Silicon Valley Bank unmasks the hypocrisy of libertarian tech bros(newstatesman.com)
newstatesman.com
Silicon Valley Bank unmasks the hypocrisy of libertarian tech bros
https://www.newstatesman.com/quickfire/2023/03/silicon-valley-bank-collapse-hypocrisy-libertarian-tech-bros
545 comments
> The article is an attack on Peter Thiel, not SVB.
I don’t understand this comment. The article doesn’t pretend to not be an attack on people like Thiel. It’s in the title. So what’s your point—is Thiel above criticism?
And since you imply that a publication somehow automatically loses credibility on this topic by leaning left, here’s a Financial Times opinion piece with a similar premise: https://archive.is/6MBEL
I don’t understand this comment. The article doesn’t pretend to not be an attack on people like Thiel. It’s in the title. So what’s your point—is Thiel above criticism?
And since you imply that a publication somehow automatically loses credibility on this topic by leaning left, here’s a Financial Times opinion piece with a similar premise: https://archive.is/6MBEL
The FT is also a left leaning newspaper as it has had to increasingly post 'commentary' articles to stay relevant in the 2020s. Long gone are the days of its dull hard factual reporting that was of actual utility to London traders since the rise of the internet.
I had no 'point' other than to state that the article headline was misleading, the content was weak at best with sound bite quotes and zero context.
I referenced the wikipedia article so that non-UK readers have some context regarding the publication.
I had no 'point' other than to state that the article headline was misleading, the content was weak at best with sound bite quotes and zero context.
I referenced the wikipedia article so that non-UK readers have some context regarding the publication.
The FT is not a left leaning newspaper in the traditional economic sense, even if they are somewhat progressive on the social scale. Why would you characterise them as left? They're obviously pro-business, pro-free trade, anti-traditional social stuff (e.g. the pension reform in France is admired) and have done some great investigative journalism recently (Wirecard and Ukraine come to mind).
Don't split hairs, "progressive" and "left" are the same thing.
Progressive is more on the social axis, meanwhile left is applied for both social and economic ones. FT are somewhat socially progressive, but right on the economic axis.
Yes, using left/right instead of something like a radar/pizza chart for political leanings is extremely limited.
Yes, using left/right instead of something like a radar/pizza chart for political leanings is extremely limited.
Theyre neoliberals. Hardly a better mold that fits them.
Thiel is entitled to a lot of criticism, but this is dumbest possible criticism. If Thiel took his money out of SVB, then he didn't receive a bailout. That's 100% consistent with libertarianism. But then he's a hypocrite because he's a "tech bro" and some other "tech bros", who the article makes no effort to explain why they are libertarian, asked for bailouts.
Big and little L libertarianism are a constant target for some people on the left despite having near zero voting power or representation outside of individual ideology. I get exhausted with this kind of rhetoric but it's not atypical of the left or the right for that matter. It's also typical of just angry people with next to zero explanations for why their lives aren't as easy as their parents, so they opt for "let's smack libertarianism around a bit"
> since you imply that a publication somehow automatically loses credibility on this topic by leaning left
Funny how so many of the replies are shocked by this idea when virtually every single story posted to HN from a right leaning outlet is flooded with comments of the form "you can't trust this story, it comes from a right leaning outlet" and the post itself will often be quickly flagged to death. What goes around comes around.
Funny how so many of the replies are shocked by this idea when virtually every single story posted to HN from a right leaning outlet is flooded with comments of the form "you can't trust this story, it comes from a right leaning outlet" and the post itself will often be quickly flagged to death. What goes around comes around.
Not to speak for OP, but I think the point is obvious. Silicon Valley culture is liberal to progressive, not libertarian. That means more government intervention is the norm in the industry, not less. Thiel is more of an exception in that regard.
The entire premise that Silicon Valley has a libertarian culture is flawed, which is they the article can't back it up.
The entire premise that Silicon Valley has a libertarian culture is flawed, which is they the article can't back it up.
So my understanding is Silicon Valley programmers have a liberal to progressive culture, but the VCs that fund tech companies have the reputation of being libertarian. Thiel at least a is a noted libertarian.
The stereotype is that rich investors have these 'libertarian' ideals where they believe that, freed from burdensome taxes and living in a world where bailouts don't happen, they will invest wisely and create a tech utopia thanks to 'survival of the fittest' principles. However, people feel these rich investor types behave more along the lines of 'libertarian principles when we make money, socialism when we are losing money'.
I don't know the extent to that which is true but obviously when rich people have their money threatened it makes sense that they would want a bailout even according to their own 'principles' they shouldn't get it.
The stereotype is that rich investors have these 'libertarian' ideals where they believe that, freed from burdensome taxes and living in a world where bailouts don't happen, they will invest wisely and create a tech utopia thanks to 'survival of the fittest' principles. However, people feel these rich investor types behave more along the lines of 'libertarian principles when we make money, socialism when we are losing money'.
I don't know the extent to that which is true but obviously when rich people have their money threatened it makes sense that they would want a bailout even according to their own 'principles' they shouldn't get it.
> Thiel at least a is a noted libertarian.
Peter Thiel is liberal to progressive?
I said he was an exception. The general culture of Silicon Valley is liberal to progressive. Thiel is a libertarian, which is uncommon in the industry.
Larry Ellison? Mark Zuckerberg? Elon Musk? Sam Altman? ...
I don't know enough about Altman to say one way or the other, but there is nothing Libertarian about the other 3. In fact, even Thiel is a stretch to call libertarian considering he donated to Trump who is the opposite of a libertarian.
Fair point. They don't really believe in anything but their own egos. Everything else espoused is in temporary service of their true dogma.
Thiel is the rare breed libertarian who has pondered on his ideology more than a couple of mins and beyond feel good freedom statements, saw that it will conduce to corporate fiefdom, and said: “hey, that looks nice”
I actually respect him a little more than the average libertarian just because of that.
I actually respect him a little more than the average libertarian just because of that.
I don't know what your last paragraph is supposed to imply. That there shouldn't be outlets for the Left? That there shouldn't be outlets with stated political positions at all? Or it's just a basic ad hominem?
Anyway, as for the substance: a bank had risky behaviour and lost out. Now everyone, including those who never did and never will benefit from that risk, are called to pick up the check. This is, objectively speaking, a transfer of wealth from the poor to the rich.
Now you may justify that with trickle-down economics, but I'm not arguing that point, and neither is the writer. He is merely pointing out how the "leave free enterprise alone" crowd is now suddenly in favour of handouts :)
Anyway, as for the substance: a bank had risky behaviour and lost out. Now everyone, including those who never did and never will benefit from that risk, are called to pick up the check. This is, objectively speaking, a transfer of wealth from the poor to the rich.
Now you may justify that with trickle-down economics, but I'm not arguing that point, and neither is the writer. He is merely pointing out how the "leave free enterprise alone" crowd is now suddenly in favour of handouts :)
> That there shouldn't be outlets with stated political positions at all?
What a wonderful concept, a news organization that just spits dry facts and doesn’t spin at all. Kinda like Axios. We really should use AI to write unbiased news articles and fire all the journalists who can’t get rid of their biases. The world would overnight be a better place.
What a wonderful concept, a news organization that just spits dry facts and doesn’t spin at all. Kinda like Axios. We really should use AI to write unbiased news articles and fire all the journalists who can’t get rid of their biases. The world would overnight be a better place.
Absolute hn moment.
> a news organization that just spits dry facts and doesn’t spin at all
There's no such thing. Even the paragons of neutral and factual reporting, like AP or Reuters, do at the very list have an editorial bias on what they do and do not report, and in what detail.
> Kinda like Axios
Lol
> We really should use AI to write unbiased news articles and fire all the journalists who can’t get rid of their biases. The world would overnight be a better place.
Outstanding idea. Let's get rid of the ability of humans to present thoughts and opinions, and delegate that to chatbots controlled by some tech-bro's definition of "acceptable speech". Truly an inspired idea.
> a news organization that just spits dry facts and doesn’t spin at all
There's no such thing. Even the paragons of neutral and factual reporting, like AP or Reuters, do at the very list have an editorial bias on what they do and do not report, and in what detail.
> Kinda like Axios
Lol
> We really should use AI to write unbiased news articles and fire all the journalists who can’t get rid of their biases. The world would overnight be a better place.
Outstanding idea. Let's get rid of the ability of humans to present thoughts and opinions, and delegate that to chatbots controlled by some tech-bro's definition of "acceptable speech". Truly an inspired idea.
Are you a journalist by chance?
> Lol
What unique insight does this provide? Do you have counter evidence? Do you have a more neutral news site to use as evidence?
> Lol
What unique insight does this provide? Do you have counter evidence? Do you have a more neutral news site to use as evidence?
How does the "rich" steal what the poor do not have?
I think you meant to scare quote "steal," not rich. Otherwise this is a very elliptical argument.
> I don't know what your last paragraph is supposed to imply.
It's pointing out that the left hates libertarianism and Peter Thiel, leftism is literally the opposite of libertarianism, and so you would expect a left wing news outlet to try and trash Thiel and libertarians whether or not the argument makes any sense or whether it's actually their fault. It's a bias warning.
It's pointing out that the left hates libertarianism and Peter Thiel, leftism is literally the opposite of libertarianism, and so you would expect a left wing news outlet to try and trash Thiel and libertarians whether or not the argument makes any sense or whether it's actually their fault. It's a bias warning.
Yes, the only way someone could possibly disagree with the holy Word of Peter Thiel (swt) is because they're whatever caricature of a rabid communist you have in your mind.
> It's pointing out that the left hates libertarianism
It's worth pointing out that the word "libertarian" was coined for its namesake left-wing movement, what you might also call "anarcho-syndicalism", "mutualism", or similarly aligned ideologies. It's only since the 1960s that the word has been used as a synonym for ancap, and then mostly in the USA.
> It's pointing out that the left hates libertarianism
It's worth pointing out that the word "libertarian" was coined for its namesake left-wing movement, what you might also call "anarcho-syndicalism", "mutualism", or similarly aligned ideologies. It's only since the 1960s that the word has been used as a synonym for ancap, and then mostly in the USA.
Not really though. It's worth pointing out that the original Liberartianism in the Sarte/French sense IS a left wing movement and closer to anarchism and would view the companies that American Libertarians love as another extension of authoritarian control that should be reduced or eliminated.
Corporate Libertarianism which seems to be the predominant modern one is very right wing though.
Corporate Libertarianism which seems to be the predominant modern one is very right wing though.
Oh please. You know exactly what the article is saying. You chose to attack the publication instead of their arguments which boils down to Thiel and friends are very much anti-regulation and if it wasn't their money they would resist government interference. Perhaps you could talk about the quoted comments from those billionaires and correct the article?
Thiel got his money out, where is he asking for bailouts? These techbros are imaginary characters invented for clicks and outage.
I agree he shouldn't have been the center piece of the article. Because I don't think he was calling for a bailout.
But there are alot of laws that favor tech and most of the tech billionaires take lots of credit for winning with a stacked deck. And call for less regulation.
- sales tax exemptions for ecommerce.
- green credits
- section 230
- lack of stricter anti trust
But there are alot of laws that favor tech and most of the tech billionaires take lots of credit for winning with a stacked deck. And call for less regulation.
- sales tax exemptions for ecommerce.
- green credits
- section 230
- lack of stricter anti trust
Section 230 was just a carve out in the mostly overturned Communications Decency Act to allow for moderation. It isn't special protection, it clarifies that for the purposes of some pearl clutching censorship laws that moderating and hosting comments doesn't incur the liability of having said or published the thing in question. The rest of that law was basically whole sale tossed out by the Supreme Court for being prior restraint on speech. Section 230 is a red herring pushed by know nothing culture warriors.
The author doesn't understand the topic or the event, and just picked a boogeyman who they perceive is a threat to their activism.
As far as I know, haven't seen any tweet/quote from Peter Theil asking for a bailout. Shouldn't the onus be on the article author to do more research on their primary target. Can't blame him for being friends with people who asked for it.
Wait, you want "of the left and for the left" "journalists" to do research?
haha
> Can't blame him for being friends with people who asked for it.
If he has not denounced those Libertarian friends, yes you can. If he has not lobbied the government with his disproportionate power and privilege to not socialize investment losses the way he has lobbied in the name of pro wealthy elite anti state "intervention" in the past, yes you can. It is an incongruity in values.
If he has not denounced those Libertarian friends, yes you can. If he has not lobbied the government with his disproportionate power and privilege to not socialize investment losses the way he has lobbied in the name of pro wealthy elite anti state "intervention" in the past, yes you can. It is an incongruity in values.
>Thiel and friends are very much anti-regulation
Anti-regulation on the business side, their political donations show they are very much into regulations when it comes to people and ideas that aren't "typical" and or "straight".
Anti-regulation on the business side, their political donations show they are very much into regulations when it comes to people and ideas that aren't "typical" and or "straight".
"straight" as in sexual orientation? That would be particularly ironic given that Peter Thiel is gay.
yep. He has donated 10+ million to various anti-gay politicians. He appears to think, most likely correctly, that his money will protect him.
Yeah, this is completely wrong. https://www.protocol.com/tech-company-pacs-2019-2020
"Official" donations from the companies split them 50/50 between the major parties while worker donations are almost 99% Democrat. SVB itself primarily donated to Democrats, despite it being maligned as "libertarian".
"Official" donations from the companies split them 50/50 between the major parties while worker donations are almost 99% Democrat. SVB itself primarily donated to Democrats, despite it being maligned as "libertarian".
One can't be friends with a PAC. Thiel has donated 10+ million dollars to people who would treat those like himself as second class citizens as documented in the GOP political platforms.
https://www.politico.com/news/2021/05/17/peter-thiel-senate-...
https://www.politico.com/news/2021/05/17/peter-thiel-senate-...
> to people who would treat those like himself as second class citizens
Sigh, when will the left learn this rhetoric only destroys the country, it doesn’t help them win more.
Sigh, when will the left learn this rhetoric only destroys the country, it doesn’t help them win more.
This rhetoric is based on the GOP platform which he supports. It is acceptable to judge people based on what they support is it not?
To what end? Do you believe you’re doing something good or bad? The result is the same however, we become more divided. Parent didn’t teach me anything, just that they’re politically intolerant. What good does this do for the country or does it only serve to divide us more?
Continuing to justify “judging” others only results in the destruction of the country. Political parties are the problem. You’ll change nothing though, that’s for sure.
Continuing to justify “judging” others only results in the destruction of the country. Political parties are the problem. You’ll change nothing though, that’s for sure.
Same. I'm a veteran that's donated to (and votes, other than Libertarian) Democrat causes and organizations for a while. Some of us join a given thing to change it. The GOP also can't ignore Peter Theil's acumen, power, or money and frankly if he were to run on a left-Libertarian platform I doubt Democrats would treat him very well.
> Perhaps you could talk about the quoted comments
All the quotes are barely one sentence, and with zero context, and no link back to when or where they were said. I know modern journalism is lazy and just quotes tweets, but the author could have put a bit more effort in.
> when Zuckerberg came up with his mantra, “move fast and break things”, he didn’t just mean code.
> Thiel himself is so committed to libertarianism that he has established an eponymous foundation to “defend and promote freedom”
> Larry Page, the co-founder of Google, has previously suggested a “limit” on laws to “some set of pages”. “When you add a page, you have to take one away,” he said.
> “This is an extinction level event,” warned Garry Tan, the CEO of Y Combinator.
> “Where is [the chairman of the Federal Reserve, Jay] Powell? Where is [the Treasury secretary, Janet] Yellen? Stop this crisis NOW,” tweeted the venture capitalist David Sacks
All the quotes are barely one sentence, and with zero context, and no link back to when or where they were said. I know modern journalism is lazy and just quotes tweets, but the author could have put a bit more effort in.
> when Zuckerberg came up with his mantra, “move fast and break things”, he didn’t just mean code.
> Thiel himself is so committed to libertarianism that he has established an eponymous foundation to “defend and promote freedom”
> Larry Page, the co-founder of Google, has previously suggested a “limit” on laws to “some set of pages”. “When you add a page, you have to take one away,” he said.
> “This is an extinction level event,” warned Garry Tan, the CEO of Y Combinator.
> “Where is [the chairman of the Federal Reserve, Jay] Powell? Where is [the Treasury secretary, Janet] Yellen? Stop this crisis NOW,” tweeted the venture capitalist David Sacks
The last one at least was literally just a Twitter post with no other context.
The article assumes an audience sophisticated and informed enough not to require extensive evidence that Peter Thiel is a libertarian, or that he and associated VCs are generally opposed to government regulation, because those assumed to be established facts. The quotes aren't intended to prove these facts, simply to provide a flavour of the types of rhetoric and attitude they have historically displayed.
So what exactly is your argument here? That Thiel and co. aren't libertarians? That they are generally pro-regulation and government bailouts? Or that the article's thesis is invalid simply because it didn't meet your standard of empirical representation, regardless of whether it's true or not?
So what exactly is your argument here? That Thiel and co. aren't libertarians? That they are generally pro-regulation and government bailouts? Or that the article's thesis is invalid simply because it didn't meet your standard of empirical representation, regardless of whether it's true or not?
