
| Not sure what SVB's total assets were but in 2018
| Congress changed up the asset size requirements in which
| Dodd-Frank regulations kick in [1]. Seems like the
| sensible thing to do is to rollback those changes and put
| Dodd-Frank back to its initial state.
|
| [1] https://www.vox.com/policy-and-
| politics/2018/3/6/17081508/se...
| hackernewds wrote:
| Their point entirely is the opposite - that a pull of
| deposits on Monday would have destroyed banks that are
| small. and deposits would get consolidated into the big 4
| "too big to fail" banks.
| 317070 wrote:
| If I can paraphrase: "the risk would have been that banks
| that are too small would have been emptied, because a
| clear delineation would have been set between those that
| are too big to fail, and those that are not. This hazard
| induced by the existance of too-big-to-fail banks makes
| it hard to have small banks. Therefore, the solution to
| declare small banks somewhat too-big-to-fail and bail
| them out beyond legal obligations is reasonable."
|
| It is reasonable, you are not wrong! But this slope is
| getting slippier. Something needs fixing, even if this
| bailout is the right thing to do.
|
| I don't want to argue against this bailout, I want to
| argue against a system that forces everyone's hands into
| bailouts every so often.
| headsoup wrote:
| I like this all upside, minimal downside method of business.
| How can I set up a nice company that will partially insure
| the money I get but ensure a bailout will cover the rest
| should the risks come to fruition?
|
| Also, how do I make it hard for my customers to understand
| the risks they are taking on so that I can use compassion to
| ensure such bailouts?
| locallost wrote:
| Does the peasant share the risk? From the article:
|
| > No losses associated with the resolution of Silicon Valley
| Bank will be borne by the taxpayer.
|
| > As with the resolution of Silicon Valley Bank, no losses will
| be borne by the taxpayer.
| Lionga wrote:
| Anyone having a bank account will pay for it trough the banks
| fees/rates etc. Yellen avoided directly using tax money for
| the bail out, but it just is the next closest thing.
| n42 wrote:
| SVB's assets cover an overwhelming majority of the
| deposits, and other banks cover the rest through FDIC. the
| impact on the American citizen is negligible, bordering
| non-existent. yes, this money comes from customers of those
| banks, but again, the $ amount likely translates to
| pennies.
|
| when you compare it to the alternative people are proposing
| of doing nothing, that means thousands of layoffs and
| shuttered companies, and the American tax payer paying
| these people's salaries in the form of
| unemployment/welfare. this is a remarkably more expensive
| strain on the economy.
|
| there is a reasonable argument to be made about the
| precedent it sets for banks in the future with regard to
| their risk tolerance; I don't have an answer to that.
|
| anyone upset about this for any other reason just wants to
| be upset.
| eshnil wrote:
| Every bank account holder was made to pay insurance
| premium for those with more than $250K in a couple of
| banks. And this was done AFTER the risky event the
| insurance covers has already happened. This absolutely is
| socialization of losses, while privatization of profits
| goes on as usual. Good reason to be upset, IMHO.
| koliber wrote:
| The socialization of losses is the hallmark of a
| functioning society or social system. A person breaks an
| arm in a hunter-gatherer tribe, and the rest continues to
| feed them. A farmer's house burns down, and each person
| in the village chips in a bit to help them rebuild. A
| hail storm wipes out farmers in a region, and the state
| or federal government helps them cope with it. A bank
| collapses, and the FDIC makes the depositors whole.
|
| Isn't it great that groups of people can step in and help
| those that got the short end of the stick?
|
| I do hope that such recuperation schemes continue to get
| funded by mandatory insurance and other contributions
| during the good times. This way, the privatization of
| profits is a little smaller, and the safety cushion gets
| built for when things get bad.
| RandomLensman wrote:
| But in the future we can avoid such situations on
| deposits: Why should commercial banks be allowed to fund
| themselves via deposits? If deposits are inviolable, they
| really shouldn't be with commercial banks but rather with
| the Fed etc.
| jonhohle wrote:
| This isn't a random event or act of God. If the person
| said they would take care of everyone's food while taking
| whatever share of that food they wanted, then broke their
| arm after finishing off the last steak, how do you think
| the tribe would respond?
| [deleted]
| [deleted]
| FollowingTheDao wrote:
| > The socialization of losses is the hallmark of a
| functioning society or social system.
|
| If the "socialization of losses is the hallmark of a
| functioning society" THEN WE DO NOT HAVE A FUNCTIONAL
| SOCIETY because in EVERY city of this country there are
| people who are homeless because of their "losses" and NO
| ONE GIVES A FCK.
|
| I am one of those homeless. What was my crime? I became
| ill with an undiagnosable neurological disease.
|
| This is about WHO gets the socialism. What is happening
| with SVB is socialism for the rich.
|
| Are you seriously comparing the greed at SVB is reay like
| breaking an arm or a hail storm? Some unforeseen natural
| disaster or just a whoopsie????
|
| This along with the bilions to Ukraine, while people are
| being forced into homelessness because of housing costs
| and inflation, you are all asking for some fascist groups
| to gain power in the U.S.
| spullara wrote:
| It is insurance that banks pay for, so yeah that is how it
| works. The issue is that if FDIC doesn't save this regional
| bank, all regional banks would probably fail in the next
| week and there would be 4 banks left that the government
| refuses to let fail.
| [deleted]
| [deleted]
| pyinstallwoes wrote:
| That's inflation, the word you're looking for right? It's a
| form of tax that isn't thought of as a tax through the act of
| printing more money. Or, some similar mechanism of that shape.
| doktrin wrote:
| Unsurprisingly, the top comment complaining about top comment
| quality is the worst of them all.
|
| This is one of those cases where the most obvious and mundane
| answer happens to be correct. The government is attempting to
| nip an existential threat to the wider banking system in the
| bud. Everyone who uses said system (read: literally everyone)
| has an interest in seeing it survive.
| Earw0rm wrote:
| IDGAF about the morality of SVB's clients being able to make
| payroll or not.
|
| But it strikes me that there's a second-order "too big to fail"
| effect at work here.
|
| Not only bank runs. How many businesses who don't have any
| banking with SVB are operationally dependent on cloud services
| provided by SVB-banked companies?
|
| What's curious is that this wasn't a risk in the 2000-2001
| crash, and barely an emerging one in 2008.
|
| Let's say 20% of cloud service providers can't make payroll and
| shut down. What does the disruption in the wider, real economy
| look like? Pretty messy, no?
| djhope99 wrote:
| Why does everybody think this is going to be a huge burden on
| the government, lots of sensationalism here.
|
| Just by saying "we will backstop depositors" the government
| will likely have calmed things down enough that that's the end
| of the story. Nothing else needed.
|
| The bank has or can likely get the money to pay everyone back
| just not in 48 hours which is unnecessary anyway given normal
| outflows for the bank.
| soheil wrote:
| > Explain to a peasant why he should have to share the risk you
| took with your money.
|
| Dear Peasant,
|
| I empathize with your pain and suffering on a daily basis. I
| know life isn't easy being a peasant, you perhaps work as hard
| as anyone in Silicon Valley. You pay taxes just like everyone
| else and expect your government to protect you and provide
| opportunities not just for you but for your children and
| their's. Silicon Valley is a major growth engine of our
| economy, it means lots of jobs for your future grand
| grandchildren. It means better lives for all of us benefiting
| from innovations that happen there. You no longer need to farm
| in freezing weather when your John Deere tractor can drive
| itself or hail a ride on Uber and know exactly when to go
| outside on a snowy day. So hope you understand that when a
| place that people trust with keeping their money collapses it
| means major disruption to the economy. It means those tech
| companies have to fold not to a fault of their own, but because
| of a series of domino effects that would have been not easy to
| predict. It comes with the territory, not too dissimilar to a
| famine. We need to do something to save those companies and
| thousands of people who work there contributing to the
| prosperity of our country and the world. We need to do what is
| smart, socially and economically responsible and save those
| companies by providing the cash reserves they stored in the
| failed bank. We need to borrow money from the tax payers to do
| that, just like when we did that in the last couple of years to
| help another group of citizens. I know you understand this is
| good not just for our country but it's good for you and your
| children. I know many will not understand why a large
| population of the medium class should benefit as if they live
| in a vacuum and anything that happens to them will have no
| effect on the rest of us.
|
| I know you will.
| xdennis wrote:
| > It means better lives for all of us benefiting from
| innovations that happen there. You no longer need to farm in
| freezing weather when your John Deere tractor can drive
| itself
|
| That's not done out of charity, it's done for profit. And
| when they're good enough they won't need the farmer. Forget
| about the grand grand children, what opportunities will the
| government provide for him when when he's no longer needed?
|
| It's all about solidarity when the VCs are hurting, but what
| about poorly educated in the middle of nowhere?
|
| It should be the same for everyone: you make your own
| choices, and if that has bad consequences you should suffer
| them alone. VCs don't share profits when things are good
| because stocks aren't taxed.
| twblalock wrote:
| You are better off because the government is helping, and so
| are all of the people in the country who need to work for a
| living and need companies to work for. You can't let the
| banking system collapse and expect it will only hurt the people
| you don't like.
|
| > If these statements are true, can someone explain how it's
| possible that despositors are fully protected, far beyond what
| FDIC insures, without the taxpayer bearing any of the burden?
|
| "The FDIC is not supported by public funds; member banks'
| insurance dues are its primary source of funding. When dues and
| the proceeds of bank liquidations are insufficient, it can
| borrow from the federal government, or issue debt through the
| Federal Financing Bank on terms that the bank decides."
|
| https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
|
| On top of that, SVB _has the money_ to pay back almost all of
| the depositors. They just don 't have it liquid _right now_
| because it 's in bonds that won't mature for a while and would
| need to be sold for a loss. So the obvious and sensible thing
| to do is have the government lend money to cover the time until
| the bonds mature, in addition to using the FDIC's money which
| did not come from public funds.
|
| > And please inform him the recourse he has should he disagree
| with sharing your loss.
|
| You can vote for people who are dumb enough to let the entire
| banking system collapse because they want to hurt rich people.
| But of course that would probably put "peasants" out of work
| while the rich get slightly less rich.
| unicornmama wrote:
| > SVB has the money to pay back almost all of the depositors.
|
| There seems to be this myth floating around that bond losses
| aren't real. They are very real.
|
| An 80 cent on the dollar (purchase price) bond is a loss of
| 20 cents. And it doesn't matter if the holder holds to
| maturity.
|
| Welcome to interest rates.
|
| Edit: Fundamental fallacy here is not understanding the time
| value of money. Thinking of money without the time dimension
| is like thinking about space without time.
|
| See https://www.investopedia.com/terms/t/timevalueofmoney.asp
|
| Secondary fallacy here is equating value in the financial
| sense with gain/loss in the accounting sense.
| twblalock wrote:
| You don't lose money on bonds you hold to maturity. 100% of
| the principal will become liquid upon maturity.
| unicornmama wrote:
| In addition to my comment below, the following are
| financially equivalent [I simplify a bit]:
|
| 1. Give 80 cents on the dollar to each depositor and say
| tough-luck. 2. Give $1 dollar to each depositor upon bond
| maturity [for sake of example let's say 10 years].
|
| Option 1: Depositor takes the cash, buys a new bond with
| the same maturity [but it would have higher yield, say
| closer to 4%] at current market price. At maturity they
| have $1 dollar
|
| Options 1 and 2 are equivalent, minus the bid-ask spreads
| which are very tight for treasuries. This is time value
| of money.
| faeyanpiraat wrote:
| You lose money by not being invested into the better
| yielding options while you are waiting your bonds to
| mature.
| BlueTemplar wrote:
| Better yielding options come with more risk - that's
| typically why they are better yielding !
| twblalock wrote:
| Whoosh the goalposts are moving fast on this one.
|
| What you are talking about is opportunity cost, not
| investment losses. If SVB could have held their bonds to
| maturity they would have gotten back every cent of the
| principal.
| mcv wrote:
| They are an investment loss if you need to sell them at a
| loss, which seems to be the case here.
|
| Also, at some point the difference between opportunity
| cost and investment loss becomes rather semantic. In a
| liquid market, you should be able to sell and rebuy your
| positions every day, which you generally don't do of
| course, but it does mean that the decision not to sell is
| similar to the decision to buy: if you wouldn't buy under
| these circumstances, you should sell.
|
| With these bonds, their low interest makes them less
| attractive than newer bonds with higher interest, so
| nobody will want to buy these lower interest bonds at
| face value when higher interest bonds are available.
| They'll only buy these at a discount that would make
| their profit comparable to those of higher interest
| bonds. So the value drops, so that's a loss.
|
| Personally I've never seen the point in buying low-
| interest bonds. But then I'm not a banker.
| unicornmama wrote:
| They cannot hold to maturity. Because you cannot offer
| your depositors 1.45% on deposits when their best
| alternative is 4.5-5% in risk free money market funds and
| treasury bills. Depositors won't just sit there and watch
| 6%+ inflation eat away at the real value of their
| deposits. The assets are correctly priced and bond losses
| are real.
| barrkel wrote:
| Yes, but you also need to look at the net present value.
| A loan today would need to be at below market rate
| interest in order to match up with the value of the bonds
| held to maturity.
|
| Interest rates rising means products with a fixed rate
| yield are worth less today. That value isn't gotten back
| by waiting until maturity. The nominal value is
| retrieved, yes, but the money in the future is literally
| worth less.
|
| SVB was very poorly run. We can see that easily now in
| retrospect.
| twblalock wrote:
| The nominal value is what matters because deposits are
| also nominally valued.
|
| We don't live in a magical world where deposits (aka
| liabilities) are exempt from inflation and the assets
| that back them are not.
|
| If you owe someone $1000 you owe them one thousand
| dollars. Not the _value_ or purchasing power of one
| thousand dollars -- literally one thousand things called
| dollars.
|
| So if you take $1000 in deposits, you buy $1000 in bonds,
| you wait until the bonds mature, and then your depositor
| withdraws $1000, you will be fine no matter if that
| happens in one year or a hundred years, no matter what
| the rate of inflation is. Your assets and liabilities
| will cancel out.
|
| If your depositor tries to get their $1000 back before
| the bonds mature, you are screwed. That is what happened
| to SVB. If all of SVB's bonds had been mature by last
| Friday it would have been fine. Pretty much every article
| in the financial press about this fiasco has made that
| point.
|
| It is amazing to see people twist themselves up in knots
| about opportunity cost and inflation when this is so
| basic. If liquid assets equal liabilities in the literal
| number of dollars, you are even, you are solvent, and
| your depositors get their money back.
|
| > A loan today would need to be at below market rate
| interest in order to match up with the value of the bonds
| held to maturity.
|
| Well, it's a government loan, so they can do that if they
| want to.
| koalala wrote:
| so they would've been fine if only everyone could've
| waited 30 years? isn't that completely irrelevant to
| probably every depositor?
| twblalock wrote:
| Of course it is irrelevant to depositors, that is why the
| bank failed.
|
| However, it also proves that holding bonds to maturity is
| different from selling them at market rates. It
| demonstrates the distinction between solvency and
| liquidity. Every financial publication has made this
| point when discussing SVB in order to educate their
| readership about the problems of duration risk and
| explain how a bank with enough assets to cover
| liabilities can still fail.
|
| Now, the nice thing is, the government has time to wait
| for the bonds to mature. So the government can take the
| bonds, pay off the depositors, and get the money back
| when the bonds mature. The government won't lose money if
| they do it right -- just like they didn't lose money with
| TARP in 2008.
| makomk wrote:
| It's not moving the goalposts - this is an actual, real,
| and extremely sneaky loss. Having bonds that will pay out
| say $100 in eight years time is pretty much exactly
| equivalent to having the reduced value of those bonds now
| (say $80) because if you had that reduced amount of money
| now you could invest it in similar bonds and receive $100
| in eight years time. In fact, I think with current
| interest rates you could even stick it in more liquid
| bank accounts or short-term bills and likely still
| receive more interest whilst not being locked in.
| acjacobson wrote:
| Only a potential buyer would lose. Not SVB - for them the
| price and return is locked if they can wait. The problem
| comes when they are forced to sell (as they were).
|
| This is why the bond price falls - an outside party will
| not buy the SVB bonds because they can get a better
| return on a different bond. The bond price falls to make
| them equivalent.
| zamnos wrote:
| Except that during the duration that 100% loses out to
| intlation. If it's a 10-year bond, it's worth maybe 74%
| of its face value.
| strbean wrote:
| So do the deposits the bonds are backing. That's
| irrelevant.
| twblalock wrote:
| That's not an investment loss though. It's really not the
| same thing.
|
| If I can claim inflation as a loss I need to go redo my
| taxes...
| zamnos wrote:
| It's material here because the reason Tbills are paying
| 5% is because inflation is roughly 6.5%. (I used a fixed
| inflation rate of 3% to get 74% above.) Usually they're
| down at like 0.05% or so, which is what SVB was holding,
| which is what sank them.
| twblalock wrote:
| It's not material.
|
| What matters is that principal is returned in full when
| bonds mature, but if you can't wait until maturity you
| might have to sell them for less than the principal. That
| is exactly what happened to SVB.
| kfrzcode wrote:
| Sounds like they needed more diversity in their overall
| capital portfolio; based on significant risk of these
| long-term bond rate increases -- is this a common tactic
| that would be employed at other banks, but it's just that
| SVB had a "special" system where customers would hold
| more money there or something?
|
| What's stopping my Local Bank from crashing this week?
| twblalock wrote:
| > What's stopping my Local Bank from crashing this week?
|
| Enough consumer confidence to prevent a bank run is the
| only thing that prevents a run on any bank, including the
| largest banks in the world.
| subsistence234 wrote:
| why do you think those bonds are worth only 80% now, if
| you believe they should be worth 100%? is it a market
| inefficiency? do you think you could make risk-free 25%
| profit by buying them?
| RandomLensman wrote:
| If you need to pay someone now, the fact that in X years
| you have the money creates costs - whether the bonds pay
| 100% or not at maturity doesn't really matter, only the
| current MtM matters for money now as opposed to money in
| the future.
| PeterisP wrote:
| If you need to repay the bond's principal _now_ (as SVB
| does), then you lose the extra interest you need to pay
| on the money you 'll borrow today until you get the full
| principal back at maturity. You don't lose money if you
| can borrow money at the same rate as the bond coupons
| pay, you lose money if now the interest is higher. You
| can't simply treat dollars-after-X-years as equivalent to
| dollars-now, those are two different 'currencies' and the
| former is worth less.
| lordfrito wrote:
| > _extra interest you need to pay on the money you 'll
| borrow today until you get the full principal back at
| maturity_
|
| Thank you, great concise explanation, lightbulb moment
| for me. I understood it but couldn't clearly communicate
| it.
|
| So to make depositors whole _today_ , you need to borrow
| money _today_ , and the extra interest paid to borrow the
| money is more than the interest you get when the long-
| term bonds finally mature. The difference is the loss.
|
| Which is why they had to take a loss on selling the
| bonds, as it's essentially the same loss. They are out
| money whether they sell the long-term bonds _today_ , or
| if they borrow money _today_. Bonds are discounted
| appropriately by whomever buys them.
|
| Question is, why didn't SVB do anything when they saw
| this coming? I've seen articles saying the board was
| aware of the risk issues for the past year. [1]
|
| [1] https://www.forbes.com/sites/noahbarsky/2023/03/12/si
| licon-v...
| twblalock wrote:
| > If you need to repay the bond's principal now (as SVB
| does)
|
| Not anymore. Now the question is, how does the government
| make depositors whole? I doubt they will go flog the
| bonds on the open market or get loans at market rate like
| idiots. The point of this intervention is to bypass the
| market mechanisms that caused this and put the government
| as a backstop.
| acjacobson wrote:
| Genuine question - why doesn't it matter?
|
| If I buy $1000 worth of bonds at 2% interest rate for 10
| years, my expected return is 1000 * .02 * 10 or $200,
| making the bond worth at maturity $1200. This bond is worth
| $1000 today and will return $200. If the bond price falls
| to $.80 on the dollar or $800 and I am forced to sell today
| to make my depositors whole, now there is a realized loss -
| $200 from the original price and $200 from the eventual
| returns.
|
| If I can wait I have $400 more. If I can't and have to sell
| then I lose $400.
| lordnacho wrote:
| You are absolutely right.
|
| The distinction between insolvency and illiquidity is a
| red herring. People who have to sell their house in
| foreclosure will be discovering the exact thing you are
| describing here.
|
| What's happening here is SVB is big enough that the
| authorities go "aaaaah, wait a second, this could blow up
| a bunch of other businesses and we wouldn't want that".
| And so they are taking the illiquidity interpretation and
| helping out the depositors, but at least they are not
| helping the shareholders.
|
| One thing that may be a bit different in the case of a
| bank is that the general public does not know or consider
| deposits to be a loan to a bank. Which is what it is, but
| people don't think of it this way, and the aren't
| encouraged to either thanks to FDIC and other state level
| guarantees. If we change that by letting the depositors
| lose money, there's going to be chaos.
| jkhdigital wrote:
| Here's the thing: when illiquidity leads to temporary
| insolvency, it's easy to chalk it up to bad luck. SBF
| would probably agree. But an Austrian economist would
| probably argue that no, actually what is happening is
| that market forces have determined that _you made bad
| long-term investments_ and they ought to be liquidated
| sooner rather than later so the economy can shift that
| capital into more productive uses.
| currere wrote:
| You can't just add up future value and current value of
| things. The future value is in future dollars, they are
| different from current dollars. You owe depositors their
| current dollars.
| acjacobson wrote:
| Yes you owe the depositor in current dollars, and that's
| why the bank failed. But I was responding to the parent
| about it not mattering if the bond is held to maturity -
| it does matter.
|
| The problem SVB had is that there was no market buyer for
| their bonds at a price they needed today. They deserve to
| fail for that but that's not the part of the discussion I
| am responding to.
|
| What I am responding to is the idea that there is a myth
| about the value of the bond. Here is what might happen,
| in a very simplified way:
|
| - Depositors need their cash today - SVB can't sell their
| assets to meet this need, and so the bank is fails and is
| dissolved (already happened). Let's make this simple and
| say SVB owes the depositor $1000, can sell for bonds for
| $800 today. If they can have wait the bonds will return
| $1200 later. - The FDIC steps in with all their capital.
| They say ok - depositor here is your $1000 today and you
| are now whole. But we will not sell the SVB bond today to
| cover that $1000, instead we will hold the bond and wait
| for it to mature at $1200. Thus the depositor is whole,
| and over the long term no money is lost.
|
| No regular market participant step in to provide the
| $1000 because they can get a better return on their money
| in other ways. But the government can do this because
| their goal is not maximizing return on capital, but
| instead stabilizing the system.
| suyjuris wrote:
| The government needs to get its money from somewhere. If
| it spends the taxpayers' money, that money cannot be
| spent on other things. So instead of doing things that
| are useful to society, like maintaining roads, the money
| is just sitting there until the bond matures. If it
| creates money out of thin air, the effect is the same,
| except that now every market participant pays (in the
| form of increased inflation). So in either case, the
| losses are socialised.
|
| Of course, you can still argue that stabilising the
| system is worth it.
| barrkel wrote:
| $1000 worth of bonds at 2% simple interest rate returns
| $1200.
|
| The US 10 year treasury interest rate is 3.7% right now.
| That means you can get $1200 in 10 years with $835 today
| at 3.7% compounding; 1200 / 1.037^10 = 834.44 and change.
|
| So your $1000 worth of bonds is actually only worth about
| $835, _at best_ , because that's the market price for a
| (close as possible to) risk-free investment which matches
| the return at maturity.
|
| Inflation is the flip-side of this. You can reasonably
| expect $1200 in 10 years to be worth about what $835 is
| today. It might be less, it might be more, but it's an
| estimation with money behind it.
| mcv wrote:
| > risk-free investment
|
| That's what I don't get. Why are bonds considered risk
| free if their value can drop when interest rates go up?
| Sure, they may be worth $1200 in 10 years, but they're
| only worth $835 now, when they were worth $1000
| yesterday.
|
| Risk may be lower than buying shares in a company at risk
| of bankruptcy, but it's hardly risk free. These things
| can go up and down just like normal share prices.
| jkhdigital wrote:
| There's no default risk, that's all. "Risk-free" only
| refers to the risk of default. Every (fixed-rate) debt
| instrument has unavoidable interest rate risk. And the
| floating rate ones are just transmuting it into default
| risk.
| xmcqdpt2 wrote:
| You are correct, these are two different kind of risks.
| The "risk-free" rate refers to counterparty risk (which
| should be zero when the counterparty has the money
| printer, or can be bailed out by the money printer.)
| unicornmama wrote:
| In your example, the market's saying that $1200 in 10
| years won't have the purchasing power of $1200. And the
| future purchasing power would be closer to $800 than to
| $1000. Consider an alternative world where inflation is
| zero but you paid $1200 for a $1000-par bond.
|
| The important concept here is the time value of money.
| acjacobson wrote:
| The price doesn't fall because the future purchasing
| power falls, the price falls because there are better
| alternatives in the market. No one will pay $1000 for a
| 2% return when they can pay $1000 for a 5% return. Market
| participants will always maximize their return. Bond
| prices adjust to be competitive or equivalent.
|
| But the govt. doesn't have this problem. They don't care
| about maximizing return - they care about containing
| contagion. So they can pay $1000 for a 2% return and not
| still not lose money over the long term.
| unicornmama wrote:
| Inflation strongly determines interest rates. You are
| getting 5% return because inflation expectations are high
| which caused the Fed to raise interest rates. When you
| see 5% risk free, you assume high inflation. The price
| falls because of the risk free rate, which is caused by
| high inflation, which causes drop in purchasing power.
| twblalock wrote:
| This is not how investment losses or returns are
| calculated for accounting purposes, which is what matters
| when we talk about the solvency of a bank.
| RandomLensman wrote:
| Someone has to pay for the cost of lending the money. If the
| aim is to ensure that in the future depositors are always
| safe, then it might be cheaper to offer anyone an account at
| a risk free institution rather than backstop commercial
| banks.
| twblalock wrote:
| Yes but that isn't going to happen before the market opens
| on Monday. This is triage. When there is an emergency you
| solve it and then you have time to think about longer term
| solutions.
| RandomLensman wrote:
| Agreed, but I have severe doubts that we see a longer
| term solution that basically removes deposits from most
| banks - so in the end it will amount to some permanent
| government backstop of all deposits (and it is a
| government backstop because its borrowing ability is
| needed).
|
| It might then need more regulation as to what can be done
| with deposits, how much can be paid on them etc.
| twblalock wrote:
| Obviously the regulations need to change, and frankly bad
| regulation is probably complicit in this whole affair.
| SVB is almost certainly NOT the only bank that invested
| money like this without the government knowing.
|
| What really worries me is that the regulators might have
| seen these investments and not understood they were
| risky. Government bonds are pretty safe, right? Duration
| risk is sneaky and even though it's obvious now, SVB was
| locked in back when rates were super low. Realizing the
| risk anytime after they got locked in is too late!
|
| Applying the same stress tests to all banks regardless of
| the amount of deposits they have would be a good start.
|
| Also, the FDIC insurance limit would be a lot higher than
| $250k if it followed inflation, but even if it did, a lot
| of businesses need to keep a lot of cash around to make
| payroll and float expenses. It doesn't make sense for
| them to have the same type of insurance, and the same
| limits, as an individual person's checking account.
| ru552 wrote:
| The businesses you refer to that need more than $250k in
| an account can purchase additional insurance. Example: I
| work at a financial institution and when we offer a $1m
| CD, the FDIC covers the first $250k and we purchase
| additional insurance to cover the remaining $750k so that
| the entire product is covered.
| samstave wrote:
| Any info on what that policy costs, per $1M
| BlueTemplar wrote:
| Note that we have just seen an even bigger example of
| regulators and <<sophisticated>> investors failing to do
| their job with the FTX collapse...
| jibe wrote:
| _SVB is almost certainly the only bank that invested
| money like this without the government knowing_
|
| Did you mean almost certainly not the only bank that
| invested money like this?
| twblalock wrote:
| Yes, typo, edited the comment.
| RandomLensman wrote:
| Might as well give everyone an account at the Fed instead
| of tinkering around the symptoms. Commercial banks can
| then fund via bonds, CDs, etc., but not deposits (as they
| are inviolable). Basically, have a risky commercial
| banking systems and a riskless payment/checking account
| system.
| hackernewds wrote:
| Not necessarily, the govt is still shopping for a buyer.
| You can looking into Wamu+Chase for a historic example.
| SVB has an even more attractive client base, ripe
| actually for even a rogue nation-state to sabotage.
|
| Note also although TARP was as derided as it was, the
| govt and the public made a fantastic return on their
| investment
| wheelerof4te wrote:
| "So the obvious and sensible thing to do is have the
| government lend money to cover the time until the bonds
| mature, in addition to using the FDIC's money which did not
| come from public funds."
|
| From where do you think this money will, or has come from?
|
| From Yellen's backside?
| xmcqdpt2 wrote:
| From the FDIC's own Insurance Fund, which is paid by fees
| assessed on banks. Ultimately I guess taxpayers pay for
| this because they pay for banking, but it isn't through
| taxes.
| wheelerof4te wrote:
| Trickle down economy at it's finest.
| dangwhy wrote:
| >no ad hominems
|
| >> it will only hurt the people you don't like.
|
| >> people who are dumb enough to let the entire banking
| system collapse
|
| when did gp expresses his dislike for people who banked with
| svb :D
| _rm wrote:
| This isn't grounded in reality. You make it sound like banks
| will just end as an enterprise, and we'll have to go back to
| carrying little bags of silver coins.
|
| Depositors are the absolute last group to lose money in a
| bankrupt bank. When a bank collapses its assets don't just
| disappear, and depositors (and paychecks) get first scoop
| from the pot.
|
| It would be nice if everyone didn't have such hostility
| towards personal responsibility. You _never_ put all your
| eggs in one basket. You diversify where you keep your money.
|
| The government can best help by doing what it does best. Let
| it invest in making bankruptcy courts super efficient. Set up
| automated systems to drip feed payouts to depositors as
| assets are sold.
|
| The "heads you win tails we lose" deal we give to bankers,
| which we don't give to anyone else, is fundamentally evil,
| and we have to stop bowing to their terroristic threats that
| if you don't give us this deal you're all doomed.
| twblalock wrote:
| The important role of banks in our economy is lending,
| funded by deposits. Few businesses can survive, let alone
| get started, without access to credit.
|
| If the banking system collapses most businesses will fail.
| _rm wrote:
| Made up, mostly by bankers, and not grounded in history.
| Bank panics don't mean most businesses fail.
|
| They mean the risky, overleveraged and marginally
| valuable businesses fail, and the conservative, careful,
| and valuable businesses survive and buy up their assets.
|
| It's precisely the interference with this process that's
| exacerbating economic booms and busts in the first place.
|
| Let those who played it safe now have their reward, and
| those who played it risky have their comeuppance - not
| the other way around.
| astrange wrote:
| What does a business being conservative have to do it
| with it being able to handle its bank account suddenly
| disappearing?
|
| Equity holders of three banks just lost all of it - that
| is exactly what you're asking for.
| BadCookie wrote:
| What price are VCs paying for concentrating too much of
| their portfolios into a bank that was careless? No price.
| And that is what is upsetting some people.
|
| The VCs didn't concentrate their money like this for no
| reason. They got some benefit out of it, surely (easier
| access to loans for their portfolio companies, I
| suspect). And VCs are, or should be, sophisticated enough
| to be accountable for concentrating their capital without
| purchasing insurance.
|
| There's no clear way for VCs to pay the price they should
| pay without some startups being collateral damage. I
| think that's the crux of the disagreement about what
| should have been done.
| astrange wrote:
| VC portfolio companies don't need loans; that's what they
| have all that cash for. It's also why SVB had everything
| in treasuries because they couldn't loan it out.
|
| Founders used SVB because of hearing things like how
| regular banks, if they see you have a failed startup in
| your history, might not give you a home loan. (And
| because it was trendy.)
| _rm wrote:
| You've baked the answer into your question. They wouldn't
| have a bank account singular.
|
| In fact nobody recommends holding one bank account, under
| any circumstances. Banks can and do freeze accounts for
| any reason. You _always_ have some backups standing by.
|
| You also don't keep all your assets that way. Businesses
| can hold reserves in stocks or bonds or gold or cash in a
| safe just like everyone else.
| McSwag wrote:
| This is it, and really banking (and any currency for that
| matter) is a make believe system that ONLY works because
| we all believe in it. If that trust is broken or there's
| a panic leading to a banking system collapse, everything
| else will. Like the world will grind to a halt. If people
| stop believing in the currency, our paper monopoly money
| won't be worth shit.
|
| So much of this is built on trust, it's literally the
| government's job to step in and fix this before this
| explodes. Luckily, it sounds like SVB has the assets to
| cover the losses but not liquid so it will take time.
| Also, nobody is getting a bail out. SVB is dead, period.
| Depositors money belongs to them and they should be made
| whole. This could have been so much worse.
| ivanche wrote:
| Actually deposits are funded by lending. Source:
| https://www.bankofengland.co.uk/quarterly-
| bulletin/2014/q1/m...
| wheelerof4te wrote:
| Sounds like a deeply flawed system to me, no?
|
| Almost like some scam? Why should banks have such
| priviledge? Who gave them that?
| _rm wrote:
| We did, by acquiescence.
| wheelerof4te wrote:
| I did not agree to it.
|
| I keep some of my money at the bank because I have to and
| because my employer is paying my salary through a bank
| account. The most of it is at some _safer_ place.
| ekidd wrote:
| If you look at the history of banks, it's clear that
| banks naturally fail whenever a bank run occurs. This
| happens because banks exist to turn liquid deposits into
| long term loans for things like homes.
|
| Liquid deposits at low interest rates are useful. Home
| loans are useful. And banks can bridge the two
| successfully _almost_ all the time. And even when banks
| can 't, the biggest problem is probably panic.
|
| In many countries, the solution has been to transfer the
| tail risk from bank _depositors_ (not owners) to the
| state. The state then reduces this risk by regulating
| banks heavily, and by requiring them to pay into an
| insurance fund.
|
| I am not a libertarian. I support the idea of government
| as a regulator and an insurer of last resort. I am 100%
| aware that banks can only exist because the government
| holds the tail risk.
|
| I think that wiping out SVB's shareholders and unsecured
| creditors was the right move. If we can claw back some
| executive bonuses or recent insider stock sales, all the
| better. However, I also think that making depositors
| whole is the right move in this case, because lots of
| banks own long term T bills and mortgages locked in at
| low rates, making them vulnerable to bank runs. Our best
| chance of fixing the situation is to prevent short-term
| contagion and then to change the regulations on banks to
| eliminate this risk in the future.
|
| But yeah, I think banks are a useful fiction created by
| state regulation and state-mandated insurance. If we no
| longer want to provide that particular economic fiction,
| then I would prefer voters to elect people who figure out
| an orderly plan to wind down banks, rather than just
| letting the system implode.
|
| (Full disclosure: Neither me nor my employer has money in
| SVB. But my paycheck is handled by Rippling, which passed
| funds through SVB in the process. _Had_ my paycheck been
| paid last Friday, it would have been held to at least
| Monday.)
| sneak wrote:
| We also give it to sports teams, private enterprises which
| receive huge amounts of free advertising and discounted
| real estate, and huge subsidies for same, from public
| coffers.
|
| No explanation other than "this is the way things are
| done".
| zopa wrote:
| > The "heads you win tails we lose" deal we give to
| bankers, which we don't give to anyone else, is
| fundamentally evil, and we have to stop bowing to their
| terroristic threats that if you don't give us this deal
| you're all doomed.
|
| That's not what's happening here. The bankers -- investors
| in SVB -- are getting wiped out. The FDIC is protecting
| people and companies with accounts at the bank, not the
| bank itself.
| betteryet wrote:
| They did let the bank fail. The bankers lost any wealth
| that was tied to ownership of the bank. Of course, a bunch
| of them sold shares as they saw the end near, but that's
| something the SEC should prosecute as insider trading.
|
| They're saving customers to a large extent, who could have
| done more diligence when choosing a bank, you could argue.
| But they still feel pain going through this process. And
| not saving them would have worse consequences for the
| entire system.
| _rm wrote:
| Pain is important. It teaches you to be more careful.
| Lionga wrote:
| Oh sweet summer child.
|
| The bankers sold most of the shares before it happened,
| because they knew it was coming.
| unmole wrote:
| Do you know what a Rule 10b5-1 plan is?
| Lionga wrote:
| I do, thank you very much!
|
| Just shows that they knew even early SVB was fucked. I
| meant it was clear SVB was fucked since JPOW raised rates
| and SVB had dog shit assets on their HTM.
|
| But instead of doing something they kept it afloat until
| they sold their shares which took about month to let it
| fail after they cashed out.
| unmole wrote:
| > Just shows that they knew even early SVB was fucked.
|
| Right, that is the only reason why an insider would ever
| sell stock.
|
| Here's the CEO's latest Form 4: https://www.sec.gov/Archi
| ves/edgar/data/719739/0001562180230...
|
| He exercised stock options to keep his ownership roughly
| the same at about 26 Million USD. Wonder why he didn't
| cash that out.
|
| > But instead of doing something they kept it afloat
| until they sold their shares which took about month to
| let it fail after they cashed
|
| What should they have done? How did they manage to keep
| aflot? Why did they stop?
| unmole wrote:
| > Of course, a bunch of them sold shares as they saw the
| end near
|
| Insiders file 10b5-1 plans with their brokers well in
| advance to automate the sale of their stock. It's very
| unlikely that the sales had anything to do with recent
| events.
| 542458 wrote:
| There are lots and lots of ways to use 10b5-1 plans and
| still trade on insider information, I.e., selective
| cancellation or trading on longer-term insider info.
| unmole wrote:
| In this particular instance, the CEO had ~26 million
| dollars worth of shares wiped out.
| cypherpunks01 wrote:
| In this case, 30 days in advance. So it's much more like
| a transaction delayed by a few weeks, rather than one
| planned months/years in advance with no knowledge of how
| stock price will perform in the future.
| wiz21c wrote:
| > They're saving customers
|
| No, they use taxpayer's money to save taxpayers.
|
| I'm fine with that as soon as we save taxpayer's money
| and punish those who triggered the accident and replace
| them by people who are paid by taxpayers money, under
| direct control of the state.
| astrange wrote:
| All banks are under control of the state via bank
| regulators. And those bank execs just lost their jobs
| when the banks stopped existing, so you got that.
|
| There is no sensible reason to want the state to own
| every bank; that means you're accepting a silly amount of
| risk and not diversifying your investments. What you want
| is a social wealth fund, not owning a random industry you
| don't like.
| ndespres wrote:
| >> And those bank execs just lost their jobs when the
| banks stopped existing, so you got that.
|
| SVB's CFO was previously the CFO at Lehman, so whether he
| still has his job today seems to have no impact on
| whether the revolving door will continue to open for him
| or anyone else there.
| sokoloff wrote:
| Plenty of bankers are losing in this deal. Banking
| depositors are not.
| yonifei wrote:
| > "The FDIC is not supported by public funds; member banks'
| insurance dues are its primary source of funding. When dues
| and the proceeds of bank liquidations are insufficient, it
| can borrow from the federal government, or issue debt through
| the Federal Financing Bank on terms that the bank decides."
|
| If you're trying to say "look, 'taxpayer' isn't mentioned,
| all good", you're either in self-delusion or you're playing
| dumb. It doesn't matter how you dress it - "taxpayer money",
| QE, Sammy's piggybank - the inflationary repercussions will
| affect everyone.
|
| > On top of that, SVB has the money to pay back almost all of
| the depositors. They just don't have it liquid right now
| because it's in bonds that won't mature for a while and would
| need to be sold for a loss.
|
| This is a self-contradiction, yet it's written as an
| explanation. Bravo.
|
| > You can vote for people who are dumb enough to let the
| entire banking system collapse because they want to hurt rich
| people. But of course that would probably put "peasants" out
| of work while the rich get slightly less rich.
|
| This isn't about "hurting rich people", you can throw away
| that straw man (along with the twitter favorite "it's not a
| _bailout_ , the bank equity goes to zero!"). It's about the
| response to a complex system's failure. Most would agree
| injecting liquidity ASAP is mandatory in the short-term, but
| that does not mandate insuring 100% of deposits. Any sort of
| response has negative repercussions, but it isn't a matter of
| fact that the banking system would collapse otherwise.
|
| Nobody has "the answers", it's a complex system. The VC tech
| bro take draws a line in the sand and cries wolf for any
| approach that doesn't cover them 100%, and it's done under
| the guise of looking out for others; "the workers", "the
| banking system", "the economy", "a generation of
| technological progress evaporated".
|
| Is it possible that the best thing to do for the long-term is
| to allow a worse short-term outcome (affecting a small part
| of the economy more drastically), so that the system is
| altered in a way that actually fixes/improves it? Even if we
| grant that hypothetical, should it be done? It's a complex
| question with no right answer.
|
| The VC tech bro take on technological advancements that have
| negative short-term side effects, wiping industries and
| causing people to lose jobs usually falls in the range of
| "learn to code" to "that sucks, but we must march forward".
| There is a poignant sense of hypocrisy when grandstanding
| holier-than-thou "technologists" who claim in abstract that
| progress and efficiency trump all, find themselves on the
| other side and act oh so predictably.
|
| The cynical responders aren't partaking in the question of
| "what is the correct response", but just because they don't
| gobble up the predictable VC tech bro take as gospel doesn't
| make them dumb.
| xorfish wrote:
| > So the obvious and sensible thing to do is have the
| government lend money to cover the time until the bonds
| mature, in addition to using the FDIC's money which did not
| come from public funds.
|
| The cost of the loans should be in the same ballpark as the
| losses on the long term bonds.
| twblalock wrote:
| > The cost of the loans should be in the same ballpark as
| the losses on the long term bonds.
|
| That's great, that means it's zero, because there is no
| loss of principal on bonds held to maturity!
| [deleted]
| xorfish wrote:
| No, that is not true.
|
| Selling the bonds now at their current valuation or
| taking on debt and hold them to maturity lead to roughly
| equivalent outcomes.
|
| The MtM losses are real.
| DebtDeflation wrote:
| >Selling the bonds now at their current valuation or
| taking on debt and hold them to maturity lead to roughly
| equivalent outcomes.
|
| Correct. This is literally why bond prices move inversely
| to changes in interest rates.
|
| The people criticizing you here are ignoring carrying
| costs (which are fundamental to finance math) and
| assuming that default risk is the only form of risk
| (which is obviously false).
| twblalock wrote:
| No matter how many times you say this it's not going to
| be true. If you hold bonds to maturity you get the
| principal back. If you sell them at market rates you
| don't. Those are _different_ outcomes.
|
| Nobody is talking about taking on debt at market rates to
| float the bonds. The bank died because it couldn't do
| that and couldn't raise capital in other ways either. Now
| we are talking about the government backstopping things,
| which is a whole different ballgame.
| rvnx wrote:
| Also let's not forget that the customers profited from
| the interests paid by the bonds.
|
| If SVB was paying 4.50% (as they claim on their website),
| then even if the customer takes a 5% loss, it would be
| only a 0.50% realised loss.
|
| I genuinely don't understand why the regulator doesn't
| push for that unless there is some "lobbying" involved.
| RandomLensman wrote:
| If you need money now and not in the future, there is
| cost. The fact that the principal gets paid at maturity
| is irrelevant - a risky bond does have interest rate
| sensitivity, too.
| xmcqdpt2 wrote:
| Of course, that's why SVB failed. But the FDIC doesn't
| need the money now (well assuming they successfully stop
| the dominos from falling).
| RandomLensman wrote:
| I would have thought that the deposits will leave
| SVB/what is left of SVB pretty soon, so the FDIC will
| need to cover that rather now than in the far future.
| ElevenLathe wrote:
| The point of doing this is that the deposits hopefully
| won't feel the need to leave. After all, the BoA account
| you were planning to move them to doesn't have a public
| letter from the Treasury Secretary saying it's insured to
| no limit by the FDIC.
| xorfish wrote:
| You still have to pay the interest on the loan.
|
| If your bond 10y bond you bought two years ago pays 1.5%
| and you need to take on a loan at 3.5% for 8 years to be
| liquid, then you are still around 16% in the red. You
| will find that this is also roughly what the market will
| discount the bonds.
| twblalock wrote:
| The loans we are talking about are from the government
| and don't need to stick to market rates if the government
| doesn't want them to.
| kgwgk wrote:
| Having the government give zero-interest loans doesn't
| quite satisfy the "won't cost anything to taxpayers"
| part, does it?
| twblalock wrote:
| Depends on where they get the money. The FDIC doesn't
| take public money at all. The Fed can create money in
| various ways.
| kgwgk wrote:
| You're the one who said "The loans we are talking about
| are from the government and don't need to stick to market
| rates if the government doesn't want them to."
| twblalock wrote:
| Yes, and? What did I say that contradicted that
| statement, and what is wrong with that statement?
| kgwgk wrote:
| I'm lost. The FDIC doesn't take public money but it will
| receive loans from the government?
|
| If you mean that the Fed will give an zero-interest loan
| with the bond as collateral that's the same as just
| buying it right away at par and eat the loss.
|
| Put otherwise, the Fed lends money at almost 5% now. If
| it does it at 0% it will be earning less than if it was
| done at the proper rate.
|
| In either case, the treasury will get less money in the
| end. That looks like costing money to the taxpayers.
| samstave wrote:
| Doesnt the Fed receive interest on bonds/money 'loaned to
| the government' - but any profits are then sent to the
| Treasury?
|
| So if the taxpayers are paying interest to the fed, who
| then feeds those profits back to the trasury, and the
| treasury uses that money for scenarios such as this -
| doesnt that automatically mean the treasury/FDIC is using
| BOTH public taxpayer money (laundered through the fed
| back to the treasury) AND the bank payments to the FDIC
| in order to cover that?
|
| Are these two separate piles of money - and they will not
| take from the "profits" the Fed made on taxpayer debt on
| money printed by the Fed to the USG, but _only_ from the
| FDIC fund that the banks pay fees to?
|
| Something always feels 'fishy' when you dont have a deep
| grasp of the structure... so, please ELI5?
| jkhdigital wrote:
| And where does the government get the money to lend to
| the bank? Right, it issues Treasury debt for which it
| pays a market-determined rate of interest. In other
| words, taxpayers would be subsidizing any below-market
| rate loans.
| twblalock wrote:
| The FDIC also has lots of money, and got none of it from
| taxpayers.
| samstave wrote:
| Doesnt the Fed receive interest on bonds/money 'loaned to
| the government' - but any profits are then sent to the
| Treasury?
|
| So if the taxpayers are paying interest to the fed, who
| then feeds those profits back to the trasury, and the
| treasury uses that money for scenarios such as this -
| doesnt that automatically mean the treasury/FDIC is using
| BOTH public taxpayer money (laundered through the fed
| back to the treasury) AND the bank payments to the FDIC
| in order to cover that?
|
| Are these two separate piles of money - and they will not
| take from the "profits" the Fed made on taxpayer debt on
| money printed by the Fed to the USG, but only from the
| FDIC fund that the banks pay fees to?
|
| Something always feels 'fishy' when you dont have a deep
| grasp of the structure... so, please ELI5?
| [deleted]
| kgwgk wrote:
| > On top of that, SVB has the money to pay back almost all of
| the depositors. They just don't have it liquid right now
| because it's in bonds that won't mature for a while and would
| need to be sold for a loss.
|
| Imagine another bank BVS of similar size that didn't quite
| have the money. It has lost part of it in monkey NFTs or
| whatever. They have a loss similar to the mark-to-market loss
| of SVB.
|
| Can they buy the same bonds that SVB has to patch the hole in
| their balance sheet? Can they then say "we have the money, we
| just don't have it liquid right now because it's in bonds
| that won't mature for a while "?
|
| If not, why not? Both banks would have the same assets.
| unmole wrote:
| > If not, why not? Both banks would have the same assets.
|
| Unlike _NFTs or whatever_ , the bonds held to maturity will
| pay out the full amount.
| dtech wrote:
| Say the 1% 10y $100 bond is now worth $80 and there are
| now 5% bonds available. Say the monkey NFT is down from
| $100 to $80. The monkey NFT could be sold and 5% bonds
| could be bought, which will also pay out >$100
| eventually.
| kgwgk wrote:
| The second bank has just bought - because it has enough
| money to do so selling its NFT or whatever - the same
| bonds that SVB has.
|
| There is no difference at all between the assets of
| liabilities and the two banks in this example. I don't
| mean just that the amounts are the same: every asset is
| identical.
|
| Can both use the "I have the money but just not right
| now" excuse or not?
| unmole wrote:
| > every asset is identical.
|
| You lost me there.
|
| > Can both use the "I have the money but just not right
| now" excuse or not?
|
| No.
| kgwgk wrote:
| Bank 1 starts with $1000 in t-bills and $1000 in t-bonds
| (face value $1000)
|
| The bonds lose 20% (for simplicity the t-bills gain 0%)
|
| Bank 1 ends with $1000 in t-bills and $800 in t-bonds
| (face value $1000)
|
| According to some people Bank 1 can say "I have $2000
| it's just that I don't have them right now"
|
| Bank 2 starts with $1800 in t-bills and $200 in NFTs
|
| In the same period the NFTs lose 100%
|
| Bank 2 still has $1800 in t-bills, sells $800 and buys
| $800 of those t-bonds which are trading at a 20% discount
| to par
|
| Bank 2 ends with $1000 in t-bills and $800 in t-bonds
| (face value $1000)
|
| Bank 1 and Bank 2 are in the same exact situation
|
| Bank 1 can say "I have $2000 it's just that I don't have
| them right now" but Bank 2 cannot do the same?
| unyttigfjelltol wrote:
| > Can they buy the same bonds that SVB has to patch the
| hole in their balance sheet?
|
| Unfortunately, in related news, the answer is 'yes', from
| the new BTFP.[1] I wouldn't say this is _wrong_ but it does
| seem like the kind of bazooka-brandishing that makes
| financial-folk panic still more.
|
| [1] https://twitter.com/BenEisen/status/1635061019629289472
| kgwgk wrote:
| I don't thing those loans would be very useful for the
| bank that buys discounted debt in that example. Being
| able to borrow with "bad" collateral is nice but the main
| selling-point is not needing to recognize losses. If you
| don't have unrealized loses to hide it doesn't help much.
| roenxi wrote:
| > You are better off because the government is helping
|
| If they believe they are helping, why does the response
| always emerge suddenly on the day of the crisis with no
| debate or well explained contingency plan being activated?
|
| The whole system seems to be built on one group revealing a
| sudden crisis that have obviously been building for a while.
| Then another group of people explaining that they have a
| plan, there is no time to explain, no need to explain and the
| objections are all mean-spirited fools who don't understand
| the plan. The plan which will be clearly explained sooner or
| later.
|
| They're acting like people running a scam. None of these
| crisises are that surprising. Raising interest rates were
| likely to lead to this sort of fireworks display at some
| point in the short term. If the panic is genuine they should
| all be removed on the basis that they can't spot a tree in a
| forest. This has to be a long-planned contingency.
|
| > You can't let the banking system collapse and expect it
| will only hurt the people you don't like.
|
| The hurt happened a while ago now; banking collapses are the
| market recognising that it was mistaken about actions that it
| thought were wealth-creating but turned out not to be. This
| isn't a question of trying to "hurt" rich people, whatever
| that means. This is about concentrating the pain on people
| with skin in the game.
|
| If people with skin in the game eat the losses, losses will
| happen less often. If the losses are diffuse, then losses
| happen more often. They're trying to cover up for
| incompetents because they meet them at parties, go to the
| same schools and have the same friends. And invest in similar
| assets, one suspects.
| twblalock wrote:
| > If they believe they are helping, why does the response
| always emerge suddenly on the day of the crisis with no
| debate or well explained contingency plan being activated?
|
| Because that is what a crisis is, and it's how crisis
| response works!