> Given that both the Fed and the Bank of England have decades-old laws protecting the financial system long before (tech) billionaires, this article seems even more ridiculous.
Those laws don't insure deposits over $250,000. The response to SVB is relatively novel in some ways.
Those laws don't insure deposits over $250,000. The response to SVB is relatively novel in some ways.
It's ok to point out this is a left wing magazine, but the "investigation results" pasting is over the top and just indicates potential lack of balance in the rest of the comment...
When you don’t have any facts on your side, you need to rely on innuendo and ad hominems.
waihtis(3)
I really don't understand the argument against Thiel. He might have help cause the bank run ... but he used his own influence in the market to withdraw all of his money. He took matters into his own hands without leveraging government intervention, right? That sounds as libertarian as it gets. What am I missing?
Yeah, the article opens with Thiel but doesn't actually claim he did anything wrong. It then shifts to comments by David Sacks "who is a friend of Thiel" for hypocrisy in comments. Which, I think, might be fair to say of Sacks but not really fair to attribute to Thiel at all, or to the valley in general.
In defense of the article, it never directly states that Thiel is a hypocrite. He's at first included just because it lists actions he took. But there's an obvious implication being made later, and not just because of the title. That said, I think Thiel's anti-democracy views ("I no longer believe that freedom and democracy are compatible") are terrible and worthy of criticism for different reasons altogether.
In defense of the article, it never directly states that Thiel is a hypocrite. He's at first included just because it lists actions he took. But there's an obvious implication being made later, and not just because of the title. That said, I think Thiel's anti-democracy views ("I no longer believe that freedom and democracy are compatible") are terrible and worthy of criticism for different reasons altogether.
Yikes. I mean I would agree with him if he said that libertarianism and democracy are incompatible, but most libertarians I've met are much more self-deluded about the fact that this is what their view boils down to.
The fact that he states the fundamental logical issue with his ideology so clearly and at the same time in defence of it, is fascinating.
The fact that he states the fundamental logical issue with his ideology so clearly and at the same time in defence of it, is fascinating.
Yeah I don't understand it either.
This is a classic prisoner's dilemma. Thiel just happened to be one of the first VCs to tell portfolio companies to get their money out. If [another VC name] had done so, it'll be their name on these articles. The point being, whoever went first avoided massive pain, so someone would've started it.
This is a classic prisoner's dilemma. Thiel just happened to be one of the first VCs to tell portfolio companies to get their money out. If [another VC name] had done so, it'll be their name on these articles. The point being, whoever went first avoided massive pain, so someone would've started it.
He's a well established libertarian. He wasn't calling for the govt to not intervene.
A standard straw man for the political left is, "These people are libertarian, look how un-libertarian they are!" ignoring all of the evidence and facts.
https://reason.com/2023/03/13/everyone-is-learning-the-wrong...
https://reason.com/2023/03/13/everyone-is-learning-the-wrong...
Well because it's true. It's beyond clear that the rich get bailed out. It's libertarianism on the way up, socialism on the way down, but only for the rich.
Would that we respond as fast to the needs of ordinary people as to SVB depositors.
Would that we respond as fast to the needs of ordinary people as to SVB depositors.
> Would that we respond as fast to the needs of ordinary people as to SVB depositors.
Didn’t they? And aren’t we on the brink of recession due to massive gov handouts? This comment seems to ignore recent history to try to promote socialism.
Didn’t they? And aren’t we on the brink of recession due to massive gov handouts? This comment seems to ignore recent history to try to promote socialism.
You know what I hate the most in all of it ?
There was no panic to begin with - in the worst case scenario, the cut for depositors was definitely less than 10%, most probably 0.
The Jason Calacanis, David Sacks & co, decided that even that small % of losses were enough to start a bank run in order to get government involved - and make sure they are made whole.
Stress on 'THEY'. Just look at their recent tweets - did Mark Cuban said today that unlimited FDIC is a very bad thing - should 'Never' be a thing ? Amazing stuff. (edit: Here is the link => https://twitter.com/mcuban/status/1635282882259476486?s=20 )
Make no mistake - the 3 banks in trouble (there will be more. Once the fire is lit, it's hard to stop it) were extremely specific and were crypto / VCs banks. It's not random banks that failed. They failed specifically because of business they were servicing.
There was no panic to begin with - in the worst case scenario, the cut for depositors was definitely less than 10%, most probably 0.
The Jason Calacanis, David Sacks & co, decided that even that small % of losses were enough to start a bank run in order to get government involved - and make sure they are made whole.
Stress on 'THEY'. Just look at their recent tweets - did Mark Cuban said today that unlimited FDIC is a very bad thing - should 'Never' be a thing ? Amazing stuff. (edit: Here is the link => https://twitter.com/mcuban/status/1635282882259476486?s=20 )
Make no mistake - the 3 banks in trouble (there will be more. Once the fire is lit, it's hard to stop it) were extremely specific and were crypto / VCs banks. It's not random banks that failed. They failed specifically because of business they were servicing.
I agree, and I see three fallouts from this event:
- Yellen folded fast, so the market will test her again (moral hazard)
- Powell will hesitate to raise rates further, concerned about hidden stresses building up in the system. This was basic duration risk, and the fact that they missed it entirely will raise the worry of what else they are missing.
- FDIC will probably have to be reformed. You cannot guarantee everything, all the time. Maybe an opt in system where large depositors can buy individual coverage.
- Yellen folded fast, so the market will test her again (moral hazard)
- Powell will hesitate to raise rates further, concerned about hidden stresses building up in the system. This was basic duration risk, and the fact that they missed it entirely will raise the worry of what else they are missing.
- FDIC will probably have to be reformed. You cannot guarantee everything, all the time. Maybe an opt in system where large depositors can buy individual coverage.
Powell and Yellen put a system in place over the weekend where all banks can borrow against their bonds at par, thereby preventing any other bank runs.
The duration problem is that banks have bonds/CDOs on their books marked-to-maturity, but when faced with outflows banks are forced to sell them at market prices (much lower because interest rates went up). This turns an illiquidity problem into an insolvency problem if a bank bought too many low interest long duration bonds.
Last week, when a bank had balance sheet consisting of bonds with a market price of $75 but valued at $100 marked-to-maturity they would get into trouble when faced with too many withdrawals. Today, they can borrow $100 from the Fed at a modest interest rate with the bond worth $75 as collateral. This fixes the bank run problem, because the bank can go to the fed to get the money they need to cover any outflows. This deal only covers quality bonds and only those bought before last week. This fix is not an invitation to start lending recklessly, it's just a stopgap measure to allow banks to lose money slowly on the bad debt they already have.
This all means Powell can continue to raise interest rates without having to worry too much about bank failures.
The duration problem is that banks have bonds/CDOs on their books marked-to-maturity, but when faced with outflows banks are forced to sell them at market prices (much lower because interest rates went up). This turns an illiquidity problem into an insolvency problem if a bank bought too many low interest long duration bonds.
Last week, when a bank had balance sheet consisting of bonds with a market price of $75 but valued at $100 marked-to-maturity they would get into trouble when faced with too many withdrawals. Today, they can borrow $100 from the Fed at a modest interest rate with the bond worth $75 as collateral. This fixes the bank run problem, because the bank can go to the fed to get the money they need to cover any outflows. This deal only covers quality bonds and only those bought before last week. This fix is not an invitation to start lending recklessly, it's just a stopgap measure to allow banks to lose money slowly on the bad debt they already have.
This all means Powell can continue to raise interest rates without having to worry too much about bank failures.
So, the solution to bad assets is more debt? How are the banks going to cover that debt when their customers are fleeing and interest rates are rising? I fear this is only kicking the can down the road by a few months (or years) before even worse fallout occurs when the failed banks have to make substantially larger interest payments.
Edit: a better term might be Zombie Banks.
Edit: a better term might be Zombie Banks.
The idea is that when customers know a bank has effectively an unlimited line of credit to pay for outflows that there is no reason to panic. Conceptually, the credit line works perfectly even if it's never used.
I agree it's not a solution, but it's smart and effective stopgap measure.
I agree it's not a solution, but it's smart and effective stopgap measure.
Why would customers flee if there's no risk of the bank running out of money?
In a constant intereest rate environment the bonds' market value will tend towards par value the closer they get to maturity
Welcome to Japan circa 1990s which is now why Japan has the economy it does today.
> This deal only covers quality bonds and only those bought before last week.
> This all means Powell can continue to raise interest rates without having to worry too much about bank failures.
Do you think banks will stop buying bonds? Otherwise I don’t see how the latter follows from the former.
> This all means Powell can continue to raise interest rates without having to worry too much about bank failures.
Do you think banks will stop buying bonds? Otherwise I don’t see how the latter follows from the former.
I disagree. I worry that this structure may effectively tie Powell's hands and prevent him from raising rates further.
As you describe it, banks can post collateral with a market value of $75 in return for $100 of loans from the Fed. This is not a panacea. There is a reason why this is not normally done.
The problem arises when this loan has to be repaid. At that point, the bank will have to repay $100 to recover $75 worth of collateral. There is a gap between what the bank must repay and the value of the collateral it gets back. This means that, at that point, banks may find that they are insolvent and unable to repay the loans. This is the banking version of "jingle mail", sending the bank's keys to the Fed instead of repaying the loan.
The higher the rates, the lower the value of the collateral, the greater the gap, and the more likely the banks are to default on their loans when they come due ...
... silly me, of course not ... at that point the banks will expect the Fed to bail them out again and cover the gap through some "repurchase" voodoo where the banks can "repurchase" their collateral at market value and have their loans forgiven.
As you describe it, banks can post collateral with a market value of $75 in return for $100 of loans from the Fed. This is not a panacea. There is a reason why this is not normally done.
The problem arises when this loan has to be repaid. At that point, the bank will have to repay $100 to recover $75 worth of collateral. There is a gap between what the bank must repay and the value of the collateral it gets back. This means that, at that point, banks may find that they are insolvent and unable to repay the loans. This is the banking version of "jingle mail", sending the bank's keys to the Fed instead of repaying the loan.
The higher the rates, the lower the value of the collateral, the greater the gap, and the more likely the banks are to default on their loans when they come due ...
... silly me, of course not ... at that point the banks will expect the Fed to bail them out again and cover the gap through some "repurchase" voodoo where the banks can "repurchase" their collateral at market value and have their loans forgiven.
> The problem arises when this loan has to be repaid. At that point, the bank will have to repay $100 to recover $75 worth of collateral.
This is not much of a problem if the Fed allows the loan to be rolled until the bond matures. Then, at maturity, the loan's principle is paid by face value of the bond.
The only issue is that, in the meantime, the bank does have to pay interest to the Fed on the loan. This is a tightening; it's just not as tight.
The face valve of the bond cancels the principle, the bond's coupon cancels some portion of the loan interest, and the only thing left at the end is a cashflow from the bank to the Fed representing the remaining interest. Heck, the Fed could make this cancellation explicit, create a bond representing this cash flow, and sell it to somebody else.
This also doesn't prevent Powell from raising rates further. If anything, it eliminates a reason why he couldn't.
This is not much of a problem if the Fed allows the loan to be rolled until the bond matures. Then, at maturity, the loan's principle is paid by face value of the bond.
The only issue is that, in the meantime, the bank does have to pay interest to the Fed on the loan. This is a tightening; it's just not as tight.
The face valve of the bond cancels the principle, the bond's coupon cancels some portion of the loan interest, and the only thing left at the end is a cashflow from the bank to the Fed representing the remaining interest. Heck, the Fed could make this cancellation explicit, create a bond representing this cash flow, and sell it to somebody else.
This also doesn't prevent Powell from raising rates further. If anything, it eliminates a reason why he couldn't.
Banks generally do well in higher interest rate environments. It's in a ZIRP climate that banks struggle. By kicking the can down the road banks can use the profit they're making from the business they do today to pay off the dumb debt they acquired in the past couple of years.
In the US alone banks are underwater to the tune of 650bn (that we know of). It will take a while to pay off.
The banks might get an outright bailout -- it wouldn't be the first time -- but nobody wants that. Not Powell, not Yellen, not Biden, and certainly not you or me.
In the US alone banks are underwater to the tune of 650bn (that we know of). It will take a while to pay off.
The banks might get an outright bailout -- it wouldn't be the first time -- but nobody wants that. Not Powell, not Yellen, not Biden, and certainly not you or me.
> Banks generally do well in higher interest rate environments.
It’s not about a high vs low interest rate environment. It’s about a falling versus rising interest environment. In a rising interest rate environment, a banks bond holdings is continually losing value.
It’s not about a high vs low interest rate environment. It’s about a falling versus rising interest environment. In a rising interest rate environment, a banks bond holdings is continually losing value.
> The problem arises when this loan has to be repaid. At that point, the bank will have to repay $100 to recover $75 worth of collateral.
Assuming an absence of default, and the Fed being able to wait being paid back until the bond matures, then the collateral will be worth its par value (ie. $100).
Assuming an absence of default, and the Fed being able to wait being paid back until the bond matures, then the collateral will be worth its par value (ie. $100).
Do the banks actually have to repay the loans or can they just sign their bonds over to the Fed?
> You cannot guarantee everything, all the time.
But it's not everything, not even close. It's only the amounts deposited in the standard class of bank accounts. Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
It's certainly feasible and possible to have the "risk" part of the bottom of the risk-reward curve to be at the same level as the viability of the federal government. The risk isn't quite 0, but if the federal government collapses you have bigger problems anyways.
Especially in a high interest rate environment. Bank accounts essentially have a 0% nominal rate, which in a high interest rate environment is a very negative real rate so there is lots of margin for implicit or explicit insurance.
But it's not everything, not even close. It's only the amounts deposited in the standard class of bank accounts. Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
It's certainly feasible and possible to have the "risk" part of the bottom of the risk-reward curve to be at the same level as the viability of the federal government. The risk isn't quite 0, but if the federal government collapses you have bigger problems anyways.
Especially in a high interest rate environment. Bank accounts essentially have a 0% nominal rate, which in a high interest rate environment is a very negative real rate so there is lots of margin for implicit or explicit insurance.
> Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
https://www.nytimes.com/2023/03/13/business/svb-collapse-com...
"Roku, the maker of the streaming media player, said in a U.S. Securities and Exchange Commission filing on Friday that roughly $487 million, or 26 percent, of its $1.9 billion in cash was tied up with Silicon Valley Bank"
(this was not very clever of them! But it seems to have been encouraged among the SV community?)
https://www.nytimes.com/2023/03/13/business/svb-collapse-com...
"Roku, the maker of the streaming media player, said in a U.S. Securities and Exchange Commission filing on Friday that roughly $487 million, or 26 percent, of its $1.9 billion in cash was tied up with Silicon Valley Bank"
(this was not very clever of them! But it seems to have been encouraged among the SV community?)
> > Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
Companies above a certain treshold (and all citizens for that matter) should be able to bank with the Fed, and have peace of mind that the money they deposit there is not being put to work in any way, shape or form.
What developed over the last week is a victory for those who long for CBDCs .
Companies above a certain treshold (and all citizens for that matter) should be able to bank with the Fed, and have peace of mind that the money they deposit there is not being put to work in any way, shape or form.
What developed over the last week is a victory for those who long for CBDCs .
Companies can already buy recurring 3 month treasuries to hold their cash.
> Companies above a certain treshold (and all citizens for that matter) should be able to bank with the Fed, and have peace of mind that the money they deposit there is not being put to work in any way, shape or form.
Banks being able to lend out money is generally considered a good thing though.
There certainly are alternatives though for depositors that want to have more control in how their money is put to work: money market accounts, short term treasuries, etc
Banks being able to lend out money is generally considered a good thing though.
There certainly are alternatives though for depositors that want to have more control in how their money is put to work: money market accounts, short term treasuries, etc
> > Banks being able to lend out money is generally considered a good thing though.
Banks are lending not their own money but depositors.
In a perfect world every citizen , small LLC and startup would be able to issue their own bonds if they need credit for purchases or entrepreneurial efforts
Banks are lending not their own money but depositors.
In a perfect world every citizen , small LLC and startup would be able to issue their own bonds if they need credit for purchases or entrepreneurial efforts
> Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
Could banks learn something from companies here, and drop the volatile long term bonds from their assets in favor of money market funds?
Could banks learn something from companies here, and drop the volatile long term bonds from their assets in favor of money market funds?
If we have to buy insurance to insure our money, the financial sector will just game that, too, and make even riskier bets. That we (taxpayers) end up paying for.
Is "keeping your money in a bank account" supposed to be a "bet"?
(or, as an argument I made earlier, if your company is completely dependent on a single other company to function, such as AWS, is there really any more risk in having only one bank account?)
(or, as an argument I made earlier, if your company is completely dependent on a single other company to function, such as AWS, is there really any more risk in having only one bank account?)
North of $250,000 it's a bet. If you're Roku and you have hundreds of millions of dollars in a single bank, that's absolutely a bet. Companies can get private insurance to cover money in excess of the FDIC, but they didn't. And now no one will, because billionaires know they can threaten bank runs and violence to get bailed out.
at this point, who could doubt that AWS itself is faaar too big to fail?
I would say 'yes'. Banks should start offering fully insured accounts (maybe they already do) and those accounts should cost more and possibly have different liquidity profiles.
Why banks specifically? Should there be insurance for AWS and Github accounts?
> maybe they already do
"Insured cash sweep" (which is basically "RAID for banking")
> maybe they already do
"Insured cash sweep" (which is basically "RAID for banking")
There already is DR and business continuity insurance so non-financial assets have an entire industry around insuring against events there.
Cash sweep is insured but only to a limit, there's nothing magical there and the underlying securities have default risk (or breaking the buck).
Cash sweep is insured but only to a limit, there's nothing magical there and the underlying securities have default risk (or breaking the buck).
And insurance won’t even matter. Credit default swaps were suppose to be insurance and those holders were bailed out in 2008/9, remember AIG?
In 2008/9, The fact that a solidly red administration (Bush) wrote the check and a solidly blue administration (Obama) delivered it on bended knee to the banking industry made it clear who really ran things.
“Paying your bills is a moral hazard” - guy in the background of a tv interview that birthed the tea party in the US.
In 2008/9, The fact that a solidly red administration (Bush) wrote the check and a solidly blue administration (Obama) delivered it on bended knee to the banking industry made it clear who really ran things.
“Paying your bills is a moral hazard” - guy in the background of a tv interview that birthed the tea party in the US.
This is the gaming of the system that is resulting in the government FULLY covering the bets of the rich. They could have bought insurance, but running a bank is cheaper.
Not necessarily. If insurance companies were allowed to set prices based on the bank you're deposited with, then what's currently a political process could become a market-based process. Have assets that are exposed to interest rate hikes? Higher insurance rates. Have assets that hedge against changes in the interest rate? Lower deposit insurance rates. Won't let us see your asset mix? Assume the worst case scenario.
So in this universe, when you go to get insurance at SVB, you see that it costs you 1% per year, which seems high to you. You go to the insurance company's website, and see that insurance for Chase is only 0.5%, so you switch to them instead. SVB is pressured to change to a less risky strategy by the market, not b the government.
(NB I'm not a libertarian, nor am I recommending this approach; I'm just saying that in theory such a system could work.)
EDIT: Upon reflection, this might just punt the issue down the road: Suppose SVDI (Silicon Valley Deposit Insurance) gives you a rate of 0.1% per year at SVB. Everything is fine until SVB fails, and then it turns out SVDI didn't have enough capital to back their insurance, and you lose anyway.
Maybe there are ways you could fix this, but my preliminary conclusion would be that you need some kind of regulation somewhere.
So in this universe, when you go to get insurance at SVB, you see that it costs you 1% per year, which seems high to you. You go to the insurance company's website, and see that insurance for Chase is only 0.5%, so you switch to them instead. SVB is pressured to change to a less risky strategy by the market, not b the government.
(NB I'm not a libertarian, nor am I recommending this approach; I'm just saying that in theory such a system could work.)
EDIT: Upon reflection, this might just punt the issue down the road: Suppose SVDI (Silicon Valley Deposit Insurance) gives you a rate of 0.1% per year at SVB. Everything is fine until SVB fails, and then it turns out SVDI didn't have enough capital to back their insurance, and you lose anyway.
Maybe there are ways you could fix this, but my preliminary conclusion would be that you need some kind of regulation somewhere.
You can sort of fix this in a free market system through reinsurance which spreads the risk out across multiple counterparties with deep capital reserves. But ultimately the only way to eliminate the risk is through insurance by a sovereign with the ability to levy taxes and print fiat currency.
FDIC already charges different amounts per bank. SVDI would buy reinsurance.
You're right. It can't just be about paying for insurance but also has to include undergoing and passing regular stress tests. Just because one buys fire insurance shouldn't give them a free pass to fill their house up with large amounts of flammable material and sparking wires.
They did have insurance... They had significant campaign contributions to the DNC.
Potential solution? Make the bank board and C-suite pay for all the insurance out of their own compensation packages. And the the bank fails it comes direct out of their pockets.
When the bank fails, they end up living on the streets for their mistakes, and will never (hopefully) be able to do it again to another bank.
When the bank fails, they end up living on the streets for their mistakes, and will never (hopefully) be able to do it again to another bank.
This was the "Lloyd's Names" situation: https://www.reuters.com/article/uk-financial-equitas-names-i... ; although they weren't decision makers, they were a special class of investors.
Changing the rules during the game (full deposit insurance, one off advantageous loans to troubled banks) also erodes the moral by standing firmly behind reckless and risky (risky for the masses not self!) behaviour and entities, unlike the rest! For the rest the ordinary rules apply.
Rules don't metter from now on or what?!
Rules don't metter from now on or what?!
They didn't change any rules - they just followed the processes they already had - which was to declare the bank systemically important.
Tell it to other cases where deposits are lost above the insurance limit, tell them please to their face that the rules are the same and not changed ad-hoc.
I would, but I’ve been looking for a case where were over the limit deposits were lost and can’t find one. Also, if it’s before 2008, the laws were significantly changed and the rules wouldn’t be the same but not ad hoc either.
Except that there were no blanket federal guarantee in previous failures BEFORE some private institution acquired the remians of the failed bank and just then they CHOSE standing for full the deposit if they thought so (most of the cases). Not always, not for everyone. Private cas to case agreement not new central rule! The rule was only up to the limits of insurance and so The Enloe State Bank, Covenant Bank, NOVA Bank, Jasper Banking Company, Eastern Shore, Home Savings of America, and several more (all after 2008) where clients did not have the balance above the insurance limit. Do you have some incentive here attempting to mislead?
its just going to keep getting worse and worse because there's no competitive advantage to responsible behavior. At this point you're a fool if you don't take unreasonable risks with your money.
Banking stocks are down as unlike the 2008 bailout capital is now at risk. Rules may matter but the Trump signed roll-back of Dodd-Franks removed these. This created an invitation to load up on risky assets which on aggregate are estimated 600B under water. We have removed rules preventing systemic risk. Now we face systemic risk. Crying for narrow rule adherence is not situational adequate.
Agree with 1 and 3.
Not with 2 though. The BTFP (not to be confused with BTFD :) ) program is removing completely the duration risk (for a year). This lets the FED raise the rates as high as they want without putting banks balance sheets at risk (barred some other unforeseen consequences).
Not with 2 though. The BTFP (not to be confused with BTFD :) ) program is removing completely the duration risk (for a year). This lets the FED raise the rates as high as they want without putting banks balance sheets at risk (barred some other unforeseen consequences).
Well then there’s 4:
The regulators failed massively, allowing banks to mask their duration losses. Obviously this needs to change, but they probably need to fix the other banks first (that are still hiding their losses).
The regulators failed massively, allowing banks to mask their duration losses. Obviously this needs to change, but they probably need to fix the other banks first (that are still hiding their losses).
The regulators had the regulations changed out from under them by Congress (at behest of the banks). They can’t regulate what’s not in the law.
As far back as 2019 the FDIC was sounding the alarm about regional banks. In 2020, SVB’s risk committee told them to change their asset mix, they were over ruled because it would lower profits.
If we are going to allow lax regulations fine, then the market (including depositors) have to do the regulation, but you can’t blame regulators in that case.
As far back as 2019 the FDIC was sounding the alarm about regional banks. In 2020, SVB’s risk committee told them to change their asset mix, they were over ruled because it would lower profits.
If we are going to allow lax regulations fine, then the market (including depositors) have to do the regulation, but you can’t blame regulators in that case.
> but you can’t blame regulators
When I read "regulators failed", I don't think of Joe Regulator phoning it in at work. If Congress creates and oversees regulations, then they are the regulators in my book. This may be what the comment you replied to meant as well.
When I read "regulators failed", I don't think of Joe Regulator phoning it in at work. If Congress creates and oversees regulations, then they are the regulators in my book. This may be what the comment you replied to meant as well.
Note that this is a state chartered bank rather than a national one.
Thus, state regulators are the ones with the oversight power and the ability to really do things.
California Financial Regulator Takes Possession of Silicon Valley Bank - https://dfpi.ca.gov/2023/03/10/california-financial-regulato...
> SAN FRANCISCO – The California Department of Financial Protection and Innovation (DFPI) announced today that, pursuant to California Financial Code section 592, it has taken possession of Silicon Valley Bank, citing inadequate liquidity and insolvency. The DFPI appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of Silicon Valley Bank.
> Silicon Valley Bank is a state-chartered commercial bank based in Santa Clara and is a member of the Federal Reserve System, with total assets of approximately $209 billion and total deposits of approximately $175.4 billion as of Dec. 31, 2022. Its deposits are federally insured by the FDIC subject to applicable limits.
---
Note California and "state-chartered" in there.
Thus, state regulators are the ones with the oversight power and the ability to really do things.
California Financial Regulator Takes Possession of Silicon Valley Bank - https://dfpi.ca.gov/2023/03/10/california-financial-regulato...
> SAN FRANCISCO – The California Department of Financial Protection and Innovation (DFPI) announced today that, pursuant to California Financial Code section 592, it has taken possession of Silicon Valley Bank, citing inadequate liquidity and insolvency. The DFPI appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of Silicon Valley Bank.
> Silicon Valley Bank is a state-chartered commercial bank based in Santa Clara and is a member of the Federal Reserve System, with total assets of approximately $209 billion and total deposits of approximately $175.4 billion as of Dec. 31, 2022. Its deposits are federally insured by the FDIC subject to applicable limits.
---
Note California and "state-chartered" in there.
My (limited) understanding is that a state chartered bank is still regulated at the federal level.
From https://en.wikipedia.org/wiki/Bank_regulation_in_the_United_...:
From https://en.wikipedia.org/wiki/Bank_regulation_in_the_United_...:
a Nevada state bank that is a member of the Federal Reserve System would be jointly regulated by the Nevada Division of Financial Institutions and the Federal Reserve.> State regulation of state-chartered banks and certain non-bank affiliates of federally chartered banks applies in addition to federal regulation. State-chartered banks are subject to the regulation of the state regulatory agency of the state in which they were chartered. For example, a California state bank that is not a member of the Federal Reserve System would be regulated by both the California Department of Financial Institutions and the FDIC. Likewise, a Nevada state bank that is a member of the Federal Reserve System would be jointly regulated by the Nevada Division of Financial Institutions and the Federal Reserve.
And from https://www.fdic.gov/about/what-we-do/index.html
> The FDIC directly supervises and examines more than 5,000 banks and savings associations for operational safety and soundness. Banks can be chartered by the states or by the Office of the Comptroller of the Currency. Banks chartered by states also have the choice of whether to join the Federal Reserve System. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. In addition, the FDIC is the back-up supervisor for the remaining insured banks and savings associations.
And from https://www.fdic.gov/about/what-we-do/index.html
> The FDIC directly supervises and examines more than 5,000 banks and savings associations for operational safety and soundness. Banks can be chartered by the states or by the Office of the Comptroller of the Currency. Banks chartered by states also have the choice of whether to join the Federal Reserve System. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. In addition, the FDIC is the back-up supervisor for the remaining insured banks and savings associations.
Right, but in SVB's case, since they are a member of the Federal Reserve System (like the Nevada example), they were regulated by the Federal Reserve in additional to the State.
The California bank in that example is regulated by FDIC because it's not a member of the Federal Reserve System.
The California bank in that example is regulated by FDIC because it's not a member of the Federal Reserve System.
The rollback of Dodd-Frank was at least nominally bipartisan.
Limiting the feds power is broadly popular with the population. This is one of the outcomes of those desires, Congress representing their constituents wishes seems hard to call a failure just because the outcomes have some negative outcomes (all laws have negative outcomes for someone).
Limiting the feds power is broadly popular with the population. This is one of the outcomes of those desires, Congress representing their constituents wishes seems hard to call a failure just because the outcomes have some negative outcomes (all laws have negative outcomes for someone).
Exactly. Let’s not be so quick to say “the regulators failed”, particularly when the case is that even if the regulators did somehow fail and not have stronger regulations removed by Congress leading to said failure, these financial firms as a business failed first by making poor business decisions.
In the run up to the 2008-9 financial crisis, Sheila Bair at the FDIC and Brooksley Born at the CFTC were making alarums about the banks and the housing market, but the dudes at the Fed, Treasury, and the Comptroller of the Currency were like everything's fine, go back to the kitchen.
Banks are supposed to take duration risk like this - they borrow short-term (deposits) to lend long-term (business loans and mortgages). The thing that's new in the current environment is that the fed has hiked rates so aggressively that even banks that took sane levels of duration risk are in danger of insolvency if their assets get marked to market.
You have that backwards. You borrow long term, then lend short term. Trying to keep enough liquidity to match withdrawal rates to "keep money working".
Lending long (10 year) on money deposited for only a year is a recipe for disaster.
Lending long (10 year) on money deposited for only a year is a recipe for disaster.
Every other institution borrows long to lend short. That's how money is usually made in a financial company, like a hedge fund or something similar. Banks are the counterparty (in a cosmic sense) to that trade: they borrow short to lend long. It is an inherently unstable business model, but it works if you trust them enough.
There needs to be some kind of penalty for the C-suites for running a bank with no risk manager for 9 months too.
They had no interest rate risk hedges the entire time.
Edit: Downvotes with no replies. I hate it when that happens.
They had no interest rate risk hedges the entire time.
Edit: Downvotes with no replies. I hate it when that happens.
I think the risk manager think is a bit of a red herring, outside of pointing towards a culture that didn’t care in the first place.
SVB got blown up on a trade that is kind of at the core of what banks do (this is also why every bank is hurting). To even exist the bank has to be stuffed full of people very knowledgeable about rates risk at all levels of management. There should have been no shortage of people at any level, including executive, that understood the risks.
It wasn’t even like this was some weird bespoke product or something, they got blown up by plain treasuries afaiu. This is the sort of thing that’s “introduction to rates 101” material. They didn’t need a CRO to tell them this.
SVB got blown up on a trade that is kind of at the core of what banks do (this is also why every bank is hurting). To even exist the bank has to be stuffed full of people very knowledgeable about rates risk at all levels of management. There should have been no shortage of people at any level, including executive, that understood the risks.
It wasn’t even like this was some weird bespoke product or something, they got blown up by plain treasuries afaiu. This is the sort of thing that’s “introduction to rates 101” material. They didn’t need a CRO to tell them this.
Why not buy a hedge? Their risk committee met 18 times.
Because HoldForMaturity assets can't be hedged? Or it cuts into profit and affects your stock and management bonuses which they weren't used to giving up, and your share losses due to the hedge imperil your company but just in a different way?
Because HoldForMaturity assets can't be hedged? Or it cuts into profit and affects your stock and management bonuses which they weren't used to giving up, and your share losses due to the hedge imperil your company but just in a different way?
Oh to be clear I agree with the OP that they were incompetent/greedy, I just think that missing a CRO is at best a symptom and not a cause. Every single invite to a risk committee meeting should know exactly well what sort of rates risk they had.
As for the hedge, it’s probably a greed/returns question. If you buy then 10 year and sell everything between say 2 to 10 years as a curve hedge, you’ve basically bought the two year with extra steps. There’s no free lunch where you get returns of ten year without the risk on ten year.
You could imagine some imperfect hedge might be better but sort of same problem.
As for the hedge, it’s probably a greed/returns question. If you buy then 10 year and sell everything between say 2 to 10 years as a curve hedge, you’ve basically bought the two year with extra steps. There’s no free lunch where you get returns of ten year without the risk on ten year.
You could imagine some imperfect hedge might be better but sort of same problem.
In this case, the SVB C-suite have all lost their jobs, and any equity (RSUs etc) they may have held has been zeroed.
What about claw backs and garnishment?
The next SVB then knows to cash out early and treat the stock as zero-value.
Did SVB do anything irregularly? How would the pre-2018 regulations have changed anything?
From what I’ve read, they would have to mark the portfolio to market (i.e. report its value in terms of current market prices), not say “we intend to hold this to maturity” and account it at face value. Like, the latter actually makes more sense to me, but only if you actually don’t need to sell which might be true for a university endowment (all assets, no liabilities or at least very predictable liabilities) not for a hedging institution.
[deleted]
Wouldn’t it have just made them insolvent earlier then? How does it actually prevent the problem?
Not necessarily, since the gap in finances accumulated over time. They would have had to acknowledge asset price drops on their balance sheet much sooner. Basically they were allowed to build up a bigger integration risk with their accounting if they ever did have to sell due to not having to MTM in the mean time.
Was the accumulation duration larger than the regulatory mark-to-market period? As I understand it, SVG was heavy on US Treasuries, which lost a great deal of value due to recent interest rate hikes. As a result of a higher than expected deposit withdrawal rate, SVG sold US Treasuries for less than what they would have received if they had held them to maturity.
If the gap in finances was discovered earlier, would they have just converted more equities and other long-term higher-yeild instruments into treasuries and then go under because they couldn't get returns to match their deposit interest rates?
If the gap in finances was discovered earlier, would they have just converted more equities and other long-term higher-yeild instruments into treasuries and then go under because they couldn't get returns to match their deposit interest rates?