|
| > This has to be a long-planned contingency.
|
| You can believe that this was a long-running conspiracy or
| you can believe that the people involved are incompetent
| screwups, but how can you believe both? Someone would have
| talked.
|
| Do you honestly believe that people with "skin in the game"
| aren't being hurt by this? SVB shareholders lost
| everything.
|
| Do you also honestly believe that you can restrict the
| fallout of a banking system failure only to those who
| caused it?
| roenxi wrote:
| > Because that is what a crisis is, and it's how crisis
| response works!
|
| That isn't how regulators deal with crises. Governments
| either execute long-agreed plans or flounder for months
| before organising to do something half-useful. The
| financial regulators are unusual in that they seem to
| struggle with the idea of publicising their plans ahead
| of the event.
|
| > how can you believe both?
|
| It is pretty normal. One of the reasons a democracy
| usually does so well is it turns out that the ruling
| classes in non-democratic nations are both incompetent
| screw-ups and busy conspiring to keep themselves in
| power. Then the competition from more evidence-based
| leadership in a democracy outmanoeuvres them.
|
| The system is supposed to purge itself when there is
| evidence that the powerful are making big mistakes.
| Instead we get people who believe "protecting the system"
| is a good in itself being given a printing press and
| being told that they can do whatever they need to do.
| Nobody is talking about printing money yet, but it is the
| US's response to almost literally every crisis these days
| so I assume it is coming.
|
| > Do you also honestly believe that you can restrict the
| fallout of a banking system failure only to those who
| caused it?
|
| No. Which is why it should have been allowed to fail
| 10-20 years ago when the damage would have been smaller.
| Low interest rates and easy money is building up bad
| habits and large points of failure.
| wheelerof4te wrote:
| "Nobody is talking about printing money yet, but it is
| the US's response to almost literally every crisis these
| days so I assume it is coming."
|
| Printing money is how the US finances everything. If USD
| wasn't the reserve currency backed by US war machine, the
| entire country would have imploded some decades ago.
| MarcoZavala wrote:
| [dead]
| xmcqdpt2 wrote:
| > If they believe they are helping, why does the response
| always emerge suddenly on the day of the crisis with no
| debate or well explained contingency plan being activated?
|
| I'm not sure what you mean. The FDIC is the contingency
| plan to bank failure. The response involves the FDIC taking
| banks in receivership and then paying back depositors.
|
| The debate was hashed out in 1933 when the FDIC was created
| and has continued since. See here,
|
| https://www.fdic.gov/about/history/
|
| It's like other emergency government responses: there is
| autonomy built into the agencies because it's understood
| that being able to act swiftly is required, and that
| democracy can happen after the fact. FEMA doesn't hold
| votes on whether relief somewhere is required, the
| president can command military force without acts of
| congress in some cases etc.
|
| I personally think it's debatable whether the gigantic
| nation states with representative democracies that we have
| now are the best possible system. But in this particular
| case the FDIC is pretty much acting as it was chartered to.
| [deleted]
| p0pcult wrote:
| >You are better off because the government is helping, and so
| are all of the people in the country who need to work for a
| living and need companies to work for. You can't let the
| banking system collapse and expect it will only hurt the
| people you don't like.
|
| The only problem with this line is that a _ton_ of people on
| here are explicitly against social safety nets. Now that they
| need one, all kinds of equivocation and hand waving.
|
| Safety nets for all (or none)! FWIW, I prefer the former.
| DebtDeflation wrote:
| >If these statements are true, can someone explain how it's
| possible that despositors are fully protected, far beyond what
| FDIC insures, without the taxpayer bearing any of the burden?
|
| The shareholders already lost everything and unsecured
| creditors are about to lose everything. That's still not enough
| to make all depositors whole though, which is why the statement
| said the FDIC will be paying for the rest and funding that
| payment by "a special assessment on banks". Therefore, the
| simple answer to your question is "all other FDIC insured
| banks, rather than the taxpayers, are picking up the tab here".
| [deleted]
| karmelapple wrote:
| Do we know for sure that there's not enough to make all
| depositors whole, all assets considered? Or is it just that
| they can't quickly liquidate things to get to the total?
|
| I had read a summary of a Kleiner Perkins analysis recently
| that said the total assets they hold, some of which are those
| awful-yielding instruments they're locked into for 10 years,
| covers their assets. But since some of those instruments
| cannot be liquidated anywhere close to quickly, the FDIC will
| just need to hold onto those for awhile and front money for
| the bank in the short term.
|
| Of course, who knows if that analysis or the summary of it is
| correct.
| [deleted]
| epups wrote:
| Companies making payroll or not is where the general public's
| skin in the game comes from. We can let them fail by crossing
| our arms, but this would lead to mass layoffs and financial
| turmoil as otherwise healthy companies have to shut doors due
| to this bank's mistakes. This would then also likely lead to a
| huge bank run, as most other companies realize they have to
| diversify their accounts and start scrambling to divert money
| at the same time.
|
| I would also like to add that the vast majority of people
| losing their money were not betting on a risky asset. They
| merely had bank accounts with an institution that was
| mismanaged. We are not bailing out risk-takers like we did in
| 2008.
| thesimon wrote:
| > I would also like to add that the vast majority of people
| losing their money were not betting on a risky asset
|
| But keeping all your money in one bank is surely a huge,
| obvious risk?
| epups wrote:
| I think you are referring to the $250k limit. It's not very
| practical for companies to diversify according to that
| limit. Apple has 50 billion in reserves, do you think they
| can find 200 thousand banks to spread that around?
| JamesDough wrote:
| If you have 50 billion in reserves, isn't it easier (and
| possibly cheaper) to have your own bank? Maybe someone
| can chime in why that isn't feasible.
| tetrahedr0n wrote:
| > Apple has 50 billion in reserves, do you think they can
| find 200 thousand banks to spread that around?
|
| Good question and of course, that's not likely. But then
| 50B in reserves isn't something you keep in a bank
| account, it's something you have rolled into several
| different financial instruments with varying levels of
| available liquidity.
| creato wrote:
| > it's something you have rolled into several different
| financial instruments with varying levels of available
| liquidity.
|
| Like... SVB
| epups wrote:
| Certainly, but what should be clear here is that we are
| not rescuing a failed investment. We are not giving out
| money to those who lost on crypto or whatever other risky
| asset. People are getting furious because they think
| something analogous to that is actually happening, when
| in fact all those companies are not at fault and did not
| benefit from SVB's suboptimal resource allocation.
| [deleted]
| logifail wrote:
| > mass layoffs and financial turmoil as otherwise healthy
| companies have to shut doors due to this bank's mistakes
|
| Perhaps I'm missing something, but I would suggest that one
| key aspect of a company being able to call itself healthy is
| that its finances are diversified.
| jonhohle wrote:
| Is it feasible to keep active cash flow spread across
| multiple financial institutions? (Honest question)
|
| Being insured for $250k is payroll for about 10 people for
| a month. If your other funds were in a line of credit that
| abruptly closed or in equities that may not be worth as
| much when everyone shows up on Monday, what options are
| there?
| bruce343434 wrote:
| 25k a month for salary? I'd love to work at your place!
| thallium205 wrote:
| That would average around 225K/yr salary after payroll
| tax. With retirement, health, etc benefits it's closer to
| reality for an engineering salary than you think.
| logifail wrote:
| > closer to reality for an engineering salary
|
| Never mind engineering, how much are SV startups paying
| their corporate finance and corporate treasury officers?
|
| Not enough, perhaps.
| thallium205 wrote:
| The entire banking system was about to be revealed as a
| total clown show scam (that it is) if they weren't going
| to step in here. How do you expect an SVB company to run
| payroll for more than 10 or so employees in a risk free
| way? How about 100 employees? If you can't even ensure a
| tiny company can do that without losing everything and
| folding then you have problems with your banking system
| that are wayyyy more serious. This epiphany was going to
| happen in an extraordinary way today if they didn't
| restore confidence in the (very broken) system.
| logifail wrote:
| > The entire banking system was about to be revealed as a
| total clown show scam (that it is) if they weren't going
| to step in here.
|
| It's fairly simple:
|
| When things are going well, entrepreneurs want the state
| and its oh-so-tiresome regulation to get out of their
| way.
|
| Then, when things don't go well, it's those very same
| entrepreneurs who claim it's necessary for the state to
| step in and save everyone.
|
| https://twitter.com/BillAckman/ is quite the read at the
| moment.
| thallium205 wrote:
| A 10 person company shouldn't need a "treasury
| management" strategy in a functional banking environment.
| logifail wrote:
| > A 10 person company [..]
|
| Newsflash: there are plenty of places, and plenty of
| sectors, where a 10-person company hasn't got anywhere
| near enough cash on deposit to reach the local deposit
| guarantee limit.
| jonhohle wrote:
| These are SV companies plus payroll costs 1.25-1.5x
| employee salary (benefits, taxes, and insurance don't
| appear out of thin air).
| bruce343434 wrote:
| "Worst case" that's still 16.66K per month. Sign me up!
| jonhohle wrote:
| I'd say, go look for a job in the Bat Area, except, that
| might not be such a good idea right now ;-) that's not
| out of line for an engineering salary there.
|
| (The trick is, get one of those companies to pay you Bay
| Area rates while you live in a much lower cost of living
| area working remotely!)
| hackernewds wrote:
| I would consider myself a reasonably sophisticated
| financial advisor. however, within thousands of pages of
| SEC disclosures and fine print, I have not the time nor the
| resources nor the skill sets to do due diligence on a
| bank's daily operations.
|
| I just consider that my zero yielding no interest deposits
| (not investments) are safe and in a competent banking
| system this should be a fair assumption, should it not?
| especially for a bank that wasnt investing in subprime
| mortgage loans or car loans, they literally got punished
| for investing in long-term US treasuries!
|
| a fair financial system should be afforded for everybody,
| and the idea that they should only be presented for the
| poor seems baffling
| logifail wrote:
| > thousands of pages of SEC disclosures and fine print, I
| have not the time nor the resources nor the skill sets to
| do due diligence on a bank's daily operations
|
| The FDIC deposit insurance limit isn't hidden away in
| disclosures or in any fine print.
| tomhoward wrote:
| This just indicates that the $250K insured threshold
| makes no sense these days for corporate bank accounts.
|
| It makes no sense for every business owner (and a
| business doesn't have to be very big to have more than
| $250K in the bank) to have to spread their funds across
| multiple banks and do ongoing due diligence across each
| bank's investment activities.
|
| We're talking about farmers, used car dealerships,
| builders, and countless other kinds of businesses who
| would suddenly be expected to develop an aptitude for
| financial hedging and risk assessment. It would be
| incredibly inefficient and make it not worthwhile for
| many people to be in business at all.
|
| The whole point of a regulated financial system is that
| regular depositors can expect that if the regulations are
| being met and the regulators are verifying that the banks
| are in good shape, you can trust that your funds will be
| safe.
|
| The right response to this situation is to change the
| guaranteed limit for corporate bank accounts, and, sure,
| increase the fees that banks (and indirectly, corporate
| banking customers) pay for that. The wrong response would
| be to tank the entire banking system to stick it to the
| tech bros.
| logifail wrote:
| > This just indicates that the $250K insured threshold
| makes no sense these days for corporate bank accounts.
|
| Maybe ... or it might indicate that US tech workers with
| their generous salaries, and tech startups with their
| decade of access to cheap money, have no actual idea what
| a small business in the rest of the world actually looks
| like.
|
| "The median small business holds an average daily cash
| balance of $12,100, with wide variation across and within
| industries" (from 2016) [0]
|
| [0]
| https://www.jpmorganchase.com/institute/research/small-
| busin...
| epups wrote:
| In the link you provide, you can see that most median
| small businesses hold an average of ~30 days of cash
| buffer. This would already put them over the $250k
| threshold.
| tomhoward wrote:
| > US tech workers with their generous salaries
|
| Language like this suggests your primary concern is
| punishing tech bros for having too much money.
|
| I'm happy to have a conversation about the excesses to
| tech industry funding rounds and salaries. I'd probably
| mostly agree with you.
|
| The solution is not to evaporate their bank accounts for
| reasons that have nothing to do with the merits of their
| work and are almost entirely due to the economic
| instability continuing to play out since the pandemic
| started.
|
| For a start, there'd be nothing moral about it
| whatsoever, and more importantly, it would affect
| countless low-income people, just as much or more than
| rich tech bros.
| logifail wrote:
| > Language like this suggests your primary concern is
| punishing tech bros for having too much money
|
| It really isn't.
|
| My hypothesis is that when things go bad, the poorer in
| society get thrown under the bus, yet the weathier get
| bailed out. What's happened in the last few days appears
| to be yet another data point in support of that
| hypothesis.
|
| > The solution is not to evaporate their bank accounts
| for reasons that have nothing to do with the merits of
| their work and are almost entirely due to the economic
| instability continuing to play out since the pandemic
| started.
|
| Millions lost their homes during the 2007/08 financial
| crisis[0][1], did that have anything to do with merit, or
| was it (to use your phrase) "almost entirely due to the
| economic instability" caused by excesses on Wall Street?
|
| [0] https://www.marketplace.org/2018/12/17/what-we-
| learned-housi... [1] https://www.investopedia.com/article
| s/economics/09/financial...
| logifail wrote:
| > The right response to this situation is to change the
| guaranteed limit for corporate bank accounts, and, sure,
| increase the fees that banks (and indirectly, corporate
| banking customers) pay for that
|
| "We demand more regulation", not something you'd
| typically hear from the US tech sector.
|
| I can't help think about the moral hazard aspect of this
| mess.
| tomhoward wrote:
| Sam Altman literally called for more regulation on
| banking (and also AI) today, though I think may be
| misplaced and self-serving.
|
| The regulation of SVB doesn't seem to have been
| particularly lacking. The shortfall is not very large and
| should be covered by asset sales and some fairly small
| industry levies.
|
| What exactly is the moral hazard here?
|
| The executives and investors should lose everything. That
| will send the right signal to other bank execs and
| investors. And regulators should make some minor changes
| to balance sheet requirements and perhaps insurance
| thresholds/charges.
|
| What do we expect corporate depositors to learn, aside
| from that their deposits are never safe, which would
| crash the whole banking system?
|
| I share your concern about moral hazard. What I think
| you're doing is letting your desire of an idealized
| outcome eclipse consideration of the least-worst workable
| outcome, which is realistically all we can hope for.
| logifail wrote:
| > The regulation of SVB doesn't seem to have been
| particularly lacking. The shortfall is not very large and
| should be covered by asset sales and some fairly small
| industry levies. What exactly is the moral hazard here?
|
| If regulation wasn't lacking, the shortfall isn't large,
| and (I paraphase) SVB and the sector can sort itself out,
| why would Yellen and POTUS need to hold press
| conferences?
|
| If you hold cash in a bank and your balance exceeds the
| FDIC insurance limit, it's at some risk. This isn't new,
| yet seems to have come as a complete surprise to a whole
| bunch of people, many of whom really should have known
| better.
|
| They've been loudly demanding a bailout for having been
| on the wrong end of their risky decision. Isn't that
| pretty much the definition of moral hazard?
| zopa wrote:
| > If these statements are true, can someone explain how it's
| possible that despositors are fully protected, far beyond what
| FDIC insures, without the taxpayer bearing any of the burden?
|
| No one can tell you what will happen because to my knowledge
| the FDIC hasn't told us yet. They may not have settled on a
| final outcome yet -- there may be multiple options still live
| -- finding a buyer for the assets of the bank, for instance.
| All this statement is saying is that they've verified that even
| in the worst case, the resources exist to make the depositors.
| whole.
|
| Meanwhile,'bullshit' is a strong claim. And I'm not going to
| fight you on the trustworthiness of government officials in
| general. But someone who's been at this as long as Yellen isn't
| going to blow the Treasury Department's credibility on a dumb,
| easily-discovered, get-you-through-the-day-and-then-fall-to-
| pieces sort of lie.
| A4ET8a8uTh0 wrote:
| I disagree with this non-bailout bailout, but I can somewhat
| easily generate one such response without even engaging my
| brain. As a member of this society, you, by default, have skin
| in the game. If you do not want to see a run on more banks as a
| result of wide-spread panic that would effectively undermine
| the entire system and result in unpredictable chaos ( as
| opposed to predictable anger that can be managed ), then the
| choice seems relatively simple. Unless, naturally, one does not
| want to enjoy relative stability.
| eru wrote:
| It's not so simple.
|
| More bailouts now, lead to riskier behaviour in the future.
| sebzim4500 wrote:
| How does making depositors whole encourage banks to take
| more risks? The investors in SVB are still getting nothing.
| ok_dad wrote:
| Those who took the risks are losing their shirts: the
| shareholders and debtors of SVB and its executive staff.
| Lionga wrote:
| Any accountholder at SVB is a debitor to SVB. They are
| getting the bailout, while they clearly took the risk for
| anything above 250K
| sokoloff wrote:
| > Any accountholder at SVB is a debitor to SVB.
|
| One with deposits in the bank is a creditor. One with a
| loan from the bank is a debtor/debitor.
| eru wrote:
| It's a shame that we are trying to shield depositors from
| all risks.
|
| It's better to have more people watching out for danger.
| justsayinstuff wrote:
| Are the executives really losing their shirts? Their
| bonuses better be clawed back.
| edanm wrote:
| On the other hand, not trusting banks with your deposits
| causes less people to use the banking system, which is also
| (presumably) bad.
| eru wrote:
| People used Scottish banks just fine during the Scottish
| free banking era.
| A4ET8a8uTh0 wrote:
| I guess what I am really saying between Yellen's carefully
| worded statement and Summer's hand wringing about
| 'contagion/extinction/whathaveyou' event and is that this
| action is very easy to defend on merits despite being very
| unpopular. I would hate to have to make this decision and I
| remember being pissed off in 2008 ( while technically being
| an indirect beneficiary of that policy ).
|
| But even your counter can be addressed. Future risk is
| something that can be addressed once SVB is stablized and
| contagion contained. On the other hand, unrest following
| multiple startup blowup is a lot less predictable.
|
| The question becomes: which risk is worse ( potential risky
| behavior later vs contagion now ). Immediate risk seems
| worse to Yellen and her friends. I personally disagree, but
| I have no power over those decisions so I can relatively
| easily rely on principle. I wish I could claim I would do
| differently were I in her shoes.
| eru wrote:
| > Future risk is something that can be addressed once SVB
| is stablized and contagion contained. On the other hand,
| unrest following multiple startup blowup is a lot less
| predictable.
|
| We had exactly the same arguments during the last
| bailouts. The future of back then is today.
| hdhuegau6hfhd wrote:
| [dead]
| A4ET8a8uTh0 wrote:
| And things were addressed. And they worked.. until the
| restrictions that followed 2008 were lifted.
| pmontra wrote:
| It seems that the risky behavior was buying low rate bonds
| when inflation was low. Is the lesson to learn buy bonds
| only when inflation is high and rates are high?
| tlb wrote:
| Short-term bonds have low risk. Long-term bonds are
| volatile and can go up or down opposite interest rates.
| SVB made a huge bet on interest rates not going up, and
| lost. In an alternate world where interest rates went
| back to zero, they could have made a sweet profit. Banks
| should have limits on how much they can gamble like this.
| eru wrote:
| Making depositors share more in the risks would hopefully
| make them more risk averse, causing them to move their
| money before it's too late.
| pmontra wrote:
| I'm not sure about that. As a depositor I put my money in
| an account and forget about it. We do have to put money
| in an account, right?
|
| I think about that money again when I want to invest it
| or when I need it to buy something big. Everything else
| is ATM and credit card, or equivalent stuff. But getting
| money from a customer or an employer and automatically
| adding it to a bank account should not become the same
| thing as investing in the stocks of that bank. Keeping at
| least a weekly eye on my bank is too much of a burden.
| The only thing I do is make sure that my balance is well
| below the limit the state will pay back to account
| holders is the bank blows up. That's not difficult.
| tlb wrote:
| It gets difficult as you grow. A monthly payroll for 40
| employees is around $500k, which all goes out on the same
| day. You can't avoid having that much money in your
| checking account. A well-run barely-profitable company
| might float between 3 and 6 months salary in the bank,
| with spikes and dips when they get paid or buy equipment.
| Businesses like that need accounts capable of safely
| holding several million.
| bhawks wrote:
| Our society has created a complex set of rules and regulators
| to prevent bank runs. That system society created failed to
| detect a problem in one of the top 20 banks in our country.
| What other problems is it not detecting? The full backstop to
| the depositors is because this should have never happened - the
| system should have prevented it.
|
| An organization with over $250,000 in cash is not an outlandish
| amount. Employers (obviously), but also municipalities,
| schools, churches and heck even grocery stores can exceed that
| limit. While it is reasonable to expect some individuals to
| have some sense and monitoring of the financial well being of
| the organizations they are directly affiliated with it is
| extremely unreasonable to believe that those same individuals
| are going to be aware of the balance sheet risks of the
| transitive banking partners of those organizations. People
| expect that money in the bank today will be there tomorrow.
|
| Who wants to live in a world where everyone is keeping tabs on
| which organizations are banking where? It's a tremendous waste
| of time.
|
| People don't want bank failures to be a thing, and if/when they
| do happen they want the damage limited to the senior leadership
| and investors of the bank.
|
| If you were responsible for managing over 250,000$ of cash what
| is an acceptable Treasury operations strategy? Put it in a TBTF
| bank (still socializing losses). Split it into multiple banking
| partners - that creates operational risk in addition to extra
| complexity and overhead.
| college_physics wrote:
| people will once again try to defend the indefensible.
| antediluvian fractional reserve banking as it currently
| stands is not fit-for-purpose and the price paid by society
| is high and will keep growin.
|
| The other side of lazy private profits from "riding the yield
| curve" or which-ever else inane business model is recurrent
| crises and social costs, sometimes overt, sometimes obscure.
|
| Arbitrary and ad-hoc explicit or implicit insurance schemes
| and put options, obfuscation and complexity, moral hazards
| and perverse incentives under every carpet.
|
| A fair and democratic society, especially in the
| hyperconnected digital age must very seriously consider the
| wiring of the monetary/credit system. The rule should be
| simplicity, transparency and working hard for the money:
| return strictly coupled to risk.
|
| Core to a better design will almost certaintly have to be the
| concept of risk free deposits with the central bank that are
| not subject to runs. The rest needs to be worked out.
| bhawks wrote:
| The question asked is why socialized losses need to be
| accepted, not posit a new financial system. The current
| system _requires_ socialized handling of losses.
|
| If that were what was asked - then yes the answer is
| crypto. No central bank needed (or desired). It is a
| working alternative that has survived for over a decade. It
| is not perfect but there is a ton to learn from there.
| bagels wrote:
| It's sleight of hand. I'm guessing the solution is that the
| money comes from all of us, but just through bank fees, higher
| interest rates on loans, and lower interest rates on deposits
| because the banks are paying more to the FDIC, as opposed to
| the money coming directly from the treasury and thus our taxes.
| nwiswell wrote:
| That is a reasonable sacrifice in exchange for a functional
| financial system.
|
| For what it's worth, TARP ended up turning a profit for the
| government, so in my mind there's some track record of stiff-
| nosed decision making at Treasury. I'd feel differently if
| SVB stockholders were getting something out of this.
| subsistence234 wrote:
| It's a reasonable sacrifice the other 330 million Americans
| should make, so that your AI-powered dog cappucino business
| doesn't have to suffer a 20% haircut for choosing the bank
| with the 50% higher APY offered on deposits, without ever
| asking yourself where that free lunch is coming from.
| jonhohle wrote:
| Why shouldn't parts of a functional financial system be
| allowed to fail without massive contagion? Part of a
| healthy market economy is providing ways for weak
| businesses to fail and be replaced with new competitors.
|
| Why are some businesses more equal than others?
| tetrahedr0n wrote:
| A controversial statement to some, but IMO the US is a
| Corporatocracy more than a Federal Constitutional
| Republic. More "Modern Corporate Capitalism", less Free-
| market Capitalism.
|
| Point being, some businesses _are_ more equal than others
| because they have the money to lobby lawmakers. In an
| actual free market, the banks should fail.
|
| However, it seems to me that the situation with SVB is a
| Democratic Socialist move. Again, my opinion, but it
| seems rather progressive. In history, Democratic
| Socialist programs have produced, arguably, valuable
| programs for the US. Unfortunately, mentioning
| "Socialist" is usually the point in which many will stop
| listening.
|
| [wiki](https://en.wikipedia.org/wiki/Democratic_socialism
| #:~:text=D....)
| nwiswell wrote:
| There is contagion: loss of confidence in banks.
|
| This is why FDIC exists in the first place.
| jonhohle wrote:
| I lose confidence in banks when their failure results in
| special treatment that no one else has access to,
| perpetuating the behavior that caused the failure.
| worrycue wrote:
| Your sort of loss in confidence don't lead to further
| bank runs and complete collapse of the financial system
| so I think it's a loss they are willing to suffer.
|
| > perpetuating the behavior that caused the failure.
|
| A detail post-mortem is going to be needed to be done to
| see what cause this whole mess.
|
| So far it seems their mistake is buying "risk free" bonds
| when they shouldn't have - but then again who could have
| expected interest rates to rise so quickly - and not
| having a diverse enough depositor base - SVB served
| mainly tech and Silvergate is heavily exposed to crypto;
| both sectors took hits recently resulting in people
| redrawing lots of money for a variety of reasons and it
| ultimately caused a run.
|
| That's what I figured out watching various YouTube videos
| anyway.
| LunaSea wrote:
| > So far it seems their mistake is buying "risk free"
| bonds when they shouldn't have - but then again who could
| have expected interest rates to rise so quickly
|
| Over a period of 10 years which is the duration of the
| bonds they bought, I would say that the chances are
| pretty fair.
| worrycue wrote:
| I figured if the interest rate went up slower they could
| have survived the lower losses.
| boxed wrote:
| > Explain to a peasant why he should have to share the risk you
| took with your money
|
| Well.. in this specific case I don't think tax payers (I assume
| this is what you mean by "peasant") actually do share any of
| the risk/cost. The bank failed due to a liquidity problem. It
| actually has a pretty solid financial situation except for
| that! This isn't a "bail out" per se.
| dragontamer wrote:
| > It actually has a pretty solid financial situation except
| for that!
|
| Then why couldn't they find a buyer in the auction today? If
| Silicon Valley Bank had positive equity, someone would have
| bought them out for an easy profit.
| rvnx wrote:
| Isn't it what happened with the UK branch of SVB ?
| xapata wrote:
| Solid except for the time-value of money.
| camhart wrote:
| Their bonds average 1.9% with a 10 year maturity. They pay
| out when they mature. But because rates are so much higher
| now, if they sold today they'd take a massive haircut.
|
| The bank made mistakes, and their startup assets are a big
| ? of unrealized losses. But they do have assets, just not
| liquid.
| em500 wrote:
| But the reason why they'd take a massive haircut if sold
| today is that when they get the principal back in 10
| years it will probably be worth a lot less. Their assets
| are completely liquid, they're just worth a lot less
| right now than what they're owed, and for good reason.
| That the assets might nominally cover the deposits in 10
| years is besides the point, the depositors don't want to
| wait 10 years. Whoever pays to make depositors whole, be
| it FDIC, tax payers or other banks/bank customers, is
| transferring real value to the SVB depositors.
| boxed wrote:
| > That the assets might nominally cover the deposits in
| 10 years is besides the point, the depositors don't want
| to wait 10 years
|
| This would be a problem of liquidity though, which was my
| original statement.
| tigershark wrote:
| No, it didn't have a liquidity problem, it was insolvent. The
| value of all its assets marked to market are less than its
| liabilities.
| boxed wrote:
| Well... I guess. But the price of many of those assets were
| low because of the run right? So it's a self fulfilling
| prophecy.
|
| Banks that buy SVBs branches will be making money off that
| deal I think. Not short term obviously, but long term.
| Lionga wrote:
| Not if you let them do their shenanigans to let the assets
| be on the balance sheet on "face" value because they are in
| a "HTM" portfolio and not on the real market value. Many of
| the other banks are silently insolvent too, just the simple
| little account trick keeping them afloat.
|
| That's whats need to be changed, not a bail out of which
| more will follow
| gnicholas wrote:
| Interesting that they're announcing this for SVB and Signature. I
| infer from this that they will backstop the depositors at these
| two banks, and they assume that by doing so no other banks will
| be 'run' by depositors.
| ummonk wrote:
| That and the Federal Reserve is offering extra capital to other
| banks to help them weather the runs currently happening.
| dehrmann wrote:
| They didn't say as much, but that was my read.
| Nifty3929 wrote:
| If they had wanted to avoid a contagion, they could have just
| given a 6-month 100% deposit backstop to all the _other_ banks,
| and let SVB play out naturally. But then the VCs might have lost
| a little money.
| jacquesm wrote:
| Not _just_ the VCs though and therein lies the rub. You 'd have
| to start differentiating between various kinds of account
| holders and that doesn't really work beyond the 'private
| individual/business' classification.
| qwertyuiop_ wrote:
| Bringing back too big to fail
| clevedotoner wrote:
| It is not clear to me why only these depositors of SVB deserve
| special treatment of full reimbursement of their funds. Is this
| not unfair towards those that held > $ 250 K in other bank
| failures where the rule of law was applied of not insuring such
| deposits?
| al_be_back wrote:
| What happened to Failing Gracefully or is that not necessary,
| just throw and let it bubble-up to the Treasury/BoE, they'll
| catch and handle it??
|
| so many startups, in tech of all industries, seemed to have
| Banked most if not all their funds just with SVB: all eggs in one
| basket strategy.
|
| talk about everything everywhere and all at once!
|
| This situation is ridiculously unsafe, and avoidable.
| O__________O wrote:
| Fitting file name for the press release: "jy1337"
|
| "JY" for Secretary of the Treasury Janet L. Yellen; and
|
| "1337" means tech elite:
|
| - https://wikipedia.org/wiki/Leet
| readthenotes1 wrote:
| What does "These assets will be valued at par"
|
| Does that mean they will be valued at the fictional book value of
| the banks?
|
| Or is there some other value that is going to be looked at?
| georgeplusplus wrote:
| What does backstopping this bank mean for inflation? Where are we
| getting the money from to secure the deposits of the bank?
|
| Where does it end? If this small bank was vulnerable, how many
| other small banks will we need to do this for?
| NKosmatos wrote:
| "Depositors will have access to all of their money starting
| Monday, March 13."
|
| So, they can all go tomorrow morning and withdraw/transfer their
| money out of SVB?
| loeg wrote:
| Yes, that's my read of what it means. (Although the carcass of
| SVB was renamed to "DINB.")
| midnightdiesel wrote:
| Meanwhile Peter Thiel is off plotting his next gambit to fleece
| and destroy this country.
| 0xDEF wrote:
| Don't forget his buddy David Sacks and to a lesser degree Elon
| Musk. The "PayPal mafia" turned out to be just as damaging to
| society as a real mafia.
| wdb wrote:
| Pretty disappointing that they again are being lax on their own
| rules. And cover the full depositions and safe startups bad money
| management.
| hn_throwaway_99 wrote:
| Yellen and the FDIC is in a tough spot. This is the important
| line, "Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special assessment on
| banks, as required by law."
|
| Thus, on one hand, I'm glad they're doing this, as it should help
| prevent wider bank runs, and it ensures that banks are the ones
| that are actually paying for it.
|
| At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is _essentially_ unlimited, as long as you can
| threaten wider disruption to the economy.
|
| I understand part of this is human nature but I really wish we
| could plan for these entirely foreseeable events _ahead of time_
| so that it 's not just cases of "selective justice" with regards
| to who gets bailed out.
| nabla9 wrote:
| > FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy.
|
| I think you misunderstand. Unlike bailout, FDIC insurance means
| that
|
| 1. Shareholders owners are wiped out,
|
| 2. Senior management is removed.
|
| 3. Unsecured debtholders *will not be protected*. They are made
| whole only when it's possible using banks assets.
| EVa5I7bHFq9mnYK wrote:
| I can't pinpoint anything specific they did wrong, compared to
| peers. Their operating expenses were not that large, for
| example. So what happened to them, can happen to any bank now.
| That's why FED are worried.
| po wrote:
| I just posted this on mastodon but I think maybe the community
| here knows better:
|
| If you ran a bank that required insurance on all deposits over
| the $250k FDIC coverage, and then offered 3rd-party insurance
| as a convenience for those who wanted it... your bank would be
| much less likely to suffer a blow up due to a bank run and
| therefore that insurance should be relatively cheap.
|
| Furthermore, people should prefer to bank someplace where all
| of the depositors are covered. Why is this not commonplace?
| Simply because the additional fee discourages it?
|
| I think if Yellen announced this as a requirement it would
| remove that incentive to treat FDIC like free unlimited
| insurance.
| ljf wrote:
| Which apartment block do you thing a most people would rather
| live in, the one that charges you an extra 10 percent a year
| but promises to replace all your belongings if it ever burns
| down, or one that tells you it will never burn down?
| barrkel wrote:
| And FDIC insurance is more on the order of a couple of
| percent, varying depending on your investment structure.
| polygamous_bat wrote:
| > Why is this not commonplace? Simply because the additional
| fee discourages it?
|
| You actually answer this question in the second half, because
| banks have been treating the government as free unlimited
| insurance.
| po wrote:
| I guess all the more reason for Yellen to mandate it.
| JPKab wrote:
| Yellen is an incompetent ideologue. I studied applied economics
| in university, and the first code I wrote for a real
| application were inflation simulations. When she and the Fed
| made the claim a few years ago that "inflation was transitory"
| I ended up calling several of my smartest classmates. It was a
| nice excuse to reconnect, and universally all of us were asking
| what she was smoking.
|
| It wasn't just us. Larry Summers was prominently and publicly
| stating that the inflation was definitely not transitory. But
| the banks believed her, and continued in 2021 to buy these
| securities as if interest rates were going to be going low
| again in the near future.
| spywaregorilla wrote:
| > Yellen is an incompetent ideologue. I studied applied
| economics in university, and the first code I wrote for a
| real application were inflation simulations.
|
| Damn if only the US government could find someone with
| credentials as strong as yours
| JPKab wrote:
| That's the point. I don't think I'm qualified for the job,
| and yet it was obvious inflation wasn't transitory. The
| fundamental drivers with money supply and in particular,
| velocity, pointed this out clearly. A quick look at travel
| statistics in summer 2021 made it clear that a majority of
| the public was returning to pre-pandemic spending habits.
| She clearly isn't qualified, and simply failed upward into
| working for the administration. You don't have to look
| hard, far, or even outside of Democratic affiliated
| economists to find those who were far more accurate than
| the Fed, including the aforementioned Larry Summers, or
| Steven Rattner.
|
| Your welcome to be critical of my statement, but where's
| your criticism of the people being paid high salaries in
| positions of power who utterly failed to react in a timely
| manner (when many many economists with tons of credentials
| were telling them to) and have now forced us into a worse
| situation?
| spywaregorilla wrote:
| I think your statement is dumb. Inflation was exacerbated
| by a large war in 2022 that sparked an energy crisis.
| Failing to acknowledge that is just naive.
|
| You don't win any points for saying X is inevitable when
| X is occurs for reasons completely outside your expected
| scope. That's just luck.
| JPKab wrote:
| It's absolutely not luck and you are betraying an
| ideological point of view. It's obvious you never studied
| economics and you're just sitting here parroting partisan
| talking points. Anyone with common sense is aware of the
| Ukraine invasion being inflationary on European energy
| supplies, and knock down effects on things such as grains
| and fertilizers and other commodities. But those of us
| with a background who understand the dynamics of
| inflation knew this in 2021 long before Putin invaded.
| It's simple math: Inflation is a product of money supply
| and monetary velocity. Money supply was already grossly
| inflated and monetary velocity was quickly gaining steam
| as the vaccine was rolled out.
|
| You should ask yourself if you have any idea what you're
| talking about before adopting a negative tone in the
| future. Frankly it personifies Dunning Kruger arrogance
| to attribute a simple mathematical prediction shared
| widely by experts to luck. Projecting your utter lack of
| expertise on this topic on to everyone else is
| ridiculous.
| spywaregorilla wrote:
| Ok, and I think you're "betraying an ideological point of
| view" when you agree there was a major inflationary force
| so large that "anyone with common sense" is aware of it,
| but fail to do the elementary math that if you had
| inflation X with a major inflationary event; then in the
| absence of the major inflationary event, inflation would
| almost certainly have been a lot lower. Imo, to the point
| of being negligible.
|
| The price of energy is a fundamental input to the global
| economy. When the price of energy goes up, the price of
| everything goes up as a supply shock. I don't think
| you're a dumbass for thinking otherwise. I do think
| you're a dumbass for asserting whatever this mess of a
| post is.
|
| Citing "a simple mathematical prediction shared widely by
| experts to luck" is pretty dumb as well. Economists are
| hardly a uniform entity. Do you truly believe I could not
| find an equal army of qualified experts with differing
| mathematical predictions?
|
| Circling back to you think you're more qualified than
| Yellen, mr kroog. Look out. Bachelor of Science in
| economics over here. this guy wrote code!
| hellojesus wrote:
| Those were definitely drivers for the inflationary spiral
| in consumer goods, but we've had massive inflation for a
| long time; ever since QE started. It's just that the
| inflation has been relatively hidden in speculative
| assets (homes, equities, crypto).
|
| The parent is correct in their assessments of the market
| and the transitory inflation. TBT and TTT were no
| brainers at the start of the transitory dialogue because
| everyone knew it wasn't.
| JPKab wrote:
| You're on point here. Your analysis will be wasted on the
| dunning-kruger comment you're replying to.
|
| Apparently Larry Summers, probably the greatest living
| former treasury secretary and architect of the only
| balanced budget in my lifetime, was "lucky".
| neovialogistics wrote:
| Have you considered the hypothesis that she is competent and
| was lying and/or bullshitting?
|
| Hypothetically, if I ran a government that was engaged in
| geopolitical competition, I wouldn't want people to tell the
| truth to my detriment when alternatives could be gotten away
| with.
| JPKab wrote:
| It's too depressing for me to take that hypothesis.
|
| It's far easier for me to believe that Yellen is a deeply
| intelligent and talented economist who lacked the ability
| to protect her cognitive processes from optimism bias.
| People think that when you say incompetent you are saying
| they aren't intelligent enough for the job. I think she was
| temperamentally unfit. I want people in the Federal reserve
| that don't care at all if they get invited to cocktail
| parties or get job offers. I want them to be people who
| don't mind being hated by everyone.
|
| I want Paul fucking Volcker level of tolerance to everybody
| hating you.
|
| All that being said, the thing that undermines my desire to
| not believe your theory is that she made the terrible
| mistake of going straight to work for the Biden
| administration from the Fed. Even if this was done for
| noble reasons it just makes the Federal Reserve look
| partisan which is a really bad place for it to be.
| hellojesus wrote:
| > But the banks believed her, and continued in 2021 to buy
| these securities as if interest rates were going to be going
| low again in the near future.
|
| The banks most certainly didn't believe her. The banks
| rightfully took it as a signal that the US gov would step in
| to cut losses if banks continued to loan. The Fed wanted
| banks to continue to loan so they didn't grind the overall
| economy to a halt instantly and send us into stagflation.
|
| But everyone knew it would happen. The Fed knew they were
| playing a losing strategy. And they still know it. But they
| refuse to play the strategy that would win the inflation game
| because it would bankrupt the country.
|
| The only way out now is through severe tax hikes + gov
| spending cuts OR war with China in the hope to reset debt at
| its conclusion. The political elite seem to be signaling the
| latter.
| notmindthegap wrote:
| Did you foresee this?
| chejazi wrote:
| Those who did foresee it made highly profitable trades:
| https://twitter.com/notmrmanziel/status/1633940364460474372
| twelve40 wrote:
| surely it's not on HN throwaway to do all the foreseeing
| here? there are people whose fulltime job is to monitor the
| banks.
| belter wrote:
| Those people normally claim they don't know how the economy
| works.
|
| "Greenspan - I was wrong about the economy. Sort of" - http
| s://www.theguardian.com/business/2008/oct/24/economics-c...
| mrangle wrote:
| Error is the easiest and most common government excuse
| for inexcusable malice. Which means that people shouldn't
| allow for that excuse in the context of grand scale
| failures like 2008, 2003, etc.
| fortenforge wrote:
| There is some sense in which this is true, but the systemic
| risk exception which they are invoking was always on the books.
| MangoCoffee wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited, as long as you can threaten wider disruption to the
| economy.
|
| yup. it doesn't matter how big you fuck up if you are too big a
| risk to US economy. the US govrt (American tax payers) will
| bail you out.
| bjt wrote:
| The bank shareholders are not getting made whole, and the
| bank management have lost their jobs.
|
| The only people being bailed out are the depositors, who were
| not being irresponsibly risky.
| samch wrote:
| The "ahead of time" component is partially addressed by the
| Office of the Comptroller of the Currency which conducts period
| stress tests of banks. The people doing the testing know their
| stuff. These bank evaluations have likely caught and mitigated
| many issues like SVB ahead of time, and we will never know how
| many more failures would've occurred if it weren't for their
| efforts and those of other auditors.
|
| Source:
|
| https://www.occ.treas.gov/topics/supervision-and-examination...
| Cipater wrote:
| Why didn't they catch it in this case?
| joe_the_user wrote:
| _At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy._
|
| No, that's been the implicit rule since 2008 at least (arguably
| earlier). If anything, not supporting all depositors would have
| been changing the rules mid game and so would have lead to
| massive disruption.
|
| The thing a lot of people aren't getting is that _the rules of
| the game_ haven 't been the law but what the Fed does for a
| while.
|
| Certainly, the game as it's played favors the wealthy, yes.
| That should be changed. Knocking everything over by suddenly
| changing expectation wouldn't change things, just disrupt
| everything. But also, it wouldn't happen anyway 'cause the game
| is too important.
| dragonwriter wrote:
| > No, that's been the implicit rule since 2008 at least
| (arguably earlier).
|
| No, depositors have lost money in failures since 2008. Its
| true that, for a long time, the FDIC has _tried_ to resolve
| failures in a way which protects as much of the uninsured
| deposits as possible, but it has very much not been a
| guarantee.
|
| The systemic risk exception invoked here is an exception.
| joe_the_user wrote:
| " _The systemic risk exception invoked here is an
| exception._ "
|
| Yes but it's not a _new_ exception.
|
| The OP claims Yellen implicitly announced something new.
| She didn't. She's following the playbook from 2008+. The
| policy isn't new, it's not unexpected, it's kind of like
| ... a rule.
|
| And whether a new rule is being created matters for moral
| hazard purposes and all.
|
| Edit: My above quote could have been read as talking about
| all depositors in all banks but I meant all depositors in
| the SVB.
| FpUser wrote:
| >"At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy."
|
| Rules exist to serve a purpose. If one risks fucking up the
| economy with the only goal that the rules are preserved - it
| could end up with pitchforks.
| tomato_123 wrote:
| Not bailing out some VCs who hold equity in these depositor-
| companies would not fuck up the economy. Completely absurd
| and outrageous.
| FpUser wrote:
| I was not talking about bailing out shareholder. Just the
| depositors.
| tomato_123 wrote:
| Bailing out the depositors is bailing out the VCs who own
| the depositors.
| [deleted]
| belter wrote:
| "...recovered by a special assessment on banks, as required by
| law..." - Would love to know what law/regulatory framework she
| is referring to. Janet Yellen is ready to become a US based Liz
| Truss...
|
| Now expect a contagion effect next week, if SVB liabilities are
| shown worst than currently known, and made to bare on other
| banks capital requirements...
|
| "US banks sitting on unrealized losses of $620 billion" -
| https://edition.cnn.com/2023/03/12/investing/stocks-week-ahe...
| mixdup wrote:
| the systemic risk exceptions/procedures they're using were
| put in place after 2008
| jen20 wrote:
| ... are you sure you understand who Liz Truss is and what she
| did?
| belter wrote:
| Yes.
| hn_throwaway_99 wrote:
| > Would love to know what law/regulatory framework she is
| referring to.
|
| This is not some conspiratorial secret. Banks pay premiums to
| the FDIC for their insurance, and it's a requirement of all
| chartered banks. The FDIC has the right to backstop deposits
| in excess of the deposit limit by invoking a "systemic risk"
| clause (I'm not sure exactly which law this comes under,
| whether it's some of the original laws that created the FDIC,
| or more recent post-financial crisis updates). When the FDIC
| fund gets depleted, they have the right to invoke a special
| assessment against banks.
|
| > Now expect a contagion effect it next week
|
| The whole point of doing this is to _prevent_ a contagion.
| The reason there was a bank run against SVB was a mix not
| just that their asset values had deteriorated (that was well
| known for some time), it 's that their non-diversified
| deposit base of VC-funded start ups have gradually needed to
| up their withdrawals since early 2022. SVB would have
| survived if there wasn't a run on the bank, and the whole
| purpose of this action was to prevent further runs by saying
| that deposits will be protected.
| luckylion wrote:
| > Banks pay premiums to the FDIC for their insurance, and
| it's a requirement of all chartered banks.
|
| Do they have special rules for when the FDIC decides to
| retroactively insure some bank's deposits for more than
| $250k per account holder? Because now everyone's insurance
| premiums will go up to cover this, won't they?
| reissbaker wrote:
| What? The FDIC controls the premiums, because the FDIC
| _is the insurer._ Moreover, the FDIC is not actually
| paying out any insurance claims here! SVB is being
| acquired, and the acquirer is providing access to funds
| on Monday, not the FDIC. There is no cost to the taxpayer
| here, and the FDIC is not raising premiums as a result of
| this either. It didn 't pay out any claims (and wouldn't
| likely raise premiums even if it did).
| luckylion wrote:
| Not the taxpayers, all the other banks which are funding
| FDIC have to pay:
|
| > Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special
| assessment on banks, as required by law.
|
| So even those that were not insured will now be
| retroactively insured, and the better-run banks will have
| to pay for it, won't they?
| astrange wrote:
| There aren't any losses to the deposit insurance fund
| yet. If this increases confidence then it will instead
| reduce how much is taken from it.
| belter wrote:
| Ok. Lets say next week a larger bank, is shown to have made
| some other risky bets...Are you still in to make all
| depositors whole? Let's say JP Morgan or Goldman Sachs?
| jnwatson wrote:
| Large banks have different rules and are scrutinized more
| carefully.
| belter wrote:
| But would still love to know, what the course of action
| in that case should be...
| blackoil wrote:
| That will break the economy, so Congress and Fed will
| have to jump in to provide the liquidity required. Like
| in 2008
| spdustin wrote:
| 12 U.S.C. 1817(b)(5) is the "regulatory framework" you're
| looking for. The FDIC can levy a special assessment for
| literally any purpose it seems necessary.
| belter wrote:
| Thanks for being more precise than the FED statement :-)
| Yes it's there, but not for the purpose used here.
| Contracts have clauses, but there is also the so called
| spirit of the law and it can be made to work in legal
| cases.
|
| (5)Emergency special assessments
|
| In addition to the other assessments imposed on insured
| depository institutions under this subsection, the
| Corporation may impose 1 or more special assessments on
| insured depository institutions in an amount determined by
| the Corporation if the amount of any such assessment is
| necessary--
|
| (A)to provide sufficient assessment income to repay amounts
| borrowed from the Secretary of the Treasury under section
| 1824(a) of this title in accordance with the repayment
| schedule in effect under section 1824(c) of this title
| during the period with respect to which such assessment is
| imposed;
|
| (B)to provide sufficient assessment income to repay
| obligations issued to and other amounts borrowed from
| insured depository institutions under section 1824(d) of
| this title; or
|
| (C)for any other purpose that the Corporation may deem
| necessary.
| baidifnaoxi wrote:
| [dead]
| notfromhere wrote:
| The FDIC can waive limits if it feels the deposits are of a
| systemic nature. It has had this power for a long time
| machina_ex_deus wrote:
| Banks have lost all excuses to be making money out of other
| people's deposits. If those deposits are guaranteed by the
| government, and backstopped by the government, then there's
| absolutely no reason banks should be able to invest any of
| them.
|
| There's absolutely no excuse left for why banks get to invest
| any of their clients money. They get free leverage from their
| clients for free. They can send it to zero and the entire risk
| will be held by the government. That's absurd.
|
| Revoke banks ability to invest deposits. They can't get to have
| the cake and eat it too. They could offer higher interest rates
| for non guaranteed accounts which bear risk, or zero risk for
| the already zero interest rates.
| nukemandan wrote:
| This is a direct path to a central bank (digital) currency
| that they are the depository institution for individuals.
| citizen_friend wrote:
| I see this issue in so many areas. Government orgs and
| companies have different organizational incentives and
| tradeoffs. When we substitute a government function with a
| wallet for contractors, we lose those tradeoff. But it's even
| worse because now the company has moral hazard.
| batmenace wrote:
| Well that's far from the complete picture. It's not that the
| gov't is backstopping all bank stupidity -- the new facility
| simply says that for redemptions, US government bonds and MBS
| can be valued at face value not market value. Only for the
| purpose of ensuring liquidity for redemptions
| machina_ex_deus wrote:
| Yes, they keep on inventing all kinds of new rules that
| effectively transform the assets that banks happen to be
| holding onto assets that are worth more. It's just printing
| money in an obscure way.
|
| The bottom line is that letting banks invest their clients
| deposits, while clients - even startups that even know in
| advance they will need this money in short duration - will
| keep on blowing in our faces. It might be mortgage backed
| securities, or treasuries, or anything else.
|
| It's always the same story: banks are leeching money
| getting rich from taking risks with everyone's money, and
| the risk is bailed out again and again and again by the
| government.
|
| They are given government mandate to be the only way to
| hold money. And then a government privilege to gamble that
| money on whatever financial instrument that we currently
| pretend has no risk. And then when we discover it had risk
| after all, the government pays for the risk.
|
| All the while, banks were leveraged 10x or 20x on the fake
| "no risk", paid 0 interest rates on deposits, and got to
| take all the profits from that risk.
|
| The fact that even startups couldn't co opt away from this
| madness speaks volumes. They were getting leveraged with
| 10yr duration instruments with depositors base that they
| knew is burning cash.
|
| If those startups wanted to buy 10yr bonds with their VC
| money, they would've done it. But the bank just got
| permission to gamble their clients money.
|
| It's even worse because more than getting bailed out, the
| thing these VCs want the most is for the rate hikes to
| stop. They got to both break the system with their actions
| and get what they wanted.
| Aperocky wrote:
| The banks are still gone though, once they get taken over,
| their equity zeroes out.
|
| All owners of the bank will end up with nothing, I think
| that's a good enough deterrence against bad things.
| matheusmoreira wrote:
| > I think that's a good enough deterrence against bad
| things.
|
| Nah. They should liquidate the owner's private property as
| well to cover uninsured depositor losses. Better than
| making them whole by printing money and having everyone
| else pay for it indirectly through inflation.
| concordDance wrote:
| A few minutes thought should reveal multiple issues with
| this idea.
| scottLobster wrote:
| Honestly I'd like for there to be a decent look-back period
| to recover the funds from any stock sold ahead of time, as
| appears to have happened in this instance. Use the proceeds
| to help make depositors whole.
|
| No proof at the moment, but from what I've read several of
| the executives conveniently sold a lot of their stock more
| or less at the same time right before this kicked off.
| Guarantee at least some of that was some insider golden-
| parachuting.
| noah_buddy wrote:
| I would guess that these executives entered their sales
| months in advance as is relatively typical to avoid
| insider trading. You can look this up on the SEC website
| scottLobster wrote:
| And in the case of company failure, perhaps the lookback
| period should be extended beyond several months. I don't
| have nearly the financial or legal knowledge to suggest
| viable policy, but from what we know of how SVB failed it
| would have likely been visible well in advance of the
| failure to someone with access to the requisite
| information.
|
| Edit: Also, the CEO sold stock not even two weeks in
| advance
| https://www.bloomberg.com/news/articles/2023-03-10/svb-
| chief...
| arcticbull wrote:
| I don't know why people keep calling out the CEO stock
| sales, unless we find out something new this was almost
| guaranteed to have been done pursuant to a publicly filed
| 10b5-1 plan which has a 30 or 90 day cooling off period
| and must be filed when they have no material non-public
| information. So if the CEO could see this coming, anyone
| else could have too on the basis of the same information.
|
| These things can come at you fast. They probably put in
| the trade instructions sometime last year and they are
| not permitted to make modifications to the 10b5-1 when
| they do come into material non-public information as that
| is itself insider trading.
|
| Trading (or changing a 10b5-1 plan) while in possession
| of material non-public information, whether in your favor
| or not, is insider trading.
| yeahsure22 wrote:
| I don't know if your are just ignorant or if your are
| intentionally misleading people but this system is widely
| abused. A stock sale can be schedule in your plan at the
| end of every month and you can elect to cancel a planned
| sale at any time. The CEO used exactly this type of sham
| plan to unload his shares. Look at the plan he filed this
| year and the plan he filed every year for the last three
| years.
| arcticbull wrote:
| > A stock sale can be schedule in your plan at the end of
| every month and you can elect to cancel a planned sale at
| any time.
|
| Canceling a 10b5-1 is not in and of itself a violation,
| correct, but it can kill your affirmative defense as it
| jeopardizes the good faith element.
|
| However, they would have had to have entered into the
| 10b5-1 _prior_ to them coming into material nonpublic
| information in the first place for it to have been valid
| at all. My point is they made the decision to sell before
| they knew what was happening and filed a compliant
| trading plan.
|
| Sounds fair, but lucky.
| zerocrates wrote:
| It was definitely a 10b5-1 plan, but apparently done
| pretty recently as such things go, only back to January.
| Animats wrote:
| They'll probably get hit by the standard 90-day clawback
| in bankruptcy.
| op00to wrote:
| What about stocks sold as part of a 10b5-1 plan?
| machina_ex_deus wrote:
| They got to play with 10x leverage with their client funds
| for free. You can't barely get 2x leverage at broker, you
| pay interest rates much higher and they actually enforce
| strict margins.
|
| Minewhile these people out of their privilege as bankers
| got to play with much bigger leverage, while paying zero
| interest rates to their counterparty which turned out to be
| fully paid for by the government in the end.
|
| 100% investment loss in this case is hardly enough, with
| the leverage levels banks can access they can literally
| collect pennies in front of a train and have positive
| expectation values for shareholders, while investing in
| negative expectation value investments.
|
| And they did collect pennies in front of a train. Bought
| 10yr treasuries at historical lows. They paid their
| customers nothing for it.
|
| VC investment strategy for VC bank. They took the zero or
| hero attitude until the end. Again, we're taking about
| people with already VC mentality of "worst case 100% loss,
| best case 1000%".
|
| No wonder that once VCs recognized their own shadow they
| fled so fast.
|
| And now they are pretending as if it's the fate of the
| banking system on the line.
|
| VC bank, managed like VC venture for VC firms. They deserve
| to lose VC money.
|
| Their loans are probably also worthless than they claim,
| but they managed to successfully swindle the Fed in the
| most VC way ever with the shortest deadline. I'm betting
| FDIC is going to pay twice as much as expected in the end.
| GeorgeWBasic wrote:
| Thanks for explaining it so well. I was thinking that
| simply losing the bank was enough in this case, but you
| make a very good point, and this kind of insight is
| what's good about this site.
| Aperocky wrote:
| > And they did collect pennies in front of a train.
| Bought 10yr treasuries at historical lows.
|
| > worst case 100% loss, best case 1000%
|
| See I don't understand how you can have 1000% return by
| buying treasuries, at any time. It was a stupid decision
| in hind sight, but the best case is order of magnitudes
| below 1000% return.
|
| And you've put these two things right next to each other,
| what am I missing?
| citizen_friend wrote:
| > 1000% return by buying treasuries
|
| by buying with leverage? What percentage returns do you
| think would maintain their business?
| Aperocky wrote:
| They would be perfectly safe have they dumped their
| deposits into T-Bills.
|
| They didn't went for the 1000%, they went for the 5-10%
| extra and ended up losing everything.
|
| Had they used T-Bills or even straight up depositing it
| against the Federal Reserve for NO return, they would
| remain liquid and could now reinvest into higher yield
| bonds as the rates have risen. Instead they now hold 1.5%
| 10 year HTM bonds that are now valued at 70% original
| today because the prevailing rate is 4.5%.
| citizen_friend wrote:
| To clarify I don't know the actual strategy they took. I
| am responding to how they can have risk in "make safe
| loans" or "buy safe bonds" scenario.
|
| > They would be perfectly safe have they dumped their
| deposits into T-Bills.
|
| How is this different than what you described? If the
| rate increases beyond the coupon of a 10 year treasury,
| its value drops. Are you referring to extremely short
| term treasuries?
| snuxoll wrote:
| > Are you referring to extremely short term treasuries?
|
| T-Bill: 52 weeks or less duration
|
| T-Note: 2-10 year duration
|
| T-Bond: > 10 year duration
| concordDance wrote:
| You seem to be conflating the bankers with the bank
| owners here. The former have done well, the latter have
| lost everything (total SVB dividends are less than the
| value of the bank).
| miguelazo wrote:
| Exactly--- this is why even fully covering the deposits
| over 250k is absolutely a "bailout".
| devmunchies wrote:
| Except in this case the CEO sold a few million in stock
| weeks ago.
| Aperocky wrote:
| Insider trading laws should cover that, I expect jail.
| TedDoesntTalk wrote:
| Unfortunately, he scheduled the trade in January or so.
| At least that's what I read. Who knows the truth.
| BigCatStuff wrote:
| Do you really think the owners and senior management of SVB
| ended up with nothing? What about the stock sales they made
| right before the FDIC took over, or the bonuses given out,
| or even their compensation during the years in which this
| high-risk interest rate scheme was going on?
|
| They have orders of magnitude more money than most people,
| and will get away with no liability.
| Aperocky wrote:
| > What about the stock sales they made right before the
| FDIC took over
|
| Is there a more clear cut case of insider trading? SEC
| should already been working on that now.
|
| Anyhow, you're arguing that they SHOULD end up with
| nothing, that is an entirely different subject of its
| own. Because you're talking about punishment, while I'm
| talking about deterrence.
|
| Punishment must be enacted from outside _after the fact_
| , while deterrence can be innate _before it happens_.
| These senior management could have years of cushy job and
| more equity, and now they have to rely on savings and
| have the SEC up their ass. It 's clear which is more
| preferable.
| yunwal wrote:
| > Is there a more clear cut case of insider trading?
|
| Genuine question, is there any evidence that these trades
| were out of the norm, rather than a regular portfolio
| rebalancing that's common with any employee who receives
| part of their comp in RSUs?
| pca006132 wrote:
| Just wondering, if they know for sure that they will be
| sued afterwards, why would they sale their stocks? Why
| not do nothing and live with what they already have? Is
| there a possibility that they can get away with it?
| x0x0 wrote:
| Likely a 10b5 plan. I suspect (hope) the circumstances
| will be very carefully scrutinized.
| op00to wrote:
| > Revoke banks ability to invest deposits.
|
| This is literally the purpose of holding deposits for banks.
| kneebonian wrote:
| This strikes me as more a perspective of someone whose lived
| so long in a stable system that they consider it a
| fundamental immoral failing when something does occasionally
| go wrong. The loaning of your clients money is the
| fundemental idea that banking works on, if you weren't able
| to grow your clients money through lending it you would have
| no reason to accept clients money in the first place.
|
| Bank runs used to happen all the time. The fact that this is
| the first bank collapse we have seen in basically a lifetime
| is more of a miracle than anything else, and should be
| considered a stunning success that a bank collapse is a once
| in a lifetime event rather than a yearly occurrence that it
| used to be.
| rocqua wrote:
| Do realize that the SVB bankers and shareholders remain
| completely screwed. This bailout does not save them. Nor will
| any FDIC bailout.
|
| So the FDIC existing does not change how a bank behaves. From
| the perspective of the bank, bankruptcy and FDIC takeover are
| effectively the same thing.
| EVa5I7bHFq9mnYK wrote:
| They must pay salaries - about 2% of deposits. They must pay
| interest on deposits - now people are demanding 4%. They must
| pay some dividends too. So they must invest in something.
| ashwagary wrote:
| >If those deposits are guaranteed by the government, and
| backstopped by the government
|
| "Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special
| assessment on banks, as required by law."
|
| Does this mean all American banks (indirectly bank customers)
| will pay to cover depositor losses that exceed insurance
| funds?
| Godel_unicode wrote:
| Not sure why you're being downvoted, that analysis is
| correct.
| ashwagary wrote:
| "It's not all tax payers, just all tax payers with bank
| accounts", which is basically all tax payers.
|
| Sounds like word games played by people in charge to have
| tax payer bailouts using two layers of obfuscation.
| [deleted]
| wolverine876 wrote:
| More of the population lacks banking services than you
| think. According to a pre-pandemic report, IIRC, very
| large number have <$600 savings.
| BlueTemplar wrote:
| Being unbanked is on a whole other level : no cheques, no
| debit cards, savings vulnerable to theft...
| nostromo wrote:
| They're spinning it because no politician or appointee
| wants to be on record as bailing out Silicon Valley,
| venture capitalists and Crypto.
|
| But the end result is the same: a tax on everyone to bail
| out Peter Thiel and friends.
| muzz wrote:
| And also "people with bank accounts who don't make enough
| to pay taxes" like my grandma.
| Godel_unicode wrote:
| Yeah, the fees and lower interest rates from this will be
| pretty brutal for the poor. Not using tax dollars is
| actually pretty regressive.
| davidgay wrote:
| > Yeah, the fees and lower interest rates from this will
| be pretty brutal for the poor.
|
| I'm fairly sure the poor aren't that affected by interest
| rates - the very definition of being poor is not owning
| much in the way of assets that could earn interest...
| ashwagary wrote:
| It's not only the earned interest on savings being
| discussed here, the OP was also including higher interest
| rates on the variable rate loans that most poorer
| borrowers qualify for.
| notfromhere wrote:
| Most people get so little interest from their accounts
| that it is basically immaterial
| piyh wrote:
| They only need to cover 20 billion or so for SVB? In the
| grand scheme of all banks, that's not a ton. SVB wasn't
| some FTX oops it's all gone level fraud.
|
| Assuming it's a one time charge and not a contagion, it
| sounds like why we have government and FDIC.
| muzz wrote:
| $20 Billion is roughly $60 for every person in the
| country
|
| It's more the state government budget for about 1/3 of
| the states in the union
| piyh wrote:
| 128 billion in the FDIC reserves as of December 2022.
| Better than letting more dominoes fall if you're trying
| to preserve that insurance pool.
| op00to wrote:
| 5 basis points was the last special assessment in 2009.
| Would you seriously notice a 0.05% lower rate of return
| on your account?
| ericd wrote:
| Normal/poor people don't put enough money into banks for
| it to represent much of their earnings. IIRC, from that
| image that was circulating around, much less than half of
| the deposits of even BofA are from accounts <$250k. So I
| don't think accounts like your grandma's are going to
| bear any percentage of the brunt of this.
| dwighttk wrote:
| Weird... why are so many account holders at BoA
| depositing more than the FDIC insured amount for an
| account?
| ericd wrote:
| It's deposit volume rather than number of accounts that
| are over $250k. I'm sure that most of the accounts are
| <$250k, but a single $1m account accounts weighs the same
| as 100 $10k accounts.
| dwighttk wrote:
| But why is anyone holding $1M in an account insured up to
| $250K?
| ericd wrote:
| Many companies pay out their workers more than $250k per
| pay period.
| ZiiS wrote:
| If you have 100+ employees for payroll.
| pooper wrote:
| > Normal/poor people don't put enough money into banks
| for it to represent much of their earnings.
|
| This is hurtful in more ways than one. Banks routinely
| charge all kinds of fees from account maintenance to
| whatever Wells Fargo did for years.
|
| Retail banks won't let the Federal Reserve open a bank
| account for everyone by default with the Fed.
|
| Either what you say is true and the retail customers are
| insignificant, and banks must offer no fee accounts. If
| not, they can't block federal reserve from creating
| default USD accounts for everyone.
|
| Or they are an important part of the bank's marketing
| strategy or whatever. In this case, banks must lose the
| ability to gamble customer funds.
|
| Which one is it?
| rocqua wrote:
| > Retail banks won't let the Federal Reserve open a bank
| account for everyone by default with the Fed.
|
| Actually the FED is opposed to this themselves. A company
| called the narrow bank was going to try this. The FED
| refused them a banking license, all the way to court.
|
| The FED wants deposits reinvested into the economy.
| afiori wrote:
| Quoting from: https://www.econlib.org/why-does-the-fed-
| oppose-narrow-banki...
|
| > A narrow bank takes deposits and invests the money in
| interest-bearing reserves deposited at the Fed. Because
| that's all these banks would do, they would be very low
| cost and hence could pass along to depositors the
| interest earned on reserves, minus a small fee.
|
| > Narrow banks could attract many large depositors, who
| currently receive much lower interest rates on their
| deposits at ordinary commercial banks.
|
| It feels like they were offloading their cost to a
| service that the government maybe offers at a loss.
| rocqua wrote:
| It's not so much about the loss, its about the fact that
| banks lose their depositors. It is great for an economy
| that the 'savings' of people are used to safely invest in
| good ideas. This is the function of banks, and
| incidentally a function that really benefits from a
| profit motive.
|
| Hence I believe the Fed was against this to keep the
| economy running by 'keeping money rolling'.
| afiori wrote:
| I am not convinced by this argument* because banks can
| already do that. I don't think that bank are "required"
| to invest client's deposits, so they can already just
| stash paper cash in a big vault. It is clearly a dumb
| strategy for a retail bank.
|
| This proposal for narrow banking seems to employ the
| government as this vault, sort of like treasury bonds
| that can be freely withdrawn, which seems a more
| significant difference.
|
| * I am not denying that this is what the feds claimed
| and/or believed
| om2 wrote:
| An assessment on banks costs shareholders of the bank,
| not accountholders. (Maybe it indirectly costs
| accountholders if banks lower interest rates on customer
| deposits, but these rates are generally not affected by a
| small short term shock).
|
| It might seem unfair that shareholders of random other
| banks have to pay for this but no more unfair than
| accountholders of SVB paying for it.
| wolverine876 wrote:
| > Does this mean all American banks (indirectly bank
| customers) will pay to cover depositor losses that exceed
| insurance funds?
|
| That assumes banks balance this liability by reducing
| payments to customers rather than reducing profits. That's
| a common and completely misleading claim by businesses - if
| they are taxed or fined, they pass it on to their customers
| (obviously, it's an attempt to create political support for
| the business).
|
| The reality is that the ability to raise prices (or lower
| interest rates on deposits) depends on the elasticity. If
| you raise prices on your bottle of water at the
| supermarket, then people will just buy the bottle next to
| it - the water-maker will be paying and fee or tax
| increases out of their profits. If you have the only bottle
| of water in the desert, you can charge whatever you want. I
| would think that regular savings deposits, at least, are
| easily moved to another bank.
|
| Another consideration is that if they could squeeze more
| out of customers, they'd probably already be doing it. By
| that theory, at least, they've already optimized or that
| and can't charge more.
| Y_Y wrote:
| You're not supposed to talk about that! "If something we
| don't like happens we'll have to raise prices!" seems to
| be taken at face value all the time. It's true that in an
| idealised perfectly competitive market a measure which
| increases the costs of all producers equally will raise
| prices across the board, but this is absolutely not
| realistic.
|
| As you say, the what really matters is (perceived)
| elasticity. If a company thought they could increase
| profit by increasing prices then they'd just do it.
| Conversely if they get fined or regulated or whatever
| but, as expected, it doesn't affect their elasticity
| curve then they'll leave prices where they are. If they
| were acting rationally it was already at the ideal point.
| polygamous_bat wrote:
| > If you raise prices on your bottle of water at the
| supermarket, then people will just buy the bottle next to
| it - the water-maker will be paying and fee or tax
| increases out of their profits. If you have the only
| bottle of water in the desert, you can charge whatever
| you want. I would think that regular savings deposits, at
| least, are easily moved to another bank.
|
| However, this fee is levied on all member banks of FDIC,
| which is basically every bank. Thus, it creates the most
| natural ground for collusion, i.e. everyone implicitly
| agrees to pass on the fees to the customers.
|
| More than that, a bank account is probably one of the
| stickiest "purchases" an average individual makes in
| their lives, unlike a single-use water bottle. How many
| people do you think has the time and energy to switch to
| a new bank every time there is a fee increase? Is it the
| individual's fault for not doing so?
| op00to wrote:
| The fee is not the same for all banks. FDIC assessments
| are based on risk. Riskier banks pay more, safer banks
| pay less.
|
| Would you notice a 5 basis point change in your savings
| account?
| polygamous_bat wrote:
| > Would you notice a 5 basis point change in your savings
| account?
|
| How many grains of sand do you need to stack before it
| becomes a pile?
| afiori wrote:
| What is the difference from when one year ago gas prices
| spiked by a likely criminal amount?
|
| To me it felt like the market collectively decided "this
| is a good time to squeeze our costumer and have them
| blame somebody else"
| dkjaudyeqooe wrote:
| > (indirectly bank customers)
|
| That's not a given since it may just reduce profits.
| Banking is a very competitive environment.
| ashwagary wrote:
| >That's not a given since it may just reduce profits.
| Banking is a very competitive environment.
|
| So the options are:
|
| 1. Banks eat the cost.
|
| 2. Banks take on more risk to cover the cost (putting the
| whole system at more risk).
|
| 3. Banks increase customer fees, interest rates, etc...
|
| I don't have a crystal ball but I have a strong guess
| about which of these options are most likely to be
| implemented.
|
| Not only will tax payers likely pay for this but the most
| likely tax payers to pay are the ones with the least
| flexibility (stuck with variable rate debt, limited
| banking choices, no dedicated money managers working on
| their behalf) aka the poorest tax payers.
|
| If my assessment is correct, they have somehow found and
| settled on a solution more disgusting than a generally
| distributed tax payer bailout.
| op00to wrote:
| The last time a special assessment was required, the cost
| was 5 basis points of deposits.
|
| Would you notice a 0.05% increase in fees?
| machina_ex_deus wrote:
| 4) Banks get their privileges revoked and they are no
| longer an oligopoly with privileges of being the only way
| to store dollars legally, and the only investment
| institutions who get to gamble their customers money
| while the government is insuring their loses but does
| nothing about their gains.
|
| The Fed releases a digital dollar that you can bank
| without needing to be a part of this oligopoly. Banks are
| forced to give better terms to be attractive again, terms
| that will make up for the risk of the bank using your
| money. Deposits are no longer guaranteed because being in
| a bank is now a deliberate choice instead of something
| you're forced to do despite having money.
|
| Banking is not competitive in any way. The small players
| are very risky to bank at. The big players get to be
| riskier because they are protected by the government.
| [deleted]
| ojbyrne wrote:
| Define "invest." Banks invest. That's literally what they do.
| People deposit their money rather than put it under their
| mattress, and the banks reward them by giving extra money to
| them.
|
| Then the banks figure out a way to put that money somewhere
| else that rewards them more than what they are giving the
| depositors.
|
| Basically that's the foundation of civilization.
| citizen_friend wrote:
| The point is, why doesn't the government just capture that
| revenue? Instead we are letting private companies keep
| those earnings, without taking on any risk.
|
| Let's deposit at the bank of USA and cut out the middle
| man.
|
| > Basically that's the foundation of civilization
|
| I think many of us would disagree.
| Panzer04 wrote:
| Because then it's quite easy to end up with rampant
| corruption. By and large, well-regulated private banks
| work pretty well.
| bumby wrote:
| I think the idea that they work pretty well went out the
| window in most people's mind when they threatened to
| crash the world economy 15 years ago.
| Montaque wrote:
| What's the point of cake if you can't eat it? You'd have to
| start charging for having the cake. The current practice of
| limited investment is reasonable and helps keep the system
| self funded without much in the way of account fees. It's not
| as if banks are investing the funds in the equity market.
| Appreciate I'm commenting from afar and without emotion but
| these failures are normal. This kind of chaos makes the
| system stronger. And I think most commentators can agree that
| this is largely a symptom of a swift increase in the repo
| rate shortly after significant bond purchases by SVB. There
| are lessons to be learnt but I don't think if you were
| sitting on the SVB board and were part of the decision to
| purchase these low risk bonds did you in any way think it
| would lead to this outcome.
| machina_ex_deus wrote:
| They didn't have risk officer for months. They lobbied to
| repeal regulations. And I don't blame them, that's their
| incentives.
|
| At 10x leverage, when you're correctly assuming your
| customers will be bailed by the government instead of you
| getting criminally prosecuted, the worst you can lose is
| 100% of your money. With the kind of leverage you get in a
| bank, you don't even need to have positive expectation
| value investment to have positive expectation value for the
| bank shareholders.
|
| even with completely trash odds of 50% chance of losing it
| all and 50% chance of earning only 20% with 10x free client
| deposit leverage, your expectation value is still 100%!
|
| This is the moral hazard you're dealing with. At 10x
| leverage ratios of banks, they can take the worst possible
| bets and still win so long as their maximal loss is just
| losing all the investment.
|
| You're just encouraging this behavior. This latest decision
| gives a huge incentives to all banks out there to blow out.
| Just the incentive structure alone is enough to collapse
| the entire financial system at this point. It was already
| eating itself and it's only going to get worse.
|
| It's just a matter of time before they blow it beyond
| repair.
| om2 wrote:
| Why would customers being made whole (at the cost of
| wiping out all equity and possibly at some cost to other
| banks) affect the incentives of banks in this kind of
| situation? What would banks do differently if account
| holders could lose everything over $250k? If they are
| happy to "gamble with 10x leverage" then presumably they
| don't care about impact to their customers. If bank
| management risked jail time that might change incentives
| but doing that doesn't seem to require a cost to account
| holders.
| yunwal wrote:
| Customers should be diversifying in these situations.
| It's easy enough to set up a sweep. Those that don't for
| whatever reason shouldn't get bailed out for their poor
| decision making. That's de facto subsidizing any future
| banks that want to make risky investments.
| baq wrote:
| If you blow up so badly you break the world people you
| want to like you stop liking you.
| malborodog wrote:
| Yep but look how hard the Fed has fought to prevent the
| existence of 'narrow banks'. Cartel logic in full effect.
| oarabbus_ wrote:
| >If those deposits are guaranteed by the government, and
| backstopped by the government, then there's absolutely no
| reason banks should be able to invest any of them.
|
| >Revoke banks ability to invest deposits. They can't get to
| have the cake and eat it too. They could offer higher
| interest rates for non guaranteed accounts which bear risk,
| or zero risk for the already zero interest rates.
|
| You are missing something crucial here - treasury bonds are a
| loan to the government - this is all by design.
|
| Who will loan the government tens or hundreds of billions of
| dollars besides the banks? The [Fed/Treasury/FDIC] has no
| incentive to prevent banks from loaning customer deposits,
| because the Treasury needs banks to purchase government bonds
| phpisthebest wrote:
| >>Who will loan the government tens or hundreds of billions
| of dollars besides the banks?
|
| Wait, I have a novel idea...
|
| HOW ABOUT THE FEDERAL GOVERNMENT STOPS BORROWING (and
| spending) SO MUCH DAMN MONEY!!!!
|
| I know, crazy idea that the government should (outside
| extreme conditions) have a balanced budget and not run
| deficits in perpetuity
| nopassrecover wrote:
| > because the Treasury needs banks to purchase government
| bonds
|
| Does it? Or is this just how the system is currently
| designed?
|
| 50 years ago we might have asked who will provide the Fed
| with the gold it needs to issue enough currency to avoid
| deflation as the population grows exponentially.
| oarabbus_ wrote:
| >Does it? Or is this just how the system is currently
| designed?
|
| Yes, to both questions. The US Debt is at $31 trillion,
| it only works as long as the system keeps feeding money
| into government bonds.
|
| The entire global financial system (not just the USA; the
| rest of the world is dependent on the USD and US banks)
| is reliant on this cycle of money.
|
| >50 years ago we might have asked who will provide the
| Fed with the gold it needs to issue enough currency to
| avoid deflation as the population grows exponentially.
|
| It was realized the gold standard stifled growth too
| much, and was abandoned just about 50 years ago as well.
|
| You can have a safe system without growth (everything
| Tech was built off credit/debt and castles in the sky
| until decades after the companies were founded) or you
| can have the tech industry with a debt-credit based
| system.
| diffeomorphism wrote:
| That does not address the second question at all? The
| bonds need to be bought by someone, but you gave no
| argument why this someone has to be banks and why banks
| need tax money for bailouts on top of that.
| a_new_user wrote:
| The banks need to buy treasuries, because they treat
| bonds as a risk free financial instrument. Everyone else
| would have to recognize the risks inherent in those bonds
| and thus demand higher interest. The federal government
| can't afford that.
|
| The reason why banks need to be bailed out, is because
| they treat treasuries as risk-free financial instruments.
| If they didn't get bailed out from time to time, they'd
| have to recognize the risk in buying treasuries.
| nopassrecover wrote:
| So our banking system needs somewhere to park capital
| risk free, and it's economically desirable that's in a
| place that doesn't create other distortions such as asset
| inflation or malinvestment. So we have treasuries as a
| tool for the financial system.
|
| But there seems to be a premise in this thread that the
| US Gov needs (as in has no other possible choice, even
| via legislative change) to sell treasuries in order to
| fundraise.
|
| I accept that's sort of how the current system works in
| that effectively the US Gov creates capital/spend in the
| financial system via various programs and investments and
| attempts to offset inflationary effects / currency
| deflation effects by taxation and other revenue before
| finally encouraging other parties to allocate capital out
| of the system in the form of treasuries to make up the
| shortfall.
|
| Effectively as I see it a treasury is then a promise not
| to spend capital for the term in exchange for the promise
| you'll get the expected present value of that capital
| returned at the conclusion of that term (or in the case
| of TIPS/I-Bonds, the best approximation of the actual
| present value of that capital at that time).
|
| Amongst other features, this neatly "allows" the US Gov
| to allocate an equivalent amount of capital to a purpose
| it considers appropriate while theoretically lessening
| impacts compared to simply spending that money without
| the offsetting treasuries.
|
| But I'm not entirely sure there's some sort of
| fundamental rule that the US Gov with the support of the
| Fed "needs" anyone to buy treasuries - together they
| could, as an example I'm not necessarily advocating,
| provide a safe haven facility for anyone who wanted it
| and continue to influence the monetary system and zero-
| risk rate of return (eg by the Fed paying interest on
| reserve accounts as they have since 2008) while otherwise
| having the Fed simply create the currency the government
| requires for deficit expenditure (eg by directly buying
| treasuries from the Gov if we perpetuate the illusion)
| and using other fiscal policy to control the
| inflationary/distortion effects of this spend.
|
| That is, I'm not sure it's the case that the US Gov
| exactly needs the banks to borrow treasuries because it
| could not afford them not to. Rather, the value of
| treasuries is as a measure to absorb excess liquidity,
| provide safe haven, and adjust risk behaviour in the
| financial system.
|
| My open question is whether the current system is the
| only way, yet alone the best way, to practically achieve
| this goal?
| phpisthebest wrote:
| you think inflation is a problem now, wait until Congress
| has the literal power to order the Fed the print money
| which is effectively what you are proposing.
|
| I do not trust the Fed, but I Sure as shit do not trust
| the US Congress.
| runeks wrote:
| > Does it? Or is this just how the system is currently
| designed?
|
| It does in the sense that the US Government will default
| on its financial obligations if banks don't use deposits
| to buy government bonds.
| dllthomas wrote:
| I'm very much not saying that the outcome wouldn't be
| disastrous, but IME default is clearly unconstitutional,
| and so if statute and circumstance conspire to make
| default the only option then violating some statute to
| prevent default is appropriate, potentially to the point
| of just printing what we need to meet our obligations.
| narrator wrote:
| People can learn how to use Treasurydirect.gov instead of
| using their bank as a lousy bond broker. Inflation
| protected bonds, that you can buy only $10k a year of are
| some of the highest yielding risk free investments that
| exist. Banks should just make money off fees and hold short
| duration Treasury bills only.
|
| Other institutions that have LPs should lend to businesses,
| students and home owners.
| tempestn wrote:
| But then you don't have the convenience and liquidity of
| a bank account. The system works because the bank can
| invest the aggregate deposits of all depositors and still
| be ready to cash people out as needed (of course, barring
| a situation like this one, which is what the deposit
| insurance is for).
| xthrown1 wrote:
| The majority of people don't need daily bank accounts.
| The only reason why we are using them is because to
| dollar notes have not kept up with inflation. A $500 bill
| from 1900 would be a $17,500 note today. Two of those
| notes provide more liquidity than the majority of bank
| accounts in the US.
| afiori wrote:
| I feel like treasury bonds (of your own government) have
| different risk profiles than most other investments.
| runeks wrote:
| They still have duration risk.
| xthrown1 wrote:
| >Who will loan the government tens or hundreds of billions
| of dollars besides the banks? The [Fed/Treasury/FDIC] has
| no incentive to prevent banks from loaning customer
| deposits, because the Treasury needs banks to purchase
| government bonds
|
| War bonds were bought by people directly. I see no reason
| why we can't have the same today. God knows the US needs a
| WWII sized investment in repairing infrastructure.
| cmiles74 wrote:
| Who is going to buy them? Most US citizens have less than
| a month's worth of income in their savings account. I'd
| be surprised if they enough confidence in their own
| income to tie even half of that up in war bonds.
| jandrewrogers wrote:
| Many (most?) Americans have no savings account. Not
| because they are poor but because a savings account is
| largely an obsolete anachronism. The common tactic of
| conflating "savings" with "having a savings account" is
| intentionally misleading.
|
| Per the US government, the median US household has
| $1000/month they could invest after all ordinary
| expenses.
| ticviking wrote:
| Perhaps we'll be forced to accept that we cannot continue
| to have "endless growth" with a declining workforce. The
| cost of Labor is going to go up at all levels, and that
| will mean smaller profits and more inflation until things
| stabilize and enough of us are incentivized to do
| productive work.
| rocket_surgeron wrote:
| Individuals purchasing war bonds helped, but didn't pay
| for WWII.
|
| The war cost a little over $300 billion. $50 billion of
| that was through individual purchases of War Bonds, the
| rest came from banks and taxes.
|
| Bankers and merchants have always funded the United
| States. A representation of Robert Morris, the "financier
| of the American Revolution" is painted in The Apotheosis
| of Washington, the fresco decorating the ceiling of the
| rotunda in the Capitol building where he is shown
| receiving a bag of gold from the god Mercury. Soldiers
| and supplies were paid for with "morris notes" which was
| a proto-currency of the US that was backed by Morris'
| personal fortune.
|
| https://allthingsliberty.com/2019/03/how-robert-morriss-
| magi...
|
| Just about 30 years later, banker Stephen Girard almost
| single-handedly funded the War of 1812.
| ohbleek wrote:
| This was a fascinating read. I was unaware of both Robert
| Morris and Franklin's anecdote concerning IOUs. Thank you
| for sharing it.
| CydeWeys wrote:
| The US government already sells billions of dollars worth
| of various types of bonds to consumers every year. How is
| what you're proposing any different, and how would you
| entice more people to buy them than are currently buying
| T-bills, T-bonds, I-bonds, etc.?
| op00to wrote:
| Can you think of any differences in the economy of the
| 1930s and 40s versus today?
| [deleted]
| bjornsing wrote:
| Yup. The reasonable UX here is that you as a retail
| customer get to pick what assets your deposits should go
| into, and you take the risk. Bank just gets a minor cut
| for doing the admin work.
|
| And yes, that means if you picked "10y treasuries at
| 1.56% interest rate" back in 2021, then 80% of your
| deposit would now be gone. You should have picked "3m
| treasuries at 0.1% interest rate".
|
| This whole idea that a bank deposit is some magical asset
| that you can never lose anything on (other than through
| inflation) is a leaky abstraction. Like with all leaky
| abstractions the happy path is great, but when it starts
| leaking it can get real bad.
| [deleted]
| fauigerzigerk wrote:
| So people rather than banks would now be sitting on
| hundereds of billions of losses. Instead of depressing
| bank profits those losses would be depressing consumption
| or home purchases.
| CydeWeys wrote:
| Depressing home purchases might well be a good idea.
| Right now people treat them as investments rather than
| mere housing, and as a result that market is thrown
| entirely out of whack.
| jsight wrote:
| Indeed, home prices increasing at more than a modest rate
| is a bad thing for everyone in the long term.
|
| Homes should be investments in the same way that a
| factory or warehouse is an investment. You buy instead of
| renting in order to fix the cost of doing business over
| time, not to speculate on potential future values.
| ajross wrote:
| > I really wish we could plan for these entirely foreseeable
| events ahead of time
|
| That's exactly what Dodd-Frank did. The audit and stress
| testing requirements got rolled back in the Trump
| administration. "Planning" is not the problem here.
| hackerlight wrote:
| Changing the rules is good if evidence emerges that the rules
| are bad. In this case, the $250k guarantee was thought to be
| enough to prevent this kind of thing from occurring. We now
| know it was insufficient. The world has changed since that was
| implemented. Namely, social contagion, which is one of the
| causes of bank runs, can act harder and faster in the age of
| social media.
| grey-area wrote:
| Well one way to do this would be to regulate banks more, like
| we used to:
|
| https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...
|
| https://en.wikipedia.org/wiki/Glass-Steagall_legislation
| Donald wrote:
| This isn't necessarily a Glass-Steagall issue as SVB was
| primarily in government bonds and mortgage-backed securities.
| peyton wrote:
| You're saying SVB should've been designated "too big to
| fail?"
| DANmode wrote:
| Other way around.
| lmm wrote:
| Well, apparently they are too big to fail, given that the
| FDIC is covering them. So they should've been subject to
| the extra capital requirements that too big to fail banks
| have.
| grey-area wrote:
| Should have had more regulation - more stringent reporting
| and capital requirements (easy to say in retrospect, but
| they were covered by laws repealed in 2018). It should not
| be possible for a consumer bank to get into this sort of
| state so that they are so far from being able to return
| customer funds.
| matheusmoreira wrote:
| Huh. Looks like there's gonna be a bailout after all. Guess
| who's gonna pay for it.
| tick_tock_tick wrote:
| > At the same time, this is yet another example of changing the
| rules in the middle of the game
|
| Every time the FDIC has stepped in like this they have made all
| depositors whole. This is not new behavior.
| drdec wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited, as long as you can threaten wider disruption to the
| economy.
|
| No offense, but I thought we all learned the principle
| underlying this in 2008.
| rayiner wrote:
| > At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy
|
| And it doesn't have to be that wide a threat. The threat here
| was pretty localized. Aside from blue chips that everyone has
| their pensions invested in (which don't seem to be at risk) the
| rest of the country doesn't have much exposure to this.
|
| Maybe I'm wrong but that seems like a significant shift in
| policy, where the government will change the rules to respond
| to a localized crisis.
| wolverine876 wrote:
| > changing the rules in the middle of the game
|
| I'm pretty sure that rules is already established. What makes
| you say they just changed it?
| mixdup wrote:
| Well, paying for it by a special assessment on banks means the
| banks aren't going to get a free ride. They, as a group, have
| to get their shit together otherwise they will pay dearly
| belter wrote:
| Already proven not to work.
|
| " I made a mistake in presuming that the self-interest of
| organisations, specifically banks, is such that they were
| best capable of protecting shareholders and equity in the
| firms ... "
|
| "Greenspan: I was wrong about the economy" -
| https://youtu.be/XQFq97ljy3k
| hnburnsy wrote:
| Banks won't pay employees (lower salaries or lower
| increases), shareholders (lower share price or dividends)
| and/or customers (higher fees or less interest) will.
| mixdup wrote:
| the economics of the market still prevail. if they lower
| salaries, people will find jobs elsewhere. if they
| overcharge for their services, customers will go elsewhere
| (and there are alternatives--credit unions)
|
| yes, consumers pay all of the taxes and fees that are
| charged to companies but it does not change the
| supply/demand equation in the open market for the services
| the banks offer. the price elasticity of the things you
| mention is not affected by a new tax on banks
| dragonwriter wrote:
| "Banks" are legal fictions, abstraction that serve as tools
| for shareholders, "Banks won't pay,
| but...shareholders...will" is a fundamental
| misunderstanding of what banks _are_.
| hnburnsy wrote:
| Thanks for letting me know my shares of JPM aren't really
| paying me a quarterly dividend. Should I just send these
| fictions back to 270 Park Ave?
| dragonwriter wrote:
| No, I'm telling you "JPM" is just an abstraction for
| _you_ (the shareholders collectively, not just you
| personally).
|
| That periodically the profits associated with that
| abstraction are distributed to you is a function of that,
| not a disproof of it.
| WalterSear wrote:
| If they all have to pay for it, none of them do - we do
| instead.
| saurik wrote:
| I _think_ (but am honestly not 100% sure here) that the
| argument is if other banks are going to have to pay for SVB
| being greedy, it is in some sense punishing banks for not
| being greedy enough; as while, sure, the SVB investors are
| getting hit: 1) a lot of them already made a lot of money
| years ago (and potentially exited), 2) many of the executives
| apparently literally sold out last month, and 3) they were
| hoarding a lot of deposits that other banks couldn 't get
| because they weren't being risky enough. But so like, saying
| banks are paying dearly for this is strange, as it is the
| wrong banks... and, by extension, the customers at those
| banks, who are in turn making decisions about what bank to
| use in the future.
| tialaramex wrote:
| You probably can't hope for better under the US system.
| Maybe other banks will push hard to _not_ allow more SVBs
| in the future after seeing this.
|
| Suppose I'm a Utah bank that is mostly lending money to
| diverse local businesses and home owners, and mostly taking
| deposits from other businesses, some local and some not,
| and would-be future home owners. Last week I probably
| didn't care that SVB wasn't required to be as risk-averse
| as I was, if they failed what do I care?
|
| Today, seeing this news, I care a great deal, and I don't
| want to see other banks allowed to take risks I wouldn't
| have been permitted unless they're paying a _lot_ more than
| I am for the privilege, because when they fail - and they
| will fail - I don 't want to pay for that.
| vostok wrote:
| I'm no expert, but that Utah bank sounds pretty risky to
| me.
|
| At least treasuries and MBS are relatively liquid
| securities that can be quickly sold at prices that don't
| deviate much from their marks as long as you're marking
| to market.
|
| Those loans to local businesses and home owners sound
| much, much scarier.
| tialaramex wrote:
| Good point, I'm definitely the wrong person to advise on
| the correct way to capitalise a bank.
| elliekelly wrote:
| "Riskier" and more complex banks _do_ have higher FDIC
| fees: https://www.fdic.gov/resources/deposit-
| insurance/deposit-ins...
| tialaramex wrote:
| Sure, as far as I understand from that table the
| _maximum_ fee FDIC charges is $1 for every $200 on
| deposit, which if we 're expecting it to act like full
| insurance means they're expecting that these _riskiest_
| banks won 't fail more often than every 200 years on
| average, which doesn't come anywhere close to how risky
| these banks actually are.
| elliekelly wrote:
| I'm lost. How does $200 translate into 200 years?
|
| The fees are assessed quarterly. And they change. They go
| up and down depending on the fund's needs, credit cycles,
| etc.
| lotsofpulp wrote:
| "They" as a group then reduce the interest rates they can pay
| their depositors because they have extra costs to pay for
| SVB's depositors gains.
| hypothesis wrote:
| This. "Backstop" thing is to prevent systemic collapse, but
| otherwise it will spread the losses to other people who
| "did nothing wrong". This is really shaping up as bad
| lesson here for wrongdoers.
| tropicaljacket wrote:
| How does this "special assessment on banks" work? Does the FDIC
| charge all US banks to cover the missing amount? How are the
| charges distributed? And what law is this?
|
| Also if this option was available, why did they just bring it
| up now?
| hd95489 wrote:
| Poor people will get no interest on deposits to bail out the
| rich.
| ec109685 wrote:
| Revenue comes from a fee banks pay based on insured deposits.
| It's been around 8 cents per $100 insured:
| https://www.fdic.gov/analysis/quarterly-banking-
| profile/fdic...
| politician wrote:
| It's almost certainly going to manifest as tax that will be
| passed on to customers in the form of lower interest rates on
| deposits.
| [deleted]
| cryptonector wrote:
| I thought the old $100k limit was statutory. Then in 2008 it
| was changed by the executive w/o Congress approving it (or has
| it, since?). Now it's being changed no limit _and_ fees are
| being raised. These are fees charged by a government entity, so
| one would expect Congress to have to be involved. Can a
| depositor sue to have the old fees restored? Can a bank sue to
| have the old fees restored?
| partiallypro wrote:
| If this were a middle America community bank failure with
| deposits from a bunch of farmers and factory workers that is a
| 0% chance they would have changed the rules. This happened
| because the tech industry has massive lobbying power.
| consumer451 wrote:
| As mentioned in other threads here, Germany and the UK have
| operated like this in the past as well.
|
| If it's not a loss to the tax payers, then it seems like good
| governance to me.
| Uvix wrote:
| But it is a loss to taxpayers. Anybody with money in an
| unaffected bank will end up footing the bill.
| astrange wrote:
| Since SVB's deposits were solvent, there isn't an actual
| loss here as long as it encourages people to not withdraw
| money early. They collapsed because everyone asked for it
| too fast.
|
| What would be expensive would be paying for everyone
| getting laid off after SVB depositors can't make payroll.
| MrMan wrote:
| SVB was insolvent
| hanoz wrote:
| Any depositors expecting to receive their deposits in due
| course could take our commercial loans to cover
| themselves in the meantime. They are being bailed out by
| the taxpayer to the tune of what those costs would be.
| Uvix wrote:
| SVB was solvent _before_ the run. Is that still the case
| even after Wednesday /Thursday's fire sales, where they
| had to sell a bunch at a loss?
| cherioo wrote:
| SVB had more asset than liability, at least on paper.
| They were not able to be solvent selling on open market
| in the time it had, but perhaps that can be done by a
| bigger bank over longer period of time?
| s1artibartfast wrote:
| >there isn't an actual loss here as long as it encourages
| people to not withdraw money early.
|
| This is like saying you loaning me 50B for ten years is
| zero cost as long as you get it back at the end.
|
| It ignores the fact that you have to come up with the
| money, and once you have it, you could put it somewhere
| with an actual return.
|
| This is the exact reason SVB failed. Their 10 year
| investments were worth 70 cents on the dollar because
| there are better returns elsewhere.
| astrange wrote:
| SVB failed because all their customers are in group chats
| with each other and think it would be funny to withdraw
| all their money at once and then buy stock in the bank.
|
| https://twitter.com/torrenegra/status/1634573234187407369
|
| Even their bad investment decisions wouldn't have killed
| them if there hadn't been a bank run.
| s1artibartfast wrote:
| If loaning or borrowing money were free, they could have
| covered every withdraw.
|
| Im pushing back on the specific idea that paying full
| price for an asset that is locked up for 10 years _isn
| 't_ a loss.
| stefan_ wrote:
| I love this LinkedIn style post of "today we organized a
| bank run". Except they are totally serious.
| dev_tty01 wrote:
| >At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy.
|
| No, there are systemic risk exceptions within the rules. If a
| bank is large enough, then the systemic risk to the economy as
| a whole is large enough to warrant this step. "Too big to fail"
| is typically a derisive comment, but it is not without
| practical reason. Governments are supposed to act in the best
| interest of the governed. I hope it is clear to all of us that
| avoiding the economic disruption of a cascade of bank failures
| is in our interest.
|
| Smaller bank failures do not pose systemic risk and so they
| will not be backstopped in the same way. Might seem like unfair
| treatment, but practical concerns often outweigh the
| theoretical. By the way, SVB is still a failure and as a
| company is now gone. Some other entity will take over its
| assets, debts, and customer services. All senior management has
| been removed.
|
| >I understand part of this is human nature but I really wish we
| could plan for these entirely foreseeable events ahead of time
| so that it's not just cases of "selective justice" with regards
| to who gets bailed out.
|
| We did. That is why we have the FDIC, the Federal Reserve, and
| the Treasury department. They did their job and did it quickly
| and effectively. SVB did not get bailed out, the depositors
| did.
| lamontcg wrote:
| > I hope it is clear to all of us that avoiding the economic
| disruption of a cascade of bank failures is in our interest.
|
| Very clearly there is a large chuck of this forum that
| doesn't understand that.
| AdamN wrote:
| The really rough part about HN is the low level of
| knowledge about how governments and politics work. It's ok
| to judge these outcomes harshly but many commenters here
| intermingle their judgements with their mental models that
| seem to have not evolved beyond what they were taught in
| secondary school.
|
| It's really quite concerning because some of these people
| have tremendous power. I suppose the only positive is that
| a number of titans of Silicon Valley are not savvy enough
| to challenge increasingly assertive governments.
| lamontcg wrote:
| Meme economics.
| 88913527 wrote:
| Is it though? I think there's a proportion of readers who
| might feel grifted by regulatory capture (eg: unable to get
| on the housing ladder due to draconian zoning policy) and
| reasonably feel that some of the moral hazard has to be
| addressed to stop what has been unstoppable growth to give
| them a chance to establish financial security. It's a
| fallacy to see it as zero sum, but a temporary crisis in
| confidence might produce the only opportunity in a lifetime
| to create the conditions needed for affordable housing to
| be available for purchase for folks who can keep their jobs
| during the crisis. Many feel economically abandoned.
| lamontcg wrote:
| You can't just snap your figures and have the housing
| market drop by 60% and keep everything else the same.
|
| Those same people are going to lose their jobs and burn
| through all their savings and be unable to secure loans
| to buy houses.
|
| Even if you bank at a supposed safe and secure credit
| union, a systemic crisis will affect them as well. You
| won't be able to get a loan. There goes your opportunity.
|
| The whole financial and economic system is intertwined
| and you're part of it, if it blows up and crashes into
| the rocks, you're going down with the ship as well. Get
| over your Main Character Syndrome where you think you're
| going to be the one immune to the catastrophe.
| 88913527 wrote:
| I know many good, hardworking people who secured their
| position on the housing ladder in the aftermath of the
| global financial crisis. In conversation, they were
| bewildered by how much their homes appreciated even by
| 2018, well before the pandemic bump in valuations.
| lamontcg wrote:
| Destroying the depositors in SVB is not the way to go
| about lowering housing prices. Please figure out for
| yourself why that is true.
| BeFlatXIII wrote:
| Perhaps it's accepting their fate and making sure they
| take others with them.
| lamontcg wrote:
| Destroying the whole economy just as long as one silicon
| valley VC goes down with them?
|
| We're fucked if those people win, and I'm seeing that
| sentiment come from liberals and conservatives alike.
| csomar wrote:
| But is anything being done about it? It is both unequality
| and bananism at its best. You give money to the "rich"
| (though this time indirectly), you encourage recklessness
| and you also change the rules when you see fit.
|
| All of these described above are "disrupting" the economy.
| And none of them is in our interest.
| lamontcg wrote:
| Well I certainly proved my point.
| JumpinJack_Cash wrote:
| > > Governments are supposed to act in the best interest of
| the governed
|
| Many of the governed see what policymakers and politicians
| call 'systemic risk' and 'instability' as a not so unwelcome
| wildcard considering that the wealthy of today are mostly
| descendants of wealthy land owners from the times of the
| Crusades.
|
| > > They did their job and did it quickly and effectively
|
| Where are the Fed , D.C. , the FDIC etc. when a gas station
| goes belly up? Or a small family owned boat builder in Maine?
| Nowhere to be found. Their fault? Not being systemically
| important enough. Whatever the fuck that means.
| notfromhere wrote:
| Maybe in the UK you can tie a lot of wealth to the Norman
| aristocracy but the United States is far too new for
| anything like that.
| JumpinJack_Cash wrote:
| Ehm Anglo-Saxon people who killed all the indians come
| from UK and Germany
| ticviking wrote:
| Read over the history of the US settlement. While they
| came from the UK and Germany, the vast majority are not
| descendants of the Normans.
|
| One of the major draws to the US has always been the
| opportunity to do a little crusading of ones own and find
| whatever opportunity your courage and lack of scruples
| allowed you to get away with.
| nullc wrote:
| > Many of the governed see what policymakers and
| politicians call 'systemic risk' and 'instability' as a not
| so unwelcome wildcard considering that the wealthy of today
| are mostly descendants of wealthy land owners from the
| times of the Crusades.
|
| I'm curious if you have a citation to support that the
| wealthy in the US are descendants of wealthy land owners
| from the times of the Crusades at a substantially greater
| rate than the general population.
|
| > Where are the Fed , D.C. , the FDIC etc. when a gas
| station goes belly up?
|
| How much of their going belly up was due to Fed policy?
| Particularly driving and holding interest rates to near
| zero through market actions then pushing interest rates to
| nearly 5%?
| snarf21 wrote:
| While what you say is true, maybe we shouldn't allow mergers
| and other avenues to allow these banks (and other verticals)
| to be too big to fail. We've made that a target for all
| companies. Just get too big to fail and you get all the
| upside and none of the downside for free. That is my main
| complaint. By allowing deposits to be invested without risk,
| these too big to fail banks are _encouraged_ to chase the
| highest yield, highest risk re-investments possible. If it
| works, another yacht for everyone! If it fails, we must be
| made whole!
| dev_tty01 wrote:
| I think at least a part of the solution is to increase
| regulation as banks get larger. Since it is clear that the
| fate of very large banks is tied in to the the fate of the
| economy itself, they should be appropriately regulated. In
| particular, short term asset/deposit ratio requirements
| should be modified as a bank gets larger. That could reduce
| the need for the FDIC to step in when depositors get
| nervous and provide disincentives to getting too large.
|
| I think something like this could make large banks more of
| an asset for the economy rather than a liability. I
| wouldn't want to just set a maximum size. If a bank wants
| to get huge and maintain conservative and safe
| asset/deposit ratios, good for them.
| joe_the_user wrote:
| The problem is that guaranteeing a bank and regulating
| it's investments still changes the incentives for the
| bankers. The banker has an incentive make an investment
| that can presented as "prudent" but which actually has a
| large up and down side. The banker keeps the upside, the
| bank's depositors are protected from the downside and the
| worst the investors face is losing their existing
| capital.
| runeks wrote:
| Isn't that prevented by making only the depositors whole
| but wiping out the capital of shareholders?
| joe_the_user wrote:
| If you can use just a bit of capital to borrow a whole
| lot of capital, with the only risk to you being your
| original capital, then you can engage in very risky
| ventures, getting a huge payoff if you succeed and at
| worst losing your original capital if you lose.
|
| Come to think of it, that seems a bit like what SVB did.
| Buying long term bonds when interest rates were likely
| rise seems like a recipe for disaster - and in fact the
| logical outcome was this bankruptcy. But there was a
| chance that interest rates wouldn't have risen, at which
| point the shareholder get a big payoff, pocket it and go
| on to the next risky maneuver.
| snarf21 wrote:
| I would argue no. The issue is that the FDIC has deposit
| insurance limits already. The depositors are free-rolling
| on the amount they are getting made whole on above the
| limit. Then you are just encouraging some new kind of
| "bank" with limited access to become a customer (e.g. >
| $50M deposit) and then you can just put all
| "shareholders" in the role as customers. You are still
| giving free upside outside the rules that all other
| depositors are stuck with. Every investment comes with
| the statement: "Investment contains risk". If the bank
| wasn't leveraging these deposit as investment cash, there
| would have been no collapse.
| joe_the_user wrote:
| You're right this produces risk but you're wrong about
| exactly how.
|
| Any bank call pull in deposit and use them as capital.
| But being a customer also doesn't give one any particular
| upside - you just get interest on the money you deposit.
| And if you have a special bank with only large deposits
| and paying extra high interest, then regulators look at
| you and quite likely see something not to be protected in
| the same way.
|
| The way you get risk is basically the way SVB did it.