Had they been marking their holdings regularly they would have sold their depreciated holdings sooner when losses were smaller, instead of waiting until they had to to cover withdrawals.
Deposit interest is not fixed so that wouldn’t make them go under, they’d have to reduce their interest paid.
Deposit interest is not fixed so that wouldn’t make them go under, they’d have to reduce their interest paid.
Requiring that they provide more information earlier encourages them to behave more safely (by exposing them to scrutiny backed by sound evidence). And if they still go down, at least it happened sooner and there are fewer depositors to be harmed.
> where large depositors can buy individual coverage
Q: Aren't large depositors already free to buy individual coverage from whomever offers it?
Q: Aren't large depositors already free to buy individual coverage from whomever offers it?
FDIC basically forces all depositors to have insurance in a generalistic hand-wavy way.
Seems we also need to force others to have insurance because they can’t be bothered and will just get bailed out — next time probably with taxpayer dollars.
Seems we also need to force others to have insurance because they can’t be bothered and will just get bailed out — next time probably with taxpayer dollars.
[deleted]
> FDIC will probably have to be reformed
Why? Isn't the guaranteed deposits above 250k mainly 'insured' through Fed offering unlimited loans back by the nominal price of bonds owned by affected banks?
Why? Isn't the guaranteed deposits above 250k mainly 'insured' through Fed offering unlimited loans back by the nominal price of bonds owned by affected banks?
I should have explained better. My sense is that right now there is an implicit expectation in the market that the 250k threshold is no longer relevant, and that the FDIC is implicitly insuring everything that looks remotely like a deposit, regardless of the amount.
This doesn't work. The only way to draw a new line in the sand is some sort of reform.
The key issue is that the new line has to be "subgame perfect", meaning it has to be credible that if a bank steps over the new line, it will not simply be bailed out again.
This doesn't work. The only way to draw a new line in the sand is some sort of reform.
The key issue is that the new line has to be "subgame perfect", meaning it has to be credible that if a bank steps over the new line, it will not simply be bailed out again.
The simplest answer is "excess deposits insurance". Banks (or third-party insurers) could charge a monthly insurance fee for balances over $250k that provides insurance over the FDIC $250k cap. This allows everyone else under the $250k cap to bank without paying fees (the bank already paying insurance on those as per FDIC), and provides greater coverage to those above the cap. Think of it like an Umbrella Insurance policy. Some banks might provide the insurance for their most favored clients if they so choose, or embed the insurance inside other services.
> Banks charge a monthly insurance fee for balances over $250k that provides FDIC insurance over the $250k cap
The thing is .. the FDIC is already funded by banks.
https://www.fdic.gov/about/what-we-do/index.html
"The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country."
How the banks choose to pass that cost on to customers/shareholders is up to them.
It's instructive to read https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... for the last available quarter; the insurance fund is on page 24. I can quote you two numbers and you can decide whether they are big or small: there is $128 billion in the fund, and this covers 1.27% of total US banking deposits.
The thing is .. the FDIC is already funded by banks.
https://www.fdic.gov/about/what-we-do/index.html
"The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country."
How the banks choose to pass that cost on to customers/shareholders is up to them.
It's instructive to read https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... for the last available quarter; the insurance fund is on page 24. I can quote you two numbers and you can decide whether they are big or small: there is $128 billion in the fund, and this covers 1.27% of total US banking deposits.
Yes that's correct. I'm suggesting an additional fee that is paid by the account holder who holds excess funds above the amounts that are already covered by the bank in their fees for FDIC insurance coverage. I'm aware of the existing bank-paid insurance that covers the mandatory $250k FDIC coverage up to the cap. The difference that I am suggesting is that the umbrella insurance is paid by the account holder to the bank for excess insurance coverage. This allows insurance coverage for account holders over $250k, of which there is no insurance coverage, optional or of any kind, available today.
I think we've just discovered that account holders over $250k _are_ (or can be) covered regardless?
Surely the logical counterparty for the insurance is not the bank, but the third party insurer? i.e. that people should explicitly have to pay for FDIC coverage themselves?
> of which there is no insurance coverage, optional or of any kind, available today.
This is basically a credit default swap for bank accounts, and if you wanted to insure the reported $450m that Roku allegedly had with SVB, someone would have sold you a product I'm sure.
edit: remembered "insured cash sweep", which is the product that everyone should have been using. See https://www.intrafinetworkdeposits.com/ or https://www.cbhou.com/Resources/Customer-Corner/entryid/237/...
Surely the logical counterparty for the insurance is not the bank, but the third party insurer? i.e. that people should explicitly have to pay for FDIC coverage themselves?
> of which there is no insurance coverage, optional or of any kind, available today.
This is basically a credit default swap for bank accounts, and if you wanted to insure the reported $450m that Roku allegedly had with SVB, someone would have sold you a product I'm sure.
edit: remembered "insured cash sweep", which is the product that everyone should have been using. See https://www.intrafinetworkdeposits.com/ or https://www.cbhou.com/Resources/Customer-Corner/entryid/237/...
I think this is a case of insurance coverage. The fact that there's some implicit coverage of excess amounts is not sustainable long-term. Just like we buy insurance in the unlikely event that our house is flooded or damaged by an earthquake, so too should companies with significant assets in banks purchase, on their own, insurance to cover the potential possible, but unlikely, situation of a bank bust causing them to lose most of their bank account funds. In this way the government can focus on insuring the general public, and those "too big to fail" can get private insurance to cover their own risks. This is just my opinion and a possibility. Certainly if governments want to come to the rescue or we have a "survival of the fittest" with the loudest, angriest parties getting their way, then we can run things that way as well.
Is FDIC, which is paid for by banks, "the government"?
Insurance won’t matter because the insurer will be bailed out. Remember AIG? They sold insurance (CDS) which everyone bought then when it was time to pay out “oops bail us out please” and they were. So insurance is meaningless because who cares if the risk is priced correctly because the insurer will be bailed out themselves.
The money pipe was opened then and SVB showed it will never be closed. The capture is complete.
The money pipe was opened then and SVB showed it will never be closed. The capture is complete.
Clearly there needs to be some sort of reckoning when it comes to bailouts. That's a political problem for which I don't have any simple answer.
Thank you, I’ve been confused about whether this product even potentially exists (as opposed to shotgunning your deposit across lots of banks to game the FDIC limit) and this is the first time I’ve seen it properly named.
Right now there aren't many satisfactory options for insuring excess deposits but here are a few strategies (including your aforementioned "shotgunning" approach): https://www.forbes.com/advisor/banking/ways-to-insure-excess...
> I should have explained better. My sense is that right now there is an implicit expectation in the market that the 250k threshold is no longer relevant, and that the FDIC is implicitly insuring everything that looks remotely like a deposit, regardless of the amount.
If rich people think that, I think they deserve to be taxed at more than 80%, because that's stupid.
FDIC move was perfectly rational and cost-optimized. Had they not done that, there would have been more bank runs, and they would have to actually pay out 250k/account on many more accounts than just SVB's, while ""saving"" SVB cost almost nothing.
If rich people think that, I think they deserve to be taxed at more than 80%, because that's stupid.
FDIC move was perfectly rational and cost-optimized. Had they not done that, there would have been more bank runs, and they would have to actually pay out 250k/account on many more accounts than just SVB's, while ""saving"" SVB cost almost nothing.
You yourself just explained the reasoning as to why they would think that and seem to agree as well, not sure why you'd call it stupid.
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Yes, now I wonder if anyone is allowed to fail. David Sacks complained that if the regionals aren't protected, then everyone will only bank with the big four. Yet if everyone is protected even when the bank makes poor decisions, that's a run on the FDIC itself. So as you say, where is this new line, and who can be trusted to allow those who cross it to fail?
<< Yes, now I wonder if anyone is allowed to fail.
That was one of the questions on the call/presentation I was recently on and no one has a clear answer at the moment ( I suppose it is not a surprise since we can't take Yellen at her word ). Some clarity will be needed and sooner rather than later if stated policy and rules are to be believed to be real policy and rules.
FWIW, odds are, just about every bank by now has either reviewed or scrambling to review their exposure.
I do not envy the weight of Yellen's decisions, because from where I sit it is still hard to tell if it was a 'less bad choice' available.
That was one of the questions on the call/presentation I was recently on and no one has a clear answer at the moment ( I suppose it is not a surprise since we can't take Yellen at her word ). Some clarity will be needed and sooner rather than later if stated policy and rules are to be believed to be real policy and rules.
FWIW, odds are, just about every bank by now has either reviewed or scrambling to review their exposure.
I do not envy the weight of Yellen's decisions, because from where I sit it is still hard to tell if it was a 'less bad choice' available.
> odds are, just about every bank by now has either reviewed or scrambling to review their exposure
The lesson they learned is to shout global emergency when your regional bank can't meet withdrawals due to poorly managed finances.
Banks will not be more prudent, in the long run. They've just been taught that the government will protect depositors beyond federally insured limits. So now they can make riskier bets.
The lesson they learned is to shout global emergency when your regional bank can't meet withdrawals due to poorly managed finances.
Banks will not be more prudent, in the long run. They've just been taught that the government will protect depositors beyond federally insured limits. So now they can make riskier bets.
Keep in mind that SVB equity was totally wiped out. Everyone most certainly was not protected.
The people who make the poor decisions absolutely took a hit. The Board and management of the bank all took a hit and lost their jobs.
I don’t see a big problem with depositors being made whole. The bonds that backed their deposits are fully intact.
The people who make the poor decisions absolutely took a hit. The Board and management of the bank all took a hit and lost their jobs.
I don’t see a big problem with depositors being made whole. The bonds that backed their deposits are fully intact.
> The Board and management of the bank all took a hit and lost their jobs.
Right after they cashed out significant amounts of SVB stocks.
Right after they cashed out significant amounts of SVB stocks.
Don't be too surprised if the FDIC (or perhaps the SEC, since we're talking about equity) forces clawbacks of those payouts, not to mention salary and bonuses in general after December 2021.
What is the case against them? You can't claw back without demonstrating some law was broken. Making a bad financial decision that causes a business to fail isn't against the law unless you somehow profited from it. And, from what's publicly known, SVB's CEO didn't come away with more money from the bank's closure than he would have had he continued running the bank.
It’s possible for the bank to capture a % of the deposit insurance by taking profit neutral risks. This is achieved by just increasing the risk. For example the profit neutral bet:
For the bank the profit before paying interest to depositors:
For the insurer the cost is: 0.5 * -1* 0.8 = -0.4
If you want to run a ‘scam’ bank that makes money from looting the FDIC fund then having your capital going to zero sometimes is part of the cost of doing business. This is why it’s important for the insurer to try and control risk and insure there is enough capital so the loot equation does not work.
0.5: 1
0.5: -1
For the bank the profit before paying interest to depositors:
0.5 * 1 - 0.2 * 0.5 = 0.4
For the insurer the cost is: 0.5 * -1* 0.8 = -0.4
If you want to run a ‘scam’ bank that makes money from looting the FDIC fund then having your capital going to zero sometimes is part of the cost of doing business. This is why it’s important for the insurer to try and control risk and insure there is enough capital so the loot equation does not work.
The question is, what would it take for a bank to be allowed to fail? The FDIC insurance line of $250k must've meant something.
SVB failed. You should look up the FDIC mission statement; it has nothing to do with drawing lines in the sand.
> The mission of the Federal Deposit Insurance Corporation (FDIC) is to maintain stability and public confidence in the nation's financial system.
I see nothing there about "we will guarantee deposits of any amount over $250k."
The decision to guarantee SVB may wreak havoc on the financial system as banks feel comfortable continuing to make risky bets and thus attracting more customers, knowing that the fed will rescue the customer deposits that backed those bets.
Greg Becker isn't going to jail, and he isn't going to be financially ruined. There are thousands of people willing to fill the role of extracting money from the government. The trick is to not give into their attempts to bend the rules.
I see nothing there about "we will guarantee deposits of any amount over $250k."
The decision to guarantee SVB may wreak havoc on the financial system as banks feel comfortable continuing to make risky bets and thus attracting more customers, knowing that the fed will rescue the customer deposits that backed those bets.
Greg Becker isn't going to jail, and he isn't going to be financially ruined. There are thousands of people willing to fill the role of extracting money from the government. The trick is to not give into their attempts to bend the rules.
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> - FDIC will probably have to be reformed. You cannot guarantee everything, all the time
You absolutely can (should is the question)?
The second question is whether you want depositors to care about the financial health of their banks or not. I'm on the no side of that conversation. So you let regulation take care of the capital requirements and so on whilst allowing people to feel safe with deposits.
You absolutely can (should is the question)?
The second question is whether you want depositors to care about the financial health of their banks or not. I'm on the no side of that conversation. So you let regulation take care of the capital requirements and so on whilst allowing people to feel safe with deposits.
its impossible to guarantee all deposits
Not for the United States government, the issuer of fiat currency. They can guarantee all deposits. Money is a concept.
Yellen “folded” bc risking the broader financial system in order to give it hard to a bunch of tech bros is itself a hazard of moralizing.
Yellen folded? What does this really mean? The “market” will test her how? The market is only interested in pnl. Insolvent banks are a great place to make a trade. Hardline central bank policy (Japan) would be a place to make a trade. Treasury secretary and deposit insurance? I don’t know what you see there.
> FDIC will probably have to be reformed. You cannot guarantee everything, all the time.
Why can't you when you can literally print money? Just banks will have to be forced to pick up the tab for that, by limiting their money printing ability so that in case of emergency it can be safely printed.
Dollar deposits in a bank should be 100% safe operation regardless of the amount.
And investors can burn. Every investor is reaponsible for their own risk.
Why can't you when you can literally print money? Just banks will have to be forced to pick up the tab for that, by limiting their money printing ability so that in case of emergency it can be safely printed.
Dollar deposits in a bank should be 100% safe operation regardless of the amount.
And investors can burn. Every investor is reaponsible for their own risk.
> You cannot guarantee everything, all the time.
Why not? What’s keeping the Fed from working with Treasury and the FDIC to provide unlimited liquidity as needed for deposits? No doubt there will be higher order consequences, but I don’t know of any operational reason why it isn’t possible so long as the current monetary regime exists at all.
Why not? What’s keeping the Fed from working with Treasury and the FDIC to provide unlimited liquidity as needed for deposits? No doubt there will be higher order consequences, but I don’t know of any operational reason why it isn’t possible so long as the current monetary regime exists at all.
Yellen has always been too quick to fold, and we saw that in her time as fed chair. Wall Street and silicon Valley insiders know this, which might be why they immedieately tried to put their PR campaign's focus on her (rather than Jerome Powell, who is a little bit steadier at the poker table).
Are you a trader? I traded global rates markets from 2012-2020 and yellen was probably the best central bank head I saw. She was the most stable and consistent. I would argue she was the least beholden to market pressure out of any bank head, except perhaps Draghi, who just did not care much the last couple years. She was also the least likely to react to congress or press questions and cause unnecessary market volatility.
Yeah this previous comment is probably just good ol' fashioned misogyny. There's no consensus that Yellen is quick to fold from the previous crisis - these people also have real responsibilities so it's not necessarily 'folding' anyway to respond to stakeholders.
There is also no evidence that the previous comment was made due to misogyny.
I was in Wall St for the end of her tenure. I admired her handling of the beginning of her time as Fed chair (not raising rates too early when Wall Street was yelling for it), but IMO she ended up folding to pressure from politicians and Silicon Valley types to keep rates low for far too long. She was very good at not listening to the market (which is arguably a bad thing - when your rate target is 0-25 bps and rates are trading at ~20 bps, maybe you should listen?) or to the traditional Wall Street types, though.
Yellen was the 11th President of the SF Fed [1] and the current president is her protégé [2]. Greg Becker (SVB CEO & president) was in SF Fed board of directors until Friday [2]. He successfully lobbied for less regulations for his bank. The SF Fed looked the other way.
[1] https://en.wikipedia.org/wiki/Janet_Yellen
[2] https://en.wikipedia.org/wiki/Mary_C._Daly
[3] https://www.reuters.com/markets/us/ceo-failed-silicon-valley...
[1] https://en.wikipedia.org/wiki/Janet_Yellen
[2] https://en.wikipedia.org/wiki/Mary_C._Daly
[3] https://www.reuters.com/markets/us/ceo-failed-silicon-valley...
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Wow you managed to load a ton of sexism into a short comment!
I'm truly curious why you perceive the parent comment to be sexist? Apart from using "her" pronouns, I don't perceive any mention of gender... What am I missing?
If you saw sexism in that comment, then I'm pretty sure you're the one with the sexism issue
Parent commenter mustn't have received the memo that women are immune to criticism?
> FDIC will probably have to be reformed. You cannot guarantee everything, all the time.
FDIC does not guarantee everything all the time, that's the whole reason for what happened at these banks being controversial.
FDIC does not guarantee everything all the time, that's the whole reason for what happened at these banks being controversial.
"They failed specifically because of business they were servicing."
I don't think so. All banks are facing major markdown issues right now due to the Fed raising rates. SVB and the crypto banks were just canaries in the coal mine.