| Share holders can lose at most their entire capital but
| they can get to play with all the money the depositors
| give them. If they bet on something that pays off big,
| they get that payoff minus the modest interest they pay
| depositors and if they lose, they lose at most their
| capital.
| HWR_14 wrote:
| In every other FDIC bailout, all depositors have been made
| whole. I don't think any depositor (of standard accounts) has
| lost money.
| [deleted]
| patientplatypus wrote:
| I was reading this and came across "No losses associated with
| the resolution of Silicon Valley Bank will be borne by the
| taxpayer."
|
| What does this "special assessment on banks" mean in practice?
| Do they just go to all the bulge bracket banks and demand that
| they buy the outdated Treasuries at a loss? How does this work?
| adastra22 wrote:
| Higher FDIC insurance rates, which get passed on to banking
| customers.
| [deleted]
| mtremsal wrote:
| IIRC banks pay a fee to the FDIC in exchange for providing
| insurance, and because the FDIC is not funded by taxpayer
| money, the fee simply goes up when needed.
| fma wrote:
| In other words...it's funded by anyone who uses a bank. A
| quick Google shows that only 6% of Americans are unbanked.
| If 94% of Americans are going to see higher fees, lower
| interest rates on accounts, higher interest rates on loans,
| reduced services in order to make up for increased
| insurance fees, it's practically paid by tax payers.
| greenyoda wrote:
| > lower interest rates on accounts...
|
| These days, banks need to be competitive with Treasury
| rates to get large deposits from informed investors.
| Anyone with a brokerage account can get a 5% interest
| rate today on short-term Treasury securities (risk-free
| if held to maturity, and exempt from state/local income
| tax).
|
| So if banks start lowering rates on deposits, they may
| have a shortage of money for lending.
| hd95489 wrote:
| If they don't have required reserves they don't need any
| deposits.
| dahart wrote:
| Everyone being a taxpayer and everyone having a bank
| account is a coincidence. This does not equate to bank
| fees being taxes. I'm not saying you're wrong, but this
| argument isn't strong. It's the same as saying we're
| being taxed for smart phones or cars on the basis that
| most people buy them. A tax is something the government
| collects and it's mandatory. The other massive difference
| here is that the fees are distributed according to
| certain kinds of savings and investments, not according
| to income nor according to any and every bank account. I
| don't have bank fees, for example, for my checking
| account.
| briHass wrote:
| To continue your cell phone analogy, this could easily be
| like the 'number portability' regulation that was simply
| passed on to consumers as a fee that vastly overpaid for
| the cost and now represents almost pure profit for
| carriers.
|
| Banks are too smart to make it that obvious, however.
| They'll wind those fees in silently.
| BlueTemplar wrote:
| Is the fee progressive like tax ?
| dawsmik wrote:
| It could be borne by the tax payers who have bank
| accounts. But it is also possible the banks could bear
| some or all of the "tax" by lowering their margins.
| ericd wrote:
| It seems likely that it'd be proportional to your
| holdings in banks, though? So it's a bit of a wealth tax?
| Seems like people can put down their populist pitchforks.
| This is a pretty good application of an insurance scheme.
| ip26 wrote:
| Better filtered through the open market for banks than
| paid directly out of your taxes.
| WalterSear wrote:
| It's just easier to hide from voters.
| patientplatypus wrote:
| So there is SVB and Signature bank that have both collapsed
| in terms of $300 billion. If what you are saying is
| correct, does that mean that the banks are required to pay
| hire fees across the industry upwards of $300 amortized
| over a certain amount of years? If that's the case then the
| taxpayer will most definitely be on the hook. I don't know
| if spread across all taxpayers this fee would be
| negligible, and I also don't know how this would affect the
| CD rate that banks would offer to clients.
|
| Presumably it would force them to lower it, which would be
| counter to the anti-inflationary moves of the Federal
| Reserve, but that might not matter given that this is a
| current issue. It's possible this might also affect banks
| willingness to raise rates in the future in response to Fed
| tightening if they thought there was a risk to the banking
| sector.
|
| Given the size and how quickly the banks are failing I'd
| hazard a guess ( _this is not financial advice_ ) that in
| order for the FDIC to maintain it's own portfolio it would
| have to raise rates enough to be noticeable to consumers,
| even given the number of FDIC accounts.
|
| Can someone comment on if this is the case and how much
| this might affect forward guidance for banks and consumers?
| rowls66 wrote:
| I believe that SVB and Signature have total depositor
| liabilities of 300B. They also have assets that are worth
| a significant portion of that. Only the difference needs
| to be covered by the FDIC assessment. Depending on what
| happens in between now and when that assets are sold, it
| is possible that the assets end up being worth more than
| liabilities, and no FDIC assessment is needed.
| wmf wrote:
| _SVB and Signature bank that have both collapsed in terms
| of $300 billion_
|
| This is not correct. SVB, for example, owes depositors
| ~$150B but they also have assets of almost $150B. The
| hole that FDIC needs to fill in may be less than $10B; it
| may even be zero.
| firstlink wrote:
| This has been repeated _ad nauseam_ but it does not pass
| the smell test. If SVB were solvent then it would not be
| in receivership.
| evan_ wrote:
| It's a cash flow issue. Cash flow kills plenty of
| profitable businesses.
| hd95489 wrote:
| It's a true solvency issue. They could have announced
| this before the bank collapsed and it still would have
| collapsed eventually because assets were less than
| liabilities
| j16sdiz wrote:
| The rules was setup that FIDC can take over when they
| smell something wrong _before_ it is proven true
| insolvent.
| chernevik wrote:
| The basic analysis that the costs will ultimately fall on
| other banks' depositors is correct.
|
| That's why it's a bailout.
| danans wrote:
| A bailout usually means "company kept afloat via direct
| cash infusion from the government". In this case, the
| company and its assets are being liquidated to pay its
| depositors. The special assessment is to replenish any
| money spent by the FDIC's insurance fund, and as the
| press release says, that is required by law.
| [deleted]
| chernevik wrote:
| You can have your own private definition if you like, but
| people talking about financial failures having using the
| term "bailout" in connection with all sorts of
| stakeholders for decades.
|
| The word games being played around this are just
| embarrassing.
| notfromhere wrote:
| Because SVB is not actually bailed out. The company is
| dead, this just means the depositors don't lose their
| holdings and we don't watch a whole economic sector melt
| down while we debate the definition of words.
| danans wrote:
| Then let's call it what it is specifically instead of
| using such imprecise language: It's the sale of the
| assets of a bank in order to guarantee depositors' funds.
| It's _not_ like the way zombie banks were given money to
| continue to exist in 2008, or the way the GM and Chrysler
| were given money to continue operating at the same time.
|
| The use of broad-to-the-point-of-meaningless but
| emotionally charged terms like "bailout" results in
| stories that distort what's actually going on to fit a
| particular narrative.
| patientplatypus wrote:
| wmf - I can't reply to you. So I'm writing here - you
| should take a look at this.
| https://am.jpmorgan.com/content/dam/jpm-am-
| aem/global/en/ins.... The fifth chart has that while SVB
| has 12% of Tier 1 Capital Ratio, their fire sale price is
| effectively 0. I haven't looked at the numbers in-depth,
| but you're right. It's not 150 billion, but on the other
| hand it's not known who would be willing to buy their
| assets. It sounds like the government is going to take
| back the Treasury bonds and then raise FDIC rates. But if
| that's the case then, given that the current treasury
| bonds are selling at above the rates of previously sold
| 10 year bonds, who would buy these bonds? I don't know
| precisely how much of their assets on hand are treasury
| bonds, but I doubt any of these would be saleable except
| at current market rates. So it would be closer to $150
| billion * percentage treasuries * (current yield value -
| past yield value). I still think it would be high.
| kgwgk wrote:
| The hole - if any - should be much less than $300bn.
|
| (But sure, there is a huge overlap between taxpaxers and
| banking clients/shareholders.)
| nerdponx wrote:
| Right. You do stupid reckless stuff that causes a loss?
| Fine, your insurance premiums go up. Same as with homes and
| cars.
|
| The only outcome I'd like to see better are bonus clawbacks
| for the "removed" senior management.
| mtremsal wrote:
| I don't know about clawbacks on bonuses, but part of
| their comp is equity and shareholders are getting wiped,
| so you're pretty much getting your wish anyway.
| JamisonM wrote:
| THEY ARE NOT IN A TOUGH SPOT!!!!
|
| They know (and it is obvious) that all deposits are going to be
| fine without any extra funds, wacko VC's and nutjob politicians
| are stoking the sort of flames that might cause a contagion so
| they are forced to make statements like this.
|
| The fact that the statement is so milquetoast is certainly on
| them, but being uber-conservative in your promises is generally
| a failing/asset for bank regulators.
| woeirua wrote:
| ... which is why Signature Bank was also placed in
| receivership this weekend. The contagion was spreading, if
| they did nothing there would be runs on a number of banks
| tomorrow. There still may be runs tomorrow.
| MrMan wrote:
| there is no contagion except that spread by these fucking
| criminal VCs on twitter.
| JamisonM wrote:
| Looking at other banks that maybe be in a similar position
| and taking prompt action is competence to be celebrated, I
| view it as more evidence that despite weaknesses in the
| regulatory framework they are not in a tough spot at all.
| They know they can act decisively without fear.
|
| A tough spot would be an environment where they let the SVB
| situation drag out and didn't act on Signature until a run
| was in motion and had both to deal with at once.. then they
| would be fighting to restore confidence.
|
| If you look at the numbers from 2007-08 and this stuff,
| plus the much tougher regulatory environment (despite SVB's
| ability to fall under a lot of thresholds) there just isn't
| the sort of systemic risk at play here that folks seem to
| be implying. Also this isn't a replay of the S&L Crisis of
| the 1980's because those lessons were actually learned but
| some institutions are still going to screw up because a
| rising interest rate environment is still challenging in
| the current regulatory regime.
| [deleted]
| machina_ex_deus wrote:
| This is going to be the beginning of the end of the banking
| system. I foresee a huge dollar collapse, the US banking system
| has just lost its final shred of credibility. It's only a
| facade of a bank at this point. It's just privileged people
| with a government mandate to leverage on everyone else's money
| with no consequences.
| tppiotrowski wrote:
| Crypto undergoes hard-forks when "special" circumstances
| arise. It's not immune to unpredictable events.
| machina_ex_deus wrote:
| It's more immune to moral hazards. But I'm not really into
| crypto, I'm just purely frustrated by the current system.
| It's an absolute joke at this point.
| dclowd9901 wrote:
| 1) why shouldn't it be unlimited and 2) if it is, why are banks
| private?
|
| This is exactly the way I'd expect a good government to
| respond: protect the people who could not have known better and
| fuck the rest.
| throwawaaarrgh wrote:
| > this is yet another example of changing the rules in the
| middle of the game.
|
| welcome to democracy bro. also, economies are _literally_ black
| magic. if anyone claims to know how to make them work right,
| they are either lying or a witch.
|
| Edit: oh shit I'm getting downvoted to hell. Was it my
| suggestion that economists are full of shit, or denigrating
| witches? Because I have nothing against witches.
| pmarreck wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited, as long as you can threaten wider disruption to the
| economy
|
| "If you owe the bank $100 that's your problem. If you owe the
| bank $100 million, that's the bank's problem." - J. Paul Getty
|
| (Or as I heard it more aptly paraphrased, "if you owe the bank
| a million dollars, the bank owns you. If you owe the bank a
| billion dollars, you own the bank.")
| mikewarot wrote:
| >At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy.
|
| If this wasn't done... nobody in the world is going to trust
| their bank within a few days (possibly faster than that thanks
| to twitter, et al), which would trigger Global Depression II
|
| If someone in 1930 overheard a time traveler referring to World
| War 2.... the shock would have been overwhelming.
|
| In the same way, seeing the start of World Depression II isn't
| something I could bear.
|
| It _must_ be true that bank deposits are safe.
| j0hnyl wrote:
| If it didn't happen so fast they probably would have gotten
| some kind of bailout before fdic stepped in.
| beebmam wrote:
| How do you square this statement of yours:
|
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited, as long as you can threaten wider disruption to the
| economy.
|
| with this quote from the Treasury Dept statement?
|
| > "No losses associated with the resolution of Silicon Valley
| Bank will be borne by the taxpayer."
| unethical_ban wrote:
| "Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special
| assessment on banks, as required by law."
|
| The fungibility of money aside, my personal taxes will not
| pay for this.
| Uvix wrote:
| If you have any money in any other bank, you're paying for
| this.
| toughlover917 wrote:
| EXACTLY! This will be born by the taxpayer. What were all the
| VCs f*cking thinking concentrating all their portfolio
| companies in one financial institution? This was terrible
| decision making on their part (and by the portfolio
| companies). Why does this all of a sudden become a taxpayer
| liability? Because All-In bros got on Twitter and started
| spamming people?
| notfromhere wrote:
| FDIC gets its money by a fee charged to banks. Tax money
| isn't going into this
| toomuchtodo wrote:
| Where do banks get their revenue and profits from? It's
| really immaterial; if depositors weren't taking a
| haircut, all of us do in some form or another, it's
| simply the optics that change (banks, the Treasury, the
| Fed, whatever).
|
| C'est la vie.
| [deleted]
| leot wrote:
| No one knows that taxpayers will have to pay anything for
| any of this. It's possible they'll end up ahead. The assets
| were/are there to cover depositors. The timing of the asset
| liquidation/redemption is the problem, and only the "bank
| of last resort" can help avert contagion from skittish
| depositors, mass layoffs, and pointless disruption.
|
| As said above: would you prefer to see hundreds or
| thousands of small companies fail, their employees go on
| unemployment insurance, etc.?
| rudedogg wrote:
| > No one knows that taxpayers will have to pay anything
| for any of this. It's possible they'll end up ahead.
|
| Wouldn't SVB have been sold at auction by the FDIC if
| that were likely to happen?
|
| I don't want to see startups fail or people lose their
| jobs, but this all feels like a cloaked way of passing
| the cost of the bailout onto the taxpayers (via raised
| FDIC fees that will trickle down).
| [deleted]
| ProjectArcturis wrote:
| Unlimited FDIC insurance has been the unofficial rule for some
| time now. No depositor has lost money since 1933, not even when
| Lehman went bankrupt.
| selimthegrim wrote:
| IndyMac depositors lost money IIRC
| beezle wrote:
| Worse, it is also a lie that the cost will not be paid by
| taxpayer. Of course it will be - the remaining banks are going
| to pass the cost on via fees, higher loan rates and lower
| deposit rates?
|
| Yellen is not clueless. She knows exactly how this will play
| out but as it will be spread over time and to many counterparts
| she simply does not care.
|
| This is terrible moral hazard. Uninsured depositors should have
| taken whatever haircut would result after the auction. That is,
| after all, the meaning of uninsured.
| ketzo wrote:
| Lol. If every depositor at SVB just instantly took the
| straight-up haircut -- to the tune of -20% or worse - 50 more
| banks would fail in the next week.
|
| Feds are averting national crisis here.
| hellojesus wrote:
| The crisis needs to happen to correct badly allocated
| capital.
| sinzone wrote:
| The was a way to get AHEAD of time. The bank regulatory
| [Liquidity Coverage Ratio] should have never been pushed to
| $250B in Deposits threshold.
|
| It was at $50B for a reason since 2008. But Trump
| administration lifted to $250B in 2018.
| dragonwriter wrote:
| > At the same time, this is yet another example of changing the
| rules in the middle of the game.
|
| No, its not.
|
| The "rules" of the "game" authorize systemic risk exceptions,
| so applying them is not a change to the rules of the game.
| Moreover, civilization is one continuous game, changing the
| rules in the middle is the only way to ever change the rules.
| treis wrote:
| > changing the rules in the middle of the game
|
| Part of the rules are that the regulators are supposed to shut
| down a bank before the run happens. They're not supposed to let
| the run happen and let the poor saps that were too slow moving
| their money bear the brunt of the losses.
| tz192045 wrote:
| Yes, and had SVB (among others) not successfully lobbied
| Congress in 2018 to get big regional banks excluded from more
| stringent "stress test" requirements, perhaps the regulators
| could've detected faults in SVB's capital before it was too
| late.
| treis wrote:
| Isn't that between SVB (among others) and the regulators?
| aunterste wrote:
| "Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks,
| as required by law."
|
| Yeah, all corporate customers that have seen an FDIC charge on
| their statement, based on Q-end balances will have a "special"
| laugh at this. It's going to be passed through and not be bourn
| by the surviving banks - that benefit from this 'bailout' of
| their customers....
| chank wrote:
| > changing the rules in the middle of the game.
|
| That's literally how legal systems work.
| metalspot wrote:
| not credible ones. google "ex post facto law" if you are
| confused about this.
| chank wrote:
| No, all credible ones work by updating "rules" on the fly.
| That's literally how most laws are made in general.
| Something bad happens and appointed agencies and
| legislators rule and/or pass laws to cover that bad thing
| from happening again. Ex post facto only deals with
| retroactive aspects. Which isn't happening here. Just
| because the government acted one way in the past and not
| the same way in this instance does not equate to the
| retroactive definition of ex facto law.
| yibg wrote:
| Isn't the systemic risk exception exactly planning for cases
| like this ahead of time?
| voisin wrote:
| > broadcast that FDIC insurance is essentially unlimited
|
| Shouldn't it be? The government is in the best position to
| regulate and manage the risk of these institutions. We cannot
| expect average depositors to be financial analysts with the
| capacity to assess financial institutions.
| xmonkee wrote:
| what's stopping a bank from making really risky loans, give
| super high yields? Everyone will go to that bank since there
| is no risk to them?
| bandrami wrote:
| Because that's not how modern banking works. This isn't
| George Bailey lending out deposits; retail banks don't use
| deposited money at all it just kind of disappears.
| Waterluvian wrote:
| How can they change the rules? Surely it's already written into
| law... right? Are they actually able to unilaterally decide to
| tax banks to fill up their rainy day fund?
|
| My guess is that they're not changing the rules, they're
| utilizing them. Either that, or they have far too much
| executive power over banks. Which would be shocking.
| roflyear wrote:
| Perfect policy doesn't exist. I prefer this to hard line
| actions that cause massive harm because it's impossible to
| account for all situations.
| svnt wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited, as long as you can threaten wider disruption to the
| economy.
|
| You are almost certainly misreading that signal. Probably since
| Friday they have assessed that the depositors can be covered
| once the assets can be liquidated, and that they may even be
| able to make money doing it.
|
| If they can't, they can assess the rest of the losses to the
| system, and those losses once divided up are likely to be
| inconsequential, even if not considered in relation to a
| broader run on the banking system.
| hellojesus wrote:
| > Probably since Friday they have assessed that the
| depositors can be covered once the assets can be liquidated,
| and that they may even be able to make money doing it.
|
| The same assets that are yielding <4% interest against a
| market rate of 5%+ or 7%+ or whatever it is? Seems like it's
| going to take a long while before those papers are trading at
| or above cost when you account for inflationary devaluation
| and their yield horizon.
|
| There is certainly a cost here. The insolvency of the paper
| is the entire reason the bank failed in the first place.
| rjzzleep wrote:
| I never thought Mnuchin was the most competent of all people
| but regardless of how this particular SVB saga plays out,
| Yellen has to be one of, if not, the most incompetent treasury
| Secretary of the recent past.
|
| She came into power and the first thing she did was suggest a
| global minimum tax rate, as if that would have fixed the
| accounting tricks that companies use to reduce the actual tax
| they pay.
|
| Disconnecting the Russian central bank from swift and an oil
| and gas price cap have been immensely damaging for the western
| financial system and the international standing of the
| dollar(and the euro).
|
| We now have countries increasingly integrating with alternative
| bank messaging systems and an accelerating of US reserve sell
| offs, along with what seems like the initial steps of the
| creation of something like an OPEC alternative for gas.
|
| Not only that, it seems that because they never coordinated the
| sanctions with the banks it seems like only ~30 billion of the
| supposed 300 billion of frozen Russian assets can be accounted
| for, meaning they got to pull their money out and meanwhile the
| Russian on the other just from 150 billion in return.
|
| Get this incompetent person out the door before she destroys
| more of the USs financial system.
|
| "We economists don't know much, but we do know how to create a
| shortage. If you want to create a shortage of tomatoes, for
| example, just pass a law that retailers can't sell tomatoes for
| more than two cents per pound. Instantly you'll have a tomato
| shortage. It's the same with oil or gas." - Milton Friedman
| Eumenes wrote:
| Agreed 100% Yellen sucks. She would be bad in "good"
| financial times, but in our current times, its even worse.
| Mismanaged inflation (or at least perception of it) and is
| offering the US as a personal bank to Ukraine (among 100x
| other things).
| vishal0123 wrote:
| > Thus, on one hand, I'm glad they're doing this, as it should
| help prevent wider bank runs
|
| Could you expand? My first thought was that the bank who is in
| verge of crisis could tip over with additional burden.
| pmorici wrote:
| Because a major component of this is human nature causing bank
| runs they are betting that by doing this upfront it will be
| cheaper than not doing it and risking a high number of similar
| bank runs in the coming month as word spreads it isn't safe to
| keep money over the insurance limit in banks because of the
| unrealized loses on bonds.
| luckylion wrote:
| At the same time, they've essentially raised the insurance
| limit to infinity. Depositors will be made whole, and if they
| aren't the next time something happens, they'll need some
| very good arguments for why the 9th largest bank is now also
| too big too fail but e.g. the 11th largest isn't.
| dragonwriter wrote:
| > At the same time, they've essentially raised the
| insurance limit to infinity.
|
| No, they haven't. The systemic risk exception was used
| during the last financial crisis for some banks and not
| others, so using it now doesn't raise the insurance limit,
| actually or "essentially". There is (still) no guarantee
| that it will be used for any particular failure in the
| future, just like there wasn't after the last financial
| crisis, and people _have_ lost funds in excess of the $250K
| insurance limit since the last use of the systemic risk
| exception.
| bink wrote:
| One could argue that SVB depositors would not be
| expecting the be made whole if it weren't for the
| bailouts of 2008. The precedent has been set and
| reinforced. It's hard to argue that this will not
| encourage more risk taking and moral hazard.
| pmorici wrote:
| That precedent was set at least as far back in the early
| 90's when they made depositors of Bank of New England
| Bank whole after it failed in 1991. This isn't something
| that started with the financial crisis of '08
|
| https://www.nytimes.com/1991/01/07/business/us-is-taking-
| ove...
| pmorici wrote:
| It is already substantially higher than $250k because you
| can spread your funds between multiple banks. There are
| even cash management accounts from Fidelity and others that
| automatically place your funds with multiple banks to get
| higher insurance levels for larger amounts of cash. Their
| Fidelity cash management account allows you to spread cash
| among 26 different banks so you could have 6.5 million FDIC
| insured. Fidelity isn't the only financial institution to
| offer this service.
| swatcoder wrote:
| My read is that they see the shortage at SVB as relatively
| small and that they may be closing some marginal banks like
| Signature ahead of true insolvency/illiquidity to both protect
| depositors and minimize reactionary withdrawals across the
| broader market.
|
| And it sounds like they have the authority to just do this on a
| Sunday, so it doesn't sound like any rules being changed.
|
| If I was a banker with a marginal portfolio, I wouldn't be
| encouraged by this. Depositors are making it out, but banks are
| being aggressively shuttered to make that happen.
| hammock wrote:
| >they may be closing some marginal banks like Signature ahead
| of true insolvency/illiquidity
|
| That seems unjust and probably illegal. What makes you think
| Signature isn't actually insolvent?
| swatcoder wrote:
| Maybe they are. I would assume that the government has some
| discretion over when to intervene, since financial status
| is dynamic, but I don't know.
| lmm wrote:
| The government can't generally arbitrarily seize an
| operating business. (Indeed, in the recent Johnson &
| Johnson court case we saw the opposite: they asked to
| undertake bankruptcy proceedings early because they're
| facing a large liability, the government said no, not
| until you're proven to be actually bankrupt)
| nullc wrote:
| Sounds like a bit of a hazard: the difference between
| insolvent or not for many entities is just accounting
| conventions. Lock in some non-MTM losses-- wham!--
| insolvent.
|
| Why should bankruptcy protection be denied to any entity
| that would be unquestionably qualified if they simply
| took an additional legitimate action that would make
| their creditors worse off?
| sgregnt wrote:
| Communism
| antonvs wrote:
| > I really wish we could plan for these entirely foreseeable
| events ahead of time so that it's not just cases of "selective
| justice" with regards to who gets bailed out.
|
| That's an unrealistic utopian fantasy. The real world doesn't
| even remotely lend itself to that kind of planning.
|
| Even calling it "selective justice" involves an unrealistic
| bias. What is happening is that the particular circumstances
| are being weighed an a suitable response is being formulated.
|
| The rulebook for planning for all such events ahead of time
| would not be that much shorter than the future history of human
| civilization.
| Lazare wrote:
| > At the same time, this is yet another example of changing the
| rules in the middle of the game.
|
| Not exactly. Or rather _yes_ , but the rules changed in 2008,
| not this week. Specifically after IndyMac failed in 2008, there
| was significant blowback on the FDIC from Congress, and an
| unoficial, unnounced policy was put in place to ignore the
| $250k limit and ensure uninsured depositors took no losses in
| (almost) all cases.
|
| From https://www.americanbanker.com/opinion/will-fdic-keep-
| protec...:
|
| > Of the 127 banks and thrifts that failed from Jan. 1, 1993,
| to the last bank that failed before IndyMac was closed [...]
| 71% of the total deposits of the 127 failures were in
| institutions where uninsured depositors suffered a loss, while
| 29% of the deposits were in institutions resolved through a P&A
| that fully protected uninsured depositors from any loss
| whatsoever.
|
| Whereas:
|
| > Since IndyMac, there have been 522 failures, excluding
| Washington Mutual [...] Of the 522 failures, just 31, or 5.9%,
| were resolved in a manner that only protected insured deposits
| -- uninsured depositors were therefore put at risk of a loss.
| Those 31 banks and thrifts held just 4.9% of the deposits of
| the post-IndyMac failures.
|
| (Washington Mutual is excluded because it was enormous compared
| to the other failed banks - although since uninsured depositors
| were protected, including it just skews the stats even
| further.)
|
| So for the past 15 years, we've had a system where the
| _overwhelming_ majority (well over 95%) of uninsured deposits
| were protected, and thus, it would have been legitimately very
| surprising if recovery for uninsured deposits in SVB _wasn 't_
| 100%, because it's very clear that unstated FDIC policy is to
| aim for that, and they've got a strong track record of
| achieving it. (I will state that I find the hidden nature of
| this policy problematic, however.)
|
| The only thing surprising about events so far is that there's
| been enough noise that some new policies had to be announced,
| instead of it all just being quietly resolved like normal.
| siavosh wrote:
| I view it kind of like parenting. Depending on what kind of kid
| you've raised you may not want to signal to them that no matter
| what you'll financially bail them out. Hoping they'll make the
| right choices.
| apendleton wrote:
| Who are the kids in this analogy? It seems like what's at
| issue is whether or not depositors are protected (executives,
| shareholders, and creditors are all getting the shaft). Do
| you think depositors should have made different choices, and
| if so, which?
| lmm wrote:
| Depositors shouldn't have piled all their assets into one
| bank because it was paying slightly more interest. Not
| saying every depositor did that here, but many did.
| astrange wrote:
| Nobody used SVB because it paid more interest. (It didn't
| pay interest at all in fact.)
|
| They did it because the name was cool or because other
| banks wouldn't give you an account for your startup at
| all. It's normal to go for a regional bank when regular
| ones don't understand your business.
| siavosh wrote:
| I wouldn't take the analogy too literally. But the 'kids'
| are all market participants in the system the government is
| trying to regulate. My point being is there is a reason
| certain entities don't communicate with full transparency
| and sometimes they find ambiguity a tool. Now whether this
| is the right or wrong thing to do in this case in the short
| and long terms...I'll have to leave that judgement to the
| history books.
| dehrmann wrote:
| This probably sealed the deal:
|
| > We are also announcing a similar systemic risk exception for
| Signature Bank, New York, New York, which was closed today by
| its state chartering authority.
|
| Two closures in three days is a sign that you have to take this
| very seriously.
| markus_zhang wrote:
| Now I want to see hedge funds and bankers call the bluff and
| continue to run other smaller regional bank.
| icedistilled wrote:
| I'm pretty sure there would have been a run some other large
| banks had they not taken these measures. I've gotten several
| emails from a major regional bank basically saying "WERE FINE
| TRUST US" over the last few days and I don't even have an
| account which means they're spamming all their email lists. I
| did apply for a position at them a while ago so that's my
| best guess why they are spamming me their unreassuring
| message. The several banks I actually use have not done that.
| cavisne wrote:
| Curious there was nothing about silvergate?
| hn_throwaway_99 wrote:
| Silvergate was already getting wound down, and unlike SVB
| and Signature didn't need a fed backstop.
| cavisne wrote:
| so silvergate assets exceeded/matched its deposits? I
| know it was a pretty niche bank just curious as I thought
| it was in a way worse position.
| blihp wrote:
| Silvergate is tiny (assets-wise) compared to SVB and
| Signature and not worth a mention as it poses no systemic
| risk.
| greenyoda wrote:
| > > We are also announcing a similar systemic risk exception
| for Signature Bank, New York, New York
|
| Signature was another bank whose business was primarily in a
| volatile and risky market:
|
| _" Signature is one of the main banks to the cryptocurrency
| industry, the biggest one next to Silvergate, which announced
| its impending liquidation last week. It had a market value of
| $4.4 billion as of Friday after a 40% sell-off this year..."_
|
| https://www.cnbc.com/2023/03/12/regulators-close-new-
| yorks-s...
| radicaldreamer wrote:
| This is going to put every regional bank on the map for short
| sellers as equity holders are being wiped out in these cases
| without depositors being affected. Why would anyone invest in
| any regional bank with the risk of a equity wipeout day to
| day?
| swatcoder wrote:
| > Why would anyone invest in any regional bank with the
| risk of a equity wipeout day to day?
|
| Because some have better books and management than others
| and will be underpriced because of reactionary selloffs
| like you describe?
| bagels wrote:
| Huge opportunity tomorrow to buy if you are able to
| actually find them.
| tedivm wrote:
| They're also taking action to prevent this kind of thing
| from happening again-
|
| > The Fed facility will offer loans of up to one year to
| banks, saving associations, credit unions and other
| institutions. Those taking advantage of the facility will
| be asked to pledge high-quality collateral such as
| Treasurys, agency debt and mortgage-backed securities.
|
| > "This action will bolster the capacity of the banking
| system to safeguard deposits and ensure the ongoing
| provision of money and credit to the economy," the Fed said
| in a statement. "The Federal Reserve is prepared to address
| any liquidity pressures that may arise."
|
| https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-
| st...
| radicaldreamer wrote:
| Yet signature bank was shut overnight?
|
| Not sure a new $25 billion facility matters when outflows
| can hit that much in a couple of hours.
| makestuff wrote:
| So if i understand this correctly you can get a 0%
| interest loan as a bank if you need liquidity? I wish I
| could put my assets up for a 0% loan...
| bradleyjg wrote:
| Not only that but they'll loan you more than the security
| is worth!
| xuki wrote:
| This is dog shit because banks can now buy bonds at
| market value and use them for collateral at par value.
| Brilliant idea really.
| naveen99 wrote:
| Not 0%
| bradleyjg wrote:
| A larger bailout
| cavisne wrote:
| Doesnt this just push the can down the road? Interest
| rates will likely be higher not lower in 1 year so their
| bond portfolio will be even more underwater.
| Tuna-Fish wrote:
| No, so long as the average maturity is not too long.
|
| The long-term bonds would have paid back enough money for
| SVB to pay back every depositor if there had not been a
| run that forced them to pay them all back at the same
| time. Knowing that everyone can get 12 months of runway
| will do much to allay fears and so reduce risk of further
| runs.
| pishpash wrote:
| Weren't these 10-year bonds and negative-convexity MBS?
| 12 months doesn't improve the position at all, but maybe
| you can keep applying for these loans in which case it's
| just another QE.
| pseudo0 wrote:
| What interest rate does that assume for depositors? Sure,
| the face value of the bonds in 2032 dollars might have
| been enough to pay back the 2022 obligations to their
| depositors, but banks are routinely offering 2-4%
| interest in high interest savings accounts now. So either
| depositors will leave for better options, or SVB would
| have had to offer competitive rates (digging the
| insolvency hole deeper).
| everybodyknows wrote:
| Big banks are still offering sub-1% rates:
|
| https://www.usbank.com/bank-accounts/savings-
| accounts/elite-...
|
| Compare that to a money market fund from a stock broker
| at 4.5%:
|
| https://www.schwab.com/money-market-funds
|
| The question is, how quickly do simple folks figure out
| they're being slowly bled, and start moving their cash to
| some place where it's appreciated?
| thefounder wrote:
| So bailouts again....
| beezle wrote:
| Moral hazard once again. At least previously there was a
| 5% haircut, now apparently nothing. And the loan is
| against the par value, not market value.
|
| If 2008 did not do it, 2023 has institutionalized moral
| hazard in the financial system. Never, fear the Fed is
| here! We will absorb all!
| skybrian wrote:
| What kind of moral hazard? Let's be specific about who
| did something wrong. Do you think that businesses should
| worry about whether their bank has hedged enough against
| rising interest rates? Or maybe they should subscribe to
| news alerts telling them sooner when to get out?
|
| The shareholders getting wiped out and bank management
| replaced seems like pretty strong incentive for the bank
| itself not to screw up.
| Rury wrote:
| I think that's dubious. If management can make off with
| enough money prior to being wiped out, and it won't be
| clawed back, then there's still potentially a moral
| hazard at hand. So what if we lose the bank! We'll make
| off with millions anyhow, by investing other people's
| money imprudently.
| skybrian wrote:
| Okay, but how does punishing the depositors for
| management mistakes fix that? It definitely increases the
| damage, though.
|
| The shareholders lose it all if the bank goes bankrupt.
| They should have incentive enough to watch over
| management. If they don't notice, how does it help for
| depositors to have their money at risk too?
| briHass wrote:
| Fine, but let's talk about the other side of the
| equation: who should pay to make the depositors whole?
| Did the depositors do everything in their power to insure
| against their risk? Is there something in place already
| to help depositors get some of their money back
| immediately, and likely more as legal proceedings
| complete?
|
| It's certainly not clear to me why the depositors, as
| crappy a deal as they got, should be bailed out by
| unaffected banks that are financially healthy or, as is
| the case no matter what, the rest of the citizenry should
| pay.
| beezle wrote:
| I think it is also necessary to consider that many of the
| regional banks have more diverse clients - individuals,
| small business and some mid/larger business dealings.
|
| Perhaps I'm wrong but I suspect a much higher share of
| deposits are under $250K than the 3% at SVIB. The larger
| deposits are likely from companies doing a much better
| job of spreading counterparty risk around, ie
| traditionally managed companies.
| skybrian wrote:
| The way insurance works is that you pay a premium so you
| don't need to worry about a risk, whether or not disaster
| happens to you personally. The timing is a bit irregular,
| but morally it seems similar?
|
| If paying for deposit insurance were available for large
| accounts, I expect many businesses would choose it. Might
| as well make it the default?
| andrewfong wrote:
| The short-term case for other banks bailing out
| depositors is that any systemic risk affects all banks
| and the rest of the citizenry, albeit indirectly.
|
| But I think it's probably economically sound in the long-
| term as well. That is, asking every depositor with $250K+
| to assess the financial health of each bank they use and
| maybe buy insurance is collectively more expensive than
| just having the FDIC implicitly insure all deposits.
|
| That's different than asking if it's "fair". But I would
| wager it's probably more efficient.
| briHass wrote:
| Insurance always has a cap in the payout at some dollar
| amount, usually directly related to the amount one is
| willing to pay for the insurance. It's usually up to the
| insured to balance those two factors to get adequate, but
| not excessive, insurance for the risks they are exposed
| to.
|
| Most of the arguments I've seen are effectively arguing
| that 250K is too low an amount. While that may be true,
| that was the well-established 'rule of the game'. The
| FDIC limit was no doubt chosen, as most insured amounts
| are, to cover the majority of damaged parties, for an
| acceptable cost.
|
| This isn't grandma or Joe/Jane Public losing their life
| savings; the FDIC insurance easily covers the vast
| majority of individuals depositing cash. These are
| businesses that have, or should have, the financial
| wherewithal and resources to mitigate their risk beyond
| the FDIC baseline.
| throwaway2847 wrote:
| Absolutely, businesses should worry about bank failures
| taking down their uninsured assets. If a business's
| assets are not insured, they should not expect to be made
| whole by an insurance policy in case of tail risk
| failures.
| beezle wrote:
| Absolutely a business should be worried. I'll give two
| examples, one old one recent.
|
| As a college student I worked as an office temp at the hq
| of an midsized areospace company. They had a Treasurer,
| Asst Treasurer and clerk. Part of my job every morning
| was to get the short term deposit rates from a list of
| banks whom they did business with. They then would place
| their excess cash with a number of those banks.
|
| More recently, I was president of an HOA. Over a span of
| 5 years we built up a reserve account to just over $1M
| for a planned capital improvement. Every 250K we opened a
| new bank account. Had there been a delay in starting the
| project we would have opened a 5th.
|
| So yeah, the Treasuer and staff of all of these companies
| should be taken to the woodshed and most likely fired for
| incompetency.
| tedivm wrote:
| Did you explicitly open the new account at a new bank?
| Because if you just opened a new bank account at the same
| bank you don't actually get any extra protection.
| naasking wrote:
| > As a college student I worked as an office temp at the
| hq of an midsized areospace company. They had a
| Treasurer, Asst Treasurer and clerk. Part of my job every
| morning was to get the short term deposit rates from a
| list of banks whom they did business with. They then
| would place their excess cash with a number of those
| banks.
|
| Wouldn't it have been more useful if that job simply
| didn't have to exist, and they could just deal with one
| bank, and then that extra capital could have gone to
| something more useful?
|
| Change the game so the risk is being managed in a way
| that doesn't require every single company to wastefully
| play financial hopscotch so they can instead focus on
| doing what they do best.
| skybrian wrote:
| Do you think that was a good use of your time? Maybe it
| would be better if depositors didn't have to worry about
| such things. What would be lost if all that busywork just
| went away?
| hellojesus wrote:
| Free markets
| [deleted]
| [deleted]
| FormerBandmate wrote:
| At the same time, why would the bank runs continue? AFAIK,
| this was sparked by Silvergate's slow motion collapse
| climaxing on Wednesday, and the infinite FDIC threshold
| makes more bank runs pointless and self defeating
| astrange wrote:
| It was sparked by Founders Fund telling everyone to get
| money out of SVB, which didn't have any crypto exposure.
| They're invested in another startup bank (Mercury) so I
| think prosecuting a few VCs would encourage the others.
| MaxGabriel wrote:
| Founders Fund hasn't invested in Mercury
|
| List of investors here:
|
| https://mercury.com/about
| 0xB31B1B wrote:
| people aren't going to pull their money out now that the
| deposits are essentially guaranteed, that is the point.
| Business can go on as usual.
| lmm wrote:
| Every business has the risk of an equity wipeout if it goes
| bankrupt. SVB was always going to have its equity zeroed,
| the only question was whether depositors were also going to
| lose out.
| dehrmann wrote:
| Reminds me of a knee-jerk post someone made here promoting
| credit unions. They didn't intend for this reaction, but
| credit unions actually have the same risks as SVB because
| their member pools aren't diversified. The ironic lesson
| was that you should bank with JP Morgan, Citi, or BofA.
| [deleted]
| dragonwriter wrote:
| > This is going to put every regional bank on the map for
| short sellers as equity holders are being wiped out in
| these cases without depositors being affected. Why would
| anyone invest in any regional bank with the risk of a
| equity wipeout day to day?
|
| Why would anyone invest in any business when the risk of
| bankruptcy exists (FDIC bank takeovers and their
| resolutions, with or without application of systemic risk
| exception, are in effect a specialized form of bankruptcy,
| with a different set of priorities for who gets a haircut,
| but equity holders are _always_ low on the list for either
| these or conventional bankruptcies.)
| MichaelMoser123 wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited
|
| This is like a hotfix.
|
| I don't think that the pile of money is unlimited - all bets
| are off if something happens to a big bank.
|
| Or they stop raising interest rates, and then inflation goes
| up. Don't know how the banks will cope (or anyone else for that
| matter...)
|
| I guess the banks know that, so they may be afraid to take up
| new risks in the near future.
| JustSomeNobody wrote:
| Tech company lays off 10K workers, HN is like, well, they have
| a fiduciary responsibility to their investors!
|
| SVB takes a dive and wants a bailout, HN is like, think of the
| workers!
|
| WTF?
| dpweb wrote:
| Not much of a choice. Guarantee of the system takes highest
| precedence.
|
| Although this problem was caused by bank malfeasance and yes
| this does imply de facto unlimited insurance, unlimited
| depositor insurance is kinda the whole point and is not itself
| a bad thing.
|
| Yes, moral hazard is a huge consideration, but I don't see
| depositor protection as encouraging future failures of this
| type, by encouraging bad risk taking by mgmt.
|
| Rather, if banks bet their customers money unhedged on endless
| zero rate policy, as SVB did, there should be regulations that
| prevent it. Trace back to lobbying to exclude SVB from dodd
| frank regulations also at the heart of the crisis.
| stuckinhell wrote:
| Yellen and the FDIC have just made a disastrous long term
| mistake for the country.
|
| 1. By next month banks and companies will realize there is no
| limit to the printer at all. After 2008, we've seen the banks
| and financial sector misbehave constantly, so expect massive
| deliberate tanking of entire sectors of the economy because why
| work when infinity bail money exists.
|
| 2. People in the country are already agitated by many social
| and economic grievances. The average American savings account
| balance is $4,500. This will one million percent cause a social
| backlash that will make the Trump movement seem like a child's
| party. Both the left and right radicals view silicon valley as
| the center of fascism/wokism, and the average person is barely
| scrapping by in a time of rampant grocery store inflation.
| Twitter/Reddit/Etc are full of people taking pictures of their
| grocery store carts and comparing costs.
|
| Examples need to be made to restore faith in the system, Yellen
| and the Biden could have used this moment to restore faith by
| punishing the banking executives.
|
| Political instability and extremism will now increase
| dramatically.
| twblalock wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited, as long as you can threaten wider disruption to the
| economy.
|
| I think everyone knew that already. Since 2008 at least.
|
| It's very possible that if this is not done, the only banks
| left at the end of the week will be the "too big to fail" ones.
| A domino effect is very hard to prevent when it's based
| entirely on consumer confidence and those consumers can very
| easily create a bank run on literally anything if they freak
| out.
| H8crilA wrote:
| And perhaps there's no other way? The Japanese did the same
| with their overpriced real estate provlem, Europe did the
| same with their almost defaulting countries.
| twblalock wrote:
| Think about who gets hurt if the banking system collapses.
| It ripples out into the rest of the economy, because in
| fact the economy runs on debt. It would be harder to
| maintain existing businesses and start new ones if there
| was a credit crunch -- we lived through a credit crunch
| after 2008 and it was very bad for everyone.
|
| Even if you want certain people to get hurt by this (and
| there is definitely a baying mob that seems to want to
| cause as much suffering as possible because they just _don
| 't like_ certain classes of people), keep in mind that this
| could cause a 2008-style recession that hurts everyone.
|
| Who do you think gets hurt more by an economic downturn?
| The billionaires who lose millions and end up still being
| rich, or the working people who lose their jobs and can't
| afford housing? This isn't a theoretical question, we know
| the answer because it happened before.
| hellojesus wrote:
| The desire to let it all burn comes from those who played
| by the rules.
|
| The government's intervention creates moral hazard: those
| that played with fire got burnt, and those who didn't
| didn't, but those who didn't get burnt were positioning
| themselves to take advantage of the opportunities that
| the crispy bodies would have generated.
|
| But the government swooped in and saved the crispies,
| without penalty to them, at the cost of those who had
| proper risk-adjusted positioning.
|
| We see this time and time again. The government is
| changing the rules after the game is over to change the
| losers to winners. It's nonsense.
| xeromal wrote:
| Sounds similar to when people were rooting for airlines
| and auto manufactures to just die in 2008 to say "fuck
| the rich". I'm glad they were all saved.
| bumby wrote:
| In human psychology, fairness is a big driving force in
| society. I think studies have regularly shown that people
| will tolerate outcomes that are objectively worse for
| themselves if the alternative seems unfair but
| objectively better.
|
| People are not rational. Homo economicus is a myth.
| kybernetikos wrote:
| > People are not rational. Homo economicus is a myth.
|
| It's possible to be a rational maximiser of something
| other than profit.
| bumby wrote:
| Possible, but I don't think research has ever identified
| that utility function being optimized.
| xeromal wrote:
| Spite is a strong motivator.
| harimau777 wrote:
| I think it's less about spite and more about a desire for
| justice.
| xeromal wrote:
| Isn't spite just wanting that version of karma or justice
| but hurting yourself in the process. If we let these
| banks collapse it's definitely going to hurt lower income
| people more than wealthy people so to me that is 100%
| spite
| HWR_14 wrote:
| No. Spite is hurting yourself to hurt someone else. A
| desire for karma is willing to hurt yourself for justice.
| They look very similar, but are different.
| Godel_unicode wrote:
| > Spite is hurting yourself to hurt someone else.
|
| That is incorrect, spite is seeking the deliberate harm
| of another. It's possible for spite to include hurting
| yourself to inflict it, but that's not in any way
| necessary.
| HWR_14 wrote:
| Sure, and karma doesn't require hurting yourself either.
| I meant in the specific case we were discussing, in which
| harming yourself was already baked into the situation. I
| admit I could have been clearer initially and am sorry I
| spoke clumsily.
| twblalock wrote:
| Then people need to slow down and think about what
| justice really is -- is hurting the rich really justice
| if everyone else gets hurt too?
| f-securus wrote:
| If the two options are a) everybody except the rich get
| hurt and b) everybody including the rich get hurt, then I
| think the majority of Americans would go with b.
| aceazzameen wrote:
| B is definitely where we're at. Many Americans are tired
| of watching the rich get bailed out with socialism-for-
| the-rich-not-for-the-poor. Meanwhile the not-rich
| continue to struggle in every aspect of life, from food
| to housing. And blame is placed squarely on the rich, who
| have a greater voice in the elected government.
| CapstanRoller wrote:
| >socialism-for-the-rich-not-for-the-poor.
|
| That's called "capitalism". Socialism has nothing to do
| with it.
|
| Please try not to muddle basic terminology like this. It
| makes discourse harder for everyone.
| [deleted]
| yamtaddle wrote:
| It's literally in the name. Capital-ism. I'm not sure how
| it could be clearer. It'd be weird if a system so-named
| _didn 't_ favor capital owners.
| hellojesus wrote:
| No. That is called crony capitalism. True capitalism
| would let these banks burn and allow those who saved or
| have capital buy them up. No gov intervention allowed.
| CapstanRoller wrote:
| No, it's just called "capitalism". The thing you call
| cronyism is a core feature, not a bug: under capitalism,
| the capitalist class advances its own interests.
|
| Please stop trying to redefine basic terminology to suit
| your agenda.
| hellojesus wrote:
| I disagree with you.
| xeromal wrote:
| I don't think those are the only two options though. b)
| The rich now have less billions but still billions and
| everyone else now has to budget even harder.
| Godel_unicode wrote:
| Justice is the idea that people are treated equally,
| impartially, and fairly under a set of standards. If
| someone breaks the rules justice is them getting the same
| punishment anyone else would get, concerns about
| externalities don't come into it.
|
| Is everyone getting hurt ideal? No. But that's a
| different question than is it justice.
|
| IMO this is what happened during 2008. The government
| tried to minimize harm at the expense of justice, and
| people are angry because they don't realize how bad it
| could have been.
| [deleted]
| sumedh wrote:
| > I'm glad they were all saved.
|
| You are glad that rich execs play Heads they win and
| Tails they dont lose game at the expense of the taxpayer?
| CydeWeys wrote:
| This is not what happened to plane/automobile
| manufacturers. The banks, you could argue yes. But these
| were collateral damage.
| twblalock wrote:
| Taxpayers aren't paying for this, and in 2008 the
| government actually made money on the bailouts, so
| taxpayers didn't pay for that either.
| katzgrau wrote:
| I have some off-the-grid and expat friends who I suspect
| are rooting for a collapse primarily to justify all the
| shit they did and said. These types seem to thrive on
| doom and I have no doubt they've always existed
| throughout history.
|
| Eventually I suppose they'll be right, but primarily as a
| result of one of those broken clock coincidences ...
| steve76 wrote:
| [dead]
| BeFlatXIII wrote:
| Let's try spreading cynicism and enjoy the fireworks when the
| hollow reassurances don't work.
| dumbfounder wrote:
| Not sure I follow the logic. SVB is done right? Saving the
| companies that banked there is very different than saving the
| bank. Yes, it might invite more risk by big banks if they
| know there is a parachute for their clients, but if we close
| the bank anyways or clear out all parties involved and they
| have large black marks then there are deterrents
| (theoretically at least). I like that the gov is acting more
| like a scrappy company here and getting some shit done when
| the stakes are high. I dunno, just spitballing here, curious
| about the counterpoint.
| baybal2 wrote:
| [dead]
| joe_the_user wrote:
| " _Yes, it might invite more risk by big banks if they know
| there is a parachute for their clients, but if we close the
| bank anyways or clear out all parties involved and they
| have large black marks then there are deterrents
| (theoretically at least)._ "
|
| * As the gp said, it's done. The guarantee isn't new, it's
| how thing are done now. The Fed is not changing things by
| doing this, the Fed is doing things as they are expected to
| be done. Anything _else_ would be changing things, anything
| else would panic people. Is the Fed "scrappy"? IDK, the
| "scrappy" efforts to stop crises began with the "plunge
| prevention team" in the 1990s and have continued more
| systematically since then, if you want to call that
| scrappy.
|
| * As to whether there are black marks on people - only the
| companies who can whether to hire these people later can
| decide that. Financial companies hire people who've done
| time for financial fraud so it's questionable what sort of
| "black marks" the Fed could give if it wanted to (People
| mention the Lehman guy but was Lehman really worse than the
| others in 2008 or just a scapegoat - like fricken Martha
| Stewart. Was that guy involved in excess or just a random
| manager? I recall he was now managing a stock subsidiary
| that's being spun-off whole. But still).
| moose_is_loose wrote:
| https://twitter.com/petercontibrown/status/1635076092339052
| 5...
| tbihl wrote:
| From the perspective of just the people working at SVB, I
| guess so? But from the perspective of people putting lots
| of money in one place, it's a reinforcing signal that the
| most important part of picking a bank is that it be big
| enough to get bailed out in case of poor planning.
| hypothesis wrote:
| I would add: while maximizing for perks from said banks.
| tempestn wrote:
| What is the advantage of encouraging people/companies to
| spread their deposits among multiple banks? Say people
| were really worried about losing anything over the FDIC
| limit and so kept multiple separate accounts. Then a bank
| fails and the government still has to cover the deposits,
| so what's the benefit? Is the idea that if people are
| worried about their deposits they won't put more than the
| limit in banks that are making particularly risky
| investments? Isn't it more likely though that anyone who
| would do that would just spread their money out
| regardless, and therefore there's no disincentive to the
| banks.
| cmurf wrote:
| The bank isn't being bailed out though. The depositors
| are being covered by FDIC in the short term, while FDIC
| will sell assets seized from the bank. The bondholders
| and shareholders will take the haircuts. If that's not
| enough to cover the depositors, banks will be given a
| special assessment.
|
| The banks left standing will be made to cover the
| deposits, insured or not, of other banks. It is rather
| remarkable and I'm not entirely certain it'll work - at
| what point the special assessment could be unsustainable.
| Presumably this special assessment isn't instant, and
| FDIC could just use accounting to make it politically and
| legally valid to consider it as a non-public and industry
| financed private bailout.
|
| _shrug_ will it work? I don 't know. It really better.
| ricksunny wrote:
| >_shrug_ will it work? I don't know. It really better
|
| The need to be able to field questions like these is why
| I feel we need open-source economic simultion packages.
| Does anyone think that people in the individual Fed
| reserve banks are running anything other than flat
| spreadsheets to model the financial system? Theyneed to
| develop economic modeling scripts (at minimum!) a field
| which is in its infancy. The datascience & modeling
| capability in HN would eclipse the forecasting power of
| an econometrics-focused Fed statistical modeling group.
|
| I briefly collaborated with a talented individual behind
| the Threadneedle economic simulation package. Here is her
| rubric on github for entering into this kind of work. htt
| ps://github.com/jackymallett/Threadneedle/raw/master/Docu
| ...
|
| I'd like to see a python library devoted to economic
| modeling w/ classes for central banks, investent & retail
| banks, applied into umpteen think tanks' different
| competing models.
| Grimburger wrote:
| > From the perspective of just the people working at SVB
|
| Who had the former CFO of Lehman Brothers just before it
| collapsed on their executive team? These people will
| continue to fail upwards with taxpayer support as they
| always do.
|
| See you in ten years when he's involved in the next one.
| leosarev wrote:
| Interesting. In Russia, CFO of bankrupted bank will be
| forbidden for holding offices in another banks for 5
| years. For life, if it was conviction.
|
| USA doesn't have laws like this, do you?
| danaris wrote:
| Even if it did, 2008 was more than 5 years ago...
| bko wrote:
| > It's very possible that if this is not done, the only banks
| left at the end of the week will be the "too big to fail"
| ones.
|
| I don't get it. Doesn't the unlimited FDIC insurance
| encourage mega-banks? If funds were only insured up to 250k,
| wouldn't that just mean we would have to spread money across
| multiple banks. And sure some banks would be wiped out but
| new better banks would take their place. It's not a closed
| system
|
| Banks used to fail and be smaller failures. Now we removed
| almost all failures except when we have a failure its huge:
|
| Total number of bank failures: 512
|
| 2023 1
|
| 2022 0
|
| 2021 0
|
| 2020 4
|
| 2019 4
|
| 2018 0
|
| 2017 8
|
| 2016 5
|
| 2015 8
|
| 2014 18
|
| 2013 24
|
| 2012 51
|
| 2011 92
|
| 2010 157
|
| 2009 140
|
| https://www.bankrate.com/banking/list-of-failed-banks/
| phil21 wrote:
| Number of banks failed is less useful info than total size
| of the banks that failed.
|
| So far this year we are looking a lot closer to 2009 than
| 2020[0].
|
| [0]
| https://static01.nyt.com/images/2023/03/10/business/bank-
| fai...
|
| Edit: wrong image linked
| Retric wrote:
| That estimate is misleading as SV failed after people
| pulled 45 billion out. It wasn't a 200 billion dollar
| bank when it failed and people didn't lose 200 billion
| dollars.
|
| We are at ~1.3 bank failures per month in 2023 which is
| much closer to 2020's 0.3/month than 2009's 11.7 banks
| failing per month. That IMO says more about the rest of
| the year than the size of the banks that failed.
| epgui wrote:
| The parent comment just made the point that you need to
| normalize for the size of the bank, not for the number of
| banks per year.
|
| Your comment takes the annual frequency and divides it by
| 12 to get an average monthly frequency, adding nothing to
| the argument of the grandparent comment.
| Retric wrote:
| They suggested you should normalize for the size of the
| bank but didn't support it. They even used non inflation
| adjusted numbers.
|
| Maximum assets under control don't correlate with actual
| losses especially when people pulled money out before the
| collapse. It's a completely meaningless number on it's
| own.
| phil21 wrote:
| Certainly very valid criticisms. To be fair, I
| specifically was trying to ballpark it and this graph
| does not contain the Signature failure yet so I think it
| is a fair representation of this particular metric.
|
| I also think it's a good point that a dollar is not
| necessarily equal to another dollar in this context. But
| the same can be said for individual banks as well.
| Retric wrote:
| That's fair, I do think it's reasonable to compare losses
| or the size of bailouts. But we just don't have that info
| yet.
| bko wrote:
| Here's an infographic and wiki.
|
| It's like forest fires, we shouldn't build fragility into
| the system by removing all risk and then rely on
| regulations to mitigate it. Hasn't worked in the past and
| will lead to more consolidation and bigger fires in the
| future. Remember in 08 the answer was to combine a bunch
| of banks and since then we've had no new banks created
| (besides Ally which was a spin off of an auto workers
| pension fund if i remember)
|
| https://en.m.wikipedia.org/wiki/List_of_largest_U.S._bank
| _fa...
|
| https://old.reddit.com/r/dataisbeautiful/comments/11p3555
| /oc...
| phil21 wrote:
| I certainly don't agree with it. I totally agree all this
| sort of can-kicking does is make the explosion an order
| of magnitude larger down the line.
| BlueTemplar wrote:
| << QE1 QE2, the lender of last resort is you
|
| QE3 QE4, increase M1 even more! >>
|
| https://youtu.be/CzvQxQYKO88?t=255
| kimburgess wrote:
| For some more fairly excellent data viz:
| https://yarn.pranshum.com/banks.
| heisenbit wrote:
| And that graph is now missing Signature Bank with another
| 110B assets. We are getting into 2008 territory and the
| first quarter is not yet behind us.
| tareqak wrote:
| According to the AP, there was a second bank failure today
| (Sunday) and there was a risk of a third:
|
| > In a sign of how fast the financial bleeding was
| occurring, regulators announced that New York-based
| Signature Bank had also failed and was being seized on
| Sunday. At more than $110 billion in assets, Signature Bank
| is the third-largest bank failure in U.S. history.
|
| > Also Sunday, another beleaguered bank, First Republic
| Bank, announced that it had bolstered its financial health
| by gaining access to funding from the Fed and JPMorgan
| Chase.
|
| https://apnews.com/article/silicon-valley-bank-bailout-
| yelle...
| yzmtf2008 wrote:
| Let me put it this way.
|
| I put the majority of my cash in one of the smaller banks.
| The news that has transpired in the past few days had me
| mulling moving those funds to a larger bank, likely Chase
| (one of the too big to fail ones).
|
| Even with the FDIC guarantees, I was not at all confident
| that :
|
| 1. they actually had the funds to cover _many_ bank runs;
| and
|
| 2. it won't take weeks if not months for me to recover my
| funds, if my bank fails.
|
| It's entirely possibly that these lines of thoughts will
| motivate many more people to consider this exact move,
| putting even more stress in the system.
| ericpauley wrote:
| The FDIC is backed by the full faith and credit of the US
| government. If a bank fails, your insured deposits _will_
| be made while, usually the next business day.
| randomname11 wrote:
| the same faith and credit that's currently caught in the
| middle of a game of chicken...
| brianwawok wrote:
| Not sure what that means. When has the US government not
| paid their FDIC money?
| fredophile wrote:
| The US government has a debt limit. The government is
| going to run out of options for not exceeding that limit
| in a few months unless it is raised. There are people in
| congress suggesting that they should let the limit get
| hit. If the debt limit is hit, do you e pectin the
| government to be able to pay out FDIC money in a timely
| manner?
| randomname11 wrote:
| Not just FDIC though, in 2008 and again today the Fed is
| making clear that their backstop is bigger than just
| FDIC. it can't be any bigger than the debt limit so I
| find it sobering to have this discussion while we're
| heading towards that cliff.
| twblalock wrote:
| That's true, but many people will still freak out anyway.
| notch898a wrote:
| Will changes to _probably_ in the context that FDIC only
| has reserves of approximately ~1% of the total insured
| value.
| vel0city wrote:
| IMO you should probably do business with multiple banks
| with somewhat separate market segments to try and
| diversify risks. You shouldn't have all your cash under
| one mattress ;)
| ghastmaster wrote:
| With the Bank Term Funding Program, people who moved or
| previously kept monies in large banks have less incentive
| to do so, until 2024 when this program is scheduled to
| end. That is, if they think 25 billion is enough to
| prevent more runs, and the FED/treasury/FDIC will not
| greatly expand that in the event of another run.
| e63f67dd-065b wrote:
| Imagine you're a business owner. Would you rather bank with
| Local Community Bank, the failure of which will essentially
| kill your business, due to haircuts on uninsured deposits
| that'll annihilate your working capital, or will you bank
| with Chase, the failure of which forces government action
| to cover depositors because the economy is a goner
| otherwise?
| rmilk wrote:
| But isn't your CFO planning for financial risk? Do you
| have hazard insurance on your leased offices, what
| happens if one of your key employees is unavailable, a
| large customer is late on payment, you get hit by supply
| chain issues, etc.
|
| You can't seriously tell me that the CFO who is
| responsible for corporate finance at these SVB customers
| didn't realize a business checking or savings account is
| not fully guaranteed? It's in every single bank brochure
| and statement. If that's that case, they need to suffer
| the consequences of poor contingency planning.
| andrewjl wrote:
| Most startups don't have a CFO until they reach a certain
| size.
|
| Additionally many startups had covenants in their
| financing agreements with investors that required keeping
| funds in SVB so they didn't have a choice.
| kevinventullo wrote:
| Sounds like the investors made a poor choice including
| that in the financing agreement.
| watwut wrote:
| Isnt then the whole thing fault of VCs who included those
| covenant? The same VCs that now cry hardest?
|
| Moreover, both startups and VCs are literally the groups
| that celebrate risk taking and disruption. This is it,
| this is the flip side of risk, the definition of risk is
| that you might loose. But somehow, when they loose, due
| to risk taking, then suddenly they want extra bail outs
| and help.
| watwut wrote:
| This is literally what those small banks lobbied for.
| Heavily and they won. This is not someone external
| victimizing small banks.
| TedDoesntTalk wrote:
| Local Community Bank has free checking and few fees. Does
| Chase? That's what they look at, not existential
| questions about the longevity of the bank.
| brianwawok wrote:
| Chase charges money to have an account if you are poor.
| If you have money, and logically could more easily afford
| to pay bank fees, it's free.
|
| Most of the big guys work like this. At a certain wallet
| size you get a free personal advisor who will help manage
| your wealth.
| TedDoesntTalk wrote:
| > free personal advisor
|
| They take 1% of the money they manage. And then they
| invest it in their own funds, taking more fees there.
| They are not free.
| brianwawok wrote:
| I mean, duh ;P
| alborzb wrote:
| > 2023 1
|
| I'm not sure how 100% accurate that list is considering
| that it only lists SVB for 2023, but not Signature bank, NY
| that failed on the same day[1].
|
| [1] https://home.treasury.gov/news/press-releases/jy1337
| twblalock wrote:
| The entire regulatory system encourages mega-banks. The
| entire "too big to fail" concept encourages it. Complex
| regulations benefit those who can afford the legal costs of
| compliance. Dodd-Frank probably made this outcome more
| likely.
|
| The role of the government in letting this happen has been
| under-covered so far. Weren't they supposed to be
| overseeing things, stress-testing banks, etc? Regulators
| either were not looking, or were looking but did not
| notice. Regardless, there is not much sense to the argument
| that the government is "stepping in" tonight, because it
| was always involved.
| heisenbit wrote:
| Has nothing to do with flooding the world with cheap
| money which chased unrealistic yields. Systemic excess
| liquidity when deposited needs excess assets to balance.
| Assets which were bought at inflated prices. The question
| now is only how much will this house of cards collapse.
| btilly wrote:
| That article is already out of date. Signature Bank also
| failed today.
|
| I suspect that Signature Bank's failure is tied to their
| crypto activity. But the sight of 2 banks failing while
| there was an ongoing run on at least one more bank does
| seem like the kind of thing that could start a panic.
| BlueTemplar wrote:
| I thought Signature bank failed even before that ?
|
| Bank Runs! What's Going On? - Patrick Boyle :
|
| https://www.youtube.com/watch?v=kxcwn7xoXhU
| Thorrez wrote:
| >it's based entirely on consumer confidence
|
| Not typical consumers, right? Typical bank consumers have <
| $250k in their account, and thus there's no reason for them
| to cause a run.
| twblalock wrote:
| That didn't prevent multiple runs against Washington Mutual
| in 2008, and it won't prevent runs now. People are worried
| that they won't be able to get to their money _even if_ it
| is insured.
|
| Plus, even if the "typical" consumers don't freak out,
| businesses might. There are a lot of businesses with
| accounts over the FDIC limit. Only about 60% of bank
| deposits in the US are insured.
| flangola7 wrote:
| >People are worried that they won't be able to get to
| their money _even if_ it is insured.
|
| If the US government is unable to cover those claims then
| you have much bigger problems to worry about.
| heisenbit wrote:
| The ability to mint money is unlimited. The ones being
| eventually bailed in will be foreign debt holders via
| inflation.
| notch898a wrote:
| If I thought the US government was going to fail I'd
| simply try to be the first to convert my dollars to a
| dense and valuable commodity, like gold, and then find
| another government to live under. It's not like people
| pulling out dollars have to _keep_ their wealth in
| dollars.
| antihipocrat wrote:
| If it ever got that bad a can of beans would be worth
| more than almost anything.
| ThalesX wrote:
| Not the first failing empire in the history of the
| world...
| chrisdfrey wrote:
| Right, and the clientele of SVB was largely businesses.
| Only 7% of SVB deposits were FDIC insured, making them
| extra vulnerable to bank runs.
| tbihl wrote:
| I guess maybe if all the small customers pull out of index
| funds to flee to bitcoin? Not sure.
| gmane wrote:
| How would they even do that? Bitcoin handles ~350k
| transactions per day. VTI (Vanguard's Total Stock Index),
| a large size fund is on average traded 3,670k per day.
| That's one fund. There is no reasonable way for small
| customers to pull out of index funds to bitcoin unless
| there is a fundamental change to how bitcoin operates.
| sowbug wrote:
| _VTI (Vanguard 's Total Stock Index), a large size fund
| is on average traded 3,670k per day._
|
| I doubt those VTI transactions are each of a single
| share, which is the only way the 3.67M number you cite
| would match VTI's trading history.
|
| But nobody's mind was ever changed about Bitcoin on an HN
| comment thread, so let's just leave it at that.
| landemva wrote:
| Small customers get BTC from an exchange, which keeps
| their accounting internally. No transaction volume
| limits.
|
| Later the small customer may move that BTC to self-
| custody, which could be an on-chain transaction or LN or
| other side chain with more transaction capacity.
| walrus01 wrote:
| > It's very possible that if this is not done, the only banks
| left at the end of the week will be the "too big to fail"
| ones
|
| It'll look not very much unlike Canadian domestic banking
| which has the "big 5" of banks: TD, CIBC, RBC, BMO,
| Scotiabank.
|
| But instead, with Wells Fargo, Citibank, BOA, etc.
|
| And everything else is really quite tiny in comparison.
| __turbobrew__ wrote:
| Less competition and less risk -- the Canadian way.
| karmasimida wrote:
| > I really wish we could plan for these entirely foreseeable
| events ahead of time.
|
| This is unlikely TBH. When a system this complex and a global
| clear visibility if offered to no one on the planet, foreseeing
| ALL risks isn't a possibility.
| richiebful1 wrote:
| > "Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special assessment
| on banks, as required by law."
|
| This has happened before in 2008. Secretary Yellen's
| announcement is important to secure depositor confidence, so
| the contagion doesn't spread to more banks. If depositors are
| confident that the government has their back, there's no reason
| to pull money out.
| JumpinJack_Cash wrote:
| > > If depositors are confident that the government has their
| back, there's no reason to pull money out.
|
| There is also no reason to put the money in.
|
| You go through the trouble of protecting your money because
| you deem them scarce and irreplaceable.
|
| If tomorrow a commercial bank insured with the FDIC starts
| offering a product promising 20% interest, then by all means
| people should get together and apply in mass, get a couple of
| big political donors on board and all of a sudden there is no
| downside.
|
| If the wacky bank keeps its promise then it's a 20% gain, if
| not then the FDIC will have depositors backs anyway to the
| full amount
| anonytrary wrote:
| Vivek Ramaswamy? Is that you? He's currently on Mario Nawfal's
| Twitter space saying this exact thing lmao.
| im_down_w_otp wrote:
| I don't get it. The FDIC insurance threshold is the _bare
| minimum_ provided by law. SVB 's assets are being sold off or
| restructured to protect depositors. This is literally the whole
| point of the receivership process. This appears at this point
| to be a fairly pedestrian FDIC bank take-over, save for all the
| culture war B.S. that's cropped up around it.
| hypothesis wrote:
| So, at least two banks failed this week, 16th largest and a
| smaller one. Then Fed panics and effectively institutes an
| "unlimited" insurance/backstop policy, as a direct result.
|
| I don't know if I would call those events "pedestrian".
| [deleted]
| justin66 wrote:
| > This appears at this point to be a fairly pedestrian FDIC
| bank take-over,
|
| You believe invocation of the systemic risk exception is the
| norm?
| animex wrote:
| This is exactly how crypto exchanges recover after
| hacks/losses. Interesting.
| bubbleRefuge wrote:
| Its incredible incompetence that the fed doesn't fully
| guarantee all deposits at FDIC member banks. The liability side
| of banking is not the place for disciple. MMT founders and Bill
| Black have been saying this since 2008. Insure depositors and
| blow out shareholders and management for making bad
| investments.
| varelse wrote:
| [dead]
| bruiseralmighty wrote:
| > Yellen has just broadcast that FDIC insurance is essentially
| unlimited
|
| Although I agree with the Treasury's actions here so far, this
| is a potential issue. They should instantiate more stringent
| rules for banks that who cater to business accounts and then
| raise the cap for insurance on those accounts to a number that
| makes sense for small businesses across the country.
|
| Too many CEOs and CFOs were allowing their business checking
| accounts to sit in dangerously uninsured positions. Headliner
| being Roku with nearly a half a billion dollars sitting in a
| single checking account with SVB. But plenty of smaller
| businesses leave ten million plus dollars in their accounts as
| a course of business as well.
|
| The actual amount those accounts can be insured for needs to be
| formalized and it should probably be higher than the standard
| quarter million for consumer accounts as this is way too low
| for business larger than a half dozen employees.
| dumdumdumdum wrote:
| > At the same time, this is yet another example of changing the
| rules in the middle of the game. Yellen has just broadcast that
| FDIC insurance is essentially unlimited, as long as you can
| threaten wider disruption to the economy.
|
| The criteria isn't threatening a "wider disruption to the
| economy", it's threatening the quality of life of a certain
| class of people. When unions threaten a wider disruption to the
| economy for maintaining their quality of life, they'll do their
| damnedest to not give in. They'll pass laws outlawing strikes.
| Or send in "law-enforcement". As the saying goes, laws are for
| the poor.
| eru wrote:
| Huh, how are strikes still widely legal, then?
| SkeuomorphicBee wrote:
| I guess you haven't been following the news.
|
| The previous commenters clearly makes a reference to the
| rail worker's strike from a few months ago, which was the
| first strike in decades powerful enough to threaten a
| "wider disruption to the economy", and the fact that
| government quickly passed special laws to declare that
| strike illegal.
|
| So, to spell it out for other living under a rock:
|
| - Labor fighting for better work conditions threaten a
| wider disruption to the economy, government fights and
| bends rules against labor. - Capital losing bets threaten a
| wider disruption to the economy, government fights and
| bends rules in favor of capital.
| throwaway1851 wrote:
| Cynicism isn't interchangeable with critical thinking.
| forgetfreeman wrote:
| True but it is all too often the product of critical
| thinking.
| wolverine876 wrote:
| IMHO and IME, it's never the product of critical
| thinking. It's an emotional reaction, not thinking and
| especially not thinking critically.
| forgetfreeman wrote:
| Whereas IMHO pollyannaism is a product of some
| combination of denial, naivete, and privilege, and
| mumbling about cynicism instead of engaging with the
| point made is nothing more than an expression of
| cognitive dissonance or worse simple childishness.
| wolverine876 wrote:
| Right, but who advocates pollyannaism?
|
| The alternative to pollyannaism is not cynicism but
| actual critical thought.
|
| The alternative to cynicism is not pollyannaism but
| actual critical thought.
| mike_d wrote:
| > it's threatening the quality of life of a certain class of
| people.
|
| Like the jerks who chose to work for a company that picked a
| specific SaaS payroll provider. Or those entitled Etsy
| sellers that expected to get paid. The absolute nerve.
| codeddesign wrote:
| We don't live in a socialist society. These companies chose
| not to diversify their risk. If they didn't know their
| accounts had a max insurance rating of $250k, then they
| deserve to fold. FDIC insurance is intended for consumers
| not to be instantly without. If you are a corporation, you
| are responsible for you own financial risk. 9 banks have
| failed in the last 5 years. The fed is treating this
| special and that's why it's an issue. Essentially they are
| telling the public "as long as you are with a large bank
| that holds large assets, we will protect you".
| initplus wrote:
| They are treating it differently because the alternative
| is a run on every small/medium bank with high numbers of
| business customers.
|
| It's not to protect the existing depositors of SVB - but
| to shore up the stability of the entire banking sector.
| RandomLensman wrote:
| This policy could also encourage deposit flight at the
| slightest notion of risk - if everyone is made whole
| anyway the stability of a bank isn't any consideration
| for any of the depositors anymore. There is no game
| theory to moving deposits then.
| pdpi wrote:
| The problem is that that shoring up comes at the cost of
| enabling bad behaviour. Banking right now seems to run on
| the assumption that you're allowed to erode the stability
| of the system for your personal gain, because governments
| world-wide will shore it up from the other side.
|
| It's important to remember that SVB lobbied hard to gain
| an exemption from banking stress test regulations. Their
| "inherently low risk" business clearly wasn't, and they
| failed to defend against the inevitability that was the
| fed going up from the anomalously low rates of the 2010s.
| initplus wrote:
| What bad behaviour is being enabled here? The people who
| stand to gain from taking risks here (bank owners) have
| lost everything and are not being bailed out.
|
| What is the bad behaviour of the depositors? Trusting
| that their deposits were safe in a bank? This isn't bad
| behaviour, the government wants people to think that bank
| deposits are safe. Safety of bank deposits is really
| important to the economy.
| hellojesus wrote:
| > What is the bad behaviour of the depositors? Trusting
| that their deposits were safe in a bank? This isn't bad
| behaviour, the government wants people to think that bank
| deposits are safe. Safety of bank deposits is really
| important to the economy.
|
| Yes, it is exactly this bad behavior. The gov has only
| guaranteed safety up to $250k. Any entity exceeding this
| limit does so at their own risk. By depositing far above
| the insured limit, you are allowing that bank to transact
| with your money. The banks loans it out. So by definition
| those consumers thay ignored the limits incentivized the
| bad behavior.
|
| Had this bank started losing customers because they faced
| insolvency risks, they may have changed their behavior.
| The market provides a feedback loop.
| psychlops wrote:
| That's what you are told. A bad bank went down due to
| risky investments and no hedging against obvious interest
| rate hikes. Yes, more will fail as a result and they
| should and the losses should not be socialized to the
| rest of us.
| CapstanRoller wrote:
| What does any of that have to do with socialism (an
| economic system where the working class owns and control
| the means of production)?
|
| Socialism doesn't mean "when the government does stuff"
| xmcqdpt2 wrote:
| https://www.fdic.gov/bank/historical/bank/bfb2019.html
|
| Actually I think you'll find out if you look at the bank
| failure list that most deposits are paid out in full even
| if above the insured limit.
| egberts1 wrote:
| Except that FDIC considers SVB to be a non-bank financial
| institution and thusly are not insurable.
| fumeux_fume wrote:
| The money isnt going directly to the workers. It goes to
| the companies who employ them to make sure the employers
| are ok. I think the point being made is that when workers
| ask for protections or concessions it's this massive
| struggle but when Etsy needs help the money somehow appears
| literally overnight.
| brazzy wrote:
| What you're glossing over is that when the employers
| suddenly lose most or all of their liquid assets and
| don't have _perfect_ positive cash flow, then _they
| cannot pay their employees_.
| TheCoelacanth wrote:
| Understood, but where is the protection for workers who
| suddenly lose their job and can't pay rent?
| hellojesus wrote:
| Their emergency funds.
|
| Don't get me wrong, it would suck. But there is a proven
| way to fix misallocation of capital via the market.
| watwut wrote:
| This is not about salaries to employees or risk of
| companies dying. Neither of those get help when they are
| unlucky on free market.
| brazzy wrote:
| You can spin "what this is about" whatever way you want,
| but it's simply a fact that for the kind of businesses
| that typically had deposits at SVB, the overwhelming part
| of those deposits existed to pay employee's salaries.
| watwut wrote:
| Yep. And when other business can not pay salaries because
| of events they could not control, neither them nor their
| employees get any extra help. They get mockery from very
| same people that call for help now. This is about who got
| it.
|
| The startups did not had all of their money in this
| particular bank randomly. It was by design.
| sokoloff wrote:
| What was the PPP "loan" program if not a direct example
| of what you claim doesn't exist?
| hellojesus wrote:
| A corrupt program that incentivized banks to finance the
| largest sums first, which of course were only demanded by
| the largest companies, and ended up running out of funds
| by the time the small players got their turn in line.
|
| It was a sad attempt at preventing a 5th Ammendment
| violation, and it was done so poorly that it didn't solve
| the issue. The 5th was still violated.
| creato wrote:
| > And when other business can not pay salaries because of
| events they could not control
|
| Can you give an example of such a company? I can't think
| of a way in which an otherwise healthy (long term viable)
| company could suddenly be unable to make payroll in such
| a way that assistance would not be available (e.g.
| inexpensive bridge loan), or the company should not have
| bought relevant insurance.
|
| Literally the only thing I can think of is if smaller
| banks failed and companies were stuck with 250k +
| haircuts and didn't get this same deal. So did that
| actually happen?
| subsistence234 wrote:
| I'm a fan of startups, but seriously... wtf? how are
| startups "healthy companies"?
| cto_of_antifa wrote:
| Or, said anorher way, it becomes more difficult for them
| to profit off of the labor of others.
| ENGNR wrote:
| Every depositor is getting $250k back immediately, surely
| that's enough to make payroll a few times over, factoring
| in other revenue they must have if their payroll is that
| large.
|
| For the rest of it, they might take a 20% haircut at
| most. Even if they had no revenue, and that was say 10
| months runway, then it's down to 8 months. It's not like
| people aren't going to get paid, there's plenty of notice
| there.
| toyg wrote:
| _> $250k back immediately, surely that 's enough to make
| payroll a few times over_
|
| I'm not sure I follow. A US 60k/Y job means the company
| has to pay 5k p/m (to employee and taxman). So a company-
| depositor getting 250k would be enough to serve 50
| employees. "A few times over" would only be true for less
| than 25 employees. If we go Silicon-Valley level, where
| salaries seem to be twice as high (or more), those
| numbers would halve again. They seem very small numbers,
| most SMEs would not fit them.
| gizmo wrote:
| > They seem very small numbers, most SMEs would not fit
| them.
|
| In the USA 78% of businesses have fewer than 10
| employees. 89% percent have fewer than 20. The typical
| SMB has only a couple of employees.
|
| When you include sole proprietors (like the typical etsy
| store) "the share of U.S. businesses with fewer than 20
| workers increases to 98.0% and the share with fewer than
| 10 employees registers 96.0%".
|
| Source: https://sbecouncil.org/about-us/facts-and-data/
| est31 wrote:
| Yeah that is probably wrong but I think a notion of "omg
| all my money is gone" is also wrong. As long as the bank
| run is stopped in time, people with uninsured deposits
| would lose who didn't make it out of the bank in time
| will only a minority share instead of everything. That's
| what a bank run basically is, if you have 102$ in
| liabilities and 100$ in assets, and the FDIC steps in,
| everyone who holds 1$ at the bank gets 0.98$ out. Not
| bad. If 99$ exit the bank then the owners of the
| remaining 3$ only get 1$ out, a 66% loss.
|
| The customers of SVB were quickly growing business in an
| industry where you can quickly obtain immensely high
| profit margins. A 20% cut is not the end of it.
|
| I believe the big impact of this announcement is not the
| money itself, in fact it was the lowering in value of
| government bonds that caused the bankruptcy in the first
| place, so the govnernment effectively made money from the
| 10-year bonds deal they struck with SVB. Maybe in the end
| it might still be a profit for taxpayers/USD users
| overall. But this announcement still implies something
| for banks: they can do the dumbest decisions (like this
| failure for risk management), and the government will
| bail them out.
| op00to wrote:
| I'm amazed at how inexperienced the average hacker news
| commenter is with money.
| eppp wrote:
| I am amazed at how inexperienced the average banker is
| with interest rates.
| carlosjobim wrote:
| 50 employees should cover most of startups.
| [deleted]
| quadrifoliate wrote:
| As long as the Fed is making up rules on the spot, they
| could make up a fund to pay employees of the depositors
| directly in the short term, and start liquidating any
| assets of Silicon Valley Bank to pay for those. Call it,
| say, the Silicon Valley Bank Victims Fund.
|
| Avoids the moral hazard created by propping up SVB while
| still keeping workers paid. But I bet _that_ would be
| showcased by the upper class as a "handout".
| zopa wrote:
| By Monday morning? With protections in place against
| fraud or double-dipping? It wouldn't be as easy as you
| think.
|
| (And for the nth time, SVB isn't being propped up. The
| owners are losing their whole stake.)
| quadrifoliate wrote:
| > By Monday morning? With protections in place against
| fraud or double-dipping? It wouldn't be as easy as you
| think.
|
| But you are somehow convinced that this fund [1] created
| in 1 day by the Fed to solve "temporary liquidity issues"
| with vague promises of "loans against securities" and
| "assessment charged on the banks" will be _entirely_ free
| of fraud or double-dipping?
|
| Everything involving money has the potential for fraud
| and double-dipping, and the banking sector has a ton of
| it. We can figure it out and prosecute people afterwards
| (or not, it's not like senior management at SVB is going
| to be prosecuted).
|
| > (And for the nth time, SVB isn't being propped up. The
| owners are losing their whole stake.)
|
| Oh sure, three Federal departments make a joint statement
| on the weekend and create a new liquidity fund every time
| a company goes bankrupt. Nothing to see here!
|
| ----------------------------------------
|
| [1] https://www.federalreserve.gov/newsevents/pressreleas
| es/mone...
| insanitybit wrote:
| This is such an absurd idea to implement in a weekend,
| you have to see that, right?
| quadrifoliate wrote:
| Sure, but why is it any more absurd than creating a fund
| out of thin air to guarantee SVB deposits?
|
| Money provided to individuals is highly trackable; ask
| anyone with student loans. And this would give the former
| SVB's employees something to do past the current 45-day
| window. More employment for the win!
| insanitybit wrote:
| Creating a system to work with one entity, especially a
| bank, is far easier than creating one to work with 10s of
| thousands of individuals, not to mention that you can do
| this work all abstracted behind the bank without any
| existing systems (payroll) having to consider anything.
| treeman79 wrote:
| It's a government take over of the private sector.
|
| Government official picking losers and winners. Winners
| will mostly be those who supported government officials
| party.
|
| Either using money from tax payers. Or creating new money
| out of thin air. Leading to yet more punishing inflation.
| insanitybit wrote:
| > It goes to the companies who employ them to make sure
| the employers are ok.
|
| No, it's so that payroll continues...
| geocar wrote:
| I mean, yeah.
|
| Lots of people are starving and homeless for as trivial a
| "decision" as that.
|
| I'd much rather give everybody food and a home, including
| the Etsy seller, instead of: giving the bankers a ski
| jolly, people still starving and homeless, less _this_ Etsy
| seller. Why can 't we do that?
|
| Some of those entitled Etsy sellers voted against everybody
| having food and a home; My heart breaks, but not as much
| for those who have and hate. Maybe now that they are hungry
| and homeless too they will be a little more sympathetic.
| Surely that would be best.
| raspberry1337 wrote:
| What a weird post.
|
| >Lots of people are starving and homeless for as trivial
| a "decision" as that.
|
| Most homeless are either severely mentally ill, drug
| addicted, usually both.
|
| >I'd much rather give everybody food and a home,
| including the Etsy seller, instead of: giving the bankers
| a ski jolly, people still starving and homeless, less
| this Etsy seller. Why can't we do that?
|
| You could be running a soup kitchen homeless shelter
| right now instead of posting on HN. It's always someone
| elses fault!
|
| >Some of those entitled Etsy sellers voted against
| everybody having food and a home;
|
| Great analysis and input - if we would all vote x,
| everybody would have food and home, problem sovled!
| justsayinstuff wrote:
| Rather than prop up a bank that support x number of
| businesses that support y number employees, you'd had the
| government prop up xy employees? For how long? And if
| another z number of banks fail? Support xyz employees?
| geocar wrote:
| Yes. Forever. Yes those too. All of them.
|
| I live in a socialist European country, but I'm
| originally from the USA, and I wish it was better there.
| ameister14 wrote:
| I was unaware that there were any socialist countries in
| Europe. Where do you live?
| tremon wrote:
| All of Europe is regularly dismissed as socialist
| whenever the EU enacts regulations that a certain part of
| the HN population does not like. I would consider the
| label "socialist" an epitheton ornans here.
| feraloink wrote:
| This! Exactly this, because the government is also doing
| a backstop for a second bank, Signature Bank of New York.
| Silicon Valley Bank is the 2nd largest bank failure in
| U.S. history, and one day later, Signature Bank was also
| closed and its uninsured deposits guaranteed by the FDIC.
|
| When does it stop?
|
| First Republic Bank isn't looking too good.
|
| You are correct.
| creato wrote:
| > giving the bankers a ski jolly
|
| What banker got a "ski jolly" here? The bankers in this
| case are in exactly the same position they would have
| been in if the bank were allowed to fail without
| supporting depositors.
| geocar wrote:
| > What banker got a "ski jolly" here?
|
| Well, this guy for one:
|
| https://www.forbes.com/sites/brianbushard/2023/03/10/svb-
| fin...
| op00to wrote:
| ... and that trade will certainly be investigated. If the
| trade was not part of an existing trading plan, it's
| highly likely the CEO will have some very uncomfortable
| conversations.
|
| How is selling stock tantamount to a government bailout?
| eppp wrote:
| Ill be glad to have an uncomfortable conversation for a
| few million dollars.
| sidlls wrote:
| The "uncomfortable conversation" can mean a conversation
| about breaking insider trading regulations, the penalties
| for which include huge fines and potentially jail time.
| ModernMech wrote:
| > the CEO will have some very uncomfortable
| conversations.
|
| Oh no! Not uncomfortable conversations! Anything but
| that! Maybe it will be followed up with a strongly worded
| letter with _an implied threat_ of a performative vote by
| Congress. How will they cope?! They might even have to
| show up at a _gasp_ House committee hearing! _shudders_
|
| Wake me when someone is convicted.
| op00to wrote:
| So edgy. Let's just bypass investigations and go directly
| into summary execution. Eat the rich!!!!!
| sidlls wrote:
| "Wake me when someone is convicted" isn't an "eat the
| rich" statement. The OPs point is that an "uncomfortable
| conversation" isn't a punishment for wrongdoing, such as
| insider trading.
| xmcqdpt2 wrote:
| That happened before the fdic got involved. If it turns
| out he was hiding something, the SEC might get involved
| but otherwise he was fully allowed to sell his own stock
| based compensation. That's how stock based compensation
| works.
| [deleted]
| dmichulke wrote:
| What OP might mean:
|
| Technically, your "jerks" don't lose capital (wealth) while
| the people with deposits in those banks do.
|
| Yes, losing a job is a bad thing but a job is a mere right
| to a transaction (we exchange labor for money in the
| future) and not lost capital.
| codeddesign wrote:
| It's the fed protecting a bank with a large financial
| interest. This isn't the last bank this year...but one of
| few that will be protected.
| feraloink wrote:
| How fair is that? You aren't suggesting that it is fair,
| I realize.
|
| And you are correct! Silicon Valley Bank was the first
| bank this year for whom the Fed is paying for uninsured
| deposits. The second bank is Signature Bank of New York,
| which regulators shut down one day later, on Friday March
| 10th. They are being protected as well.
| https://www.nytimes.com/2023/03/12/business/signature-
| bank-c...
| cornholio wrote:
| > The criteria isn't threatening a "wider disruption to the
| economy", it's threatening the quality of life of a certain
| class of people.
|
| In support of this view, they could have easily extended FDIC
| on a dynamic metric, for example 20k for each employee. If
| you are 5 employee VC fund sitting on 0.5 billion in cash, no
| bailout for you from taxpayer money (because let's be real,
| FDIC is all taxpayer money, it's irrelevant if that tax is
| collected by the govt directly or indirectly via mandatory
| banking fees).
|
| An alternative path was to provide zero interest loans
| against your SVB holdings, with the expectation that you are
| on the hook for the shortfall that would be yielded by the
| liquidation. If SVB is well capitalized as the Fed claims it
| is and there is "no cost for the taxpayers", then this
| shortfall should be relatively small if any.
|
| Another, even more radical option would be to quickly set-up
| a secondary market for the debt issued by these banks and let
| the market provide liquity and discover the value of the
| assets. This is one of the few innovations form the crypto
| world I wish we could see in traditional finance, we can't
| keep bailing out rich mofos like it's 2008 when we have all
| these wonderful new technologies which can stop contagion and
| bank runs, protect depositors and zero in on those
| responsible.
| boole1854 wrote:
| > In support of this view, they could have easily extended
| FDIC on a dynamic metric, for example 20k for each
| employee.
|
| Implementing any such "dynamic metric" would have taken
| time, which would mean they would not have been able to
| restore all deposits by Monday, which means a significant
| risk of contagion.
| Swenrekcah wrote:
| Also that would really have been an example of arbitrary
| changes to the rules on the fly.
| cornholio wrote:
| They can make those rules and preparations beforehand,
| for the next SVB, Signature etc. Banks would definitely
| want to optin under such a protective regime and have
| their systems ready since it alleviates customer panic in
| an event of a liquidity crisis.
| bioemerl wrote:
| > the quality of life of a certain class of people
|
| By that you're talking about the average citizen right? Suff
| like railroad strikes would dramatically affect the average
| citizen.
| shjake wrote:
| I think the main goal is to prevent a wider banking crisis
| and this spiraling out of control. That would surely affect
| everyone..
| philosopher1234 wrote:
| Why should we take for granted that that is likely? Because
| that is what the VCs say? Perhaps this is a convenient
| belief
| edanm wrote:
| Or perhaps the experts at Treasury, FDIC, etc, actually
| made this decision because they think it's true in their
| expert opinion, not just because VCs said so?
|
| They're the officials appointed to be the experts at
| these things by the people elected to run the government,
| what better mechanism is there for making this kind of
| decision?
| berniedurfee wrote:
| I wish this were true. This is how I thought things
| worked when I was a kid.
|
| Or did I miss your sarcasm?
| edanm wrote:
| I think it is true. Not sarcastic at all. Curios why you
| think it's not?
| berniedurfee wrote:
| Jaded, I suppose.
|
| I don't think the majority of legislators truly align the
| best interests of individual citizens to their decisions
| and actions.
| RandomLensman wrote:
| I think the issue is that 15 years after the GFC, again
| the government seems to be needed to prevent a systemic
| banking crisis. What ever rules where enacted etc. had
| maybe very little effect if a small bank (and the 16th
| largest bank isn't a mega-bank) can bring down the system
| without a government backstop.
|
| If lending to banks is too risky for most, then perhaps
| most should not be allowed to lend to banks. Are bank
| deposits really the right way to fund banks if they come
| with these systemic risks or should it all be bonds etc.
| (and then also have very narrow limits for regulated
| investors)? Maybe a lot more should be direct lending and
| not bank lending?
| edanm wrote:
| I'm not sure I follow.
|
| The depositors aren't _lending to banks_. They 're
| putting money in a bank. What's the alternative? Have
| them stash all their money under a pillow?
|
| This wasn't (to my knowledge) an investment bank like
| Goldman Sachs etc, where people put in money to get
| upside. It was a bank like any person uses to store their
| money, cause it has to be stored _somewhere_.
|
| > [A]gain the government seems to be needed to prevent a
| systemic banking crisis. What ever rules where enacted
| etc. had maybe very little effect if a small bank (and
| the 16th largest bank isn't a mega-bank) can bring down
| the system without a government backstop.
|
| I mean, the whole original point of the FDIC deposit
| insurance was because bank runs happen. We prefer people
| put their money in a bank, it's better for many reasons,
| but as long as we allow fractional reserve banking (which
| we should, IMO,) people will always feel at risk, which
| either makes them not use banks (bad,) or cause a bank
| run if they _do_ use a bank (also bad.)
|
| The whole point of deposit insurance is to put a
| government backstop to all potential bank runs by
| promising people they will always be able to get their
| money, which causes the system to keep working.
|
| The only difference here is that it's for money
| corporations put in a bank instead of people (and of
| course that the amounts are much bigger.) But the same
| logic applies - we want companies to put money in a bank,
| and we _don 't_ want companies afraid that their bank
| will fail and they'll suddenly be out all their cash.
| That would cause _worse_ effects in the long run.
|
| And I'll emphasize, the people getting "bailed out" are
| the _depositors_ , not the shareholders. They're the
| people who just trusted the bank to be a normal bank, and
| that weren't in a position to affect what the bank does.
| "Punishing" them doesn't help resolve any systemic risk,
| because they couldn't have acted differently! (Except for
| spread money across multiple banks, which is _against the
| point_ because we want people to trust banks and not have
| to worry about where to store their money, cause that
| comes at the cost of doing more important things!)
| RandomLensman wrote:
| Depositors are lending to banks - the bank is not just
| storing the money!
|
| For me, what isn't clear anymore is, if we really prefer
| deposits to be in banks or rather in some other more
| narrow "thing". If people just want to store liquidity
| very safely, then maybe there is any offering missing in
| the market (and in some countries things like that
| existed prior to GFC but got shut down afterwards. In
| Germany, anyone could directly deposit daily liquidity
| with the Bundesbank for while, for example).
|
| Yes, it would take some cheap funding away from banks,
| but if that were to be long-term bad or not we don't know
| as different funding equilibria with different market
| participants might not result in worse lending situations
| for the economy as a whole.
|
| Btw., of course, depositors can affect what a bank does:
| if they don't give their deposits or pull them away if
| they deem the business to risky it does matter. At what
| point is lending then risky? If a corporation buys a bank
| bond with excess liquidity not needed daily - should they
| be made whole, too?
| hackerlight wrote:
| That's what the history of bank runs says and why the
| FDIC was created in the first place.
| Godel_unicode wrote:
| SVB was publicly traded, and it's not being bailed out. Who
| do you think owns the now-worthless stock?
| muzz wrote:
| The market cap of SVB on Friday was $6 B
|
| The amount of uninsured deposits was $150 B
|
| The value of all the stock is 4% of the amount of uninsured
| deposits
| Godel_unicode wrote:
| First, since we're comparing numbers to each other, you
| should go back before Wednesday to get a real number for
| pre-run market cap, it's about 2.5x that. Not that it
| really matters.
|
| Second, just so we're clear is your point that the
| holders of that $6B-$15B of useless paper won't care
| because it's less than $150B? At the end of the day, you
| don't care what percent of the bag you're holding, just
| that you're holding it.
| svnt wrote:
| No, the point is that shareholders of the bank are
| investors in the bank, and investment comes with the risk
| of loss. Depositors in a bank are not investors in that
| bank.
| yawpitch wrote:
| > Depositors in a bank are not investors in that bank.
|
| No, they're not. But until just now depositors in any
| other bank assumed the risk for any deposit in excess of
| $250K... and if these depositors weren't morally
| different than the depositors that would absolutely have
| lost their wealth in excess of $250K when their chosen
| bank did a stupid thing, then they'd have paid the piper
| just like you and I would have.
|
| These special depositors are getting special treatment
| and aren't suffering what countless non-special
| depositors have suffered... the rules are changing
| because of who took the risk, that's the very definition
| of moral hazard at work.
| RhodesianHunter wrote:
| Their point is that the value of equity is insignificant
| to the upper class, as compared to the value of the
| uninsured deposits.
|
| IE the equity isn't enough to leverage political capital.
| The deposits are.
| vehementi wrote:
| Why would you directly compare those two numbers? It owes
| all those deposits to other entities.
| mattbillenstein wrote:
| What is the shortfall once all the assets of the bank are
| sold though? It's not like anyone is putting $150B into
| this to make sure those deposits are made whole.
| Phlarp wrote:
| You can't say that right now, I'm not sure anyone can.
| The government is literally writing a blank check because
| they don't yet know how much it's going to cost to fix.
|
| Everyone seems to be operating under the idea that while
| their liquidity came into question the underlying assets
| were and are strong-- if that were true they would have
| found a private sector solution early in the weekend.
| Waiting until 6pm on Sunday and a second regional bank
| collapsing to announce "oops, all bailouts!" seems like
| an open admission we're in the early stages of another
| banking crises.
| mjevans wrote:
| As far as coverage has stated so far, the underlying
| assets ARE solid...
|
| Problem is they're just not even a good investment
| compared to brand new fed bonds / bills of short / long
| (might have that backwards) due to the now MUCH HIGHER
| interest rates. They locked in at historically low rates,
| and had a bank run on their free reserves.
| heisenbit wrote:
| But then the coverage has mentioned also CMBS. An if you
| think about those, think about Covid and think about SV
| remote working...
| tetrahedr0n wrote:
| I'm sorry, I don't follow the logic here. Do you mind
| elaborating?
|
| I see some correlation between SV remote working and
| COVID, but don't understand how mortgage backed
| securities play into this. Are you suggesting higher
| inflation on the way, lower property values, higher
| rates, and that it was intentional?
| friendzis wrote:
| > the underlying assets were and are strong-- if that
| were true they would have found a private sector solution
| early in the weekend
|
| One does not follow the other. The triggering problem
| here were unmatched maturities of assets and liabilities,
| i.e. liquidity crunch. They have created that liquidity
| by selling some assets at a loss and tried to recoup that
| loss from investors.
|
| But that was not _the_ problem. The problem was now-
| imminent bank run, potentially requiring up to ${total-
| deposits } liquidity injections and unclear future then.
| Once VCs told their portfolio companies to pull out svb
| was effectively toast.
| loandbehold wrote:
| Bigger bank with more cash could have bought them, fixing
| liquidity issue. This didn't happen, suggesting that
| there's problems with bank's assets, not just liquidity.
| friendzis wrote:
| Yes and no. There were 4 stages in this drama. 1. Build
| up where books became imbalanced 2. Imbalanced maturities
| draining liquidity 3. Liquidity issues being prominently
| voiced causing bank run 4. Aftermath.
|
| Once the situation evolved from stage 2 to stage 3, the
| liquidity hole expanded from ${gap-in-maturities} to
| roughly ${total-deposits} and that is only to contain
| immediate issue, fixing books would have possibly
| required additional capital.
|
| You are probably right, a bigger bank with liquidity
| could have saved SVB at stage 2. However, the situation
| evolved from stage 2 to stage 3 too quick for any
| meaningful deal to take place while still in stage 2.
| femto113 wrote:
| Nobody has to put in anything other than confidence.
| Given enough time the bank already has plenty of assets--
| the whole point of the feds saying "all deposits will be
| made whole" is to stop the panic withdrawals and thus
| obviate the need to sell those assets.
| ericd wrote:
| The amount of the potential losses on the uninsured
| deposits was a very small fraction of $150B.
| vintermann wrote:
| Was it? I think I read somewhere that this bank had an
| unusually large share of depositors over the deposit
| insurance limit, or in other words a high share of
| uninsured deposits.
| lordnacho wrote:
| Yes but that doesn't mean they would lose everything over
| the insured limit. If I owe you 1M but only have 950k to
| give you that's a lot better than having only 100k, in
| which case you'd end up with 250k.
| yawpitch wrote:
| Ok, but assuming the numbers above are correct, 150B in
| uninsured deposits - 5B in market cap firesale = 145B
| that SVB apparently didn't have the cash on hand to
| repay.
|
| If every depositor walks in first thing Monday morning
| and withdraws their bad bet in their (apparently single)
| chosen bank's management, the customers of all other
| banks are now on the hook for 145B... which ultimately
| means everyone on the planet can expect to pay more for
| their haircuts.
| lordnacho wrote:
| Huh, are the assets only trading at 5B? I thought it was
| much closer to 150B?
| jsjohnst wrote:
| No, GP is just foolishly conflating liabilities and
| assets and bank deposits and enterprise value among other
| issues if you read this and their other comments.
|
| tl;dr - GP doesn't have a clue what they are saying.
| jsjohnst wrote:
| With the number of ELI5 guides all over the internet on
| the SVB situation, this level of willful ignorance you
| displayed here is just sad. Seriously, stop talking out
| your arse and go educate yourself, even a little, first.
| yawpitch wrote:
| Well, you seem like a thoroughly pleasant ~human~ being
| to be around.
|
| Let's just sit back and see how this all plays out.
| deepsun wrote:
| Better count "enterprise value" than market cap, as
| that's the price the company is worth.
| BlueTemplar wrote:
| What is the difference and where can you see it ?
| miguelazo wrote:
| The stock isn't being bailed out, but a certain class of
| society/account-holder is (again), which seems to be just
| as bad in terms of perpetuating the moral hazard.
| op00to wrote:
| You don't know that a "certain class of society/account-
| holder is" being bailed out. Maybe you think it's likely,
| but the only people who really know the deal is the FDIC,
| and they seem confident that everything will wrap up
| cleanly.
| alistairSH wrote:
| FDIC typically insures up to $250k. The government is now
| doing a one-off (well, two-off) to make ALL depositors
| whole.
|
| "People with in excess of $250k cash" is most assuredly a
| "certain class of society". Or, maybe a few classes -
| rich individuals AND small companies. In either case,
| both groups should be better diversified OR have
| insurance against banking losses. The FDIC limit isn't
| unpublished - it's well known among people with even
| moderate amounts of cash.
| op00to wrote:
| The FDIC limit comes into play when there are no
| underlying assets to distribute to depositors. If the
| bank has no assets, it's likely all you'll see is $250k.
|
| If there are assets, they can be disposed of, and the
| depositors with over $250k can receive dividends. The
| fact that the FDIC is confident that the deposits will be
| available says to me they were able to successfully sell
| enough assets to ensure liquidity for whoever took over
| the deposits.
|
| This isn't a "government two-off to make ALL depositors
| whole". This is how these bank failures happen.
| miguelazo wrote:
| Umm, yes I do. I read the joint press release which
| stated _exactly_ that.
| ClumsyPilot wrote:
| The class is quite clear -weathly and risk taking and/or
| stupid/doesnt read the fine print.
| porknubbins wrote:
| What moral hazard being created though? Most SVB
| customers, unless they are finance experts, are not in
| any position to do due diligence on how their bank
| invests its loans and are pretty blameless in my opinion.
| They weren't capturing any real risk premium by banking
| with this bank.
| ClumsyPilot wrote:
| > Most SVB customers, unless they are finance experts,
| are not in any position to do due diligence
|
| Someone wants to have it both ways - they are
| sophisticated investors and entreneurs when it suits
| them. Leaders of our time, telling the rest of us how to
| live.
|
| Other times, they can't be expected to have basic
| financial literacy or consult a financial adviusor
| accessible to a regullar joe
| r_hoods_ghost wrote:
| But they were by, for smaller but over 250k depositors,
| not spreading their deposits between multiple banks.
| Which can be done manually or through a sweeping account
| very very easily. Or, for larger depositors, having other
| safety mechanisms in place. Really depositors over 250k
| do need to take some moral responsibility, even though I
| think it is better that they be made whole to stave off a
| 2008 style financial crisis.
| BlueTemplar wrote:
| What does _moral_ rather than fiscal responsibility have
| to do with this ??
| tempestn wrote:
| So what is the risk premium they were collecting? The
| time savings of not managing multiple accounts? Is it
| really desirable for larger depositors to carry the
| inefficiency of spreading their deposits across multiple
| banks, if the net liabilities of the banks end up being
| the same?