First Republic also needed a bailout even though they're a lot more diversified in their client base.
Edit: before you downvote, please read this analysis by our friend patio11 - https://www.bitsaboutmoney.com/archive/banking-in-very-uncer...
TLDR: The U.S. banking system (as a whole) has $620 billion in unrealized losses due to the Fed raising rates. This is way bigger than SVB and crypto.
I don't think so. All banks are facing major markdown issues right now due to the Fed raising rates. SVB and the crypto banks were just canaries in the coal mine.
First Republic also needed a bailout even though they're a lot more diversified in their client base.
Edit: before you downvote, please read this analysis by our friend patio11 - https://www.bitsaboutmoney.com/archive/banking-in-very-uncer...
TLDR: The U.S. banking system (as a whole) has $620 billion in unrealized losses due to the Fed raising rates. This is way bigger than SVB and crypto.
…due to the Fed raising rates
Translation: due to the banks not being sufficiently stress-tested to assure resiliency under reasonable rate fluctuations.
Translation: due to the banks not being sufficiently stress-tested to assure resiliency under reasonable rate fluctuations.
In addition to that piece, Matt Levine also did an excellent analysis https://www.bloomberg.com/opinion/articles/2023-03-14/svb-to...
>unrealized losses due to the Fed raising rates.
so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.
so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.
It's psychologically difficult to do nothing when faced with inflation and near zero interest rates. The banks should have just sat on their hands and made peace with losing money for a year or two. It's certainly preferable to buying bonds that plummet in value the moment interest rates go up. But that's what they did, because when faced with inflation it feels like you have to do something, and this is something, so they did it.
People have been saying rates must go up for a long time but it took 10 years. That’s long enough for a bank to go out of business if they try to wait it out.
All banks have markdown issues, but SVB had liquidity issues due to the businesses they were serving, i.e. they served cash burning machines so naturally hit liquidity issues. The other banks, like First Republic, also have issues but might not have had a problem if not for the loss of confidence caused by SVB's collapse.
Right. So the next important question(s) is:
Why didn't The Fed anticipate the downside of their actions?
Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them?
Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?
Why didn't The Fed anticipate the downside of their actions?
Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them?
Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?
So the Fed is supposed to keep its interest rates at 0 forever just because some banks based their business decisions on the assumption that interest rates will stay at 0 forever?
_Everybody_ in banking is supposed to be aware that if the interest rate goes up the spot or mark-to-market value of a bond goes down. This is not something complicated like Black-Scholes.
Everybody in banking is able to see the inflation prints and aware that increasing inflation may cause the central bank to raise rates. A bunch of people failed to spot this and have since been sacked and/or lost their equity in SVB.
Everybody in banking is able to see the inflation prints and aware that increasing inflation may cause the central bank to raise rates. A bunch of people failed to spot this and have since been sacked and/or lost their equity in SVB.
They didn't fail to spot it. They just didn't anticipate them to be so drastic in such a short time span. It's barely a week ago Jerome Powell said their own prognoses were still wrong.
In other words, white collar "criminal-esque activity" gets a free pass.
> They failed specifically because of business they were servicing.
This is so disingenuous. They failed because they made risky investments, interest rate hikes put their investments in jeopardy, and when they tried to raise extra capital (responsible thing to do), people were alerted of the problem and left the bank (responsible thing to do).
This is so disingenuous. They failed because they made risky investments, interest rate hikes put their investments in jeopardy, and when they tried to raise extra capital (responsible thing to do), people were alerted of the problem and left the bank (responsible thing to do).
I used to think that it was entirely about the risky investments, but $42 billion left SVB (which managed about $200 billion in total) in 2 days. Literally no bank today could withstand a bank run for 20% of its asset base.
Per their mid quarter update[1] there was ~20bn outflowing per quarter, so the question I have is if they had to sell their MBS for 20bn at a 2bn loss, that seems it would only buy them an extra quarter or so of liquidity. Surely they couldn't do that every quarter and remain solvent? Did this trigger their insolvency or accelerate it?
[1]: https://s201.q4cdn.com/589201576/files/doc_downloads/2023/03...
[1]: https://s201.q4cdn.com/589201576/files/doc_downloads/2023/03...
Bank runs are the rational thing to do in the face of an insolvent bank whose deposits are decreasing. SVB mainly serviced startups who would need to withdraw deposits in the current macro climate so there is a good chance they would eventually run out money. As soon as people realize that it's about the correct game theory choice to pull the money and run.
IMHO it’s both. Although the risky investing probably played a bigger part.
It's part of the story. They had a non-diverse group of interconnected customers prone to herd behaviours led by a small influencer elite. Few banks represent such a high risk of a run.
These guys only started all caps tweeting after the bank was closed on Friday. The bank run started on Thursday when $42B (20-30% of all deposits) were withdrawn.
Yet their sensationalistic tweets probably caused bank runs on other banks, which is the article’s argument.
There are numerous accounts of 200+ group chats between SV CEOs and VCs all deciding to withdraw their money too, FWIW.
The run they were tweeting about was a wider one on all regional banks. Did not happen at time of their tweets, they were speculating about the future.
Why was it the VCs impacted by the SVB collapse, and not the wider banking world, who stood to lose more, who were loudest to make that claim?
Why was it the VCs impacted by the SVB collapse, and not the wider banking world, who stood to lose more, who were loudest to make that claim?
This weekend, J. was Tweeting about:
1. firearms
2. people needing to be terrified
3. bank runs
If you're of the opinion that their Tweets (ignoring what may or may not have happened in certain private chats leading up to) did not lead to the public start of SVB's bank run, maybe? How much pressure did this add on regulators to act NOW to avert an IMMEDIATE and CATASTROPHIC COLLAPSE?
However, is it really a stretch to say that those Tweets may have downstream effects on other banks?
1. firearms
2. people needing to be terrified
3. bank runs
If you're of the opinion that their Tweets (ignoring what may or may not have happened in certain private chats leading up to) did not lead to the public start of SVB's bank run, maybe? How much pressure did this add on regulators to act NOW to avert an IMMEDIATE and CATASTROPHIC COLLAPSE?
However, is it really a stretch to say that those Tweets may have downstream effects on other banks?
SVB failed because of an interest rate bet gone bad. If they invested in short duration treasuries instead of long duration, none of this would have happened. The main difference is their bonuses would have been lower the past few years.
They couldn’t afford to keep treating founders and VCs like personal royalty[0]: the yields were too low. But they feared what would happen if they stopped. So they made a bad bet to cover the extra expense.
[0] Video of Jason Calacanis expounding on his love of royal treatment by SVB: https://twitter.com/one4thecashbag/status/163533710637676953...
[0] Video of Jason Calacanis expounding on his love of royal treatment by SVB: https://twitter.com/one4thecashbag/status/163533710637676953...
There is always no panic until the panic starts!
Even if the worst case scenario was only losing 10% of deposits, that's a very good reason to remove your money.
But in reality, everyone knows this will trigger a bank run, which will lose much more, so the only thing that matters is to get out ahead of it.
This is just the inherent logic of the situation, not the fault of whoever realized it first.
Even if the worst case scenario was only losing 10% of deposits, that's a very good reason to remove your money.
But in reality, everyone knows this will trigger a bank run, which will lose much more, so the only thing that matters is to get out ahead of it.
This is just the inherent logic of the situation, not the fault of whoever realized it first.
"This will cause a bank run, so you gotta a make a run on the bank to get your money first."
I mean, I kind of get it. That first 10% could very likely be people who know something you don't. So you use it as an indicator. But then the very perception of instability causes that same instability.
I mean, I kind of get it. That first 10% could very likely be people who know something you don't. So you use it as an indicator. But then the very perception of instability causes that same instability.
Jason Calacanis had a personal interest in SVB
https://twitter.com/one4thecashbag/status/163533710637676953...
https://twitter.com/one4thecashbag/status/163533710637676953...
> there will be more. Once the fire is lit, it's hard to stop it)
For now bonds yields have come down significantly so most banks in a similar situation should be in a much safer position until/unless yields start going back up again.
For now bonds yields have come down significantly so most banks in a similar situation should be in a much safer position until/unless yields start going back up again.
A bank should keep the money secure. Anything >0% loss is unacceptable. They were greedy and had a duration mismatch. Interest rates rise and the value of the longterm bonds go down. The regulators should have stepped in and stopped that. Why didn't they?
No one should be made whole. Looks like the stock holders will have a 0 and bond holders will take a significant cut. Depositors will be safe.
The executives should all be in prison for this. Only have to do this once. The other banks would wisen up and get their act together.
No one should be made whole. Looks like the stock holders will have a 0 and bond holders will take a significant cut. Depositors will be safe.
The executives should all be in prison for this. Only have to do this once. The other banks would wisen up and get their act together.
> A bank should keep the money secure. Anything >0% loss is unacceptable.
You're wrong about this part at least. Borrowing short and lending long is what banks do (among other things). The alternative is either:
- banks asking for 10+ year time deposits to match your 10+ year mortgages , or
- banks only willing to do mortgages that are < 1 year
The risks can be managed somewhat, and SVB *definitely* were too greedy (and stupid), but you're mistaken if you think the other banks are qualitatively different than SVB in their exposures to interest rate risks...
That's why most bank's stocks are down. Most people don't think they will fail, but recent events do highlight that they have a bunch of long term securities that lost value.
You're wrong about this part at least. Borrowing short and lending long is what banks do (among other things). The alternative is either:
- banks asking for 10+ year time deposits to match your 10+ year mortgages , or
- banks only willing to do mortgages that are < 1 year
The risks can be managed somewhat, and SVB *definitely* were too greedy (and stupid), but you're mistaken if you think the other banks are qualitatively different than SVB in their exposures to interest rate risks...
That's why most bank's stocks are down. Most people don't think they will fail, but recent events do highlight that they have a bunch of long term securities that lost value.
Dumb question but is just keeping customers funds without investing them (even in bonds) and just collecting fees not a viable business model for banks? Is it a necessity or greed?
Keep the funds in what?
There's about $2trn in banknotes https://www.uscurrency.gov/life-cycle/data/circulation and from my earlier reading of the FDIC statements there's about $24trn in total US bank deposits. So if you want to have everybody keeping their own individually serialled banknotes that's a non-starter.
You can keep it at the central bank, whether that's "postal banking" or "the deposit window" or "a CBDC", but that seems to be politically unpopular for incomprehensible reasons.
There's about $2trn in banknotes https://www.uscurrency.gov/life-cycle/data/circulation and from my earlier reading of the FDIC statements there's about $24trn in total US bank deposits. So if you want to have everybody keeping their own individually serialled banknotes that's a non-starter.
You can keep it at the central bank, whether that's "postal banking" or "the deposit window" or "a CBDC", but that seems to be politically unpopular for incomprehensible reasons.
This idea is fairly popular with libertarians and people have tried to set up so-called narrow banks that do this, but the Fed blocked them from doing so because they consider it to be too important that banks invest their deposits and make loans. That is, the non-existence of the kind of bank you're talking about is the direct result of government intervention, and in fact pretty much all this crisis is (the bank failures were caused by the Fed's interest rate policies, banking regulations pushed banks to focus on default risk over duration risk, etc).
The only sources I can find about the Fed taking any kind of action against narrow or full reserve banks is on low-credibility websites with ideological agenda.
Can you describe what the Fed blocking action was and where I can read about it? I'm tempted to conclude that it doesn't exist without additional evidence.
Can you describe what the Fed blocking action was and where I can read about it? I'm tempted to conclude that it doesn't exist without additional evidence.
The Fed literally banned a full reserve bank last month:
https://www.yahoo.com/lifestyle/crypto-bank-custodia-taking-...
Also there was a narrow bank proposal the Fed banned in 2019: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
The Fed and other regulators greatly fear banks that do not justify their overreach (and also make existing banks look bad)
Also there was a narrow bank proposal the Fed banned in 2019: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
The Fed and other regulators greatly fear banks that do not justify their overreach (and also make existing banks look bad)
Thanks. The Yahoo article makes it seem more like the Fed was opposed to the cryptocurrency aspect than the narrow banking aspect. But the Matt Levine writeup is more apt.
The Fed always give all kinds of excuses but the real problem is that they are afraid that banks that can demonstrate that they are run-proof without government aid might outcompete government-backed banks.
Or, maybe, just maybe, you form healthy economies via the movement of money, and not by letting it sit in a box. You think that may be it since it follows standard, non-politically charged, economic theory?
> This idea is fairly popular with libertarians
Which is ironic because it entirely relies on the Fed paying interest on reserves, which they never did until 2008 when they started as part of the bank bailouts.
Which is ironic because it entirely relies on the Fed paying interest on reserves, which they never did until 2008 when they started as part of the bank bailouts.
Or it assumes away inflation, which in the dogmatic libertarian view is also a government-created ("archopathic"?) problem.
I can see why the government would do this - doesn't capitalism require a steady supply of capital?
This is very alarming. I want a place I can store dollars in gold equivalents and redeem them for dollars at will. I don't want new loans to be derived from my deposits. This is hardly an extremist position.
Well, then you expose yourself to gold price risk. Until the fed loosens their position on narrow banks or directly provides deposit accounts to consumers, this won't happen.
However, thanks to the yield curve being inverted, you can approximate this and make decent interest by rolling 4-week T Bills and putting all of your purchases on a credit card (effectively giving you net 30 payment terms).
However, thanks to the yield curve being inverted, you can approximate this and make decent interest by rolling 4-week T Bills and putting all of your purchases on a credit card (effectively giving you net 30 payment terms).
Simple solution: buy gold and store it.
100k$ of gold as 100g bars + their certificates of analysis/authenticity fits in a small lunch box. Bigger bars allow greater storage density, but are harder to offload.
The problem is you now are exposed to fluctuations in the gold market, and offloading gold in any sizeable amount is a pain in the arse.
100k$ of gold as 100g bars + their certificates of analysis/authenticity fits in a small lunch box. Bigger bars allow greater storage density, but are harder to offload.
The problem is you now are exposed to fluctuations in the gold market, and offloading gold in any sizeable amount is a pain in the arse.
Realistically, is it hard to sell a lunchbox worth of gold for its fair market value?
Depends on where you live. Generally, the answer is no. Gold is easy to move in pretty much any quantity. Local coin shops want gold they can move easily. In some areas that is gold in any form. In others sovereign coins are more popular than bars.
> dollars in gold equivalents and redeem them for dollars at will
These are not the same thing and I would expect people on a tech website to know that it's not 1971 any more.
These are not the same thing and I would expect people on a tech website to know that it's not 1971 any more.
In that it's theoretically possible of course.
The problem is inflation and the lack of interest rates means that just holding cash is a losing proposition (inflation will eat away at it).
With inflation running at 9%ish percent if you hold 20K for 10 years at 9% inflation, it's real worth at the end will be ~8.5K.
The problem is inflation and the lack of interest rates means that just holding cash is a losing proposition (inflation will eat away at it).
With inflation running at 9%ish percent if you hold 20K for 10 years at 9% inflation, it's real worth at the end will be ~8.5K.
Question is level of these fees. If they were to charge let's say 0.5% on any deposit of any scale it might work.
With current levels of normal account fees, likely less so. There is lot of staff and operational expenses even if these were set at minimum.
With current levels of normal account fees, likely less so. There is lot of staff and operational expenses even if these were set at minimum.
What about the CFOs and wealthy individuals that where just bailed out ?
Shouldn't they were in prison (the CFOs, for wealthy individuals - it's just their money) too ? They were fully aware of the 250k$ limit of FDIC insurance.
Shouldn't they were in prison (the CFOs, for wealthy individuals - it's just their money) too ? They were fully aware of the 250k$ limit of FDIC insurance.
I'm not really qualified to comment on these things so correct me if I'm wrong, but I thought the FDIC insurance was a minimum insurance, meaning that everyone regardless of balance is insured up to 250k and will get that 250k (or whatever they had on the accounts less than 250). In the case of the ones with more than 250k, they'd still be made whole once all the bank's assets are sold/redistributed, right?
Not really. They would be paid as much as possible from selling assets. That does not imply they would be paid everything. They would probably lost some money over that limit.
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This just looks like the system working. California swiftly pulled the plug and FDIC is sorting it out. Lessons will be learned, buy the dip, move on.
> were extremely specific and were crypto / VCs banks. It's not random banks that failed. They failed specifically because of business they were servicing.
Agree.
Now that the crypto industry in the US have no banks supporting them, perhaps it is time for crypto completely die (and it should) which should reduce the amount of VCs fueling the ponzi scheme.
Agree.
Now that the crypto industry in the US have no banks supporting them, perhaps it is time for crypto completely die (and it should) which should reduce the amount of VCs fueling the ponzi scheme.
There are still plenty of banks that serve blockchain and crypto companies: https://cointelegraph.com/news/svb-and-silvergate-are-out-bu...
Most of the scams in crypto probably don't need direct banking services because they aren't running long-term businesses, just quick marketing schemes to pump their token value before cashing out. Unless exchanges world wide are shutdown, this are unlikely to stop.