| 331c8c71 wrote:
| Doesn't matter. The rules are the rules.
| 331c8c71 wrote:
| There should have been
|
| 1) repayment of the insured amounts
|
| 2) liquidation of assets
|
| 3) repayment of the rest (likely with a haircut).
|
| 4) (optionally) a legislative reform (if the current
| system seems not adequate anymore)
| dtf wrote:
| The risk premium was access to a large and very cheap
| credit facility:
|
| https://twitter.com/jonwu_/status/1634250770555219970
| r_hoods_ghost wrote:
| Net doesn't matter to the individual firm. And who should
| carry it? Everyone else who had the gumption to spend,
| what, a few man hours, to guarantee that they won't end
| up not being g able to make pay roll?
| watwut wrote:
| No, VCs who literally demanded they put their money there
| did. Guess who cries the most about bail out - VCs. The
| same people who wanted regulations to ease up, the same
| people that actually indirectly profited from bank taking
| higher risk.
|
| It is ridiculous that the supposedly smartest groups
| whose literally did this to themselves gets bailed out.
| headsoup wrote:
| By design I would guess
| jimnotgym wrote:
| Hang on, companies with over 250k on deposit should be,
| or be engaging finance experts. YC should have finance
| experts.
| thesimon wrote:
| If lots of millionaires were losing money, everyone would
| say that the should have known better and had finance
| experts help them manage their money.
|
| But somehow the same doesn't hold true for companies.
| hellojesus wrote:
| Especially considering the government disallows people
| that aren't "qualified investors" from investing in
| specific asset classes entirely because people that don't
| meet that threshold are _just too stupid_ to participate.
| eshnil wrote:
| They don't need to do extra due diligence. Just buy
| insurance for the excess amount above the FDIC limit.
| After all, they do benefit from the upside like cheaper
| mortgages for execs.
| subsistence234 wrote:
| >most SVB customers
|
| I'm just a little smol bean startup with a 9 figure
| valuation not a finance expert, how could I have any idea
| about financial markets or risk?
| vintermann wrote:
| Wasn't the selling point of this bank its
| "libertarianism"? It's a fairly new bank, why did they
| switch to it if not for doing some research on it?
| notfromhere wrote:
| SVB is a 40 year old bank that's been doing business in
| the valley since the VC era started.
| yawpitch wrote:
| > SVB is a 40 year old bank that's been doing business in
| the valley since the VC era started.
|
| So it's a fairly new bank, by the standard or banks, and
| the point remains, why did they choose to risk keeping
| money in excess of the $250K insurance backstop in one
| bank with no real track record?
|
| Until this event the whole idea of the FDIC insurance
| fund was to ensure that people (not corporations) with
| relatively small nest eggs wouldn't lose the whole thing
| and therefore starve if their bank made bad bets... once
| your nest egg grew beyond the backstop it was your right
| (and privilege) to assume the risk of losing it, if you
| wanted to.
|
| Now because VCs and CEOs were essentially asleep at the
| wheels of companies that, for the part that have gotten
| this absurdly quick action from the government, consider
| $250K to be a rounding error, the rules have changed.
| That's the special class... the kind of people who
| somehow think 40 years is a substantial track record for
| a business that's big enough to underpin an economy.
| Ozzie_osman wrote:
| > Until this event the whole idea of the FDIC insurance
| fund was to ensure that people (not corporations) with
| relatively small nest eggs wouldn't lose the whole thing
| and therefore starve if their bank made bad bets.
|
| Nope.
|
| "The mission of the Federal Deposit Insurance Corporation
| (FDIC) is to maintain stability and public confidence in
| the nation's financial system."
|
| https://www.fdic.gov/about/what-we-do/
| RandomLensman wrote:
| One way this could create moral hazard is that large
| depositors are happy to lend to quite risky banks at high
| rates because they know they will be made whole in case
| of a bank failure. Btw., this could also make deposits
| less sticky as moving for opportunity has no downside in
| such a scenario.
| inferiorhuman wrote:
| SVB was publicly traded, and it's not being bailed out.
|
| SVB deposits are being paid for with an assessment on FDIC
| members. Who do you think is going to pay for that?
|
| Sincerely,
|
| A PG&E ratepayer
| op00to wrote:
| > SVB deposits are being paid for with an assessment on
| FDIC members.
|
| You're not being totally honest here. If there isn't
| enough capital to satisfy deposits, the FDIC facilitates
| an auction of assets owned by the bank. This occurred
| Sunday night. Not every asset owned by the bank is in the
| toilet, and ALL the value built up in any asset is given
| to depositors, not shareholders.
|
| If there is a shortfall between the assets owned by the
| bank, yes, there may be a special assessment on FDIC
| members. Special assessments have happened before, and
| they'll happen again. In 2009 it was 5 basis points, or a
| whopping 0.05% of deposits after a huge, sprawling
| economic meltdown.
| egberts1 wrote:
| Yeah, but FDIC considers SVB to be a non-bank financial
| company.
| op00to wrote:
| And if my aunt had wheels, she'd be a tea cart. What does
| that have to do with anything?
| tankerkiller wrote:
| SVB itself is a FDIC bank company, SVFG (Silicon Valley
| Financial Group) is the non-FDIC portion of the company.
| ahepp wrote:
| My understanding is it's not yet known whether a special
| assessment will need to be levied. The FDIC is making all
| deposits available before they find out, and if it turns
| out they cannot sell SVB assets to cover deposits, they
| will levy a special assessment to make up the difference.
|
| Certainly open to being corrected if that's wrong. But as
| far as I know it's a bit premature to talk about this
| being a "tax on depositors at other banks". It seems like
| these actions ensuring stability in the banking system
| may be beneficial to everyone.
|
| If it turned out that all SVB assets were worthless and a
| HUGE special assessment would need to be levied to cover
| deposits, I would agree that this could be a moral
| hazard. But right now I think it just looks like prudent
| management.
| inferiorhuman wrote:
| You're absolutely right. It's entirely possible for SVB
| to sell their assets and cover the entirety of the
| deposits above FDIC limits.
|
| Get real. The issue has never been that SVB's assets were
| completely worthless, it's that they're not going to
| cover all of the deposits over the FDIC limits. Ten year
| bonds were a bad idea and nobody wants them given the
| current interest rate trajectory. If SVB's assets
| could've been sold for their full cost they would've
| been. An assessment will happen, it's just a question of
| how large it will be.
| op00to wrote:
| > SVB's assets could've been sold for their full cost
| they would've been
|
| Why? No one thinks the FDIC is gonna close their bank
| until the FDIC padlocks your front door with you inside.
| This literally surprised almost everyone.
| ahepp wrote:
| It's possible the bank is only a "little bit" insolvent.
| Is it not possible that the difference can be made up by
| wiping out shareholders and giving unsecured bondholders
| a haircut?
|
| Per Robert Armstrong of FT: https://www.ft.com/content/9e
| e5edda-a038-4992-863f-242bd69c8...
|
| https://archive.is/OQdR7/43e461dad99a58217efdfde3878ee6b5
| 6cc...
|
| It looks as though SVB may be "only $5 billion" short on
| its uninsured deposits, with $22 billion in other
| creditors
| tankerkiller wrote:
| > Is it not possible that the difference can be made up
| by wiping out shareholders
|
| In the US it's illegal to do anything that would be "bad"
| for shareholders. It's quite literally the law that CEOs
| must return a profit for shareholders (or attempt to).
| The FDIC however has no such requirements, so while the
| bank itself can't wipe out shareholders, the FDIC can do
| it without care.
|
| Publicly traded companies will ALWAYS put shareholders
| above anyone else. It's the primary reason I'm very much
| against banks being publicly held. Just as I feel it's
| immoral for healthcare both insurance, pharma, and
| hospitals to be publicly traded entities.
| lordnacho wrote:
| If this is so prudent, how come nobody was suggesting it
| before it happened?
|
| I agree though that it sounds like a reasonable solution,
| at least superficially.
|
| Wiping out the shareholders at least is something I agree
| with. They need to eat risk.
|
| I also think that deposits have carved out a space of its
| own in the mind of the public. You can't think of it as a
| risk investment like any other debt because people just
| don't treat it that way, they think of it as a safe place
| to store their money for convenient access for things
| like payroll. If you haircut them, everyone will have to
| re-evaluate where to keep their deposits and chaos
| ensues.
|
| The big question then is how this levy on the rest of the
| banking system will work. That may turn out to be a
| clever solution or a carpet to brush future problems
| under. We'll see when there's more details.
|
| But the question still remains, why didn't someone think
| of this earlier?
| op00to wrote:
| > If this is so prudent, how come nobody was suggesting
| it before it happened?
|
| Because if you tell someone "hey, we're gonna wipe your
| shit out" they're going to try to rescue as much money as
| they can.
|
| > The big question then is how this levy on the rest of
| the banking system will work.
|
| https://www.fdic.gov/news/financial-institution-
| letters/2009... Here's how it worked in 2009.
|
| > why didn't someone think of this earlier
|
| Like in 2009, the last time they did it?
| ahepp wrote:
| > If this is so prudent, how come nobody was suggesting
| it before it happened?
|
| I guess this is kind of facile, but isn't it because the
| bank wasn't insolvent yet?
|
| Interestingly, it sounds like systemically important
| banks may be required to do "resolution planning" for
| insolvency. If I'm understanding correctly, that sounds
| similar to what you're talking about.
|
| SVB seems to have successfully lobbied for raising some
| of the thresholds for increased oversight from $50bn to
| $250bn. I don't know the specifics of exactly what was
| involved at this threshold, but it does seem clear that
| was a mistake.
| throwaway2037 wrote:
| Your last paragraph is dead on. Here is analysis from a
| blog run by Financial Times ("FTAlphaVille"): https://www
| .ft.com/content/c95e7708-b903-405d-a017-963844eb3...
|
| Scroll down to screenshot of _tiny_ text to find the
| "one trick" to explain it all. SVB poorly managed their
| balance sheet and had weak regulations for which they
| lobbied (oh, the lulz). Nothing more. FDIC wind-down or
| maybe sale. Plus, tighten up that rule. End of story.
| Maybe a few billion of special assessment (_in total_) on
| all other banks -- this is how deposit insurance works
| _in one form or another_ in all advanced economies.
|
| Why is this darn story getting so much attention? Dunno.
| Slow news cycle?
|
| EDIT: balance -> balance sheet
| ahepp wrote:
| I haven't read the Alphaville coverage yet, but I thought
| their front page feature was pretty informative coverage:
| https://www.ft.com/content/b556badb-8e98-42fa-b88e-6e7e0c
| a75...
|
| I'll read Alphaville next
| ClumsyPilot wrote:
| > everyone will have to re-evaluate where to keep their
| deposits and chaos ensues.
|
| That chaos is normal functioning of the market.
|
| Nobody has a right to safe placement of large sums of
| capital.
|
| It is not the government's job to protect your market
| winni g from the market moving against you.
| arcticbull wrote:
| It's not though, SVB equity holders are getting zeroed out.
| Raiding the DIF to pay out depositors in extraordinary
| circumstances and then recovering it through a special
| assessment is basically the whole point of having an FDIC. The
| justice is that SVB equity went to $0.
| ahepp wrote:
| Does this statement reflect any shift in policy?
|
| Haven't depositors always been first on the list to get paid,
| even their uninsured deposits? I don't know if charging a
| special assessment to member banks is standard operating
| procedure, but that doesn't sound like government intervention.
| It just sounds like reasonable operation of the FDIC.
| [deleted]
| dragonwriter wrote:
| > Does this statement reflect any shift in policy?
|
| It's a decision of how to apply existing policy to a specific
| situation, not a policy change. Existing policy is
| nonspecific enough that reasonable people could disagree on
| how best to apply it here without changing it.
|
| > Haven't depositors always been first on the list to get
| paid, even their uninsured deposits?
|
| Yes.
|
| > I don't know if charging a special assessment to member
| banks is standard operating procedure
|
| It isn't routine, which is why it requires invoking the
| systemic risk exception.
|
| > but that doesn't sound like government intervention.
|
| It's a government decision to intervene in a particular way,
| so...
|
| > It just sounds like reasonable operation of the FDIC.
|
| It's not just "reasonable operation of the FDIC", since both
| Fed and Treasury actions are involved. And, even if it was,
| FDIC is a government corporation, so its actions _are_
| government intervention. Its reasonable operation is
| reasonable government intervention, but its still government
| intervention.
| Uvix wrote:
| Not sure how "taxing depositors at other banks to pay for
| uninsured deposits" is "reasonable operation of the FDIC".
|
| (And yes, it's taxing the depositors. Because even if it's
| "officially" a fee to the other banks, it will be trickled
| down to their customers through lower interest rates and
| higher fees rather than absorbed.)
|
| If this was necessary to recover _insured_ deposits, that
| would be reasonable. But instead, the people who made poor
| decisions aren 't going to lose anything, because the extra
| money is coming out of the pockets of _everybody else_ with
| money in banks.
| elliekelly wrote:
| They invoked this exception repeatedly during the financial
| crisis and fees did not go up in response. In fact, they
| all but disappeared.
| j16sdiz wrote:
| I guess liquidity problem should be treated differently from
| solvency problem.
|
| With FDIC take over the bank asset, this is not paying from
| taxpayer's money ..
| xupybd wrote:
| They really need regulation that requires banks to hold more
| funds. They have to be able to withstand small runs.
| dalyons wrote:
| That wouldn't have helped here? The run was something like
| 30% of all deposits at the time of halt
| dixie_land wrote:
| Who put them in charge? Like literally, the institution of a
| central bank is unconstitutional
| [deleted]
| bjornsing wrote:
| The "run with the herd" crowd likes it this way sine it means
| they will be bailed out, but not their independent-minded
| competitors.
| YZF wrote:
| Where does the money that the banks are going to use to pay for
| this come from?
| mgraczyk wrote:
| In cases where you can't predict the future appropriately,
| sometimes it's better to make prudent decisions that help
| everyone instead of attempting to punish the sinful.
|
| Keep in mind that bank shareholders and senior management are
| going to get wiped out and fired.
| thefounder wrote:
| >> and senior management are going to get wiped out and
| fired.
|
| Yeah, let's punish the management like we did in 2008...
|
| "SVB executive was Lehman Brothers CFO prior to 2008
| collapse"
|
| https://m.economictimes.com/news/international/business/svb-.
| ..
| ProjectArcturis wrote:
| He didn't work at the part of Lehman that failed, and he
| didn't work at the part of SVB that failed.
| cronix wrote:
| And to really punish him, we shall strip him of his "Class
| A" shareholder status at San Francisco FED.
|
| https://www.bloomberg.com/news/articles/2023-03-11/svb-
| ceo-b...
|
| But not before we let him cash in $3.6M in stock.
| https://www.forbes.com/sites/brianbushard/2023/03/10/svb-
| fin...
|
| Let this be a lesson to all of you other banks.
| gizmondo wrote:
| Look, it's a meme, you're not supposed to take them
| seriously. The guy is an executive at SVB Securities, a
| separate branch that is completely fine.
| hayst4ck wrote:
| By game theory, if you let sinners prosper, you will produce
| more sinners. In the most pure sense not punishing the sinful
| is wrong, always.
|
| That misses the point that it is possible to both help
| everyone _and_ punish the sinners.
|
| Here is a game I recommend that you play:
| https://ncase.me/trust/
|
| I think it gives a great explanation why what you are saying
| in good faith is not quite right. Not punishing the sinful
| both pushes the problem into the future _and_ makes it
| bigger.
| moose_is_loose wrote:
| https://twitter.com/petercontibrown/status/1635076092339052
| 5...
| hayst4ck wrote:
| > Point is that a system of such asymmetries rewards so
| many at public cost - and that includes the other
| stakeholders who are today "wiped out" (but still get to
| keep their gains from the good years). /end
|
| Yep, and that is exactly the point. They must not get to
| keep their gains and they must lose an additional amount
| proportional to their chance of success.
|
| The expected value of corruption must be negative.
| mgraczyk wrote:
| We tried it your way many times, and it failed in every
| case (civil war reconstruction, Treaty of Versailles, Iraq
| provisional authority, response to the great depression,
| etc).
|
| When we do the other thing and focus on protecting the
| innocent instead of punishing the guilty, things have
| worked out far better (Marshall Plan, Covid response,
| this).
| hayst4ck wrote:
| This isn't war, this is corruption.
|
| The context is wildly different. For one, war is chosen
| by a countries aristocracy while the lower classes have
| little agency in the matter. It is not the lower classes
| of these countries that are guilty, but the upper class,
| and therefore plans to help the lower class victims
| despite their complicity are pragmatic and sound. It is
| not pragmatic to punish slaves that attacked you, you
| would seek to arm them so they are not enslaved...
|
| Punishment must be proportional to a person's power.
|
| The COVID response against China is still pending, both
| of our countries are gearing up for war. Rhetoric around
| Taiwan has increased, and there is active work to reduce
| dependency on China.
|
| The Marshall plan had nuremburg trials.
| briHass wrote:
| There's a bit of irony in mentioning the COVID response,
| considering the knock-on effects of that are
| partially/largely to blame here.
|
| If we ignore the fact that there may very well be some
| who are 'guilty' in the COVID saga, that certainly didn't
| have the same story as a bank that made poor bets, and
| the (relatively) wealthy depositors of said bank that
| made poor risk calculations and got burned by the black
| swan.
| hellojesus wrote:
| Have you considered the covid response openly violated
| the Constitution's 5th Ammendment? The gov shut down
| businesses for the public good (took private property)
| without just compensation. And what marginal compensation
| was offered was done so through PPP and was corruptly
| incentivized.
|
| I would describe the covid response as anything but
| working out well.
| mgraczyk wrote:
| I'm talking specifically about fiscal and monetary
| response, and whether or not we punished people,
| addressing the comment I was replying to.
|
| For example it was good that we gave out PPP loans fairly
| literally even though it causes major fraud. If we had
| moved slower and endured that bad actors couldn't get
| away with abuse, the response would have been worse.
| hellojesus wrote:
| > For example it was good that we gave out PPP loans
| fairly literally even though it causes major fraud.
|
| My point was addressing the incentive scheme for PPP:
| banks got paid a percentage of the origination amount so
| processed the largest loans first, and by the time they
| got to the smaller applications, they ran out of money. h
| ttps://www.forbes.com/sites/jasonbfreeman/2020/04/23/ppp-
| la...
|
| The 5th Ammendment doesn't say the government can provide
| just compensation to some people. It says they _must_
| provide just compensation to all that their seizure of
| private property directly impacts.
|
| Fraud is of course another issue, but my main concern is
| the corrupt incentive structure and glaring 5A violation.
| hn_throwaway_99 wrote:
| I mostly agree with this, but I feel like the past 25 years
| or so, ever since "the Greenspan put", has just gone more and
| more in the direction of telling people that they don't need
| to worry about doing adequate risk assessments, because if
| you have powerful people that yell loud enough, and you can
| cause enough damage, that Washington will come to the rescue.
| Eventually, I just don't see this ending well.
|
| As someone who is naturally risk averse, I feel like a
| sucker. I was having a conversation in a separate thread
| where someone remarked "How can you expect startup companies
| to spread their deposits across multiple banks?" Besides the
| fact that there are tons of account structures _specifically
| set up to do that_ , as an individual, _I_ know what these
| insurance limits are and have moved assets around accordingly
| (for me, FDIC limits weren 't relevant but SIPC limits were).
|
| How much time I wasted. I should have just gone with a
| powerful enough institution that I knew would get bailed out
| if they ever failed. I certainly won't waste my time doing
| this again, which is probably not the follow-on effect that
| the feds want.
| AYBABTME wrote:
| Why isn't it. Pragmatically it's pretty silly to insure the
| first 250k and then expect people to go through the trouble
| of spreading their cash over a multitude of accounts.
| Punishing people for not having accounted for black swan
| events in their risk assessment is also not scalable. Do we
| want people to do useful stuff, or to spend their time
| digging the rule book to ensure they've accounted for every
| eventuality?
|
| Also it's not like once you have 250k in the bank, you're
| suddenly a finance wizz, omniscient of all the tricks and
| tips with regard to treasury management. Even as you get
| into the low millions of net worth, it's not like you
| suddenly became a HBS graduate. A lot of regular hard
| working people end up hitting those limits and wouldn't
| reasonably be expected to learn about treasury-foo. A lot
| of young or small businesses are in the same lot. Being
| somewhat wealthy doesn't turn you into a fine financier.
| And even if you think those folks should hire advisors,
| it's not like they can afford to hire the right ones with
| this relatively small amount of wealth.
|
| I think resentment of having gone through the pain of
| spreading your cash, in vein, isn't a good reason to screw
| up hundreds of thousands of salaried employees, and a bunch
| of regional banks.
| ClumsyPilot wrote:
| > Punishing people for not having accounted for black
| swan events in their risk assessment is also not
| scalable. Do we want people to do useful stuff, or to
| spend their time digging the rule book to ensure they've
| accounted for every eventuality?
|
| So you want government to provide complete health
| insurance, after all. we want people to spend their time
| doing usefull stuff not studying the very complex
| intersection of all known diseases and medical
| beurocracy?
| matwood wrote:
| > So you want government to provide complete health
| insurance, after all.
|
| Yes. This would be the single biggest boon to small
| business the US had ever enacted.
| BeFlatXIII wrote:
| Yes, exactly.
| rjbwork wrote:
| >So you want government to provide complete health
| insurance, after all. we want people to spend their time
| doing usefull stuff not studying the very complex
| intersection of all known diseases and medical
| beurocracy?
|
| Yes, obviously. That we have the bulk of our population
| in precarious wage slavery under threat of medical
| bankruptcy at best, and a slow painful agonizing death of
| preventable causes at worse, is a crime against humanity
| given this is the richest country in human history.
| hellojesus wrote:
| But would the government run solution sacrifice personal
| freedom? After all, when you socialize costs, you get
| free rider problems.
|
| Will I have to pay more if I'm obese? Can I get cut off
| the system for not taking a vaccine?
|
| I'm hesitant to make the government a partner in my
| personal choices regarding diet, recreational fun like
| hang gliding, lifestyle choices, etc.
| AYBABTME wrote:
| I do, in fact.
| knome wrote:
| >punishing people for not having accounted for black swan
| events in their risk assessment is also not scalable
|
| For a country that seems hellbent on abandoning
| individuals of lesser means to the vagaries of fate, to
| frequently swoop in to save those already of better
| standing when misfortune strikes seems pretty
| hypocritical.
|
| Sickness is still the most frequent cause of bankruptcy
| in our country. What social programs we have prickle with
| difficulties in gaining or maintaining access, seemingly
| designed to make life harder for those already forced
| through misfortune to require them.
|
| Half our political establishment regularly suggests the
| destruction of even these, intending to leave individuals
| with nowhere to turn at all.
| nemothekid wrote:
| > _Why isn 't it. Pragmatically it's pretty silly to
| insure the first 250k and then expect people to go
| through the trouble of spreading their cash over a
| multitude of accounts_
|
| How is it silly? From the perspective of the FDIC, if you
| have two seperate accounts (at 2 seperate banks) that
| represents a drop in risk. It's unlikely 2 banks with
| fail and now FDIC only has to replenish 250K instead of
| 500k.
| conradkay wrote:
| I'm not following your logic here. If there's 10 people
| each with a $2.5m deposit at a separate bank each and
| they all spread their accounts to $250k in each of the 10
| banks, the FDIC still has a risk of $2.5m per bank right?
| nemothekid wrote:
| How likely is it that all 10 banks fail at once?
| initplus wrote:
| Think about this with some numbers: if there are 100
| banks, and every business puts 1% of their cash into each
| bank, the overall risk is the same as if 1% of businesses
| put 100% of their cash into a random bank out of the 100.
|
| The cost to FDIC if an individual bank fails is the same
| in both the above scenarios, even though in the first
| businesses put a lot more effort into spreading out their
| funds. It looks less like it could have less risk to the
| FDIC, but really isn't making any difference.
| HWR_14 wrote:
| The odds that 100% of businesses each decide to pull
| their money out of the same bank at the same time is less
| than 1% of businesses who invested at the same bank
| pulling out their money. Especially if they are in the
| same industry and know the same people urging a sudden
| withdrawal. Maybe even mostly located in the same
| geographic region.
| naasking wrote:
| But if the FDIC insures all deposits anyway, then there
| would never be a bank run to begin with because nobody
| would panic that they wouldn't get their money out, so
| spreading risk among multiple banks is a "solution" to an
| artificial problem.
| conradkay wrote:
| Well, my example is for 1 of 10 banks failing but
| probably somewhat likely without regulations if people
| panic and start bank runs.
| lmm wrote:
| 10 people can go a few days without access to 10% of
| their money much easier than 1 person can go a few days
| without access to 100% of their money. And hopefully more
| customers means more scrutiny for each bank.
| wyre wrote:
| If you have more than 250k in the bank you should be
| smart enough to split it into multiple accounts or hire
| someone to do treasury management.
| conradkay wrote:
| I've never run a large company but I feel like it
| wouldn't be feasible when you have transactions routinely
| over 250k, like how I'd imagine most of these companies
| would be with their payroll.
| hellojesus wrote:
| I think the solution to that is placing predence on the
| bank selection mechanism. You could audit banks' lending
| positions and make risk adjusted based decisions.
| sshumaker wrote:
| Lots of people have way more than that due to retirement
| accounts (which sometimes need more liquidity or people
| want to get out of the market so they have more cash on
| hand). Or even if you have a down payment on a house in
| most of the coastal states. 250k in the bank is not much
| money these days.
| eric_cc wrote:
| I just don't understand this attitude. It's 250k. We're
| not talking about all that much money. Why do you think
| people with 250k should have extra knowledge or access to
| special advisers?
| 8note wrote:
| I think you're out of touch with how much money Americans
| have in savings
|
| Vs say, 1k in savings or 10k in savings, somebody with
| >250k in savings certainly can pay some form of fiduciary
| barsonme wrote:
| Well, it's not just individuals with their savings. It's
| businesses, too.
| freddie_mercury wrote:
| The Greenspan Put was 37 years ago.
| bink wrote:
| I've been a student of housing bubbles for a long time. I
| remember back in 2003 I was participating in an online
| forum covering the bubble. The conventional wisdom back
| then was that when the bubble popped not even the Fed or
| Alan Greenspan and his helicopters could cover the losses.
| The hundreds of billions if not trillions of dollars that
| would be needed would cause runaway inflation.
|
| Then, they did it. The bastards managed to somehow buy tens
| of billions of mortgage backed securities every month for
| years. They bailed out automakers and banks with backdoor
| 0% loans while claiming the "investments" were profitable
| for the average citizen. Zombie Fannie and Freddie are
| still out there gobbling up mortgages. It's insane.
| User23 wrote:
| Money printer go brrrrrrrr.
|
| None of this is surprising to people who know how bank
| money actually works. The US congress literally has
| unlimited nominal credit and practically unlimited useful
| credit, and it can grant same to any of its creatures.
| naasking wrote:
| Of course they could, money is a fiction after all. As
| long as we all keep walking around believing that
| fiction, there's no real problem with just inventing more
| money out of thin air.
|
| The fiction has certain properties when it encounters the
| real world though, so there are sometimes downstream
| consequences, but none that could ever totally dissolve
| the fiction. Only enough people starting to disbelieve in
| the fiction itself could do that, and people mostly won't
| do that because money is too useful.
| rftyuikdjhgvcf wrote:
| you should have just went to a private elite school instead
| of working hard your while life too. /s
| throwaway12245 wrote:
| >How can you expect startup companies to spread their
| deposits across multiple banks?
|
| Buy one year CDs from many banks and T-bills.
| tolmasky wrote:
| I think you are wrong to not keep doing this (and I also
| don't believe you'll stop doing it unless it's actually
| hard to continue doing, vs. the initial setup being
| difficult). I can tell you that after this I _will_ start
| doing it. I don't see these events as proving anything for
| the future. I have no idea what the political climate will
| be next time around, or any other factors. It's like being
| down 9-0 in a soccer game and saying "hey, remember that
| one epic game we were also down 9-0 but then came back
| 9-10? Everything is fine." What? No way. I don't want my
| team down 9-0 at the half, ever.
|
| BTW, in my experience many many people are risk averse in
| specific things _they_ see that others don't. It's super
| hard to be an expert on everything. Talk to someone that
| knows about construction and they'll have similar laments
| about home maintenance. Is it bad to "bail out" people that
| have their homes washed away in a hurricane? I honestly
| don't know. But what I do know is that I'm definitely not
| jealous of them for making a silly location choice and "not
| paying the price". That experience is not fun. I promise
| this episode was fairly disruptive even with this outcome.
| It is much better to look on from the outside than wonder
| whether a bunch of people you don't know will save you.
| You'll feel really bad if the next one isn't bailed out
| because something is different and it gets you because you
| stopped doing something that aligned with your values just
| because of this thing this time.
| 0xB31B1B wrote:
| The decisions about "is this bank adequately capitalized to
| serve its depositors" should be made by the regulators, not
| by the market. We know what it takes to run a bank safely,
| and its really easy to both quantify and test. This is how
| the "too big to fail" banks are run today. No one talks
| about the moral hazard of elevators (make sure you inspect
| it before you get on) or airplanes (make sure you do your
| own pre flight check) we trust that the regulators have set
| up processes that make this infrastructure safe for the
| public to use. Even with a deposit guarantee, a poorly run
| bank can still be closed by regulators, a bank run doesn't
| need to happen for a bank to be shut down, just like an
| elevator accident doesn't need to happen to decertify an
| elevator in a building.
| zupreme wrote:
| Consider: "Reserve requirements are a tool used by the
| central bank to increase or decrease the money supply in
| the economy and influence interest rates. Reserve
| requirements are currently set at ZERO as a response to
| the COVID-19 pandemic." ref:
| https://www.investopedia.com/terms/r/requiredreserves.asp
| tick_tock_tick wrote:
| A mean reserve requirements are stupid and have no place
| in real risk assessment so that's a good thing.
| 8note wrote:
| How so?
| hellojesus wrote:
| I don't think it necessarily is adjusted for risk that
| specific banks take on as operators. It's likely set at
| some requirement to help the fed achieve its goal while
| also adjusting for median or 2 std dev risk.
| chernevik wrote:
| And so the regulators are empowered to make a whole bunch
| of other decisions, such as asset and lending strategy.
|
| I prefer to minimize regulators' control over decisions.
|
| Perhaps you have noticed that regulators are at bottom
| politicians?
| kazen44 wrote:
| at the end of the day, everything in life is political.
|
| Did you also consider that the political incentive for a
| regulator are at odds with the ones running the
| bussiness. (mainly, not getting people killed).
| TheOtherHobbes wrote:
| I prefer to minimise banking's influence over everything,
| because banking is itself a form of political regulation
| - but not a democratically accountable one.
| DubiousPusher wrote:
| It doesn't take a CPA to know that depositing above 250k
| comes with increased risk. And I think you're kind of
| conflating types of consumers here. People depositing
| above that limit are generally not working from the same
| limitations and lack of information that regular people
| are.
| eric_cc wrote:
| > People depositing above that limit are generally not
| working from the same limitations and lack of information
| that regular people are.
|
| 250k is not that much money. What a weird statement.
| [deleted]
| rolldat777 wrote:
| It is more than the average lifetime peak retirement
| savings in the US (which will be in multiple accounts,
| generally).
| TimTheTinker wrote:
| Feels like a lot to me. That's more than a year's wages.
| DubiousPusher wrote:
| Yes, that is a lot of cash for an individual. I don't
| really know why anyone would sit on a lot more cash than
| that without at least putting a healthy portion into
| Treasuries or other durable assets.
|
| For businesses, it is a trickier proposition but there
| are reasons that companies roll cash into assets and
| operate largely from credit.
| enra wrote:
| Companies need to run payroll twice a month. $250k is
| about one months payroll to 25 people. Many companies are
| a lot larger than that. You also have planned and
| unexpected expenses and other payments. Many payroll and
| providers also require you to set up one account where
| the funds are pulled. You don't want to move money around
| every week, so you keep heathy balance.
| tolmasky wrote:
| It's also never adjusted for inflation, despite this mess
| in theory being triggered by raising of interest rates
| due to super high inflation. 250K when it was set in 2010
| is the equivalent of almost $350K now. If we ignore that,
| then we're just admitting the number is totally arbitrary
| and we shouldn't even bother arguing whether it's a lot
| or a little.
|
| Separately, it's weird that a joint account is insured to
| 500K but a business account stays at 250K. It actually
| _does_ weirdly favor wealthy individuals vs. working
| capital accounts for businesses that might represent many
| employees.
| baq wrote:
| It was set to 250k from 100k... That's quite far from
| 'never adjusted' and quite a bit more than 'for
| inflation'.
| tolmasky wrote:
| The sentence clearly means that it was never adjusted
| from inflation from when it was adjusted to 250K, _12
| years ago_. You can tell that this _is_ far from being
| adjusted for inflation since it is now 100K off from what
| it was in 2010, or _40%_. This should be a "neutral"
| issue with respect to the SVB thing, pegging it to
| inflation helps everyone in the system.
| barsonme wrote:
| I don't disagree, but fwiw it's only about one month's
| payroll for 25 people if each employee makes around $200k
| per year.
| enra wrote:
| Obviously people have different salaries but also are
| payroll taxes and other taxes or fees that also need to
| be paid like unemployment insurance and whatever else the
| local government has decided. Sometimes these are
| collected city/county as well as at state level.
|
| Benefits also cost $500-2500/mo (if you cover 100%
| employee and 70% dependents).
|
| Not complaining but just saying there are costs that are
| not always apparent to employees.
| 0xB31B1B wrote:
| also rent, servers, the cost of anything else you have to
| run your businesses. For broadly generic tech companies,
| take everyones top line salaries, double them, that is
| your rule of thumb monthly expense line item that wraps
| everything up (rent, taxes, the cost of doing business,
| marketing spend, etc)
| 8note wrote:
| That's more than most American will ever have in savings,
| no less
| throwaway5959 wrote:
| That's a senior software Eng in LA's annual salary. With
| five years of experience.
| DubiousPusher wrote:
| Yeah, that's actually about what I make but let's be
| real, this is a very small number of people. I have a
| financial planner.
|
| Are there people in this asset class who aren't getting
| financial advice? Yes. But it's not like ma and pa kettle
| are getting wrung out by the savings and loan here.
| eric_cc wrote:
| Consider financially responsible people in their 50's and
| 60's that have had decades to save. There are plenty of
| "regular", middle class people with this type of savings
| in their account.
| DubiousPusher wrote:
| If you have that much in liquid cash, you meet virtually
| no definition of the term "middle class". You are upper
| middle class at leadt and you probably have a financial
| advisor who is telling you that you shouldn't locate all
| your money in one account unless it is yielding in a way
| that justifies such a risk. At least I hope you do.
| solveit wrote:
| Or you're just old and you don't believe in investing.
| Lots of people are like this.
| DubiousPusher wrote:
| I concede that edge case. My dad hides cash in coffee
| cans.
| poof131 wrote:
| Exactly. Circle and USDC are essentially a bank
| themselves, and those deposits were just guaranteed. Risk
| free return.
| lmm wrote:
| At this point we should just nationalize the whole
| banking system. Currently we have the worst of both
| worlds: privatised profits and socialised losses; strict
| regulations but limited oversight or appeal; no real
| market competition but no real voter influence either.
| 0xB31B1B wrote:
| we don't have "socialized losses". Tax payers aren't
| paying for anything here. The FDIC is run an funded by an
| interbank consortium. Its essential a union of banks that
| run a collective risk pool and decide the rules of the
| risk pool. It works and has worked for nearly 100 years.
| lmm wrote:
| > we don't have "socialized losses". Tax payers aren't
| paying for anything here. The FDIC is run an funded by an
| interbank consortium. Its essential a union of banks that
| run a collective risk pool and decide the rules of the
| risk pool.
|
| What meaningful distinction are you drawing here? It's
| not practical to opt out of banking, and FDIC has no real
| competition (the NCUA offers exactly the same terms, and
| in the credit union thread fans were at pains to
| emphasise how equivalent to the FDIC it is). Not all
| taxes are collected by governments from individuals.
| lostmsu wrote:
| Cryptos?
| hellojesus wrote:
| People will be taxed for this through inflation. Where
| else does the money come from during a QT cycle?
|
| I haven't looked into the details for how this will be
| paid, but that would be my initial guess.
| ProjectArcturis wrote:
| Sorry you had to spend like an hour opening a second
| account. But yes, not wasting people's time (not requiring
| small and medium businesses to hire CPAs to evaluate banks'
| books) is exactly the outcome the feds want.
| lxm wrote:
| In finance there's a lot of employee transition right after
| bonuses are dished out, and incidentally SVB just delivered
| theirs
|
| https://www.cnbc.com/2023/03/11/silicon-valley-bank-
| employee...
| [deleted]
| JumpCrisscross wrote:
| > _sometimes it 's better to make prudent decisions that help
| everyone instead of attempting to punish the sinful_
|
| I'm conflicted about this. In the last seventy-two hours, I
| made a ridiculous amount of money standing still because
| risks that shouldn't have paid are being done so by people
| who shouldn't have to pay them. I personally benefit. But
| we've given tech companies a visible privilege American
| farms, factories and municipalities don't enjoy. T
| celticninja wrote:
| It's the old saying, if you owe the bank a million dollars
| you have a problem, if you owe the bank $100m then the bank
| has a problem.
| akrymski wrote:
| Except the CEO and Chief Risk Officer already cashed out a
| year ago.
| hypothesis wrote:
| >senior management are going to get wiped out and fired
|
| Wasn't one of executives working at Lehman Brothers or some
| such before? This is just failing upwards and doing same
| thing.
| HWR_14 wrote:
| Senior management is going to have their recent sales of
| millions of dollars and significant percentages of their
| stock and the bonuses they received hours before the FDIC
| took over reversed? Because otherwise they weren't really
| "wiped out" or even close to it.
| freejazz wrote:
| Didn't one of their execs work at lehman and arthur anderson?
| mitthrowaway2 wrote:
| "Punishing the sinful" isn't about morals, it's about
| incentives, and ensuring a level playing field where sinning
| doesn't improve your long-term competitiveness.
|
| Will senior management have to return their 2021 performance
| bonuses? If not, successful sinning is just a matter of
| ensuring you cash out early.
| HWR_14 wrote:
| Their 2021 bonuses? What about their 2022 bonuses that were
| paid our hours before the feds took over the bank.
| mgraczyk wrote:
| Who are you trying to disincentivize? How would it dissuade
| the bank's management if depositors took a haircut? What
| behavior do you think punishing depositors would prevent?
| Do you think depositors should hire an accountant and
| economist to review their bank's balance sheet every
| quarter?
| Uvix wrote:
| If they have more than $250K in the one institution: yes,
| they should.
|
| Better yet would be spreading their deposits around, but
| if they don't want to do that, they should take the
| necessary steps to evaluate the risk appropriately.
| mgraczyk wrote:
| Ok but that's a bad policy that makes no sense and I'm
| glad the fed, Treasury, and FDIC are stepping in to
| change it. Sad that congress hasn't done anything over
| the past few years, but better the problem be solved than
| letting faith in our financial system collapse.
| rashkov wrote:
| It does seem like a weird loophole and charade to have to
| split money among many banks. Just give businesses a way
| to store their money without earning interest and with no
| risk. As far as I know that's not an option under our
| banking system
| amalcon wrote:
| It's neither a loophole nor a charade: it's
| diversification to reduce exposure to risk. Bank failures
| are somewhat coordinated, sure. Still, it's much more
| likely that one bank fails than N>1 banks. Since you are
| exposed to less risk, your insurer (FDIC) is also exposed
| to less risk. It makes complete sense for the insurer to
| incentivize this sort of behavior.
| ProjectArcturis wrote:
| But what it really incentivizes is putting all your money
| in a too-big-to-fail bank. That's much easier and just as
| safe as opening a dozen, or hundreds of accounts. And it
| results in there being 3 banks in the whole country.
| politician wrote:
| There is, in truth, only one "bank" in this country. The
| Federal Reserve Banks that hold the master ledger for the
| official US Dollar market. Everything else downstream is
| basically redundant legacy infrastructure from a time
| before pervasive broadband network infrastructure.
| ProjectArcturis wrote:
| That would be news to anyone who actually works in
| finance.
| harimau777 wrote:
| Personally, seeing the government bail out corporations
| is what causes me to loose faith in our financial system.
| mgraczyk wrote:
| This isn't a bailout (unless you also consider FDIC a
| bailout). And fortunately most people don't see it that
| way, so this was the right move.
| hypothesis wrote:
| I dunno, but POTUS appears to be fine with this being
| described as bailout.
|
| [0] https://mobile.twitter.com/POTUS/status/1635080376572
| 956672
| hn_throwaway_99 wrote:
| > Do you think depositors should hire an accountant and
| economist to review their bank's balance sheet every
| quarter?
|
| Basically, yes, but without the hyperbole - an accountant
| yes, an economist no. This is not that hard. Treasury
| management is a specific function of any company.
|
| I definitely don't blame these startups for not being
| financial experts, but VCs absolutely should have been
| coaching their client companies how to manage their cash
| safely.
| mgraczyk wrote:
| Imagine what the world would look like if you got what
| you're asking for. Tens of thousands of extra dollars of
| overhead to open a bank account? To save literally
| nothing directly for taxpayers, and a few dollars per
| account for banks? I would strongly prefer to he
| socialized insurance and safety net in this case, and I'm
| a die hard capitalist.
| hn_throwaway_99 wrote:
| You seem to think that the world doesn't already work
| like this. There are tons [1] of [2] products [3] that
| are offered specifically to make it easy to spread cash
| around at multiple institutions. And that in and of it
| self is beneficial, because it is essentially
| diversifying the risk of those deposits. Now, with what
| the fed has done, why would anyone bother spreading their
| risk around?
|
| 1. https://www.intrafinetworkdeposits.com/
|
| 2. https://www.wintrust.com/maxsafe.html
|
| 3. https://www.moneycrashers.com/cash-management-account/
| creato wrote:
| Seems like the FDIC is achieving the exact same outcome
| with a lot less hassle and overhead for everyone.
| naasking wrote:
| I think this is exactly it. More and more this
| arrangement is starting to sound like the baseless
| justification used for US healthcare: a bunch of middle
| men milking value for little actual benefit.
|
| Addressing risk can be more efficient and we can make the
| system far more efficient by cutting out all of this
| overhead and red tape. As long as the banks are properly
| disincentivized in other ways from being over-leveraged
| and taking too much risk, this arrangement would just be
| much better overall.
| hellojesus wrote:
| It very quickly devolves to socialism, however. Without
| the incentive to make money, you lose market competition.
| Eventually it collapses to a handful of big players, but
| they are all extremely constrained by the government
| insofar as they are really one government run operation
| with different names. Suddenly all market efficiencies
| are lost and you end up in a worse position than the
| market originally presented.
| naasking wrote:
| I'm not sure why you think the incentive to make money
| evaporates if deposits are assured.
| hellojesus wrote:
| A bank makes money from deposits by making available a %
| of them for loan originations. If all deposits are
| assured, then either the bank cannot take on any risk, or
| they can take on risk with the knowledge that the gov
| will foot the bill for any loss scenarios.
|
| If the gov removes the potential for risk, banks will be
| free to make wildly speculative loans/investments, which
| will of course fail in time, causing the gov to tighten
| regulations even more until all profit is driven out of
| the game. Thus the gov would be the sole regulator of
| loans centralizing banking.
|
| Sure,maybe you get some banks that pop up and offer
| assured deposits by only floating operating costs from
| risk-free assets like treasuries, but then you're looking
| at pay-to-bank for economic times with unusually low
| treasury rates.
|
| Maybe I'm being hyperbolic, but it seems like a potential
| evolution when moral hazard isn't controlled.
| [deleted]
| AlbertCory wrote:
| As I read his post, he's talking about punishing the
| _bank executives_ as much as the depositors.
|
| So, clawing back every penny they took for doing sound
| risk management while not actually doing it is totally
| fair.
| mitthrowaway2 wrote:
| This is a simplification, but: the bank should have to
| offer depositors an interest rate (or other value-add,
| such as competitive services) that makes it worth their
| while to trust the bank with their deposits. A bank that
| makes very conservative investments/loans can only offer
| a low interest rate to depositors, because they earn less
| profit on the spread, but their depositors will accept it
| because of the safety of the institution. A bank that
| makes speculative investments/loans can offer a high
| interest rate to depositors, because they earn enough to
| offer it, and they'll need to, to attract depositors away
| from the safer conservative institutions.
|
| A bank that can offer a government-backed guarantee to
| depositors can offer a low interest rate while making big
| profits, and pay big dividends to their shareholders and
| executives, steal market share from their conservative
| competitors while making themselves more systemically
| essential in the process, and leave the public on the
| hook if they fail.
| ProjectArcturis wrote:
| If you allow banks to make extremely speculative
| investments with depositor money, you end up with Ponzi-
| like behavior that ultimately hurts unsophisticated
| retail folks. Just like all the crypto "banks" offering
| 20% staking that are collapsing now.
|
| All you've described is a way to build a pitfall for
| naive investors so they can lose the first $20k they've
| ever saved.
| harimau777 wrote:
| I think that's fine as long as you are willing to then help
| anyone in that situation in the future. Not just people who
| are big enough to be "important".
| moffkalast wrote:
| You mean those executives that sold their shares of the bank
| weeks before, ending up with with fat stacks and completely
| unaffected?
|
| Yeah I kinda doubt they'll get what's coming to them
| unfortunately. Insider trading's only a crime when it's poor
| people doing it.
| DANmode wrote:
| Not entire, but enough to raise eyebrows, IIRC
| mgraczyk wrote:
| Do you think punishing depositors would disincentivize
| those executives?
|
| And do you have any examples of poor people being charged
| with insider trading? Every case I have seen is rich people
| trading.
| cowl wrote:
| Punishing Depositors no but punishing them yes. There
| should be personal finanacial Clawback and potentially
| even legal conseguences for this type of mismangement.
| When Their personal wealth is at risk they will be more
| careful. As it is right now, they don't risk anything and
| will try the same thing again. The worst thing that can
| happen to them is to loose "unrealiasied profits" not
| loosing anything already realised.
| tiahura wrote:
| _There should be personal finanacial Clawback and
| potentially even legal conseguences for this type of
| mismangement._
|
| There is. That's what derivative actions are - a
| mechanism for shareholders to sue the board and
| management for breaching their fiduciary duties. My guess
| is that one will be filled Monday.
| moffkalast wrote:
| Probably not, but it is rather exhausting to see this
| happen again and again and seeing them get bailed out
| without consequences every time. At least something would
| be different.
|
| Maybe it's just hearsay but it feels like every person on
| wallstreetbets who got lucky with options then got the
| IRS knocking on their door accusing them of everything in
| the book. They've said it themselves that with the cost
| cutting in last decades they don't have the resources to
| build cases against large players anymore. They go after
| people they can reliably force to pay up without having
| to fight them too much. Al Capone would've gotten off
| scot free in today's world, just like most of congress
| does despite singlehandedly outperforming the best index
| funds out there.
| creato wrote:
| I can't believe anyone would put any stock in such
| "evidence". No one is going to say "yeah, I pushed the
| limits of tax filing and got busted, nice catch IRS".
| They're going to say "I was just minding my own business
| when the IRS robbed me with their machine guns".
| mgraczyk wrote:
| That's tax evasion, not insider trading.
| kristjansson wrote:
| This is ... quite the misrepresentation though? No one sold
| their entire stake, one executive's (albeit, sure, the CEO)
| pre-planned sale of a small portion of his holding executed
| two weeks ago.
|
| Not a _great_ look, but quite from what you're insinuating.
| moffkalast wrote:
| Well the notes I've seen is the CEO selling 11%, General
| Counsel selling 19%, CFO selling 32%, and CMO 25%, and
| that's just in February. I would call that notable at the
| very least, and assume they sold the rest in March if
| they had any sense.
| kristjansson wrote:
| None of those people could sell anything (never mind
| everything) in March without violating law, unless that
| selling aligned with preexisting 10b5 plans to sell. You
| can look at the insider action[0] yourself, everything
| but the Becker sale looks like routine sale / disposition
| of options/equity comp, and even that isn't that
| aberrational compared to his sales in '22 and '21.
|
| I think you're right about the proportional sizes, but it
| looks like the other officers only held a few thousand
| shares each, so routine grant/sale transactions were a
| much larger share of their individual holdings.
|
| [0] https://www.nasdaq.com/market-
| activity/stocks/sivb/insider-a...
| checkcircuits wrote:
| > Keep in mind that bank shareholders and senior management
| are going to get wiped out and fired.
|
| And do the same thing again. Wasn't the CEO ex-Lehman?
| nateburke wrote:
| They should claw back SVB CEO pay and televise the moment the
| funds move. Show the CEOs number going down and some other
| public number going up. Bonus points if his face is televised
| at that moment at well
|
| That's all that's really necessary in terms of handling moral
| hazard and public perception that this is yet another
| bailout. Let ppl see the CEO suffer and they will be fine
| with having taxes foot the bailout bill. It's sad but a
| spectacle is necessary here.
| mgraczyk wrote:
| Do you think software engineers who write bugs should also
| be publicly humiliated? Should your bonus be clawed back if
| you tech lead a project that ends up failing because of
| bugs?
| tome wrote:
| If I put at risk the financial stability of the United
| States, then yes.
| pishpash wrote:
| It's a plausible position to take.
| cowl wrote:
| If your bug ends up risking the economy of the country
| definitly yes. But Public Humiliation is not the solution
| because if it worked we ould not have the same executives
| who failed LB fail yet another Bank. There should be
| Legal conseguences for this type of mismanagement.
| ClumsyPilot wrote:
| Do you think doctors should be responsible for patient
| deaths?
|
| What of they killed the patient out of negligence, and
| they were drunk on the job?
|
| These people can be high, drunk and negligent
| simultaneouslyHl, and they are still untouchable.
| cjbprime wrote:
| In the other professions which use the title "engineer",
| all of these are commonplace.
| [deleted]
| acdha wrote:
| Potentially, yes. Something with real-world catastrophic
| consequences should require you to prove you weren't
| being negligent. In this case, it feels like the
| equivalent of running for a while knowing that your QA
| team was empty and ignoring failing tests for a year.
| mgraczyk wrote:
| Fortunately our criminal justice systems presumes
| innocence
| arrosenberg wrote:
| Whether or not he committed fraud, I think most people
| are tired of seeing bank (and tech) executives cause
| real-world harm and make out like bandits. Civil
| forfeiture is used against poor people all the time for
| far, far less obvious issues than this one.
| mgraczyk wrote:
| As someone who has been on the other side of many of
| these controversies, I know from experience that the
| popular narrative is generally wrong and fueled by anger
| and vengeance rather than sense or justice. I don't have
| any insider knowledge in this case but the discourse
| reminds me a lot of times I've seen well intentioned
| people make good decisions that anyone else would have
| made in the same position, then the mob viciously demands
| blood when something goes wrong.
|
| Civil forfeiture isn't a means to punish people for
| wrongdoing, and neither should we try to retroactively
| change the rules to try to punish people who you believe
| wronged you.
| arrosenberg wrote:
| > Civil forfeiture isn't a means to punish people for
| wrongdoing
|
| Could have fooled me.
|
| Thing is, when you are the CEO and you make the big
| paycheck, being a target for the mob is part of the job.
| 1,000 years ago if the crops failed, and the peasants
| started going hungry, either the priest or the lord was
| blamed. They can't control the weather, but it was
| someone's responsibility to make sure there was enough
| food stored.
|
| The common sentiment is that the people who caused the
| failure should not be allowed to keep the money they made
| driving the ship ashore. Nobody is forced to be a CEO
| with million-dollar comp. It isn't some travesty of
| justice when they are held accountable.
| mgraczyk wrote:
| Well I'm hopeful we can move beyond medieval practice and
| that the presumption of innocence will prevail.
| Fortunately things seem to be going well for team rule-
| of-law.