There are plenty of non-scam blockchain companies that aren't hurting anyone, just building interesting tech. I don't see any reason other than personal bias to want those startups to be debanked since they aren't any worse than the typical startup.
Most of the scams in crypto probably don't need direct banking services because they aren't running long-term businesses, just quick marketing schemes to pump their token value before cashing out. Unless exchanges world wide are shutdown, this are unlikely to stop.
There are plenty of non-scam blockchain companies that aren't hurting anyone, just building interesting tech. I don't see any reason other than personal bias to want those startups to be debanked since they aren't any worse than the typical startup.
In this case it's the banking system having a crisis (perhaps revealing some Ponzi-like elements). Surely that is a boost to the crypto bros, in the abstract at least.
It is.
Bitcoin went up a fair bit during the SVB/SBNY crisis.
Bitcoin went up a fair bit during the SVB/SBNY crisis.
The bank had long term bets if government bonds that after the rate change massively weakened their value, threatening the bank’s capitalisation levels. This has nothing to do with their clients.
This has everything to do with their clients. Do you know any other bank recently which faced 42B $ of withdrawals ?
Thing is, this bank was servicing people basically juicing the system of free money. This cut both ways.
Thing is, this bank was servicing people basically juicing the system of free money. This cut both ways.
The withdrawals happened because the client base was sophisticated enough to realize (based on publicly available information), and interconnected enough to communicate to each other, that the bank was insolvent. But it's not the client base that caused the bank to be insolvent. That was entirely the fault of the bankers.
The bankers did a very poor job here, for sure ! But it was far from insovlent - it was insovlent if everybody decided to pull out their funds at once - which is what happened. Not a single bank could withstand that.
But so did the client base - we're not talking about small depositors here - if I read the documents correctly, Circle had >8B $ in SVB and they moved 5B $ before the week-end. It was a handful of wealthy individuals that organized this bank run.
But so did the client base - we're not talking about small depositors here - if I read the documents correctly, Circle had >8B $ in SVB and they moved 5B $ before the week-end. It was a handful of wealthy individuals that organized this bank run.
> it was insovlent if everybody decided to pull out their funds at once
Which is the definition of insolvent.
A normal bank just goes to the Fed as the lender of last resort but, apparently, they won’t lend money to insolvent banks so here we are.
Which is the definition of insolvent.
A normal bank just goes to the Fed as the lender of last resort but, apparently, they won’t lend money to insolvent banks so here we are.
> Not a single bank could withstand that.
Wrong. Banks whose assets are worth more than liabilities can get unlimited low interest loans from the fed.
Wrong. Banks whose assets are worth more than liabilities can get unlimited low interest loans from the fed.
What's the direct relationship between these two. Are you saying if all of those deposits were kept in JPM the same would have happened? Why?
The size of JPM would've made it so a bunch of VC funds abruptly withdrawing all their money would look like a tiny drop in the bucket rather than a bank-destabilizing balance sheet issue.
JPM banks in the trillions; SVB, 200 billion.
JPM banks in the trillions; SVB, 200 billion.
Then a better questions is why would they suddenly decide to withdraw their money if the had deposited it at JPM?
It depends.
If Company A wants a bank account with x% interest and instant access to all their deposits at any time (which might be impossible to provide)
and Company B offers them such a bank account, wagering that they won't use that instant access at the same time as everyone else
who is at fault?
If Company A wants a bank account with x% interest and instant access to all their deposits at any time (which might be impossible to provide)
and Company B offers them such a bank account, wagering that they won't use that instant access at the same time as everyone else
who is at fault?
Does it matter ?
They are companies - they just go to court with that. They are or should be prepared to deal with this stuff.
What I'm saying is that this bank run has nothing to do with small depositors withdrawing their money here.
They are companies - they just go to court with that. They are or should be prepared to deal with this stuff.
What I'm saying is that this bank run has nothing to do with small depositors withdrawing their money here.
Gotta keep those 2020-2022 vintages on a slow decline so they can raise the next fund.
SVB was the only bank (or maybe one of the only banks) that allowed anyone to set up a bank account with them without visiting the country - they were a part of Stripe Atlas.
That sounds great in a libertarian, everything goes world. But the reality is that there are plenty of bad actors and they will abuse it to launder money and commit fraud. Every other bank was conservative enough to avoid this by enforcing some basic in-person kyc/aml processes.
But not SVB. If you were banking with them, you should have asked yourself at least once: why is my bank doing something no other bank does? And is my money as safe there as it would be with a more conservative bank?
That sounds great in a libertarian, everything goes world. But the reality is that there are plenty of bad actors and they will abuse it to launder money and commit fraud. Every other bank was conservative enough to avoid this by enforcing some basic in-person kyc/aml processes.
But not SVB. If you were banking with them, you should have asked yourself at least once: why is my bank doing something no other bank does? And is my money as safe there as it would be with a more conservative bank?
Why take a random small program being run at the bank, and imply that it was somehow linked to their failure, when their failure is well understood and has nothing to do with the Atlas program?
If your bank is willing to take on excess risk in one area, it's reasonable to assume that it's also willing to take on excess risk in other areas.
The very fact that it was catering to startups was high risk behavior.
And let's not pretend that extending loans to 15 year old "startups" that have never made a dime in profits and have no clear exit path was a sound business.
The very fact that it was catering to startups was high risk behavior.
And let's not pretend that extending loans to 15 year old "startups" that have never made a dime in profits and have no clear exit path was a sound business.
Who is pretending what about some made up thing that didn’t happen?
The failure of SVB had nothing to do with extending loans to their client base.
The failure of SVB had nothing to do with extending loans to their client base.
The client base WAS a risk factor.
It's business 101 that you need a diversified customer base. If you're too heavily concentrated in one industry, you're entirely exposed to any downturn in that industry.
In this case, things were made even worse since SVB's customers were VC-funded startups, and VCs have an outsized say in the decisions made by VCs. Particularly in 2023 when we've seen startups shed more and more equity to VCs.
If I was running a business similar to SVB, I would have asked myself if I was too over-exposed to VC-funded startups, and if those VCs were always going to play nice.
It's business 101 that you need a diversified customer base. If you're too heavily concentrated in one industry, you're entirely exposed to any downturn in that industry.
In this case, things were made even worse since SVB's customers were VC-funded startups, and VCs have an outsized say in the decisions made by VCs. Particularly in 2023 when we've seen startups shed more and more equity to VCs.
If I was running a business similar to SVB, I would have asked myself if I was too over-exposed to VC-funded startups, and if those VCs were always going to play nice.
Their problem wasn't customers defaulting on loans, wasn't criminal money laundering, wasn't crypto meltdowns.
Their depositors were simply more flighty than average.
Their depositors were simply more flighty than average.
> SVB was the only bank (or maybe one of the only banks) that allowed anyone to set up a bank account with them without visiting the country
There are plenty of others, Ally being the next off the top of my head. This doesn’t, at all, free you from AML or KYC.
There are plenty of others, Ally being the next off the top of my head. This doesn’t, at all, free you from AML or KYC.
> why is my bank doing something no other bank does?
Well, that's an easy answer in techbro circles: because it's the smartest one, duuh.
Well, that's an easy answer in techbro circles: because it's the smartest one, duuh.
I wonder if this behavior will lead banks to be even less likely to take on startups as clients in the future.
edit: in an attempt to be more clear, I thought the reason SVB was used by startups was because "regular" banks were not open to startup finances. Is this not the case?
edit: in an attempt to be more clear, I thought the reason SVB was used by startups was because "regular" banks were not open to startup finances. Is this not the case?
There's clearly a lot of pent up anger directed at VCs and big tech. The collapse of SVB may not actually be their fault, but it still seems to have brought all of this frustration out into the open. I'm not really sure why there is so much anger - yes they were hypocritical here but I'm not sure people would be so keen to point that out if they didn't already have an axe to grind!
I will say this and I am being absolutely honest.
I am surprised there is so little anger.
I can offer an explanation, but I am not sure how accurate that is. As I tried to explain to my friends in different industry what has, apparently, happened, their eyes quickly glazed over. There seems to be a lot of confusion floating around and no clear 'bad guy' to blame ( I have a pet theory about this, but this may be a bad time to introduce it ).
<< if they didn't already have an axe to grind!
Absolutely correct. Based on what I heard so far, adherents of each political spectrum in US went to their respective corners with their specific talking points. Super annoying as it only adds to the confusion ( its not like we have a systemic risk on our hands ).
I am surprised there is so little anger.
I can offer an explanation, but I am not sure how accurate that is. As I tried to explain to my friends in different industry what has, apparently, happened, their eyes quickly glazed over. There seems to be a lot of confusion floating around and no clear 'bad guy' to blame ( I have a pet theory about this, but this may be a bad time to introduce it ).
<< if they didn't already have an axe to grind!
Absolutely correct. Based on what I heard so far, adherents of each political spectrum in US went to their respective corners with their specific talking points. Super annoying as it only adds to the confusion ( its not like we have a systemic risk on our hands ).
These people pretend to be the stewards of innovation, bringing society forward by building great new technologies but in reality they are just rich gamblers who have no interest in building anything, and the last few years have devoted their efforts to pumping and dumping garbage companies on the public in the form of IPOs/SPACs.
And now their bank, which behaved recklessly, failed and they suffer no consequences, the costs of 100% deposit insurance offloaded onto every other sector of the economy.
And now their bank, which behaved recklessly, failed and they suffer no consequences, the costs of 100% deposit insurance offloaded onto every other sector of the economy.
How is it not their fault ? The Bank run was caused by VC's telling their portfolio companies to pull their funds based on a weak signal. Raising money shouldn't have been enough to cause this kind of panic.
Sure if they'd all left their money there then nothing would have happened, but on the other hand, if a company has a large uninsured deposit at an under-capitalised bank, leaving the money there is arguably irresponsible. I don't really blame them for moving their cash elsewhere.
all banks are under capitalized. no bank could stand that kind of bank run
There's a difference between being able to withstand a bank run and being fully capitalised. To be fully capitalised the value of your assets needs to be greater than the value of your liabilities. You are allowed to value your assets at fair prices when you work this out. SVB did not have enough money by this measure and that is very very unusual for a bank. Despite this, you are right that even well capitalised banks cannot survive a bank. To survive a run you need to find a buyer for all of your assets right away, and you quickly run out of buyers, forcing the price down.
again its debateable. VC's caused all their portfolio teams to pull their money. Had they all relaxed and just waited SVB to raise... is there even an issue ?
It's the prisoners dillema. Game theorists would expect them to act the way they did even though it's better for everyone if they just relax.
For all the articles posted on HN in the past 24hrs, none of them are the Business Insider piece. It explains the axe that's being ground rather eloquently, so avail yourself of that.
> I'm not really sure why there is so much anger
Because it's unfair to have millionaires bailed out. When the poor make bad decisions they don't get bailed out.
Because it's unfair to have millionaires bailed out. When the poor make bad decisions they don't get bailed out.
I don't like the idea of millionaires who make bad decisons being bailed out either, but it's not clear that is what is happening here.
Firstly not clear that this is really a bail-out in the usual sense. No tax-payer money is going to these millionaires, and any costs (if there are any, which isn't entirely clear) are going to go to other banks and their shareholders.
Secondly not clear that depositing money in SVB was a "bad decision" - doing this wasn't a risky thing VCs did to try and get rich.
Firstly not clear that this is really a bail-out in the usual sense. No tax-payer money is going to these millionaires, and any costs (if there are any, which isn't entirely clear) are going to go to other banks and their shareholders.
Secondly not clear that depositing money in SVB was a "bad decision" - doing this wasn't a risky thing VCs did to try and get rich.
Won't the remaining banks just pass on those extra costs onto the customers anyway? So at the end of the day, "the people" will end up paying for the bail-outs, just with a few extra steps.
Good question. In theory no - it's not supposed to work that way because competition between banks would prevent it. I've no idea how likely it is to happen in practice though. (Edit: But my unqualified guess is that at least some costs will indeed get passed on)
...if they are poor they would be under FDIC limits and would be the FIRST to be bailed out?
Non-rich people get bailed out constantly. What else is unemployment, Medicaid, welfare, social security, etc? Plus things like eviction moratoriums, foreclosure protection, FMLA, etc. The social safety net often protects those that made bad life decisions… or were just unlucky, but are we sure SVB isn’t in the latter category?
To be clear, I think it’s a good thing. Just let’s not pretend the government is only ever helping the rich.
To be clear, I think it’s a good thing. Just let’s not pretend the government is only ever helping the rich.
The entire argument of the pro-business, pro-capitalist crowd is that they deserve massive profits because they are the ones taking on risk. Except when they take big hits because of the risk they themselves took on, they also want bailouts. They want all the profits with none of the consequences for risky behavior.
So the difference here is that individuals get the safety net because they are just trying to exist. They're not getting "bailouts", they're getting assistance for things like food and shelter and medical bills.
So the difference here is that individuals get the safety net because they are just trying to exist. They're not getting "bailouts", they're getting assistance for things like food and shelter and medical bills.
Being angry is easy. Understanding is hard. Manipulating angry people is easy.
"I'm not really sure why there is so much anger"
Maybe because you are one of the beneficiaries?
Maybe because you are one of the beneficiaries?
"Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith."
https://news.ycombinator.com/newsguidelines.html
Edit: you've been breaking the site guidelines a great deal and we've already warned you a bunch of times. If this keeps up, we're going to have to ban you.
https://news.ycombinator.com/newsguidelines.html
Edit: you've been breaking the site guidelines a great deal and we've already warned you a bunch of times. If this keeps up, we're going to have to ban you.
To be clear I wasn't trying to say people shouldn't be angry with VCs. I'm expressing some doubt that the reason for the anger is SVB's collapse or their hypocrisy around it. Whether you like VC or not, they aren't responsible for the SVB's investment choices or its undercapitalization and so the outflow of anger following SVB collapse feels misplaced. (Edited for clarity)
Yes, the hypocrisy is part of it, so I have no doubt hypocrisy was the trigger for the expression of the anger. People are angry everyday because we are being kicked out of housing and looking at rising process of everything else and we get zero bailouts.
I think that being angry with bailouts for people who don't need them is a lot more understandable than anger at hypocrisy. I don't think any taxpayer money will go to rich VCs though, and I hope the losses on SVB's assets will be absorbed entirely by equity/bond holders.
equity/bondholders are completely wiped out by this process I'm pretty sure
Never ask a man to question the source of his paycheck
Probably because VCs and big tech are one of the largest democratic donation bases and thus, the issue is politicized, because, from the outside, it looks like a democratic administration taking unprecedented steps towards ensuring the financial health of their own donation base. One wonders if the action would be as swift if this were a farming bank in Ohio, for example.
As an aside, I wonder when making allegations without proof based on speculation and partisan hate will fall out of fashion? I speculate that it continues to happen because people don't have a killfile anymore, and so trolls always have a new audience to lie to.
In the interest of fairness, David Sacks makes some compelling counterpoints here: https://twitter.com/DavidSacks/status/1635747517752283137
From the twitter thread you linked:
> Any depositor who could read the WSJ or watch the stock ticker could understand that there was no upside in waiting to see what would happen next.
The whole point of regulations is precisely that I don't have to read a journal or scrutinise a stock ticker to watch my money. As it turns out I have more productive and useful ways to spend my time. Maybe he doesn't have anything better to do all day; but pretending that regulation are not needed because there is some way for some people to get some insight about what's going on under the hood is just not a receivable argument.
> Any depositor who could read the WSJ or watch the stock ticker could understand that there was no upside in waiting to see what would happen next.
The whole point of regulations is precisely that I don't have to read a journal or scrutinise a stock ticker to watch my money. As it turns out I have more productive and useful ways to spend my time. Maybe he doesn't have anything better to do all day; but pretending that regulation are not needed because there is some way for some people to get some insight about what's going on under the hood is just not a receivable argument.
> but pretending that regulation are not needed because there is some way for some people to get some insight about what's going on under the hood is just not a receivable argument.
What are you going on about?
If you listen to the All-in-podcast, where Sacks and the other guys talked about what happen, they actually point out that the problem was improper regulation that allowed banks to get in that state in the first place.
What are you going on about?
If you listen to the All-in-podcast, where Sacks and the other guys talked about what happen, they actually point out that the problem was improper regulation that allowed banks to get in that state in the first place.
"improper regulation" is a funny way of saying "deregulation"
Banks want deregulation so they can have riskier investment profiles, but suddenly when that risk materializes, it's somebody else's fault that they can't cover their obligations.
Banks want deregulation so they can have riskier investment profiles, but suddenly when that risk materializes, it's somebody else's fault that they can't cover their obligations.
The point is not covering the banks though. The point is covering the people that deposited money with them.
In this case the bank shareholders should take the hit and not be bailed out at all.
I'm on the side that the depositors got screwed here and they are the ones that need help, not the bank.
In this case the bank shareholders should take the hit and not be bailed out at all.
I'm on the side that the depositors got screwed here and they are the ones that need help, not the bank.
The main counterpoint (to this article, he seems to mainly talk about others) seems to be "it was no bailout", and "insuring 100% of deposits is small government and totally logical for me as a stance". The former I can see, the latter I’ll have to put clearly in the article’s column.
How much money does the government spend on insuring deposits? Seems like it’s less than one day of social security or military spending. So I find it hard to argue that deposits insurance alone makes the government ‘big’
It makes more sense when you realize they define small government as when the government makes them money, and big government is when they lose money.
The points Sacks makes there contain some truth but, make no mistake, they are selectively chosen and completely self-serving.
1. Talk of inflation doesn't mention a way more effective tool for tackling it: taxation. Inflation is offhandedly blamed on the government too for not being "transitory". Sacks is actually torn here. Non-zero interest rates hurt the VC model but as a rich guy he certainly doesn't want, say, a corporate windfall profits tax;
2. He claims he wanred about pumping trillions of dollars into the economy. Why 2 years ago and not 14-15 years ago when the zero-interest QE started? What's the difference? Oh, who got the money in 2020? This is part of a consistent narrative from rich people that it's only ever a problem when poor people get government money. Then it's a moral hazard.
3. Further to the "2 years ago" narrative, we should remember that Covid relief started under Trump, not Biden. So why not "3 years ago"? Is Sacks trying to avoid criticizing Trump? Weird. I wonder why.
4. Not one mention of deregulation. Weird.
1. Talk of inflation doesn't mention a way more effective tool for tackling it: taxation. Inflation is offhandedly blamed on the government too for not being "transitory". Sacks is actually torn here. Non-zero interest rates hurt the VC model but as a rich guy he certainly doesn't want, say, a corporate windfall profits tax;
2. He claims he wanred about pumping trillions of dollars into the economy. Why 2 years ago and not 14-15 years ago when the zero-interest QE started? What's the difference? Oh, who got the money in 2020? This is part of a consistent narrative from rich people that it's only ever a problem when poor people get government money. Then it's a moral hazard.
3. Further to the "2 years ago" narrative, we should remember that Covid relief started under Trump, not Biden. So why not "3 years ago"? Is Sacks trying to avoid criticizing Trump? Weird. I wonder why.
4. Not one mention of deregulation. Weird.
Is taxation an effective way to tackle inflation?
Inflation is too much money chasing too little stuff. Taxation is less money that the people have, but more money that the government has. If the government just set the money on fire, that would help with inflation, but they won't. They'll spend it. At that point, we will have the exact same amount of money chasing the exact same amount of stuff; the only difference will be who has the money. So we'll have the same amount of inflation, but people (and businesses) will have less money to try to deal with the inflation. That doesn't sound like an answer at all.
Inflation is too much money chasing too little stuff. Taxation is less money that the people have, but more money that the government has. If the government just set the money on fire, that would help with inflation, but they won't. They'll spend it. At that point, we will have the exact same amount of money chasing the exact same amount of stuff; the only difference will be who has the money. So we'll have the same amount of inflation, but people (and businesses) will have less money to try to deal with the inflation. That doesn't sound like an answer at all.
Inflation is caused by printing too much money. Taxation does not directly reduce inflation (I suppose you could argue some indirect effect since it means the government will need to print less but then there are other secondary effects we would need to include, etc)
Interest rates hurt everyone. Taxation targets only those who are profiteering.
The inflation we have now is opportunistic and self-referencing. "We have to raise prices because prices are rising". In truth it's really "we're raising prices because we can".
At least taxation would encourage companies to use those profits to invest in the business, possibly even pay people more (God forbid) and not necessarily profiteer. All instead of just using those huge profits for share buybacks.
The inflation we have now is opportunistic and self-referencing. "We have to raise prices because prices are rising". In truth it's really "we're raising prices because we can".
At least taxation would encourage companies to use those profits to invest in the business, possibly even pay people more (God forbid) and not necessarily profiteer. All instead of just using those huge profits for share buybacks.
You believe charging businesses more will lower prices? That doesn’t sound right.
It's a tax on profits. That's the point. This is the money they have left over after paying all costs.
Interest rates increase the cost of everything. They will cause businesses to fail. I mean just look at SVB.
And even if increased taxation changes nothing price-wise, it will fill government coffers and allow the government to help those most impacted.
It is literally the best solution for absolutely everyone except for about 500 billionaires.
Interest rates increase the cost of everything. They will cause businesses to fail. I mean just look at SVB.
And even if increased taxation changes nothing price-wise, it will fill government coffers and allow the government to help those most impacted.
It is literally the best solution for absolutely everyone except for about 500 billionaires.
Funny. First "its collapse was first and foremost a result of its own poor risk management and communications" and then a looong rant how it actually was fault of Biden, Democrats and loose monetary policy.
So far I have not seen any evidence that the real reason was anything but "poor risk management and communications" A couple of percentage points change in interest rates is not a thing that should bring your bank down. If it does, you have failed, no excuses.
So far I have not seen any evidence that the real reason was anything but "poor risk management and communications" A couple of percentage points change in interest rates is not a thing that should bring your bank down. If it does, you have failed, no excuses.
> A couple of percentage points change in interest rates is not a thing that should bring your bank down. If it does, you have failed, no excuses.
In context, it's even more egregious — Rates after that "couple of percentage points change" are still historically quite low, it's just that we've had a completely aberrant run of near-zero rates for the last decade or so. It was a matter of time until this correction happened, so preparedness was about "when", not "if", it happened.
In context, it's even more egregious — Rates after that "couple of percentage points change" are still historically quite low, it's just that we've had a completely aberrant run of near-zero rates for the last decade or so. It was a matter of time until this correction happened, so preparedness was about "when", not "if", it happened.
The democrats and minorities forced them to hire conservative lobbyists to weaken regulation, then forced them to refuse to hedge their interest rate risk.
funny how this presumed causation only goes back to 2021
Yeah, personally I'd trace it back to the 2020 covid money printing mania, or even the 2019 (nearly) negative interest rates. I do think he's right to blame the rate hikes, and in turn, the inflation that necessitated them. But he does skip over the fact that these rate hikes shouldn't have been a surprise. The bankers had poor risk management by not considering the effect the rate hikes would have on their long duration bonds. And frankly, Sacks misses an opportunity here to shift blame to the bankers, who IMO are the real cause of the crisis (as always).
Woke did it, in collision with Biden! Who could have ever seen that coming from Sacks.
When I started a company in Denmark, we were made very aware that we were not insured by the national depositors insurance schema and that we had no protections.
We were offered to buy insurance for e-banking theft and other types of fraud _and_ insurance for our deposits.
Is it really the case, that Americans assume to have all these sorts of insurances taken care of automatically?
We were offered to buy insurance for e-banking theft and other types of fraud _and_ insurance for our deposits.
Is it really the case, that Americans assume to have all these sorts of insurances taken care of automatically?
For individuals (or rather, up to $250k UDS per account), it is. There's other opt-in systems for businesses that have different risk profiles.
“On June 16, 1933, President Franklin Roosevelt signed the Banking Act of 1933, a part of which established the FDIC. At Roosevelt's immediate right and left were Sen. Carter Glass of Virginia and Rep. Henry Steagall of Alabama, the two most prominent figures in the bill's development”
https://www.fdic.gov/about/history/
https://www.fdic.gov/about/history/
> Is it really the case, that Americans assume to have all these sorts of insurances taken care of automatically?
For consumers, yes. For businesses, this falls under the "treasury management" responsibilities of the CFO position.
If they make this assumption (i.e. by foregoing insurance, T-bill ladders, etc.), they're a poor fiduciary. The VCs and relatively mature startups that stood to lose money in the last week have come out of this looking really bad to the adults in the industry.
For consumers, yes. For businesses, this falls under the "treasury management" responsibilities of the CFO position.
If they make this assumption (i.e. by foregoing insurance, T-bill ladders, etc.), they're a poor fiduciary. The VCs and relatively mature startups that stood to lose money in the last week have come out of this looking really bad to the adults in the industry.
How reliable is the insurance? In other words, how bad would things have to get for it not to pay out?
That would be a part of the terms – we didn't get it, we knowingly took the risk.
I was thinking more about counterparty risk. If it gets bad enough, your insurer won't exist any more, right?
Your insurance company is re-insured. Reinsurance is a business in its own.
So your insurer will be able to meet their obligations.
If not, then it is so bad that it is societal. And then we all have an interest in having it resolved no matter what.
So your insurer will be able to meet their obligations.
If not, then it is so bad that it is societal. And then we all have an interest in having it resolved no matter what.
It felt like they only gave one guy as an example and tried to spin a tweet from someone to YC.
It seems mostly a fluff piece with little meat to it.
It seems mostly a fluff piece with little meat to it.
Hypocrisy? They are the ones who saw it coming, ran away, and survived the debacle. But hey, let's just find a scapegoat.
Just like the 2008 crisis let's just blame it on Michael Burry and those who looked under the layers of bureaucracy
Just like the 2008 crisis let's just blame it on Michael Burry and those who looked under the layers of bureaucracy
A comedic take at the same topic: "A Disrupter's POV on the Silicon Valley Bank Collapse" <https://www.youtube.com/watch?v=A13erYPcDVI> by Michael Kosta (The Daily Show).
No! Yes! Oh.
But rest assured, it's not just the libertarians and not just in the US.
Europe is currently facing shortages of skilled labour in many sectors of industry and business, what with the baby boomers entering retirement age in droves. Market forces of supply and demans would dictate that since the resource (skilled labour) demand increases, and the supply decreases, the price (wages) has to go ... upwards.
Basic economic theory of free markets.
So, does that happen? With few exceptions, nope. Wages continue to stagnate. Instead, lobbyists clamour for slashing social security to make part time jobs and retirement less desirable.
But rest assured, it's not just the libertarians and not just in the US.
Europe is currently facing shortages of skilled labour in many sectors of industry and business, what with the baby boomers entering retirement age in droves. Market forces of supply and demans would dictate that since the resource (skilled labour) demand increases, and the supply decreases, the price (wages) has to go ... upwards.
Basic economic theory of free markets.
So, does that happen? With few exceptions, nope. Wages continue to stagnate. Instead, lobbyists clamour for slashing social security to make part time jobs and retirement less desirable.
The retirement age must rise with life expectancy. Anything else is a transfer of wealth from the young to the old, which I assume sounds great if one is a boomer who destroyed the golden-egg-laying goose.
However, you’re right about market forces in European salaries.
However, you’re right about market forces in European salaries.
Is this the reason behind France trying to increase retirement age despite having a balanced budget in this regard and protests?
You can imagine you’ve worked your whole life chasing the brass ring. And then the government goes, “lol, just kidding!”, and moves the goal posts 50 meters. And this affects millions of people who are very pissed off and vocal about it.
> And this affects millions of people who are very pissed off and vocal about it.
I wonder how pissed these people would be if the government continued to pretend that everything is fine, did nothing, and in a few years the pension system simply crashes, due to being no longer feasible.
The current system in many european country relies on assumptions that were true in the 60s and 70s, when many of these systems basics were designed: Continuous population growth generating net positives in the pension funds, a certain life expectancy, and taxable incomes rising with economic power.
None of these assumptions hold true any more: Population growth has stalled or even reversed, people live a lot longer, and incomes stagnate despite decades of economic growth.
So the systems can either be adjusted, or they will stop functioning at some point. Even if the budgets are balanced at the moment, the factors listed above are not going to change in the other direction. Sooner or later, adjustments need to take into account the new reality.
I wonder how pissed these people would be if the government continued to pretend that everything is fine, did nothing, and in a few years the pension system simply crashes, due to being no longer feasible.
The current system in many european country relies on assumptions that were true in the 60s and 70s, when many of these systems basics were designed: Continuous population growth generating net positives in the pension funds, a certain life expectancy, and taxable incomes rising with economic power.
None of these assumptions hold true any more: Population growth has stalled or even reversed, people live a lot longer, and incomes stagnate despite decades of economic growth.
So the systems can either be adjusted, or they will stop functioning at some point. Even if the budgets are balanced at the moment, the factors listed above are not going to change in the other direction. Sooner or later, adjustments need to take into account the new reality.
If the reason stated above is true, it's quite the dick move to do so.
My parents worked a few years into retirement, but that was only because my country's pension budget is far from balanced, so they needed the extra income.
My parents worked a few years into retirement, but that was only because my country's pension budget is far from balanced, so they needed the extra income.
Yes, as we should be.
This is infuriating, other options available ( reduce pensions, remove tax breaks… ) have barely been discussed.
Adding 24 months is the only presented option. I’ve discuss with people ready to strike for a while, since they are gonna have to work 2 more years otherwise.
And that’s on top of the fact that the budget it’s kinda fine. Needs attention, sure, but the entity governing it says it’s fine. ( independent from the gov )
Adding 24 months is the only presented option. I’ve discuss with people ready to strike for a while, since they are gonna have to work 2 more years otherwise.
And that’s on top of the fact that the budget it’s kinda fine. Needs attention, sure, but the entity governing it says it’s fine. ( independent from the gov )
No, it's because we live longer, have fewer children to support us and increase the population size that doesn't contribute net positive to the welfare state. It's pure economics.
France's pension does not have a balanced budget. It will soon run out of money without the proposed changes.
Yes, absolutely.
Basically yes.
The article is kind of low quality. First they name Peter Thiel as the poster child for libertarianism. Second they accuse libertarians being against state intervention. Third they say libertarians are asking for state help, so they think they've found a kind of paradox.
But Peter Thiel withdraw his money from SVB in time and he didn't ask for the government's help. So the article authors are kind of contradicting themselves.
Also, blaming libertarians for being against massive state intervention in economy is akin to blaming a fish because he swims in water. It's all what that fish is about and knows to do.
But Peter Thiel withdraw his money from SVB in time and he didn't ask for the government's help. So the article authors are kind of contradicting themselves.
Also, blaming libertarians for being against massive state intervention in economy is akin to blaming a fish because he swims in water. It's all what that fish is about and knows to do.
What makes Peter Thiel a libertarian? I thought he went full Trumpism, which is basically the opposite of libertarian.
[deleted]
I’m glad we’ve identified the boogy man. I was waiting for the political slant, it finally arrived
It's always the people we already hated who caused the bad thing!
It’s either the techbros or the wokes, choose your own adventure
The only sector more regulated than Banking is Medical.
But yes, one former libertarian = Libertarian tech broooo
But yes, one former libertarian = Libertarian tech broooo
I don't understand why bailing out DEPOSITORS is a big deal:
* when I put money in a bank, I am just depositing it, I am not "investing". If I wanted to invest (take risk for a chance of profit) I would buy bonds or shares etc. I expect the money to be safe and accessible.
* the "product" being sold by SVB is a bank account. It's low interest (if any at all) and comes with a bunch of charges (so most people will not even break even). If they were offering a 10% interest current account, that might be different. But until then no one has been compensated for the risk of losing their "capital".
If I leave clothes with a dry cleaner or tools at a storage unit, those are mine. I am not "investing" my clothes in the dry cleaner. The same should apply for standard, low interest, current accounts for individuals and businesses.
Maybe in the 1950s, people only used accounts for saving, and they were expecting a return and it was the main way for people to invest. At the same time people/businesses did most of their business in cash (literal folding notes etc). But the opposite is true now. People and Businesses need a risk free account to make a receive payments. They're not looking to be "on risk".
* when I put money in a bank, I am just depositing it, I am not "investing". If I wanted to invest (take risk for a chance of profit) I would buy bonds or shares etc. I expect the money to be safe and accessible.
* the "product" being sold by SVB is a bank account. It's low interest (if any at all) and comes with a bunch of charges (so most people will not even break even). If they were offering a 10% interest current account, that might be different. But until then no one has been compensated for the risk of losing their "capital".
If I leave clothes with a dry cleaner or tools at a storage unit, those are mine. I am not "investing" my clothes in the dry cleaner. The same should apply for standard, low interest, current accounts for individuals and businesses.
Maybe in the 1950s, people only used accounts for saving, and they were expecting a return and it was the main way for people to invest. At the same time people/businesses did most of their business in cash (literal folding notes etc). But the opposite is true now. People and Businesses need a risk free account to make a receive payments. They're not looking to be "on risk".
I am by no means an expert.
The bailing out was needed due to risky behavior.
The risky behavior was enabled by de-regulation starting from Clinton. (Most de-regulation related systemic flaws today can be traced back to his admin)
"Tech bros" support this de-regulation. Any regulation is govt. overreach. "We know how to handle our shit" attitude all over the place.
Yet when the downside of the risk comes, it is govt. money that bails them out.
Regarding your last line. How much of your stuff (something that is fungible, like money) needs to be actually be in the unit while the storage company can loan out the rest is the question. There can be more of the stuff in circulation than there are resources. As long as not everyone is asking for their stuff back, the storage company can keep juggling balls in the air.
The bailing out was needed due to risky behavior.
The risky behavior was enabled by de-regulation starting from Clinton. (Most de-regulation related systemic flaws today can be traced back to his admin)
"Tech bros" support this de-regulation. Any regulation is govt. overreach. "We know how to handle our shit" attitude all over the place.
Yet when the downside of the risk comes, it is govt. money that bails them out.