| arrosenberg wrote:
| Again, what presumption of innocence? The bank failed,
| they should have to give up the bonuses and stock gains.
| It should be statutory to prevent a moral hazard.
|
| > medieval practice
|
| Calm down, no one said we should hang, draw and quarter
| them, exile them, or do anything untoward. It's a
| capitalist system, and this is a capitalist penalty.
| mgraczyk wrote:
| You said "1,000 years ago if the crops failed, and the
| peasants started going hungry, either the priest or the
| lord was blamed."
|
| I'm saying we should not look to the distant past for
| guidance on how to handle situations like this.
|
| The presumption of innocence applies here because we
| shouldn't punish individual bank employees unless we
| demonstrate to a jury of their peers that they broke a
| law that existed at the time they broke the law. The
| default should be they keep their bonus and if they broke
| the law, they pay a fine. Fortunately they are protected
| by the constitution, there is no possible way the
| government can take their money without a trial.
| arrosenberg wrote:
| It's an analogy about leadership? I didn't suggest a
| medieval punishment and I obviously recognize we don't do
| bills of attainder in America. I'm speaking for what the
| average person is feeling. Literally started off with
| saying "the average person is sick of seeing rich people
| get away with it".
|
| But again, what presumption of innocence? I'm saying that
| if you are a bank CEO and your bank fails, it doesn't
| actually matter whether a reasonable choice was made or
| not. Bank failures affect all Americans, so there should
| be a penalty for causing that disruption. Most people
| would call that fair.
| acdha wrote:
| For criminal charges, yes, but that doesn't mean there
| aren't other consequences. For example, a professional
| engineer can lose their license if they are found to be
| negligent or deceitful even if it doesn't rise to the
| level of criminal charges. This is one of the reasons why
| most other fields using the term "engineer" don't think
| software meets the same level, and having known a couple
| of people who completed PE qualifications I can
| understand why.
|
| I don't think that would make sense for all software
| development but it certainly doesn't seem unreasonable to
| think that, say, the FSD team at Tesla or the accounting
| team at a bank should be held to a higher level of
| expectations (and presumably pay) than the ad click
| optimization team at some retailer.
| batmaniam wrote:
| Executives are shameless. They'll lie to your face,
| backstab you to get more funds for their department over
| yours, and whatever else to get ahead for themselves. And
| they'll do it smiling all the way because they know they
| still win with their bags of cash payouts despite being
| "humiliated".
|
| The only way people like that will learn is by sending them
| to prison. Their actions were so egregious, so completely
| in disregard for our financial system, that it's impossible
| to not have done any of that without intent. I'm sure if
| they turned over all electronic and paper documentation,
| there's gonna be a written strategy somewhere directing all
| this.
| Mistletoe wrote:
| The CEO cashed out $3.6 million in stock two weeks ago.
| suddenclarity wrote:
| A planned sale that was filed and broadcasted back in
| January.
| nateburke wrote:
| I think that there are two types of trust at stake here:
|
| 1. Trust that bank deposits won't disappear.
|
| 2. Trust that the financial system is fair.
|
| A bailout sacrifices 2 for 1.
|
| Letting SVB fail sacrifices 1 for 2.
|
| My proposal is for a bailout, while doing the bare minimum
| necessary to prevent a backlash. Remember that the death
| penalty still gets the thumbs-up from voters in many places
| in America. It's foolish to think that the people who
| distrust Silicon Valley will be able to "move past this" in
| a mature, dispassionate way, given the namesake of the
| bank.
| zamfi wrote:
| Wow, here's the real news:
|
| > Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks, as
| required by law.
|
| Note the _uninsured depositors_ clause in there -- FDIC &co seem
| to have acted unilaterally to extend deposit insurance beyond the
| 250k and to the full amounts of any deposit account.
|
| And they are charging the _banks_ for it.
|
| If this doesn't stop a run on the banks, nothing will, frankly.
| chejazi wrote:
| And yet, socializing any potential losses across banks (as
| opposed to homeowners, back in 2008) feels like the appropriate
| move.
| MuffinFlavored wrote:
| > Shareholders and certain unsecured debtholders will not be
| protected. Senior management has also been removed.
|
| how do you interpret this part? what is an example of somebody
| who would be an unsecured debtholder? as in somebody with a
| stake in SVB the buisness?
|
| https://finance.yahoo.com/quote/SIVB/
| loeg wrote:
| Yeah, someone who bought SVB's corporate bonds.
| ummonk wrote:
| Yeah it's an investor who invested in a debt instrument
| offered by the bank. So CD holders will be made whole but
| holders of any corporate bonds won't.
| pgwhalen wrote:
| > how do you interpret this part? what is an example of
| somebody who would be an unsecured debtholder? as in somebody
| with a stake in SVB the buisness?
|
| Bondholders, not just shareholders.
|
| The implication is that every security here is wiped out:
| https://ir.svb.com/shareholder-and-bondholder-
| information/of...
| [deleted]
| unyttigfjelltol wrote:
| This round of bank failures was special because the debt held
| by these banks lost value because there is better stuff on the
| market, not because there was anything intrinsically
| uncollectable about the original debt. In fact, the debt
| probably is pretty similar to stuff held by everyone else in
| this ecosystem. This provides flexibility to meet the urgency
| of the situation, and FDIC, Fed, Treasury are simply saying "we
| know what the stuff is worth and there is enough money in the
| pot to make all depositors hole." "No more bank runs at this
| time please."
| rybosworld wrote:
| > In fact, the debt probably is pretty similar to stuff held
| by everyone else in this ecosystem.
|
| This doesn't appear to be true. Everything I've read points
| to SVB being truly unique in their lack of risk management.
| SVB left these positions unhedged against rates. That is very
| atypical.
| jacquesm wrote:
| I would be careful using the past tense on this one. Tomorrow
| morning will be very interesting in a bad sort of way. A war,
| a pandemic, a financial crisis. What's next?
| Denvercoder9 wrote:
| > In fact, the debt probably is pretty similar to stuff held
| by everyone else in this ecosystem.
|
| Anyone responsible that ended up holding similar bonds
| would've bought interest rate swaps to hedge their interest
| risk.
| akrymski wrote:
| "Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks" -
| a "special" money printer?
|
| "U.S. banking system remains resilient ... due to reforms that
| were made after the financial crisis " - more lies.
|
| Majority of US banks are not required to follow the NSFR or LCR
| standards at all. Fed took advantage of the fact that the Basel
| Accords are only internationally agreed to apply to "large,
| internationally active" banks. While most jurisdictions apply the
| Basel rules to their entire banking system anyway, the US has a
| strong and powerful community bank lobby, so only the largest
| international banks were subject to the full Basel NSFR
| requirements.
| jmyeet wrote:
| This is one of those situations where the Federal government is
| doing what it should be doing: protecting depositor funds, making
| banks pay for it and shareholders are left out in the cold if
| there's nothing left over.
|
| Also, the speed with which this is happening going from SVB
| insolvency late last week to an asset auction today and depositor
| fund access tomorrow is astounding.
|
| Most of this protection comes as a result of the Dodd-Frank Act
| passed in 2010 in the wake of the GFC. Senate and House
| Republicans largely voted against the bill. Remember that.
|
| It's also worth remembering that this is a huge example of how
| ridiculous libertarianism and deregulation is.
|
| Another takeaway is how central authority is a feature not a bug
| in the financial system. Just compar ethis to FTX or any other
| crypto collapse.
| logifail wrote:
| FT Alphaville hits the nail on the head:
|
| _The fault, dear VCs, is not in your stars. It 's in you._
|
| "As the news of the Silicon Valley Bank collapse reverberates
| through the technology ecosystem -- and investors and founders
| alike furiously Google terms such as "available-for-sale" and
| "held-to-maturity" -- even some of our most prominent financiers,
| like 'PayPal Mafia' member David Sacks, are learning once again
| how banks work, the hard way."
|
| https://www.ft.com/content/6ba95c9b-9be6-4d62-b4ac-b12e1e7ed... (
| https://archive.is/4cnog )
| dzink wrote:
| So 3 out of 7 Circle USDC bank partners failed in a week.
|
| https://www.coindesk.com/markets/2023/03/10/scrutiny-falls-o...
| TacticalCoder wrote:
| > So 3 out of 7 Circle USDC bank partners failed in a week.
|
| It's almost as if when a company (Circle) had actual assets
| under management, it was very hard to find honest banks able to
| deal with actual billions without fucking it up and you're
| better served yourself. Like Circle which decided to put 80% of
| the USD it holds to back USDC in short term US treasuries: 80%
| not at banks, 80% not in long term investments... But 80% in
| the one most stable and safe asset of them all. And Circle got
| in trouble for the 20% in actual USD which they thought they
| could entrust to banks.
|
| Kudos to Circle if they get out of this fine because it
| certainly seems hard to do business with monkeys.
| jonahbenton wrote:
| Deposits not covered by asset sales should be covered by a tax on
| Peter Thiel and Gary Tan.
| kreeben wrote:
| Hey everyone, banking is a safe endeavour. When you fail. we'll
| give you money. So keep on building banks. Startup banks. Any
| type of bank. We love them. You see, our taxpayers are absolutely
| thrilled about them.
|
| - USA
| fwlr wrote:
| A lot of people are asking "how is this not a bailout?" right
| now. I would caution against dismissing them, it's a legitimate
| question. Pointing to the "Taxpayers will not pick up the bill"
| line counts as dismissive: this is a press release, and it's from
| the government, that's two strong reasons for some skepticism.
|
| So, in earnest, how is it not a bailout? Feel free to offer your
| answer! Mine is:
|
| "Banks are required by law to pay for insurance on deposits they
| take. FDIC stands for Federal Deposit Insurance Corp, and they
| are the ones that manage the Deposit Insurance Fund, which is
| where that insurance money goes. The FDIC is going to take from
| that fund to pay out all the depositors in SVB in one go on
| Monday morning, and then over the next few weeks and months it is
| going to sell off SVB's assets and put the proceeds back into the
| fund. SVB has plenty of assets, so the FDIC expects to recover
| 99% of the money. If there's a shortfall they will charge the
| banks a little extra in their next insurance payment, but keep in
| mind we're talking about at most a few billion dollars spread
| over every bank; they are unlikely to pass on a small cost like
| that, but even if they do pass on the cost to the taxpayer it
| will be something like $10 per person maximum."
|
| Edit: if we take things like
| https://twitter.com/josephjacks_/status/1634569997266870272 at
| their word, the FDIC will likely see asset sales produce >100% of
| deposits, so absolutely no bailout of any kind. A good reminder
| that SBV didn't die because they lied about their value or
| invested in financial instruments that exploded; they died
| because they didn't have the cash on hand on the one day it
| mattered.
| dragonwriter wrote:
| Its a (potential, whether any funds will be necessary is
| unknown) bailout _of depositors_ (not the bank or its
| shareholders) _at the (potential) expense of other banks_ (not
| taxpayers).
| JamisonM wrote:
| Agreed, not a bailout as this is the purpose of the insurance
| scheme.
|
| If someone gave me 10-to-1 odds that actually there will be no
| shortfall associated with this action I would happily take that
| bet. Shareholders will be wiped out but SVB's assets will cover
| all of the deposits, the regulator is just being extra-
| conservative.
| plandis wrote:
| > If there's a shortfall they will charge the banks a little
| extra in their next insurance payment, but keep in mind we're
| talking about at most a few billion dollars spread over every
| bank; they are unlikely to pass on a small cost like that, but
| even if they do pass on the cost to the taxpayer it will be
| something like $10 per person maximum.
|
| Regardless of size that sure sounds like "taxpayers will pick
| up the bill"
| AdamN wrote:
| Bank customers will pick up the bill. There are actually a
| large number of US residents that aren't bank customers or
| are too small to meaningfully increase fees on. This will
| cost money but it will be smeared out across businesses and
| middle class/upper class individuals.
| fidgewidge wrote:
| It's an in extra cost that the government is forcing people
| to pay against their will, in order to achieve social
| objectives decided by the government. It's a tax and making
| banks act as the collectors doesn't change that. I really
| hope the tech community doesn't try and pull this sort of
| stupid word game on the rest of society because everyone
| will see through it.
| AdamN wrote:
| So you're saying they're just raising an existing tax by
| that logic (since FDIC is already using this mechanism
| and all banks already pay into it for the base FDIC
| insurance)
| fidgewidge wrote:
| Yes!
| paulddraper wrote:
| If the shortfall is indeed "small" as you claim, why not let it
| be borne, instead of redistributed?
|
| I find the dissonance deafening.
| sebzim4500 wrote:
| Because even a single dollar disappearing from someone's bank
| account will drastically decrease confidence in the US
| banking sector. Modern society requires people to trust
| banks, if everyone tries to pull their funds and hide it
| under their mattress we are fucked.
| yunwal wrote:
| As opposed to decreasing trust in the government, which
| will now be seen as an institution that takes money from
| normal people and allocates it to those who confuse real
| money with Monopoly money.
| MrStonedOne wrote:
| [dead]
| fwlr wrote:
| "Any losses to the Deposit Insurance Fund to support
| uninsured depositors will be recovered by a special
| assessment on banks, as required by law."
|
| I don't think they have a choice. Congress decided for them.
| paulddraper wrote:
| The losses to the fund have to be recovered via special
| assessment.
|
| The magnitude of losses to the fund is discretionary.
| fwlr wrote:
| I don't think the accounting of losses to the fund is
| actually discretionary, if they lose money they have to
| report it, they can't just re-define the fund as
| marginally smaller than it was before. I don't think I
| understand what you mean.
| itake wrote:
| > the FDIC expects to recover 99% of the money
|
| Where do you see the 99%? My understanding is the bulk of their
| assets (long-term bonds) dropped 30% in value. If these bonds
| are sold on the market, they wont have 99% of the money.
|
| Maybe the treasury is giving them the money back of the bond?
| [deleted]
| eclipticplane wrote:
| I'm guessing the FDIC can just hold them to maturity. The
| FDIC also has immediate access to a $100 billion loan from
| the treasury via statute if they needed cash.
|
| Over the lifetime of the bonds/loans, they might even make
| money like what happened in the TARP program.
| simmerup wrote:
| Surely inflation adjusted they'll be massively out of
| pocket if they hold the bonds to maturity.
|
| That's why they're worth so little in the first place.
| drexlspivey wrote:
| Inflation does not affect a bond's value
| zzleeper wrote:
| Expected inflation definitely affects bond values today
| NotYourLawyer wrote:
| As a matter of opportunity cost then. You'll lose money
| if you hold these to maturity, which is why their value
| has fallen in the first place.
| itake wrote:
| not to be pedantic, but my understanding is their value
| dropped because the treasury is selling higher interest
| bonds. Why would anyone buy a low interest bond at face
| value when for the same-price purchase a high interest
| bond?
| curiousgal wrote:
| It's not just that. A bond's price is simply the sum of
| its discounted future cash flows. i.e. the coupon value
| divided by (1+) the interest rate. When interest rates
| rise, the price goes down.
| NotYourLawyer wrote:
| You wouldn't buy it at face value. That's what it means
| to say that its value has fallen.
| AdamN wrote:
| The Fed will accept treasuries as collateral for face
| value loans to banks for 1 year as part of the
| announcement. The losers here will be bank shareholders
| (of underwater banks) because they will need to dilute
| themselves to make up the difference when the loan gets
| called unless they can find other ways to make money in
| the meantime.
| humanistbot wrote:
| > If there's a shortfall they will charge the banks a little
| extra in their next insurance payment, but keep in mind we're
| talking about at most a few billion dollars spread over every
| bank; they are unlikely to pass on a small cost like that, but
| even if they do pass on the cost to the taxpayer it will be
| something like $10 per person maximum.
|
| Sounds like a bailout at the taxpayers' expense, just with
| extra steps. A bailout of a few billion dollars that banks are
| allowed to pass on to their customers is still a bailout.
| travisjungroth wrote:
| Money is fungible. You could take any amount of money from
| banks and argue that they'll pass on the costs to customers.
| chadash wrote:
| This is quite different than a bailout. They can't just go to
| their customers and say, hey, we got this bill now you have
| to pay for it. They can raise fees, but then customers can go
| to another bank. They can lower what they pay in interest
| rates, but again, customers can go to other banks. Or
| customers can buy treasuries instead of keeping money in bank
| accounts. Banks are not the only place to keep money, nor the
| only way to raise money. Sure, chances are that some of the
| money will come from raising rates on customers, but some of
| this will just come out of bank profits.
| flutas wrote:
| So by your own words, it's still a bailout being paid by
| taxpayers.
|
| It's just that taxpayers may decide to pay in either money
| (fees, less interest) or time (switching banks and updating
| payment methods, or taking money out to buy bonds).
| el_cujo wrote:
| In a painfully literal sense, yeah it's being paid by tax
| payers because everyone pays taxes. The better
| distinction is that it is not paid via tax revenue. Even
| if the FDIC has to levy fees on banks to help cover the
| cost and the banks raise fees on their customers to cover
| this, this is not the same as the tax payers funding the
| bailout because they're not funding it in their capacity
| as tax payers (where they have no option but to pay the
| government and would probably prefer their money go
| towards building a school or something). Additionally,
| the banks wouldn't just be scooping the extra money out
| of people's accounts, it would be in the form of higher
| fees or something which the customer could decide to
| leave the bank over if they desired. Most wouldn't do
| this, but again the point is that there is at least an
| option where as a tax payer funded bailout there isn't.
| At a certain point, everything in the economy is
| connected and you could drill deep enough to say the tax
| payer pays for literally everything, but at that point
| the label becomes meaningless.
| Taniwha wrote:
| One reason why it's not (mostly) a bailout is that SVB's
| deposits are (as far as we know) still backed by bonds and
| mortgage backed securities, the problem is that those
| securities can't be easily sold right now (because people want
| higher valued investments) - a sudden forced sale means selling
| at a loss (or a cash flow crisis which is how SVB got into this
| state), holding on to them and letting them play out and they
| still have their value (worst case you sell them at a loss that
| is the difference between what they yield and what current
| investments yield)
| birdymcbird wrote:
| the problem is if I sell my own investments right now at loss
| nobody will come to pay my obligations. so why large
| institutions get to reap profit but get out of jail free when
| they screw up.. one set of rule for common man and another
| for investor..elite class.
| evan_ wrote:
| One thing nobody seems to be talking about is whether SVB had
| _more_ assets than liabilities- presumably they did since it
| was a money-making enterprise, right? So even if they sell at
| a loss there may be more than enough to cover the
| liabilities.
|
| We'll see I guess.
| dragonwriter wrote:
| > One thing nobody seems to be talking about is whether SVB
| had more assets than liabilities
|
| On paper, with some of them at HTM valuation, they did.
|
| At actual market value, I don't know that an assessment has
| been done.
|
| > So even if they sell at a loss there may be more than
| enough to cover the liabilities.
|
| Sure, but there is still a _kind_ of bailout in what
| amounts to a bridge loan from the FDIC for the uninsured
| balances.
| drcode wrote:
| > the problem is that those securities can't be easily sold
| right now
|
| they can be sold easily, they just happen to not be worth
| very much
| AdamN wrote:
| They're worth alot - I haven't seen any indication that
| they're more than 10% underwater. Even 20% underwater is
| much more than 'not be[ing] worth very much'
| linuxftw wrote:
| No, they liquidated those positions at a loss because of
| outflows. They are actually short the cash.
| zzleeper wrote:
| At a loss is kinda bullshit b/c that loss happened a long
| time ago, not when the sale happened
| navigate8310 wrote:
| They realized that loss in their books is what matters.
| heartbreak wrote:
| They didn't liquidate $200 billion in MBS and treasury
| bonds in a week let alone a day.
| linuxftw wrote:
| From [1]: > The bank initially sold more than $20 billion
| of bonds, but did so at a $1.8 billion loss.
|
| What we don't know is did they liquidate the positions
| that were more valuable in order to take a smaller loss,
| or positions that were most underwater? I'm guessing it's
| the former, which would mean they were in even worse
| shape with the unsold securities.
|
| 1: https://www.nationalreview.com/2023/03/the-real-
| reason-silic...
| pclmulqdq wrote:
| They absolutely did the former. Those are the securities
| which were marketable reasonably quickly, and they were
| planning to sell equity, too (another expensive but
| liquid asset).
|
| Now that those assets are in the FDIC's hands, though,
| they can likely be unwound really slowly and without a
| ton of execution slippage, which would have otherwise
| happened if this were a firesale.
| kgwgk wrote:
| > a sudden forced sale means selling at a loss
|
| A gentle sale at their leisure over the next six months would
| also mean selling at a loss.
| anonu wrote:
| Simpler answer: bail outs keep the stock afloat. Here the stock
| goes to $0.
| A4ET8a8uTh0 wrote:
| This is merely an answer. Stock of SVB may ( may because at
| this point I am not discounting anything ) go to zero,
| however based on available information, vast majority of
| depositors ( 90% range ) were above FDIC insurance cap, which
| makes it a bailout of depositors AND, effectively and likely
| more importantly, all the smart ( and well-connected money )
| that are invested in those startups.
|
| It is a bailout. Its true beneficiaries are not as
| straightforward as in 2008 though.
|
| << bail outs keep the stock afloat. Here the stock goes to
| $0.
|
| In such a case you are wrong about this statement then. This
| bailout is 100% intended to keep stock afloat; just not
| SVB's.
| sajacy wrote:
| Interesting. So a bailout is when the rules are changed so
| that some people get to keep money that they otherwise
| would have lost (or would not have gotten). I'm onboard
| with that.
|
| But then the PPP and pandemic payments were bailouts, too -
| a bailout isn't necessarily a "bad" thing, right?
|
| Like, we judge the bailout by who benefits, right?
|
| We should just bail out families, small businesses with
| payroll needs, etc., and VC firms should take a haircut? Or
| rich people shouldn't be bailed out - cap FDIC guaranteed
| deposits at 1m?
|
| Or should Signature have gotten the full deposit bailout
| (not tained with VC funny-money), while SVB should not?
|
| Serious question: what is the rule / policy / threshold
| that solves the problem better than "everyone affected by
| the problem gets the same full deposit insurance"? It's a
| decision full of tradeoffs, being made in a limited time
| and information situation. I don't think the
| Fed+FDIC+Yellen are making calls based on trying to "save"
| nor "punish" certain groups - they can't possibly have the
| time or resources to figure out an optimal solution.
| yunwal wrote:
| > But then the PPP and pandemic payments were bailouts,
| too
|
| Yes, PPP loans were 100% bailouts. I do think, however,
| that there's a significant difference, which is that we
| didn't have widely available insurance for pandemics.
| Even if businesses wanted to protect themselves against
| the risk of pandemic, they probably could not have done
| so before COVID.
|
| Businesses that fail to hedge risks when the option is
| readily available to them should fail.
| hdhuegau6hfhd wrote:
| [dead]
| A4ET8a8uTh0 wrote:
| << So a bailout is when the rules are changed so that
| some people get to keep money that they otherwise would
| have lost (or would not have gotten). I'm onboard with
| that.
|
| I would say that bailout is a bailout is a bailout. No
| need for conditionals here. Most people instinctively
| know the bank would not survive without government
| intervention.
|
| << But then the PPP and pandemic payments were bailouts,
| too - a bailout isn't necessarily a "bad" thing, right?
|
| You may be assuming something about me that I did not
| say. I am not sure what PPPs were exactly, but at its
| core, they were bailouts too ( or at least that was their
| intended purpose ).
|
| << what is the rule / policy / threshold that solves the
| problem better than "everyone affected by the problem
| gets the same full deposit insurance"?
|
| The rule is really simple: follow the policy you claim to
| follow. Otherwise some may think you are lying all the
| time.
| dawsmik wrote:
| It looks like they may have done a little bit of lying.
| https://nongaap.substack.com/p/sivb-held-to-mortem-governanc...
| sanderjd wrote:
| My answer: It _is_ a bailout. And that 's ok, if it was the
| best of bad options. Must we play the silly semantic game? By
| your explanation, all the bailouts during the '08 financial
| crisis also weren't bailouts. But they were.
| fwlr wrote:
| I don't like semantic games either. I always do my best to
| resolve a word to mean "the thing people care about when they
| use this word". In the case of "bailout" it seems to me that
| what people care about is whether it will cost taxpayers.
|
| In the case of SVB, it seems that their assets will cover
| their deposits, and FDIC has an insurance fund that gives
| them the liquid capital to cover deposits immediately while
| waiting for assets to sell. So no cost to taxpayers - not
| even in the form of "higher deposit insurance costs to banks
| being passed on to bank customers, who are taxpayers".
|
| (It's possible to play semantic games until we formulate a
| picture that does show taxpayers will pay, e.g. "the FDIC's
| deposit insurance fund is made up of payments made by banks,
| and banks would have passed on the cost of those payments to
| customers in the form of not offering as much interest on
| deposits as they otherwise would have offered, so the funds
| used to make the bridge are a bailout the taxpayer has
| already paid for". Money is infinitely fungible, you can
| always tell a story where taxpayers paid the bill. But we
| said we weren't going to play semantic games.)
| sanderjd wrote:
| I don't think the second part is a semantic game at all.
| This switch to insure all deposits rather than just
| deposits up to a fairly low limit will definitely impose
| additional costs to the banking sector which will
| definitely be passed on to some degree or other. I agree
| this is certainly not a transfer of tax money to private
| institutions, and I applaud that, but I still think it is
| socializing a big chunk of additional risks of an industry
| where the rewards are large and private.
|
| But more broadly I just don't think "bailout" is as narrow
| as just "costs taxpayers". This may be wrong, but I think
| of "bailout" as having its root in what you do to save a
| sinking ship. The widespread belief here is that there was
| a significant risk of an important ship - the banking
| sector - sinking, and government action has been taken to
| keep it from sinking. To me, we've bailed out that sinking
| ship. (And I'm glad we did!)
|
| I guess it remains to be seen whether I'm the weirdo with a
| strange definition, or whether everyone will agree that
| this was a bailout, once it stops being a question with
| such immediacy.
| op00to wrote:
| A "bailout" implies taxpayer money going towards business
| owners. This is not the case.
| sanderjd wrote:
| This is a definition of bailout that seems to have been
| conveniently invented within the last 18 hours. Does it
| really not set your "I wonder if I'm rationalizing" alarm
| bells off when you find yourself writing out this weirdly
| very specifically narrow definition?
|
| It's just simpler and more honest to recognize it was a
| bailout, and one that you support (as do I).
|
| I think Matthew Klein put this pretty well on Twitter[0]:
|
| > _" We aren't using taxpayer money to do a bailout, we are
| just using the ESF and also having the Fed pretend that
| banks haven't lost money on their bond portfolios and we
| are going to charge depositors at banks that didn't fail to
| make depositors whole at banks that did"_
|
| 0: https://twitter.com/M_C_Klein/status/1635064199541039104
| op00to wrote:
| I don't read Twitter.
|
| I'm being perfectly simple and honest, here is the a
| legal definition of 'bailout', which is closest to the
| context we're all using:
|
| "A bailout is when the government gives financial support
| to rescue a company that is in financial trouble and
| possibly at risk for bankruptcy. The bailout enables the
| survival of the company." [1]
|
| The government is not giving financial support to rescue
| SVB. SVB's dead. The government is not giving money to
| depositors. The money comes from the bank's assets.
| Current estimates are showing that assets will cover over
| 100% of deposits. Let's say that SVB's assets don't cover
| 100%. In that case, the government is still not bailing
| out depositors. The banks themselves will pay through a
| special assessment. In 2009, that was about 5 basis
| points of deposits. 5 cents on $100 seems like a pretty
| good deal, all things considered.
|
| [1] https://www.law.cornell.edu/wex/bailout#:~:text=A%20b
| ailout%....
| TremendousJudge wrote:
| >The banks themselves will pay through a special
| assessment
|
| And that money comes from the bank's clients, ie
| basically every taxpayer
| op00to wrote:
| Says who?
| sanderjd wrote:
| Says who to which part? The part about where the money is
| coming from (other banks) is just factual; it's the
| structure of the rescue action.
|
| If you mean the question of whether that will be passed
| on to the depositors at those other banks is not based on
| a factual thing you can point to, but it's just what
| happens, it's how businesses work; you can't charge them
| money without expecting some kind of pass-through to
| their customers.
| sanderjd wrote:
| > _I don 't read Twitter._
|
| I included the entire text of something someone wrote,
| along with a source of where it was written. Twitter has
| nothing to do with it, besides being the source of the
| text.
|
| I didn't know about that legal definition, that's
| interesting! I would argue that it is not "the
| definition" of a word that is used a lot colloquially
| outside of legal cases, but I definitely appreciate being
| made aware that such a definition exists!
|
| In any case, I think that definition clearly applies to
| all of the _other_ banks that many believe may well have
| gone under today, were it not for the bailout.
| Inebas wrote:
| I don't understand why a cash only account, where the banks
| cannot use the money, does not exist.
| timcavel wrote:
| [dead]
| 323 wrote:
| All bank deposits should be guaranteed by the state.
|
| Just like tap water is guaranteed to be drinkable, ... Bank
| accounts are the basis of many things.
| ITB wrote:
| Exactly
| coffeebeqn wrote:
| Yeah as long as the banks hold actually valuable things- SVB
| had treasury bonds- no reason the federal government can't
| treat those as cash. I mean it's their own issued assets!
| 323 wrote:
| The problem in this particular case is they already sold
| those treasury bonds, at a loss. But yeah, it would be
| ridiculous for a bank to go bankrupt because it bought it's
| own government bonds.
| college_physics wrote:
| Its possible. Its called sovereign money. You basically have an
| account with the central bank just like private banks do (but
| they dont want anybody else to have)
|
| These accounts pay strictly zero but can never default.
|
| Anybody who wants to get a return can deposit with a private
| bank but then they need to monitor that bank because if it
| mismanages risk they are on the hook.
|
| The thing to understand is that private banks are experts at
| risk free profiteering and passing the buck, _not_ at managing
| risks which is really hard work
|
| The monetary system is an absurd and unfair anachronism and it
| lurches from disaster to disaster.
| fbdab103 wrote:
| SVB was offering higher returns by taking on more risk than was
| required. Those customers now lost nothing. The rest of us who
| went with safer banks offering market rate returns not only
| received less over that duration, but we have to pickup their
| tab.
|
| Why should I or a bank ever do diligence again? I can just
| claim I misjudged the risk.
| 323 wrote:
| There are ways, fine the bank owners, claw back the bonuses,
| etc... Maybe even criminal law.
|
| But the depositor has no fault. A depositor shouldn't have to
| do diligence, just like it shouldn't test the the food it's
| buying for toxicity.
| geodel wrote:
| > just like it shouldn't test the the food it's buying for
| toxicity.
|
| Well I may have to if I buy food from a "innovator",
| "disruptor", "visionary" store that sells steaks at $2/lb
| and chicken at 99c/lb
| yibg wrote:
| What risks were taken by SVB? From what I understood, all the
| investments were in very safe ones.
| chitowneats wrote:
| They were supposedly safe. Misconceptions exist everywhere
| in business and finance. Silicon Valley's entire modus
| operandi is about "disrupting" industries that feel their
| business models are safe.
|
| They were in fact not safe. The bank no longer exists after
| failing to cough up depositors' cash.
| NotACop182 wrote:
| Maybe banks shouldn't be able to place bets with depositor
| funds.
| 323 wrote:
| They aren't. The particular "bet" here, treasury bonds, are
| considered the safest form of US money, they are considered
| "risk-free".
| IAmGraydon wrote:
| See my other reply to the parent comment. Treasuries are
| not risk free.
| IAmGraydon wrote:
| They were returning interest to the depositors, so actually
| the depositors decided to take on the risk. You will never
| earn interest without risk. If you're told that any form of
| interest is risk free, it's not true. In the case of
| treasuries, the risk is not default - it's inflation risk.
| This is because there is a chance that inflation outpaces the
| bond yield, meaning you lose money over the life of the bond
| (as the principal will lose buying power) and the underlying
| bond will also lose it's value as higher yielding bonds are
| auctioned by the government.
| lamontcg wrote:
| Good thing some adults are in charge, and not HackerNews.
| jimnotgym wrote:
| How about a special levy on VC funds to pay for the special risk
| that they create in the banking sector?
|
| I asked on another thread why everyone was banking with the same
| bank. The answer was that SVB was willing to do things for the
| VCs clients that other banks were not.
| fossuser wrote:
| Probably the best possible outcome.
|
| Protect depositors, allow stock holders to get wiped, prevent a
| cascade of runs from fear.
| rybosworld wrote:
| I think some folks are rightfully curious how the depositors are
| being fully protected here, given that FDIC only insures up to
| $250,000.
|
| But really there should be no limit on FDIC insurance. Depositors
| should not be categorized as risk takers. Joe Schmoe should never
| have to concern himself with where he banks, or where his company
| payroll banks, for that matter. Telling depositors to take
| responsibility and disperse their funds across as many banks as
| possible is...silly. These aren't investors in bonds or stocks.
| These are cash accounts.
|
| Yellen is 100% doing the correct thing here. And the precedent
| being set makes logical sense.
| [deleted]
| sirina_dany wrote:
| [dead]
| DubiousPusher wrote:
| If this represented a systemic risk, I will eat my hat. This
| reeks of influence peddling, particularly given the significant
| growth in lobbying over the past two decades by the very kinds of
| people invested here.
| bcantrill wrote:
| I have never seen such cognitive dissonance here at HN -- which I
| feel is really saying something! As an SVB customer who had to
| wire payroll on Tuesday, our perspective is naturally sharpened,
| but I found the lack of empathy here over the weekend galling. On
| the one hand, this is understandable, and Silicon Valley has done
| much to earn collective distrust. On the other hand, this is
| emphatically not all of us: many of us have been outspoken about
| our disagreements with the techbro culture, and have endeavored
| to create companies that are exemplars of what we want to see in
| the world. Speaking personally, I spent a lot of time DM'ing
| people privately who were saying absolutely outrageous things
| online, and almost uniformly hearing back: "No no, not you -- I
| love what you're doing." Well, if you want to see startups
| solving hard technical problems we need to have some real talk
| about how that has to be structured financially -- and maybe stop
| tweeting images of guillotines when our employees are anxious
| about their next paycheck?
| jnmandal wrote:
| This is so aloof. People _are_ engaging in a conversation about
| how to structure innovation. Many, many people don 't want to
| see "startups solving hard technical problems." That's the
| nature of the guillotine images. They want a more equitable
| system and they want stricter vetting of what constitutes a
| problem worth working on.
|
| The fact that you can't see that in the discourse -- that you
| instead just take personal offense despite the need in your
| message to claim you are sort of outlier -- is emblematic of
| our community's lack of self awareness, constant need for
| praise, and general ego. Much of the criticism being leveled
| right now is deserved. While you can complain about civility,
| you shouldn't expect that critics sentiments would not exceed
| your own critiques when you stand to gain by the continuation
| of the system.
| rsync wrote:
| "...they want stricter vetting of what constitutes a problem
| worth working on."
|
| How should we choose the approved projects and to whom should
| we assign them ?
|
| Where shall I pick up my work-book for the month ?
|
| Who will stamp it for me ?
| jnmandal wrote:
| Same place and people as always: the venture capital firms.
| Now their scope and focus will just be under harsh
| criticism and slight duress from the treasury dept for all
| the assurances they've been given.
|
| I wonder if we can still build mobile-app based dog food
| delivery services
| jtr1 wrote:
| I know you're not really engaging with the argument here,
| but IMO I'd like to see more early capital directed by
| agencies that are ultimately accountable to democratic
| bodies. Plenty of examples at DoE
| jnmandal wrote:
| The CIA has long had a "VC" arm; I think it's inevitable
| that there will be climate and energy investment funds
| (more like agencies) directed by DoE, DoT, and whatever
| Department gets created when the US finally decides to
| tackle climate change at large.
|
| So I think you'll certainly get your wish but it's a
| matter of when. Until then it will be a small amount of
| informal control through a sort of cronyist "you owe us
| now" type pressure.
| phpisthebest wrote:
| >>many of us have been outspoken about our disagreements with
| the techbro culture,
|
| If this is what you have identified as the core issue people
| have with Silicon Valley, then you have really really missed
| the mark and do not understand at all what many people,
| particularly in the so-called "Fly out Country" have a problem
| with
|
| >>Well, if you want to see startups solving hard technical
| problems we need to have some real talk about how that has to
| be structured financially
|
| I want to see startups build sustainable business models built
| around solving complex problems. Not chasing quick adoption,
| with the goal to be bought out by a Google, Amazon, or
| Atlassian
|
| I want startups to be driven by something other than Quarterly
| results that the MBA's at the VC firm's demand
| tomato_123 wrote:
| Empathy is completely irrelevant. You agreed to a particular
| financial contract, one that ended up being a mistake ex-post.
| Now you want to wind back the clock and pretend you agreed to a
| different contract, and leave other people on the hook for it.
|
| "Well, if you want to see startups solving hard technical
| problems we need to have some real talk about how that has to
| be structured financially"
|
| There are deep, functioning, financial markets. Private buyers
| were already making offers to buy uninsured deposits at a
| discount. The world wasn't going to implode. Equity holders and
| founders were going to take a haircut. That's fine, that's
| equity's job here. Don't try to get out of it when shit hits
| the fan.
| boc wrote:
| Putting your series A check into a fucking bank isn't a risky
| financial strategy.
|
| Speaking of private markets, they should have bid higher.
| Instead the government won and will likely come out ahead
| with their arrangement. No taxpayer money is being spent.
|
| Sounds like you're just bitter about tech/biotech companies
| surviving?
| Rury wrote:
| No, storing everything in one account at one institution is
| a risky strategy. You're conflating what you want
| (something without risk), with something that fundamentally
| has risk anyways. You take a risk anytime you decide to do
| something with money, whether that's storing it under a
| mattress, giving you wallet to your kids, investing in a
| 401k, or putting money in a bank. There fundamentally is no
| such thing as a risk free investment when it comes to
| money. Even treasury bonds have risk to them, especially
| speaking in real terms.
| nipponese wrote:
| You're talking about financial risk like it's physics.
| Consider that financial risk is a psychological tool we
| invented to balance human behavior and we can reshape the
| tool whenever we want.
|
| If you can consider that perspective, think about the
| activities we want to incentivize vs disincentivize in
| helping us decide when we _should_ reshape that tool.
|
| Are simple bank deposits really something we want people
| to feel shaky about now and in the future??
| sneak wrote:
| > _Are simple bank deposits really something we want
| people to feel shaky about now and in the future??_
|
| There is a strong argument for "yes": it will cause
| people to consider their (now extant) alternatives and
| some fraction of those people will choose something else,
| loosening the stranglehold that retail banking has on
| routine business transactions.
| mort96 wrote:
| And what are the less risky alternatives to having money
| in a bank? Fucking Bitcoin?
| sneak wrote:
| No, normal bitcoin. It doesn't take much to be less risky
| than "you might have all of it frozen at any time by
| factors wholly outside of your control".
|
| Or Ether. Or DAI. Or USDC if that's your risk appetite
| (the diversification of the storage of which is
| abstracted away already, as you will note it has regained
| its peg before SVB even reopened under FDIC management).
| Or a lot of other choices that present themselves.
| fidgewidge wrote:
| Using a narrow/full reserve bank.
| jacobriis wrote:
| "Putting your series A check into a fucking bank isn't a
| risky financial strategy."
|
| You still think that's true? Clearly it is a risk. And that
| risk can and should be managed. Even now!
|
| There is no law that says the FDIC has to pay uninsured
| depositors of the next failed bank.
|
| What if you banked with one of the last several failed
| banks that no one heard of or cared about?
|
| You think no companies split their funds among several
| banks and short-term US treasury instruments?
|
| Those companies didn't worry about closing this weekend.
| [deleted]
| nullc wrote:
| There are a lot of vicious and blood thirsty people on the
| internet. It isn't specific to you or this event. Hardly any
| big event goes by without calls for executions.
| koolba wrote:
| Asking for equal treatment of the law as it is written is
| hardly a blood thirsty call for execution. It's a call for
| fair treatment for all. Not special handouts to favored
| entities.
|
| The actions of the Fed plainly stated that the rules don't
| matter. Take risks, fuck up, and no big deal. We'll just
| magically save everybody.
| nottathrowaway3 wrote:
| Fair or unfair doesn't matter; it's an allocation decision
| and the tech industry and its workers are strategically
| important to the U.S. That's always the axis on which these
| decisions will be made.
|
| > It's a call for fair treatment for all.
|
| This will definitely be the rallying cry in the upcoming
| political shitstorm/reenactment of "The Merchant of
| Venice". But it's easy to make arguments about fairness and
| justice when your words don't become policy and your vote
| is 1/435.
|
| > ...so the U.S. banking system continues to perform its
| vital roles...in a manner that promotes strong and
| sustainable economic growth.
|
| As Yellen and Powell insinuate, crippling a bunch of
| startups and making a bunch of pension funds etc. have zero
| returns -- all because of a monetary system failure -- is
| not a strategically good decision if they want stability
| and people to continue investing in tech.
| nottathrowaway3 wrote:
| People who disagreed with this comment: I would love to
| understand why. Is this not the line of reasoning likely
| to be used by government officials in the bailout/no-
| bailout decision?
| A4ET8a8uTh0 wrote:
| << As Yellen and Powell insinuate, crippling a bunch of
| startups and making a bunch of pension funds etc. have
| zero returns -- all because of a monetary system failure
| -- is not a strategically good decision if they want
| stability and people to continue investing in tech.
|
| So it is not payroll/depositor bailout. It is wall street
| owner shareholders of those startups bailout. This is the
| reason some are mildly miffed. That and the mid-game rule
| change.
| yunwal wrote:
| > tech industry and its workers are strategically
| important to the U.S.
|
| I think there are a lot of people who don't feel that
| this is true to the extent that you (and possibly the
| fed) do. When I see Calendly being valued at 3 billion
| dollars, I think that somewhere down the line, someone
| has mis-valued something. I don't just accept whatever
| the market-value is as it's true importance.
|
| There's a lot of tech that's overvalued, or valued for
| reasons that don't contribute to real economic growth or
| wellbeing. Part of the point of people's protests here is
| to get people in charge to realize/admit this. Tech isn't
| actually that important.
| nottathrowaway3 wrote:
| I meant strategically important according to the
| government.
|
| From the 2022 NSS (https://www.whitehouse.gov/wp-
| content/uploads/2022/10/Biden-...)
|
| > _Technology
|
| > Technology is central to today's geopolitical
| competition and to the future of our national security,
| economy and democracy. U.S. and allied leadership in
| technology and innovation has long underpinned our
| economic prosperity and military strength. In the next
| decade, critical and emerging technologies are poised to
| retool economies, transform militaries, and reshape the
| world... our technology strategy will enable the United
| States and like-minded democracies to work together to
| pioneer new medicines that can cure diseases, increase
| the production of healthy foods that are sustainably
| grown, diversify and strengthen our manufacturing supply
| chains, and secure energy without reliance on fossil
| fuels, all while delivering new jobs and security for the
| American people and our allies and partners. With
| bipartisan support, we have launched a modern industrial
| strategy and already secured historic investments in
| clean energy, microelectronics manufacturing, research,
| and development, and biotechnology, and we will work with
| Congress to fully fund ...
|
| > We also are doubling down on our longstanding and
| asymmetric strategic advantage: attracting and retaining
| the world's best talent. Attracting a higher volume of
| global STEM talent is a priority for our national
| security and supply chain security, so we will
| aggressively implement recent visa actions and work with
| Congress to do more.
|
| > These investments will enable the United States to
| anchor an allied techno-industrial base that will
| safeguard our shared security, prosperity and values._
|
| I'm not sure Calendly is necessarily central to the
| articulated strategy. And I agree that most tech
| companies don't produce much of value at all.
|
| But the administration seems to think the future
| direction for the U.S. is tech, especially energy and
| military tech. And it begs the question: if not tech,
| what else could give the U.S. an advantage over China?
| yunwal wrote:
| > if not tech, what else could give the U.S. an advantage
| over China?
|
| I think in order to have this conversation, we must
| distinguish tech from the silicon-valley-branded, vc-
| funded, risky, socially-disconnected tech that's largely
| being bailed out here.
|
| Tech as in technology can be funded by non-profit
| research institutions, or arms of the government, or more
| traditional companies that don't make slashing
| regulations, anticompetitive behavior, and socializing
| losses their business model.
|
| If Silicon Valley goes under, there will still be plenty
| of innovation.
| nottathrowaway3 wrote:
| > If Silicon Valley goes under, there will still be
| plenty of innovation.
|
| Where exactly, though? Ask any big tech worker; they will
| assure you it's not coming from there.
|
| > socially-disconnected... anticompetitive behavior,
| socializing losses, slashing regulations
|
| Innovation does not equate to social good. But if you
| recontextualize the software coming out of SV away from
| social wrongdoings, you have
|
| Uber -- a model for work orchestration
|
| Netflix/YouTube/Twitch -- video streaming technology
|
| Datadog/etc. -- software monitoring technology
|
| No established company (besides Apple) would ever put in
| the investment to develop these kinds of things.
|
| I personally dislike SV, and every new DTC marketing
| startup that raises $50M makes me cringe. The model
| imposes high social costs as you indicated. But find me
| another model besides venture capital that has produced
| similar levels of innovation without the same waste and
| social cost.
| yunwal wrote:
| > Where exactly, though? Ask any big tech worker; they
| will assure you it's not coming from there.
|
| Like I said, non-profit research organizations, branches
| of government, traditional, sustainably-run companies.
| The fact that Silicon Valley is boxing all of these
| things out of the market doesn't prove they won't exist.
| They did before anticompetitive behavior became the
| business model du jour and they will again.
| nottathrowaway3 wrote:
| > non-profit research organizations, branches of
| government, traditional, sustainably-run companies
|
| The same problem plagues all of these models: they're
| hierarchical and top-heavy. Having worked at traditional
| companies and having considered a career in academia;
| there's a reason these organizations get outboxed.
|
| Innovation requires risk and investment. How are any of
| these three an effective model of risk? Big companies
| will invest without taking risk, research organizations
| and academia will take risks without investing, and
| branches of government and political entities (in the
| U.S.) are famously bad at both (ex: healthcare.gov).
|
| > The fact that Silicon Valley is boxing all of these
| things out of the market doesn't prove they won't exist.
| They did before anticompetitive behavior became the
| business model du jour
|
| Blame anticompetitive behavior all you want, but there
| are widely-known systemic issues with all of these
| alternative structures that makes them ineffective.
|
| > and will again
|
| Only if you create a walled garden where they are the
| only competitor. Obviously the current internet model
| favors VCs because R+D is cheap and quick. For rocketry,
| semiconductors, etc. (i.e., fields which require large
| upfront capital investment) these alternative investment
| models fare better.
| yunwal wrote:
| > Big companies will invest without taking risk
|
| Why do we think this is? Might it be because big
| companies would actually have to face consequences when
| big, dumb risks fail?
|
| > research organizations and academia will take risks
| without investing
|
| Not sure where you get this idea
|
| > branches of government and political entities (in the
| U.S.) are famously bad at both (ex: healthcare.gov)
|
| I'm not sure if healthcare.gov is a great example, since
| IT for the site was almost entirely run by private
| contractors. Before corporate lobbying was able to
| handcuff essentially any public innovation effort, the
| government routinely funded massively successful
| innovation projects (civilian aviation, the internet,
| microchips, satellites, AI, barcodes, nearly all devices
| and drugs/vaccines used in modern medicine, list could go
| on forever basically).
|
| > Blame anticompetitive behavior all you want
|
| I will, since once again, we've seen all of the
| alternatives be successful without nearly as many
| downsides.
|
| > the current internet model favors VCs because R+D is
| cheap and quick
|
| I'm not convinced. Largely the current model wins because
| it sidesteps regulations and gets away with
| anticompetitive, antisocial behavior and risky
| financialization under the guise of innovation. If it was
| true innovation, the world wouldn't be becoming a worse
| place every day that SV was essentially handed the keys.
| Our kids wouldn't be more depressed, climate change would
| be addressed, public health crises would be solved. What
| we have is a bunch of people scrambling trying to impress
| upon people that they have all the answers, when they do
| not.
|
| I'm also not convinced that the answer to everything lies
| in the internet. Nearly all of our savings has gone to
| funding companies that do a thing that existed, but on
| the internet, rather than funding real innovation.
| [deleted]
| nrmitchi wrote:
| I understand what you mean here. I don't think it's people
| having no empathy for employees (or even founders) who did not
| act in bad faith.
|
| We are (or were) in a situation where the entire ecosystem blew
| up because VCs and funds inadvertently incited a bank run.
|
| Backstopping capital so payroll can be made obvoiusly helps out
| employees, founders, and companies alot, but the ones that
| benefit the most financially on an absolute basis are these
| investors.
|
| It just feels a bit disingenous to hear an argument that "this
| small company out of the Midwest needs to make payroll" (which
| is an example I just made up, any relation to real companies
| are entire coincidental), while ignoring the argument that "If
| the government doesn't backstop this my $3B fund goes to $0".
|
| In summary I have a lot of sympathy for employees, and even
| founders who were held to terms that were completed standard
| and seemed reasonable at the time.
|
| I have less empathy for the group that are (were) vocally
| calling for bail-outs and trying to incite further panic in an
| effort to protect their own investments.
|
| Edit: switch the example to avoid inadvertently matching a real
| life example way too closely.
| FormerBandmate wrote:
| Banking shouldn't be an investment. The entire economy runs
| on the idea that banks are fundamentally secure. This is why
| banks are regulated, and why deposit insurance exists. The
| extension of it past $250,000 is very good
| nrmitchi wrote:
| There is a huge spectrum of coverage possibilities in
| between 250k and "effectively infinity"
| jiggawatts wrote:
| The $250K should be thought of as a minimum protection
| level, not a moral imperative to be a maximum protection
| level.
| yunwal wrote:
| This effectively ends up being a subsidy for risky, well-
| connected people while being a tax on responsible, not-
| especially-well-connected people.
| watwut wrote:
| > This is why banks are regulated, and why deposit
| insurance exists. The extension of it past $250,000 is very
| good
|
| It is not good. The insurance limits goes hand in hand with
| regulations. Different higher insurance limit needs to
| imply higher regulations and more control. This particular
| bank and these particular VCs lobbied heavily to have the
| regulations eased up. They won. These particular VCs forced
| their startups to have money in this bank, because it was
| good for them.
|
| That is literally structural reason to not bail it all out.
| It is the "we are risk takers, we take profits from higher
| risk, but when it fails and cause damages someone else must
| protect our investments" strategy of VCs.
| zoobab wrote:
| "The entire economy runs on the idea that banks are
| fundamentally secure"
|
| We should organize bank runs more often to verify that
| statement.
| hackernewds wrote:
| you say that in jest, but this event did expose that we
| (especially geriatric legislators) are not prepared to
| tackle a "social media" climate. 10 years ago neither
| could this Prisoners dilemma have taken place, nor could
| so much money have been physically drained in cash minus
| online banking.
| psychlops wrote:
| And yet somehow almost every other bank didn't fail due
| to interest rate hikes. They seem to be prepared enough
| for the social media climate.
| criley2 wrote:
| If people would accept 0% interest on their deposits,
| banking could be a fundamentally secure non-investment.
|
| But people do like their interest... and in order for banks
| to take your $100 and give you back $101, well, that $1 has
| to come from somewhere.
| hellojesus wrote:
| It would have to be negative, as in an up front cost to
| the consumer.
|
| Banks need to make money to cover operating costs at the
| very least. It's not that people don't accept 0% interest
| on deposits, it's that consumers would have to pay money
| to a bank to keep it operating with no risk.
|
| Take that situation and then introduce a new bank that
| makes loans and therefore can pay depositors x% in
| interest on their deposits. If enough people decide
| that's a better deal than paying for total security,
| they'll take it.
|
| The entire point of a low FDIC policy is to keep the
| small players safe while forcing the large players to
| make prudent decisions with their capital. Bailouts
| introduce moral hazard that says no big players need to
| scrutinize the risk adjusted returns they're getting.
| It's free money to those with money whole everyone else
| pays for it.
| evancox100 wrote:
| I mean, my Chase checking account is still only paying
| 0.01% interest. Many many people seem to be ok with ~0%
| interest on their day-to-day cash needs.
| jojobas wrote:
| How would you run banks (or anything else for that matter)
| that wouldn't be an investment? A public service?
| iancmceachern wrote:
| Yeah, like credit unions
| jojobas wrote:
| Credit unions are not public services. They are
| essentially banks where deposits are shares. A credit
| union could blunder on long term loans just as well as a
| commercial bank.
| iancmceachern wrote:
| "By all measures, credit unions fail less often than
| similarly sized banks. During 1980-2018, asset-weighted
| credit union failure rates were far lower than those of
| banks: 0.10% vs. 0.22%"
|
| Source https://www.google.com/url?sa=t&source=web&rct=j&u
| rl=https:/...
| psychlops wrote:
| I wondered the same thing. I think it's another veiled
| call for socialism. It would be weird (not the right
| word) to have government banks buying government and
| corporate bonds to pay a common interest rate and have no
| liability at all for bad investments.
| sanderjd wrote:
| Yeah but the problem is that nobody wrote that down
| beforehand. It's not good to make it up as we go during
| emergencies. It's good to have clear rules written down
| ahead of time.
| jasd wrote:
| Yes, people make mistakes and then learn from them.
| Sometimes not every scenario can be anticipated. In this
| instance a bunch of startups got caught in this mess and
| 250k won't be enough for them to survive/meet their
| employees' payroll. I appreciate the govt stepping in and
| hopefully rewriting the rules based on the learnings.
| surfpel wrote:
| > It's not good to make it up as we go during emergencies
|
| Complicated, fragile emergencies are precisely the time
| to consider exceptions to hard rules. After all, if all
| our rules were perfect, we wouldn't have an emergency to
| begin with.
| sanderjd wrote:
| No, because those exceptions become the new rule, and
| fragile emergencies are a bad time to think through what
| the new rule should be. "Hard cases make bad law."
|
| I feel the need to say this in every comment because I
| don't expect people to read my other comments, but I do
| support what was done here, assuming the private buyer
| solution was tried and it failed, I just also think it's
| _bad_ that things are run this way.
| surfpel wrote:
| > No, because those exceptions become the new rule
|
| I disagree that this necessarily sets the new rule. Sure,
| sometimes it creates new precedents, but the necessity
| for an exception should go on to inform new hard set
| rules to prevent the necessity for exceptions in the
| first place. In this case, a return to a more regulated
| banking sector, hopefully.
|
| This is not dissimilar from highly agile work
| environments that require frequent process changes to
| achieve the ultimate goal.
| dev_tty01 wrote:
| Why do you think the Fed was making things up as they
| went along? The rules were written down years ago and
| they were followed in this case.
|
| https://www.fdic.gov/bank/historical/crisis/chap2.pdf
| sanderjd wrote:
| I think you may have missed the news last night. They
| just invented three brand new facilities within 72 hours
| of SVB collapsing. That is making it up as you go.
| dkasper wrote:
| hilariously "15 person company run by a Mom out of ohio" was
| literally one of the tweets going around trying to get
| empathy for people who had money at svb
| https://twitter.com/lcmichaelides/status/1634654751479541760
| nrmitchi wrote:
| Oh damn, maybe that's why it came to mind.
|
| I updated the comment because referencing an explicit
| example was *not* my intent.
| LambdaComplex wrote:
| I looked into her company. It seems to be some sort of
| personal assistant service for $600/mo, $1500/quarter, or
| $5,900/year. And there's a page trying to convince
| employers to get the service for their employees so that
| they can be more productive at work.
|
| Small company from Ohio? Sure. But their target demographic
| is definitely not small town Ohioans.
| peanuty1 wrote:
| She and her husband are both Duke MBAs and ex-McKinsey.
| jtr1 wrote:
| As an employee of an otherwise decent company who happened to
| bank with SVB, I was mainly resentful of being stuck in the
| same boat as the latter group
| sanderjd wrote:
| Ugh yeah, I honestly find it really demotivating that I
| share an industry with these people. Unbelievably, they
| have managed to be even more insufferably disgusting than
| the bankers during the GFC. I would have never believed it
| possible.
| Convolutional wrote:
| > maybe stop tweeting images of guillotines when our employees
| are anxious about their next paycheck?
|
| I've been watching Elon Musk, Marc Andreessen, David Sacks,
| Peter Thiel, Jason Calacanis and on and on rant for the past
| weeks/months/years about the homeless in San Francisco, how
| students don't deserve student loan relief etc.
|
| Now you're finding a lack of empathy galling? These prep school
| scions and maladroits, mostly wafting in angel/VC parasitism
| suddenly do an about face and beg for a government bailout. Of
| course they have been paying the piper and we hear before the
| weekend is over that their sweetheart deposits have been bailed
| out by the full faith and credit of the US taxpayer.
|
| The structure of all of this points one way, and the intentions
| of a handful that are "outspoken about disagreements with the
| techbro culture" has no effect on that.
|
| The reckoning did not come this week but it is coming, tweeted
| images and all.
| Eji1700 wrote:
| > and maybe stop tweeting images of guillotines when our
| employees are anxious about their next paycheck?
|
| This is the unfortunate outcome of just mass producing us vs
| them rhetoric at EVERY level of discourse. Nuance is dead.
| yunwal wrote:
| It's also the unfortunate outcome of no one taking moderated
| concerns seriously.
| s1artibartfast wrote:
| I Do have a lot of empathy for those impacted here, but I think
| people are also reasonably angry about having the costs foisted
| onto them. Some people struggle to entertain or express both
| concepts at once.
|
| It is like having sympathy for your friend that is mugged, but
| being angry that when the police came, they took money from
| your pocket to reimburse them.
| nailer wrote:
| > many of us have been outspoken about our disagreements with
| the techbro culture
|
| This is an odd thing to read. I always thought you were one of
| the people that _began_ SV techbro culture when you replied to
| David Miller's technical critique of Solaris with "have you
| ever kissed a girl?"
| bcantrill wrote:
| Yes, you have brought this up before.[0] And as I have said
| before[1] -- and will presumably say for the next 26 years as
| well -- I very much regret that quip. (The irony is that that
| was dredged up in part because people very strongly disagreed
| with my handling of the Noordhuis incident a decade ago.) But
| I will stand by my assertion that I have been outspoken about
| my disagreements with what I have found to be problematic in
| modern Silicon Valley, e.g. [2][3][4].
|
| [0] https://news.ycombinator.com/item?id=8958705
|
| [1] https://news.ycombinator.com/item?id=9041086
|
| [2] https://www.youtube.com/watch?v=px9OjW7GB0Q
|
| [3] https://www.youtube.com/watch?v=0wtvQZijPzg
|
| [4] https://www.youtube.com/watch?v=VzdVSMRu16g
| [deleted]
| peppermint_gum wrote:
| >Yes, you have brought this up before.[0] And as I have
| said before[1] -- and will presumably say for the next 26
| years as well -- I very much regret that quip.
|
| Do you also regret this post? I'm genuinely curious.
|
| https://web.archive.org/web/20131203011310/https://www.joye
| n...
|
| https://news.ycombinator.com/item?id=6845286
| bcantrill wrote:
| So if you follow the link that you're quoting there,
| you'll get your answer:
|
| _That said, I do think that this is contrast to the
| Noordhuis incident. I know that this position is not
| popular here (and that I will be downvoted into
| oblivion), and that it 's likely foolish to revisit this,
| but just to make clear my position: I am understanding
| (very understanding, given my own history) of gaffes made
| on the internet. The Noordhuis issue, however, was not a
| gaffe: it's not that he rejected the pull request (that's
| arguably a gaffe), it's that when he was overruled by
| Isaac some hours later, he unilaterally reverted Isaac's
| commit. (And, it must be said, sent a very nasty private
| note to make clear that this was no accident.) This
| transcended gaffe, and it became an issue of principle --
| one that I feel strongly about. So what I wrote at the
| time was entirely honest, and it is something that I
| absolutely stand by -- more than ever, actually._
|
| I wrote that in 2015, and still feel that way in 2023 --
| up to and including that I feel that way more than ever.
| (That is, I feel more strongly about this in 2023 than I
| did in 2015.) The world has changed quite a bit since
| 2015, and I daresay that the incident wouldn't repeat
| itself because I really doubt that Noordhuis would repeat
| his actions.
| nailer wrote:
| Getting into a revision war is bad behaviour, but it
| looks like Isaac rather than Noordhuis was the first to
| do that.
|
| But let's ignore your efforts to reframe the second
| situation, and focus on the the thing people are critical
| of you for: writing a blog post about someone that
| doesn't work for you stating "if he worked here he'd be
| fired".
|
| This was the second example you came to many people's
| attention, the second time with an empty display of
| machismo.
|
| It seems odd that that the person from "I get more girls
| than you" when losing a technical argument and "you're
| fired" when someone doesn't work for them - would
| complain about "SV tech bro" culture.
| bcantrill wrote:
| I suppose I shouldn't be surprised that we're
| relitigating an incident from a decade ago, but certainly
| noted that you disagree with the handling of the
| Noordhuis incident so strenuously that you are unwilling
| to acknowledge anything else that I've said or done in
| the last decade. I personally think that that itself is
| revealing of your own character, but I think it best to
| let everything here speak for itself.
| nailer wrote:
| I'm unaware of anything else you've done in the last
| decade outside the second incident.
| nailer wrote:
| > Yes, you have brought this up before.[0]
|
| > [0] https://news.ycombinator.com/item?id=8958705
|
| Your link shows I _didn't_ bring the incident up
| previously. Your link shows the user thristian did. I added
| a link to Miller's critique of Solaris performance and
| Miller's wikipedia page.
|
| I do think it's fitting (rather than ironic) people would
| bring your first incident of bullying behaviour up in light
| of your second, but I've replied about that further down
| the thread.
| smcl wrote:
| Also the original commenter added another comment saying
| that they actually _enjoyed_ bcantrill 's "have you even
| kissed a girl" remark:
|
| "On the other hand, even as a Linux advocate I found
| bcantrill's post freakin' hilarious. There are very few
| times when the universe gives you a perfect opportunity
| for a snappy retort, so I can't blame him for seizing the
| moment. While it's probably not bcantrill's favourite
| memory, I think that moment deserves to be remembered and
| respected for its comedic value, if nothing else."
|
| To me it sounds like he did a quick google search
| "bcantrill nailer site:ycombinator.com" (note: it's the
| top result), didn't pay too much attention to the context
| and guessed that you all just had a grudge and were being
| mean. Except he's missed that it was more nuanced and
| respectful than that.
| s_dev wrote:
| >I have never seen such cognitive dissonance here at HN
|
| The cognitive dissonance is that most sv startups and SVB
| clients are run by people with very strong right wing economic
| beliefs. Suddenly when they're affected they're asking for
| bailouts of the parent institution so that they're not affected
| because of "too big to fail". This is quite simply capitalism
| for the poor and socialism for the rich.
| Gene_Parmesan wrote:
| Yes, this is exactly my issue. Libertarianism only lasts as
| long as it's not your $3bil at risk. Then it becomes "oh but
| the government can't let ME fail."
| martythemaniak wrote:
| I respect your work, but you have to realize that what many
| companies were doing with their money was the financial
| equivalent of developing by SSHing into prod and editing a
| 50kloc index.php.
|
| And when they got into trouble, they did not stop to asses
| their situation (possible 5-10% haircut, nbd), but went into
| full blown existential meltdowns. One minute crying and
| begging, next minute threatening. In fact, after reading too
| many Twitter posts of founders complaining, they don't even
| seem remotely aware that they can even do things differently
| and properly.
|
| And let's not even get into the outrageous behavior of tech
| leaders like Sacks et all. This episode makes me embarrassed to
| be part of this industry.
| bcantrill wrote:
| There are some absolute turkeys out there, no question -- but
| there were/are also a lot of people who have taken pay cuts
| and betting it all on themselves to try to bring something
| innovative and important into the world. And when you say
| "they got into trouble", what you mean is: the bank in which
| they (we) are depositors was subjected to a bank run
| (something that no bank can survive). And yes, I believed and
| believe that depositors should be made whole: we -- as a
| group -- were not acting with avarice or recklessness. I am
| proud of my government and our hard-working regulators who
| were able to ignore the shrill caricature and see the very
| real lives that would been adversely affected by deposit
| loss.
| [deleted]
| sanderjd wrote:
| I'm sure the whole story will come out eventually, but I
| think there were some better options that I really hope
| were seriously entertained and that this was a last resort
| after those didn't pan out. We probably disagree on this
| (and I think reasonable people can), but I think one of
| those better options would have been a private sale with
| some relatively small haircut - 50% no, 99% definitely, 95%
| probably, 90% maybe; it's fuzzy - to uninsured deposits.
| That would have been painful. But it is also painful to
| make up yet more ad hoc public backstops for a banking
| sector that reaps large profits. Theoretically they earn
| those profits in large part through risk management on
| their customers' behalf. But increasingly it is actually
| the federal government of the US that is actually taking on
| that risk.
|
| I have a ton of empathy for everyone with business or
| paychecks at risk, really I do. But I also don't like
| continuing our march toward privatizing profits while
| socializing losses.
| justin66 wrote:
| > I also don't like continuing our march toward
| privatizing profits while socializing losses.
|
| We're already there, aren't we?
| sanderjd wrote:
| I don't think so? Or at least I don't think there is a
| final end state that we were already at, and I think we
| are closer now than earlier today.
| thecus wrote:
| Why let depositors in the US banking system lose capital
| when there's an insurance fund covered by the banking
| system itself for this purpose? The investors in SVB lost
| everything, isn't that accountability enough? You really
| want businesses with payables and payroll that exceed the
| FDIC limit by millions to be exposed to risk for relying
| on the US banking system, to what end, why?
| sanderjd wrote:
| Because this isn't the purpose of that insurance fund.
| Its purpose is to cover insured deposits, and these are
| uninsured deposits.
|
| I'm very open to ideas about how to change the program to
| better support businesses on the large side of small or
| the small side of medium. I think raising the insurance
| limit, maybe conditioned on payroll size or something,
| and thus also raising the insurance premiums, seems like
| an idea that makes a ton of sense.
|
| But _that wasn 't the rule on Friday_, and it wasn't what
| the premiums historically charged to banks to build up
| that insurance fund were priced for. And it's especially
| rich that banks (like SVB!) have long lobbied to keep
| those premiums low, and now want to benefit from suddenly
| switching the insurance policy to be unlimited. It's like
| if I constantly pushed to keep my home insurance premium
| low with the trade-off that they would only cover part of
| my losses in a fire, and then after a fire I made a big
| stink about how my insurance company should cover an
| unlimited amount of my costs to rebuild.
|
| This is the second time in my life now that I've woken up
| to find that I'm being held hostage by banks essentially
| saying to my government "nice society you have there, it
| would be a shame if something were to happen to it...".
|
| They're right, we do have to bail them out, but it's
| _bad_ that this is the case.
| bcantrill wrote:
| We definitely disagree, because anything less than 100%
| was going to result in the failure of other banks --
| probably FRB among them. (It's very hard to argue that
| there wasn't systemic risk when Signature also failed!)
| sanderjd wrote:
| Isn't this a bit of a narrative switch? It seems like
| this started with empathy for founders and employees of
| companies with deposits at SVB, and I feel that very
| strongly, for all those individuals.
|
| But then there's this whole other narrative about the
| banking system as a whole, and that side of this I'm much
| more annoyed by. It really reminds me of the financial
| crisis bailouts, which I found frustrating, being painted
| into a corner like that and forced to save the banking
| industry. And this is frustrating for the same reason.
| Which is not to say it isn't the right decision! It was
| the right decision in the financial crisis and I trust
| that it's the right one now.
|
| But until the FDIC and Fed and Treasury clearly all came
| to this conclusion, I was more skeptical of this
| narrative, because most banks don't have such a high
| concentration of uninsured deposits as SVB did.
|
| But I do trust that the regulators had more information
| than me about the systemic risk of this, and made the
| right decision, and like you said, I'm very glad we have
| that institutional capacity.
| ccn0p wrote:
| What losses are being socialized? This is a liquidity
| issue that is being reconciled with short term loans, not
| a solvency issue being bailed out with tax dollars.
| sanderjd wrote:
| So I don't know for sure, but my intuition is that if
| this were a great deal with no losses, there would have
| been a private solution.
|
| The socialization of the losses is the mechanism where
| any losses that do happen will be passed on to other
| banks, who will pass that on in some way. I am certainly
| glad it isn't taxpayer funds, but it's not a free lunch.
| sajacy wrote:
| Your comment really amused me.
|
| "Hold on, let me just... I'm sure there's a Good Reason
| around here somewhere..." - Hot Take Taylor
| sanderjd wrote:
| I mean, they spent the weekend trying to find a private
| buyer and clearly nobody wanted it. Doesn't seem to be a
| reach to conclude it might not actually be a great deal
| for the new owners (the US government)...
| yunwal wrote:
| The onus is on the people claiming that this is a no-risk
| deal for the FDIC. Otherwise, seeing this as a bailout is
| the reasonable conclusion.
|
| If there was no risk, JP Morgan would be willing to step
| in to capitalize. The fact that they won't tells me this
| is a bailout.
| moshegramovsky wrote:
| > This episode makes me embarrassed to be part of this
| industry.
|
| I'm feeling that more and more these days. I don't want to
| wake up one day and think "what have I done?".
| cwsx wrote:
| Disliking the industry does not mean you can't find a space
| where you're contributing to something you believe in.
|
| In my opinion, the industry has been downhill since FB blew
| up and started abusing its power, though I wasn't around
| for the dotcom/Microsoft era so that's just my experience.
|
| I absolutely loathe the vast majority of large tech
| companies, and that's only gotten worse (especially in the
| last 5 years). I outright refuse to work for companies
| (that I percieve) that are primarily involved in data
| collection/privacy violations, as I'm sure a lot of
| developers would refuse to work on weapons systems.
|
| That said, I'm growing more and more jaded, and wondering
| how best to focus my efforts. This has lead me to take jobs
| at smaller and smaller companies, heavily impacting my
| income, but at least I'm not actively working on projects I
| despise. I've also found myself spending a lot more time on
| personal or contributing to open source projects that push
| back on said projects I despise (largely privacy related).
|
| Not to say everyone is in a position to do that, but I do
| think we should be more conscious of what we're helping to
| build. Focus your efforts on projects you believe in, and
| be willing to push back on those you do not. This is not
| going to solve anything, but as the crowd grows larger
| we'll hopefully create enough noise for others to take
| note.
|
| (this is all very subjective, take my comment with a grain
| of salt)
| yunwal wrote:
| It's really hard to participate in a system that's so
| interconnected without contributing to the bad parts.
| Chances are, you're using a cloud provider that belongs
| to one of the big cos, etc etc.
|
| I work for a company whose product/mission I believe is
| positive, but with the externalities I'm beginning to
| doubt whether there's really any place to contribute
| positively in for-profit tech.
| mbesto wrote:
| > Disliking the industry
|
| You also have to remember, that tech isn't an "industry".
| You can work at Kahn Academy which is an education non
| profit that is heavily enabled by technology and still
| really feel good about yourself.
| yunwal wrote:
| Except you probably pay millions of dollars to AWS every
| year so they can build drone-strikes as a service or
| something.
| moshegramovsky wrote:
| Thank you for saying this. It's the perfect encapsulation
| of how I feel.
|
| For most of my career (I'm 48 now), I have loved my work.
| But the last 10 years have been really revealing in a bad
| way. I don't want to build information weapons, and
| that's how I'm starting to feel all the time.
| cwsx wrote:
| It's unfortunate, and I only see it getting worse, though
| I'm hoping there's enough of us to influence the
| velocity. The sentiment seems to be growing, so I'm
| trying to be optimistic, but it's going to be difficult
| when up against the resources of "big tech" (for lack of
| a better term).
|
| For me it ultimately boils down to my personal morals . I
| am not comfortable supporting these types of companies,
| even if my contribution makes minimal difference (on
| either side). I refuse to contribute because I wouldn't
| be comfortable with _myself_. I hope this decision will
| be beneficial to more than just myself, but if it isn't
| I'll at least be happy knowing I did what I could to
| support what I believe in.
|
| (side note, I didn't mean this to be so subjectively
| idealistic, but even if you completely disagree with my
| opinion on tech, I think the introspection and focus of
| attention would benefit all)
| sanderjd wrote:
| For what it's worth, I'm thinking about getting certified
| as an electrician instead.
| duggable wrote:
| Just had this discussion with my wife yesterday. Plumber
| sounds fine as well.
| roflyear wrote:
| Did you diversify your banking?
| jijji wrote:
| I've been told by numerous people, and ChatGPT apparently,
| that the way to minimize your risk at a bank is to only
| deposit a maximum of $250K into each bank, and use different
| banks with 250K at each bank, to ensure that FDIC will cover
| each person at each bank for that limit maximum of 250k.
| bcantrill wrote:
| We were required by covenant to bank exclusively with SVB as
| part of the venture debt line we had with them. This is a
| condition that is (was!) very standard and non-negotiable.
| This is part of what I mean about the real talk: that venture
| debt line was clutch for us -- and I would wager than any
| hard tech company that you revere has used venture debt at
| one time or another.
| sanderjd wrote:
| This is the problem though! And why people don't feel as
| much sympathy as you would like. Agreeing to those terms
| was not a risk-neutral thing. And now the feds have
| eliminated the downside of that risk, leaving only the
| upside. And I'm glad you were able to get a venture debt
| line and I'm glad your deposits are going to be whole,
| because I really like your business. But this kind of thing
| creates perverse incentives.
|
| Edit to add: In sensitivity to your point about
| insufficient empathy, I want to say that I have felt
| personally very worried for everyone waiting to hear about
| their paychecks, and about whether businesses I admire
| would be ruined by this mistake that was not their own. I
| (unsurprisingly as a commenter here) have a lot of
| attachments to people affected by this, and I've been very
| nervous about everybody. But I just also feel like we
| should be able to take a step back from our own personal
| feelings and look at this dispassionately and ask: Is this
| actually good, broadly?
| h2odragon wrote:
| I took a loan like that once; "sign here, don't worry about
| the blank spots". There was no other alternative if the job
| was to be done.
|
| When i saw the form again, the blank spots had been filled
| in with things like "24.99% APR" and other fun things that
| were not as had been advertised. I knew I was gonna get
| shaved, going into the deal, but this turned out to be
| right to the bone.
|
| I learned lessons from that experience. Hopefully y'all
| learn without incurring unsustainable costs. Good luck
| getting through this, its gotta be less than fun even if it
| all turns out right in the end.
| [deleted]
| pclmulqdq wrote:
| Would you take $100k in free AWS credits if it came with a
| covenant that forced you to run only in us-east-1? That
| sounds exactly like what is happening here. If you really
| need the AWS credits, that's fine and good, but you can
| expect to take a reputation hit if running only in us-
| east-1 brings down your servers.
|
| I'm sure you got a really good deal on that venture debt,
| though. Probably much better than everyone else who offered
| you a line of credit, and for a good reason.
| bcantrill wrote:
| Well, first, we can't make payroll or pay vendors with
| AWS credits, so your analogy isn't terribly apt, but it
| misses the mark in a deeper way: this is more like taking
| that deal and then AWS deleting some fraction of your S3
| objects. That is, unavailability would be in your AWS
| calculus, but data loss (rightfully) wouldn't be. (I can
| assure you that total SVB failure would have been viewed
| as less likely than S3 data loss as recently as a week
| ago.)
| pclmulqdq wrote:
| This scenario actually is more like unavailability. SVB
| has assets that cover your account at par value, but
| needs time to liquidate them at a decent price (or let
| them mature). The FDIC has that luxury. Your account
| would have been open (with most of your money available)
| on Wednesday without this action.
|
| This isn't a Lehman scenario. Those assets are marketable
| and worth something. They just can't be sold too quickly.
| This is why the TARP program made money: the sellers
| needed money now, but the government could hold those
| assets to sell at a good time.
|
| I'm sure you could otherwise call up your creditors and
| they would say, "that sucks, pay us by Friday," and life
| would be pretty much normal.
| bcantrill wrote:
| That is the way that neither receivership nor payroll
| actually work. (And we needed to wire by Tuesday -- which
| is kind of the point?) Now, even in the scenario, we
| would have made payroll -- but it would have been because
| heroic investors wired out of personal funds, and I know
| that not every startup would have been as lucky.
| fidgewidge wrote:
| Surely the whole point of AWS credits is that you're
| paying a vendor with them.
| jacquesm wrote:
| That's answered I think.
| smcl wrote:
| > I have never seen such cognitive dissonance here at HN
|
| > ...
|
| > maybe stop tweeting images of guillotines
|
| You're seeing randos on Twitter tweeting shit and somehow
| twisting it to suggest that HN commenters are doing this?
| Lumping together these edgy tweets in with the HN comments,
| which are by and large pretty inoffensive and civil, is a bit
| of a reach.
|
| I am sure it is a bit of a stressful time to be an SVB customer
| and maybe it's a bit jarring to see people discussing its
| demise in such an open and matter-of-fact way. But I'm sorry,
| if you don't want to see people discussing the pros and cons of
| bailing out your bank, do not read the comments of a submission
| where your bank is being bailed out.
| americafun wrote:
| I have no idea who you are. but i dont care: if you take risks
| you should have skin in the game. what empathy do you expect if
| you don't have any ?
| mulmen wrote:
| Do you really want "put money in a bank account" to be a
| risky activity? What benefit do you see there for the
| economy?
| americafun wrote:
| yes omg... some banks are more dodgy than others. why
| didn't they keep their money at chase
| squeaky-clean wrote:
| Not even "put money in a bank account, but also "Am
| employed by a company that put money in a bank account".
|
| You work for a company that needs more than $250k cash to
| make payroll? It's your fault for assuming that risk.
| /sarcasm obviously
| macintux wrote:
| Or even work for a company that uses a company for
| payroll that happens to flow through such a bank.
|
| It's turtles all the way down.
| markus_zhang wrote:
| I think the concern is: this time they covered every cent of
| deposits to prevent systemic risk from spreading.
|
| Now, what if, I, as a senior banker, start to abuse this
| policy. I'm not sure how senior bankers can abuse this policy
| but this is the concern here. So basically, if the FED can
| guarantee 100% of deposits, it encourages riskier moves. Worst
| case my equity gets wiped out, i.e. most of my unsold
| compensation vaporizes but that's it.
| IgorPartola wrote:
| Well also you lose your job and presumably never work in
| banking again, no?
| coldpie wrote:
| Look up the SVB execs in 2 years' time and let us know how
| they're doing.
| markus_zhang wrote:
| I'm not sure if I'd never work in banking again. It's a
| brotherhood, we take care of our...friends.
| drc500free wrote:
| I personally don't think the thing holding banker-bros back
| from risky investment strategy is fear that their depositors
| won't get back 100% of their deposits.
| yunwal wrote:
| The depositors reward banker-bros for risky behavior when
| they bank with them. SVB paid an unusually high interest
| rate and part of the reason is because they were more
| aggressive about investing.
| hackernewds wrote:
| that worst case sounds pretty worse? there's already inherent
| risks, why would anyone want that
| Atsuii wrote:
| There has been so many great reply to this comment already
| about how the lack of empathy is directed at the financial
| system itself rather than the small businesses and individuals
| directly impacted. The other thing that make it hard for me to
| have sympathy for a government backed solution is what makes
| these small companies and individuals anymore worthy of being
| 'bailed out' than any other small business that finds
| themselves unable to operate because of situations outside of
| their control or factored risk.
|
| I don't see VC's and tech workers screaming for the government
| to step in when it's blue collar or service businesses failing.
| Thousands of small business with 5-20 people on payroll fail
| every year because of things outside of their direct control. I
| know small businesses that had to close doors because they got
| fucked over by things like landlords going bust and suppliers
| with half payments and no goods delivered collapsing. It's
| shitty for any small business to fail because of broader issues
| outside of their control, how is it fair to label this as
| anymore worthy of assistance?
| hackernewds wrote:
| you don't see the govt support that kick started all of the
| inflation and following rate hikes. I agree with the
| sentiment, however we can't thumb our ears to the facts that
| the govt HAS taken extraordinary measures to prop up the non-
| taxed fraction, at the expense of the middle class this
| decade
|
| https://www.sba.gov/funding-
| programs/loans/covid-19-relief-o...
| Aperocky wrote:
| The subject is wrong though, SVB isn't getting bailed out,
| their depositors are. At the end of the day, SVB as a bank
| would be no more/the ownership would be washed.
|
| The depositor didn't do anything wrong, they had the full
| right to withdraw at anytime and they didn't make the
| decision to invest into long term illiquid low interest MBS
| in 2021.
| scruple wrote:
| > The depositor didn't do anything wrong
|
| They did if they deposited money above insured amounts.
| thecus wrote:
| There are plenty of necessary reasons for business to
| have money in accounts above $250k. There should be no
| exposure here, this is the US banking system - bank
| deposits should be guaranteed by the entire system (not
| the taxpayer). Let the shareholders burn, fine... but
| cmon man, what does anyone get by letting depositors lose
| capital when placed in US banks?
| scruple wrote:
| > There are plenty of necessary reasons for business to
| have money in accounts above $250k
|
| Sure, and they know what's insured and accept those
| risks.
|
| > There should be no exposure here
|
| Bullshit. There's a gradient here: There are some
| depositors who have $750k and others who have many
| millions. What many of them (the latter group) were doing
| here is simply bad financial practice. I have to do
| better with my personal finances. Why don't they, too?
| Because more people depend on them? That's _pathetic_ ,
| they should do better _because_ people depend on them.
|
| And let's not pretend like they don't have options. They
| do. The individuals (corporate officers) losing money
| here (hypothetically, since they're going to be made
| whole) are supposed to be competent leaders. They're
| showing _the world_ their asses.
| psychlops wrote:
| > bank deposits should be guaranteed by the entire system
| (not the taxpayer)
|
| Where do you imagine this money ultimately comes from?
| jsutton wrote:
| The same place that took trillions of dollars in exchange
| for low-yielding treasury bonds. The same place that
| effectively devalued said treasury bonds when they
| decided to rapidly raise interest rates.
| briffle wrote:
| Many employees had all their 401k tied up in enron too..
| They were heavily encouraged by the employer, and it saw
| great gains for years. Doesn't mean that they should
| ignore financial advices and diversify to reduce risk...
| tchened wrote:
| do you expect a company with $100MM in the bank to bank
| with 4000 different banks in order to keep their cash
| secure and insured?
| sethd wrote:
| One could do that, but there's plenty of other options
| available to insure amounts above $250k.
| phphphphp wrote:
| The reason employees are anxious about their next pay checks is
| because of the VC-induced panic which is entirely self-serving
| and has not one iota to do with making payroll -- that's just a
| palatable hand-wavey justification for demanding government
| intervention because their precious points are at risk.
|
| I have a great deal of empathy for the workers anxious about
| being paid, but that goes without saying, there's nothing to
| discuss there. Workers are victims of the VCs who rightly
| deserve to be derided for their behaviour, both in this
| incident and more broadly in squeezing every last drop of
| profit from normal people.
|
| I don't understand what you're asking of people on HN. Are you
| asking us to preface all our comments with "...not all SVB
| customers are leeches..."?
| ofchnofc wrote:
| [dead]
| m1nz1 wrote:
| I also think that people here are missing the game that was
| played by the VCs. I have a friend working at Insight who
| told me that they were preparing to issue loans and further
| funding to portfolio companies. This of course is less ideal
| than having the government bail their portfolio out, but they
| would have had no choice. So, having shot themselves in the
| foot by starting a panic, they decided that the best way to
| avoid getting in trouble was to push the panic even further
| to the point that it threatened the entire economic system.
|
| Personally, that is what I find so disgusting and that is the
| source of my animosity. I believe the fed ultimately chose to
| maximize the probability of avoiding a crisis over punishing
| these morons. I think that is wise but still not good.
|
| The analogy I choose is this. Imagine there is a forest that
| is due for a bit of a natural fire. We should let it burn -
| but wait it turns out some people built and sold houses in
| this forest. Instead of evacuating and having these people
| suffer and need to relocate, we put out the fire. Since we
| put out this fire, these people living in a hazardous way
| continue to do so. Eventually a massive fire will start and
| kill those people and spread to other areas that it otherwise
| would not have. All because we decided to stop the
| "maintenance" fire from clearing the brush.
| gardenhedge wrote:
| This is such a childish response. You're essentially saying to
| the community: "stop saying things I don't like!"
| temp_praneshp wrote:
| It's 0 % shocking to see the lack of empathy and schadenfreude,
| if you've been in H1B related discussion on this site over the
| years.
| mavelikara wrote:
| I came here to say this.
|
| If you feel shocked by the lack of empathy at "You knew all
| along that only $250K was insured, riiiggtt??", please
| consider empathy when you are about to type in " You knew
| that H-1B isn't an immigrant visa, right?".
| ofchnofc wrote:
| [dead]
| [deleted]
| [deleted]
| draw_down wrote:
| [dead]
| stametseater wrote:
| [dead]
| hartator wrote:
| > [svb.com] 4.50% APY on deposits
|
| Well, my accounts don't pay as much. Are you okay refunding the
| extra APY you get by having your bank takes more risks for the
| past years?
| makomk wrote:
| I've seen this argument made a few times, and it's nonsense.
| SVB didn't fail because they paid out 4.5% APY on their money
| market accounts; that's pretty safe for them because they can
| easily earn that much from low-risk bonds and Treasuries and
| as I understand it that doesn't have the duration mismatch
| problems that affected their normal, boring, no-or-minimal-
| interest demand deposit accounts. (Also, I'm pretty sure
| people weren't earning that kind of interest for the past few
| years - the interest rate increases that made it possible are
| really recent.) It's related to the cause of their failure,
| but only in the sense that the fact interest rates increased
| so much that it was viable to offer that kind of money market
| account caused outflows from other accounts - it didn't
| particularly matter whether it was SVB or any other bank, or
| even potentially corporations just buying bonds directly.
| hartator wrote:
| > 4.5% APY on their money market accounts
|
| It's not on their money market accounts, but regular
| deposits. If they didn't pay that big of an interest, they
| won't have been in this position now. Maybe half as bad.
| But, depositors did profit for this.
| chaosbolt wrote:
| >No losses associated with the resolution of Silicon Valley Bank
| will be borne by the taxpayer.
|
| Mmmmm, so did the money fall down from the sky?
| [deleted]
| awak3ning wrote:
| Tell me you're doing a bailout without telling me you're doing a
| bailout
| balozi wrote:
| So, is this a bailout, that we are definitely absolutely not
| calling a bailout?
| baal80spam wrote:
| Yup, and we can expect a movie in a few years.
| loeg wrote:
| > As with the resolution of Silicon Valley Bank, no losses will
| be borne by the taxpayer.
|
| > Shareholders and certain unsecured debtholders will not be
| protected. Senior management has also been removed.
| nostromo wrote:
| It's a bailout with the costs borne by other banks.
|
| And those costs will be paid by anyone with a bank account.
| loeg wrote:
| The typical bailout doesn't zero shareholders. Here,
| shareholders were zeroed. You can call it a bailout of
| depositors, but the association with bailouts that didn't
| zero shareholders is bogus.
| dathinab wrote:
| No it's not because it only covering deposits.
|
| If you want to call it a bailout it would be an bailout of
| investment/company money parked in SVB but _not of SVB itself_.
|
| Furthermore SVB might still have enough assets to cover that
| (or most likely a very huge part of it), they just don't have
| enough cash/liquidity to continue on as a company.
| avalys wrote:
| It's not a bailout. Silicon Valley Bank will cease operating,
| the shareholders get zero, anyone who loaned them money likely
| gets zero, the executives have been fired, the employees will
| all be laid off within two months.
|
| The point of this action is to ensure that Silicon Valley
| Bank's customers, however, will not be harmed by doing business
| with a regulated major bank.
| MaxHoppersGhost wrote:
| Now what incentive do larger banks have to run their bank
| appropriately now that SVB is getting bailed out? Ridiculous.
| speransky wrote:
| so all other bank customers (who are taxpayers also) will pay
| indirectly through higher FDIC insurance rates/commissions, right
| ?
| kizer wrote:
| Let's just not make this a habit!
| belter wrote:
| "...Any losses to the Deposit Insurance Fund to support uninsured
| depositors will be recovered by a special assessment on banks, as
| required by law..."
|
| Is this what passes for a FED press release? Which law? Clear as
| mud. Did the Fed just established an infinite deposit insurance
| coverage in the US?
| spdustin wrote:
| 12 U.S.C. 1817(b)(5) (starting on the bottom right of the page
| numbered 980, page 5 of this PDF [0])
|
| [0]:
| https://www.govinfo.gov/content/pkg/USCODE-2021-title12/pdf/...
| belter wrote:
| Yes but also interestingly in Page 4 of that PDF under (2)
| Setting assessments (A) In general - (B) Factors to be
| considered
|
| Besides the we can do anything, anytime mentioned in that Pag
| 5, there is the requirement to in general look at the impact
| on other banks. Something they clearly could not have the
| time to do in this short time.
|
| (2) Setting assessments - (A) In general - (B) Factors to be
| considered
|
| Section (iii) "The projected effects of the payment of
| assessments on the capital and earnings of insured depository
| institutions."
| blobbers wrote:
| Futures markets up 1.7%. The one lesson they want you to remember
| is to buy the dip.
| trashface wrote:
| Privatize the gains, socialize the risks. This is the way the US
| works. Take note, "voters".
| poof131 wrote:
| The part that annoys me the most is the idea that all the
| depositors are mom and pop small businesses or early stage
| startups.
|
| I've heard it said that Circle and USDC have an amazing business
| model: create a coin, call it a dollar, and deposit real dollars
| in the bank for interest while customers hold the coin. You don't
| even have to offer a percent for the deposit like a normal bank.
| You can then make a couple percent on billions.
|
| With this bailout the US Government just backstopped the business
| model with no haircut for a total lack of risk management. But
| sure, punish all banks (and thus customers / taxpayers) since the
| costs will be spread to others. Protecting us from systemic risks
| always seems to create more systemic risk. I'm sure were done
| though, they are putting protections in place this time.
| ITB wrote:
| This is not a story of class struggle. This is about a
| government driving confidence in property rights.
| poof131 wrote:
| Confidence in property rights? Not sure what you are talking
| about. They just provided guaranteed non-negative returns on
| loans. Put your dollars in a safety deposit box if you want
| property rights. Depositors need to be able to accept a
| haircut for banking to function, that's why you get interest
| and don't pay the bank.
| cragfar wrote:
| You're not thinking what the most logical course of action
| would be for all companies that use regional banks. It
| would be to get your money out ASAP on Monday and into JPM
| or BOA. That's why the treasury has stepped in.
| roflyear wrote:
| Many of the big banks give effectively 0% interest right now
| for everyone, so it isn't really that much different, but yeah
| I agree with your sentiment.
| HervalFreire wrote:
| [dead]
| dc_throwaway wrote:
| Taking a bit of a longer term view into why this happens, I feel
| the Fed (and Treasury/FDIC/OCC) needs to do quite a bit of soul
| searching:
|
| 1) After the crisis the new Liquidity Coverage Ratio (LCR)
| regulation required banks to hold a lot of "high-quality-liquid-
| assets" (HQLA) for every dollar of deposits they have. Kinda like
| reserve requirements...
|
| 2) HQLAs include liquid assets (cash, Fed reserves) plus
| treasuries and agency bonds. Well cash pays zero so of course
| banks will be investing in the juicier long dated assets. This is
| the first mistake by the Fed (and Basel) who took the approach
| "treasuries have absolutely no risk" which ignores interest rate
| risk.
|
| For instance; say you bought a ten-year zero-coupon treasury when
| rates were 1; that's valued at 1/1.01^10 = 90.5 cents on the
| dollar. But if rates are now 5% that's worth only 61.3 cents of
| the dollar (!) but you are allowed to ignore this loss...
|
| 3) The way we allowed banks to hide these losses in the now
| popular Held-to-Maturity (HTM) category instead of Available-For-
| Sale (AFS). Any security put there can be valued for capital
| regulation purposes at the amount you paid for it, instead of
| it's actual value (i.e. market value). So in other words, we
| first incentivized banks to invest in these risky securities and
| then provided a way to hide the risks from capital regulations.
|
| 4) To make it worse, if you as a bank realize that "oh shit I
| have too much of this crap" there's another regulation
| disincentivizing you from fixing things. If you even sell $1 of
| the HTM bucket then ALL the assets of that class move into AFS
| and you are forced to realize all the losses. So you will only
| sell HTM at the very end, as SVB did.
|
| 5) Lastly, the govt flooded the markets with cash over the last
| years (zero interest rates) so everyone (firms, households) had
| lots of deposit. Lending opportunities were much lower than
| deposits so they had to put the money into these securities.
|
| 6) But central banks did QE, which drove the price of these
| assets very high (and thus the yield very low). For instance, SVB
| had agency bonds with 1.5% yields. So, to recap, banks were
| incentivized strongly to buy these securities which the govt made
| sure had terrible yields.
|
| 7) Then, once COVID ended and inflation started it was time to do
| quantitative tightening (QT) where the govt became a net seller
| of these securities, driving their price to the ground, creating
| huge losses for banks.
|
| And that's where we are now. Most banks have HUGE HTM positions
| of mostly long-dated bonds, with huge losses, not because they
| are all idiots, but b/c that's how the incentives were aligned.
| And now we are paying its cost, including the cost of QE/QT.
| insane_dreamer wrote:
| It's the right move. If they didn't do it, every regional bank,
| especially those that primarily deal with businesses (which are
| likely to have more than $250K in deposits), would be at risk,
| since the expectation is that your "money is safe in the bank" is
| what allows the banking system as it is to exist.
| adharmad wrote:
| None of the other regional banks had the investment risk
| profile or the depositor distribution (number of individual
| investors, SMBs, startups) of SVB.
| insane_dreamer wrote:
| It doesn't matter. The goal is to contain fear, and fear does
| not act rationally, nor do depositors try to understand all
| of the intricacies of their bank's risk profile--they'll
| figure that BoA or WellsFargo will be better because they are
| "too big to fail".
|
| The fact is that if depositors hadn't run on SVB it also
| would have been ok.
| adharmad wrote:
| But in today's economy, any rumor or random event can cause
| a run on any bank. In fact, there are stories as we speak
| of the current run on SVB being caused by Peter Thiel and
| his buddies.
|
| If the banking system is so fragile that it is prone to
| bank runs on slight rumors, which can be contagious and
| spread to other banks, what is the solution? To just
| continue bailing out banks as they fail?
| insane_dreamer wrote:
| In today's economy, banking -- and by that I mean the
| basic function of a secure place to put your cash other
| than having it in dollar bills in a safety deposit box or
| under a mattress -- may be considered an "essential
| service", particularly for businesses. The fact is, you
| cannot operate a business without it. So putting your
| money somewhere safe (I'm talking cash here, not
| investments) should be something that is guaranteed. The
| $250K limit does that for individuals but not for
| businesses who may need millions in readily-available
| zero-risk (other than inflation) cash.
|
| This line of thinking leads towards basic banking
| services being fully guaranteed, and perhaps owned, by
| the government (like the postal bank in some countries).
| Banks make money by providing other services on top of
| that.
|
| Something along the lines of how power utilities work
| might be a model for the future.
| [deleted]
| [deleted]
| 0xDEF wrote:
| The Feds should not help the crypto startups that are actively
| betting against the Feds and the US dollar.
| sva_ wrote:
| It's interesting to see how this started just before the weekend
| and how they're seemingly working hard towards a solution before
| the markets open tomorrow.
| tlonny wrote:
| This was the only rational course of action.
|
| It's slightly disheartening to see so many people on HN willing
| to invite a wider collapse of the US banking system in order to
| punish/hurt a group of people they deem to be "elite".
|
| Talk about cutting off your nose to spite your face!
| cced wrote:
| > It's slightly disheartening to see so many people on HN
| willing to invite a wider collapse of the US banking system in
| order to punish/hurt a group of people they deem to be "elite".
|
| People are tired of being around rhetoric that students are
| undeserving of a bailout because they decided to take loans
| from banks that were more than willing to lend them money for
| degrees with no prospects of recouping, however, when banks
| make their own poor decisions the banks plead with the
| regulators they've been deregulating, defanging, and lobbying,
| there are calls for yet __another__ round of socialism. Only
| now we have no choice because the options are a) bailouts or b)
| systemic collapse of life as we know it. Tone-deaf.
|
| We are now changing definitions as to what a 'systemically
| important bank' is, apparently it is no longer 1 of the big-5,
| but any bank that has 200,000 depositors. Why and how is a bank
| with 200,000 depositors in a position to bring the entire
| financial system to a halt?
|
| In his Twitter spaces, Jason C. said that he is now a newly
| minted 'single-issue voter' looking at candidates that call for
| limiting of spending. Mind you, after he went on his all caps
| tirade on Twitter in an attempt to stoke fear.
|
| What's disheartening is seeing the complete disconnect in
| comments like yours with the optics of the situation.
|
| People aren't inviting the collapse of the system; they are
| criticizing the complete hypocrisy of those that call for
| financial prudence when it's other people's problems or needs
| but blame the government when they are now in a precarious
| situation. Utterly self-serving and shameless.
|
| We're slowly chipping away at the social contract, seemingly
| all while forgetting the previous times when bank bailouts were
| given.
|
| Rationalize this however you want, at the end of the day a bank
| mismanaged risk, it's C-suites cashed out before news hit,
| those in the know using means such as Podcast at their
| disposal, used their privileged position in order to get
| themselves out of harm's way before others could, and now want
| losses to get socialized.
|
| These guys will never learn, this will happen again, and in 10
| years we'll be right back here, only eggs will cost 30$ a dozen
| and you'll be financing your microwave.
| FollowingTheDao wrote:
| This is how fascism starts; governments prioritizing the heath of
| corporations over its people.
| JakeAl wrote:
| The US debt to GDP ratio has been over 120% since 2020. By IMF
| definition the US is in an economic death spiral. Unless drastic
| measures are taken (balanced budget amendment, massive cuts in
| spending for starters) by 2028 the death spiral will be
| irreversible and the US will be insolvent by 2042.
|
| This is because by 2028 all of the payments we make on the loans
| for all that printed money will only be going to the interest,
| not the principal, and the spiral will be inescapable. (unless
| they change all the rules/trow them away which is where things
| like war and The Great Reset come in.
|
| What does this have to do with the banks failing? There will be
| no more stimulus or bailouts, that's what. FDIC will be lucky if
| they can cover insured funds. Social Security it has already been
| reported will be bankrupt by 2033. The money supply has already
| contracted 2% and historically I think only once when that
| happened we didn't go into a deep recession or depression.
| Depression because of what I stated above is on the menu.
|
| Cling to your jobs, folks, save all the money you can, cut all
| unnecessary spending. The next decade if we're lucky will not
| turned out like last century, but I'm not holding my breath. All
| that free money given to cronies by politicians leads to this.
| This is why you have a god standard and don't use fiat currency.
| So you can' spend money you don't have politicians buying votes
| with bailouts and handouts.
| jijji wrote:
| the more you read into this story of SVB, the more it seems like
| it (and other banks?) are nothing more than a ponzi scheme where
| they take customer's money, reinvest it in risky business, and
| then use the new customers money to back the people requesting
| withdrawals from the bank. Is this true?
| kristjansson wrote:
| The shear volume of misinformed, misleading, or malicious takes
| produced over the weekend, priced at a buck each, could probably
| cover whatever losses are eventually realized in this mess.
|
| I don't mean to minimize this severity of the problem - if a bank
| can follow the rules, and be undone so easily, the rules need to
| be reevaluated. SVB management was negligent in their risk and
| deserves to be wiped out. But in a disaster precipitated and
| fueled by panic, professional and amateur purveyors of opinion
| and analysis should take more care to be well reasoned and
| factual.
| mgav wrote:
| "RE: student debt forgiveness, I think folks shouldn't get a
| bailout (banks, airlines or students), as bailouts remove
| accountability for actions"
|
| ~Jason Calacanis, Twitter, Jul 27, 2019
|
| link to Tweet:
| https://twitter.com/Jason/status/1155224393028476933
| turingfeel wrote:
| I am really, really not a fan of the guy. However making cash
| deposits and taking out loans are two very different things.
| dools wrote:
| They should tell everyone that the government issues USD and
| therefore doesn't need to first obtain the reserves from tax
| payers before making them available to protect bank depositors.
|
| If they were honest about this and everyone realised it, they
| could go one step further and eliminate involuntary unemployment
| overnight with a job guarantee.
| ecommerceguy wrote:
| I'm just curious, who was running the investment / risk team at
| SVB and why should they get a pass for doing such a terrible job?
| mgraczyk wrote:
| They don't, they got fired already.
| Mountain_Skies wrote:
| Pretty mild consequences considering the magnitude of their
| screw up. Doubt they're going to be missing any meals or have
| trouble paying the electric bill.
| mgraczyk wrote:
| Do you think software engineers who write code with bugs
| that take down their company should miss meals as a
| consequence?
| kats wrote:
| Yes for sure.
| college_physics wrote:
| They'll be recycled soon enough like the Lehmann guy. There
| is a talent shortage in the industry.
| TigeriusKirk wrote:
| They've been fired and their bank has been shut down.
|
| Not sure how they're getting a pass.
| spencerflem wrote:
| because they're not losing any money. we all are
| (collectively) by bailing them out
| TigeriusKirk wrote:
| I'd like to see them personally financially wiped out, but
| that's not how this process works.
|
| I suppose it's possible there could be a shareholder suit
| against them. That would be interesting.
| spencerflem wrote:
| you know what, fair
| askl56 wrote:
| From the UK branch which also is in severe trouble[0]
|
| Jay Ersapah, the boss of Financial Risk Management at SVB's UK
| branch, launched initiatives such as the company's first month-
| long Pride campaign and a new blog emphasizing mental health
| awareness for LGBTQ+ youth.
|
| "The phrase 'you can't be what you can't see' resonates with
| me,'" Ersapah was quoted as saying on the company website.
|
| "As a queer person of color and a first-generation immigrant
| from a working-class background, there were not many role
| models for me to 'see' growing up."
|
| Her efforts as the company's European LGBTQIA+ Employee
| Resource Group co-chair earned her a spot on SVB's "outstanding
| LGBT+ Role Model Lists 2022," a list shared in a company post
| just four months before the bank was shut down by federal
| authorities over liquidity fears.
|
| [0] https://nypost.com/2023/03/11/silicon-valley-bank-pushed-
| wok...
| raphaelj wrote:
| This is part of why the bank appealed to funders and
| startups. These positions are just marketing to better reach
| their target customer base, as far as I see them.
| piperswe wrote:
| I'm not sure how relevant this is to the topic at hand.
| tootallgavin wrote:
| Cause none that seems to have any thing to do with
| Financial Risk Management
| noirbot wrote:
| Because people are only allowed to be their job? How is
| the fact that they also have other passions outside of
| their job mean they must have been a terrible employee.
|
| If I had a major fuckup at my job and then someone dug up
| how my job talked about me running a board game group at
| lunch at work, would you be pulling quotes about how my
| love of Illimat and The Crew was a sign that my company
| was negligent?
| tootallgavin wrote:
| -> running a board game group _at lunch_ at work
|
| I mean would you say the same of S.B.F of FTX who was
| playing league of legends while _on the clock_?
|
| If everything were running smoothly there would be no
| reason to look. But if mistakes are getting made _while
| on the job_ , could it be because an individual is doing
| more than the job description?
| AmVess wrote:
| The entire c-suite were running things at Lehman and DB and
| flew those into the ground, too.
| gnicholas wrote:
| Apparently they had no Chief Risk Officer for much of the last
| year: https://fortune.com/2023/03/10/silicon-valley-bank-chief-
| ris...
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