Regarding your last line. How much of your stuff (something that is fungible, like money) needs to be actually be in the unit while the storage company can loan out the rest is the question. There can be more of the stuff in circulation than there are resources. As long as not everyone is asking for their stuff back, the storage company can keep juggling balls in the air.
>The risky behavior was enabled by de-regulation starting from Clinton. (Most de-regulation related systemic flaws today can be traced back to his admin)
>"Tech bros" support this de-regulation. Any regulation is govt. overreach. "We know how to handle our shit" attitude all over the place.
Surely this doesn't apply to all SVB depositors? Or do you think the entire SVB deposit base was card carrying "tech bro" members? Or suppose 80% are, what of the remaining 20%? Should they get ruined because they dared to associate with "tech bros" and/or didn't do financial risk modeling properly? Or maybe the government should make the bailout conditional on whether you were a "tech bro" or advocated for deregulation?
>"Tech bros" support this de-regulation. Any regulation is govt. overreach. "We know how to handle our shit" attitude all over the place.
Surely this doesn't apply to all SVB depositors? Or do you think the entire SVB deposit base was card carrying "tech bro" members? Or suppose 80% are, what of the remaining 20%? Should they get ruined because they dared to associate with "tech bros" and/or didn't do financial risk modeling properly? Or maybe the government should make the bailout conditional on whether you were a "tech bro" or advocated for deregulation?
Sorry, to be clear, this is only talking about the people running the banks, (not all bankers blah blah ...), not the depositors.
It is something of an aside but, I find it very amusing that the risky behaviour people are up in arms about in this case is "buying long dated US treasuries".
I think no one really disagrees about whether people who knowingly take risks should be bailed out - they shouldn't.
To me, the deeper question is who actually knowingly took the risks and should people/businesses have an opportunity NOT to take such risks but to still access basic banking services?
I have zero objection to shareholders, bond holders and even senior management getting nothing in these cases. They absolutely should not. And the second government has to step in, that should be the case.
I am just not convinced that depositors count as having knowingly taken risk. It does not seem to me that the average depositor (including businesses or individuals with more than 250k in cash) ARE or SHOULD BE knowingly taking risks just by depositing their cash.
Perhaps I am wrong, maybe that should be the case and bank accounts should continue to be a "risky" product? But if so, then I think we should offer (either via private banks or direct from the FED etc) a risk free product that lets you do the things we rely on from bank accounts (store, send and receive cash).
It is an accident of history otherwise that the only way to access those services is to invest in a private firm. If I proposed that we should ban cash transfers and if people wanted to move money electrically, they should buy shares, send the shares, then have the recipient sell the shares, people would think I was crazy. But this is the same system really if depositors are really to be treated as "investors". I should not have to invest in a bank to transfer money anymore than I have to invest in a moving company to transfer a package.
It's another aside but... The system in Scotland a few hundred years back was that each bank would issue it's own currency. Then the value of a "pound" from one bank would fluctuate compared to others depending on how stable that bank was considered to be. So even the bundle of bank notes under your bed could become worthless overnight. Personally I think that sounds crazy, and a sound, transferable deposit system sounds like the same sort of boring obvious infrastructure we should really have...
Thanks for reading! :)
I think no one really disagrees about whether people who knowingly take risks should be bailed out - they shouldn't.
To me, the deeper question is who actually knowingly took the risks and should people/businesses have an opportunity NOT to take such risks but to still access basic banking services?
I have zero objection to shareholders, bond holders and even senior management getting nothing in these cases. They absolutely should not. And the second government has to step in, that should be the case.
I am just not convinced that depositors count as having knowingly taken risk. It does not seem to me that the average depositor (including businesses or individuals with more than 250k in cash) ARE or SHOULD BE knowingly taking risks just by depositing their cash.
Perhaps I am wrong, maybe that should be the case and bank accounts should continue to be a "risky" product? But if so, then I think we should offer (either via private banks or direct from the FED etc) a risk free product that lets you do the things we rely on from bank accounts (store, send and receive cash).
It is an accident of history otherwise that the only way to access those services is to invest in a private firm. If I proposed that we should ban cash transfers and if people wanted to move money electrically, they should buy shares, send the shares, then have the recipient sell the shares, people would think I was crazy. But this is the same system really if depositors are really to be treated as "investors". I should not have to invest in a bank to transfer money anymore than I have to invest in a moving company to transfer a package.
It's another aside but... The system in Scotland a few hundred years back was that each bank would issue it's own currency. Then the value of a "pound" from one bank would fluctuate compared to others depending on how stable that bank was considered to be. So even the bundle of bank notes under your bed could become worthless overnight. Personally I think that sounds crazy, and a sound, transferable deposit system sounds like the same sort of boring obvious infrastructure we should really have...
Thanks for reading! :)
You have a big misunderstanding just like the David Sacks and the rest who feel depositors are wholly innocent.
Most everyone involved in finance knows that banks treat 'depositors' as creditors. Banks view deposits as a liability. Anything over $250k is uninsured. There are multiple ways to insure deposits over $250k. These are simple concepts.
To say that you shouldn't know how to manage your own money is like saying you shouldn't know the traffic rules when you're driving. Where you decide to keep your money is your own choice. Everyone participating in the economy takes risks. It doesn't matter where money are assets are kept...there is always risk.
In terms of depositors, they neglected counterparty risk. In terms of SVB, they poorly managed interest rate risk.
Most everyone involved in finance knows that banks treat 'depositors' as creditors. Banks view deposits as a liability. Anything over $250k is uninsured. There are multiple ways to insure deposits over $250k. These are simple concepts.
To say that you shouldn't know how to manage your own money is like saying you shouldn't know the traffic rules when you're driving. Where you decide to keep your money is your own choice. Everyone participating in the economy takes risks. It doesn't matter where money are assets are kept...there is always risk.
In terms of depositors, they neglected counterparty risk. In terms of SVB, they poorly managed interest rate risk.
Oh, no, you mis understand me: I know what the rule is. I just think it is arbitrary and stupid and was a hack when it came in decades ago before most people actually used banks.
Why does someone with 250,001USD in an account deserve what they get but someone with 249,999USD here and 100bn elsewhere get bailed out? Why is the only way to transfer cash to take counterparty risk? Why are the amounts for businesses and individuals the same (250k is huge for an individual but tiny for a business!?)? Especially since it is individuals that will miss their salaries when their employer finds they're bankrupt, and is that also their own fault for not assessing counterparty risk?
We could avoid all these contradictions by just having "basic function" accounts that let people/companies use banking services that pay no interest and have no risk (fully insured). Then separately offer "investment" accounts for people that want them (with no insurance). If I want to use a hospital or an insurance company, I just use it and pay accordingly. Why is are banking services the only thing where to access the service I have to become an investor in the provider!?
Bailout SVB, or don't. I don't know if people deserve it or not. I make no moral judgement. I just think this whole system makes no sense, is unfair/arbitrary and is not effective. It should be changed irrespective of what we do in this one case...
Edit: I should have been clearer in my original comment. I didn't mention the 250k limit because to me at least it doesn't matter. I can see being an investor (risk AND reward) or not (no reward but no risk) at any amount...
Why does someone with 250,001USD in an account deserve what they get but someone with 249,999USD here and 100bn elsewhere get bailed out? Why is the only way to transfer cash to take counterparty risk? Why are the amounts for businesses and individuals the same (250k is huge for an individual but tiny for a business!?)? Especially since it is individuals that will miss their salaries when their employer finds they're bankrupt, and is that also their own fault for not assessing counterparty risk?
We could avoid all these contradictions by just having "basic function" accounts that let people/companies use banking services that pay no interest and have no risk (fully insured). Then separately offer "investment" accounts for people that want them (with no insurance). If I want to use a hospital or an insurance company, I just use it and pay accordingly. Why is are banking services the only thing where to access the service I have to become an investor in the provider!?
Bailout SVB, or don't. I don't know if people deserve it or not. I make no moral judgement. I just think this whole system makes no sense, is unfair/arbitrary and is not effective. It should be changed irrespective of what we do in this one case...
Edit: I should have been clearer in my original comment. I didn't mention the 250k limit because to me at least it doesn't matter. I can see being an investor (risk AND reward) or not (no reward but no risk) at any amount...
I understand most of your questions may be rhetorical, but I'll try to clarify some aspects.
The FDIC insurance coverage limit is an arbitrary number. It was enacted during the era of the Great Depression to protect the common people's money from bank failures. The limit was raised from $100k to $250k during the GFC. It was always meant as a deposit insurance to protect the common person...not the wealthy. To offer full insurance to all bank deposits would cost $18-20 trillion. This has never been the normal and is just not feasible.
You always have counterparty risk when you have someone else hold your money. Even if the fed starts CBDCs (central bank digital currencies) and gives everyone a fully 'insured' bank account, the fed is still your counterparty. These risks should always be managed.
You can avoid counterparty risk by holding your own money. You can transact in cash if you want to avoid banks. You would have to take care of your own security and safekeeping which makes it unfeasible in large amounts.
To think that companies or VCs would not be advised of standard corporate finance practices seem like a huge failure.
One of the axioms in finance I've run across is that you can never eliminate risk. You can only move it around.
The FDIC insurance coverage limit is an arbitrary number. It was enacted during the era of the Great Depression to protect the common people's money from bank failures. The limit was raised from $100k to $250k during the GFC. It was always meant as a deposit insurance to protect the common person...not the wealthy. To offer full insurance to all bank deposits would cost $18-20 trillion. This has never been the normal and is just not feasible.
You always have counterparty risk when you have someone else hold your money. Even if the fed starts CBDCs (central bank digital currencies) and gives everyone a fully 'insured' bank account, the fed is still your counterparty. These risks should always be managed.
You can avoid counterparty risk by holding your own money. You can transact in cash if you want to avoid banks. You would have to take care of your own security and safekeeping which makes it unfeasible in large amounts.
To think that companies or VCs would not be advised of standard corporate finance practices seem like a huge failure.
One of the axioms in finance I've run across is that you can never eliminate risk. You can only move it around.
Um, no. The true libertarians would rather burn down the Federal Reserve and enjoy the whipsaw's of market dynamics that actually allow for economic mobility. No one can buy jacksh*t in terms of assets with this 'controlled demolition' aspect. Every single market participant with means is always prepared for a buying opportunity. The ones 'pulling themselves up by their bootstraps' cannot.
So, heck yes, you scream and yell at the fools that started all of this. We gave away too much money, made money artificially cheap, then tried to pull the e-brake when it was too late.
Truthfully the only critique is the hypocrisy of enjoying high valuations due to the idiocy of monetary and fiscal policy.
So, heck yes, you scream and yell at the fools that started all of this. We gave away too much money, made money artificially cheap, then tried to pull the e-brake when it was too late.
Truthfully the only critique is the hypocrisy of enjoying high valuations due to the idiocy of monetary and fiscal policy.
I appreciate that this might be a little tone deaf, but what the article is accusing Thiel of isn't hypocrisy. It is a completely consistent libertarian position to observe that government intervention gives people an unfair advantage and then attempt to take advantage of that advantage if people make it clear they aren't going to change the situation.
I'm of a very libertarian bent and think the money printing is stupid, but I'm careful to position my assets to take advantage of the money printing. That is not necessarily honourable, but it is consistent.
I'm of a very libertarian bent and think the money printing is stupid, but I'm careful to position my assets to take advantage of the money printing. That is not necessarily honourable, but it is consistent.
The irony is that regional smaller banks would now be supporting larger banks with insurance contributions if unlimited deposit insurance becomes a real perpetual thing.
So the logic here is "it's the right thing to do, but it should have been delayed to annoy our political opponents and maybe cause them harm". I feel it is extremely hard to view such approach with any sympathy.
Silicon Valley isn't libertarian.
All my feeds right now are full of libertarians who are upset about this.
The bailout itself isn't the main issue, it's mainly the Fed's irresponsible policies over decades.
They kept interest rates too low for too long, contributing to high inflation, then quickly jack rates to fix the problem they caused, then when banks begin to fail because of this rapid interest rate swing they fix that problem by rendering the FDIC $250k deposit insurance meaningless, furthering moral hazard, and to fix that problem they will...
All my feeds right now are full of libertarians who are upset about this.
The bailout itself isn't the main issue, it's mainly the Fed's irresponsible policies over decades.
They kept interest rates too low for too long, contributing to high inflation, then quickly jack rates to fix the problem they caused, then when banks begin to fail because of this rapid interest rate swing they fix that problem by rendering the FDIC $250k deposit insurance meaningless, furthering moral hazard, and to fix that problem they will...
The title, and this is the article's title, screams angst. "Ha, gotcha!"
Principle: there should never be a single point of failure in a well designed system. This is really just a lesson that we will keep re-learning and exposing as ecosystems get massive and companies make decisions at scale.
I don't know how we can remove that point of failure though. Although we don't think about it, banks fail and are designed to do so. We just try to reduce the chances of that happening.
Wait, when did "tech bro" went from an oxymoron joke about smart morons, and turned into a turn of phrase people accept without blinking ? (When scammers overran cryptocurrencies I guess ??)
Thank you for remembering the etymology... the earliest instance I recall is some YouTube video circa 2010 making fun of mediocre programmers ("brogrammers") at Facebook who got the job based on fraternity connections instead of skill. There were sunglasses involved in the skit. It was at most something you would call yourself ironically (in fact, at least according to my recollection, even "bro" itself was originally a perjorative used to refer to a caricature of fraternity brothers interacting with each other - "ok, bro" etc. - but which they themselves later embraced and adopted).
IIRC that itself came from gang members trying to have stronger ties (since not actual brothers) ?
Peter Thiel supports libertarian causes. Larry Page suggested there should be an upper bound on laws. Presumably that would be somewhere below restricting everyone from doing anything. Yet, the article doesn't quantify what a libertarian is in any meaningful context and how it applies to the topic.
Libertarian has become an amorphous category partisan writers can hurl at their opponents. Meanwhile, canonical libertarian content is highly restricted on this site. When it is posted it is often dismissed out of hand based upon the source.
Perhaps it is worth looking at what prominent libertarians are actually saying here?
https://news.ycombinator.com/from?site=mises.org
Intellectual curiosity indeed.
Libertarian has become an amorphous category partisan writers can hurl at their opponents. Meanwhile, canonical libertarian content is highly restricted on this site. When it is posted it is often dismissed out of hand based upon the source.
Perhaps it is worth looking at what prominent libertarians are actually saying here?
https://news.ycombinator.com/from?site=mises.org
Intellectual curiosity indeed.
it just bears remembering that whenever anyone in SV says "government bad!" - the government saved their asses
The argument in the article is weak.
First they build their case against libertarians going at length against Peter Thiel, Elon Musk, and Larry Page.
Then, they point at the hypocrisy citing Garry Tan, David Sacks, and Bill Ackman.
These are different people.
Where is the hypocrisy of Thiel, Musk, or Page? It makes me think there is none since they can't provide examples and they have to switch. But I guess building an article on the second set of people, which is far less known than the first, would have not attracted enough clicks.
First they build their case against libertarians going at length against Peter Thiel, Elon Musk, and Larry Page.
Then, they point at the hypocrisy citing Garry Tan, David Sacks, and Bill Ackman.
These are different people.
Where is the hypocrisy of Thiel, Musk, or Page? It makes me think there is none since they can't provide examples and they have to switch. But I guess building an article on the second set of people, which is far less known than the first, would have not attracted enough clicks.
The premise of this article is dumb. All tech bros are libertarian? Oy vey.
I have no horse in this race. I work for a retail/porn company in LA.
I have no horse in this race. I work for a retail/porn company in LA.
This article fails to make a valid point. It starts by talking about Thiel as the epitome of the libertarian venture bro, and how they are all asking for the government to step in now that the banks are failing, but then goes on to say that he got all his money out on time, no government intervention needed.
??
??
David Sacks wants to run for President. He watched Trump's election closely. He wants to be the smart guy that uses the idiot's playbook. He is working hard to get placed on as much media as possible as a commentator. He is connected to many of the richest and most powerful people in the country.
He is, at the end of the day, a bored billionaire with some very pedestrian ideas. He does go to great effort to shout them louder. He does seem to have some serious ego issues, but I guess what politician doesn't?
I think the hilarity of Calacanis literally tweeting his own similar ideas is that it was a transparent attempt to be louder. ie: he just didn't feel heard about his ideas, so they needed amplification.
He is, at the end of the day, a bored billionaire with some very pedestrian ideas. He does go to great effort to shout them louder. He does seem to have some serious ego issues, but I guess what politician doesn't?
I think the hilarity of Calacanis literally tweeting his own similar ideas is that it was a transparent attempt to be louder. ie: he just didn't feel heard about his ideas, so they needed amplification.
Dang, how does this title not qualify as flame bait?
Reality is there are rarely to the death true libertarians or authoritarians, only those who lacked the opportunity in the monument to change their positions when significant threats or opportunities are presented. The optimal degree of control in a system is based on context, both for the individual and the system itself. To think otherwise is just illogical and discards the complexity of the world for a theoretical utopia.
Anyone that believes to the death libertarian bros exist doesn’t understand the people they’re referring to — which to me is a larger issue than people behaving rationally.
Anyone that believes to the death libertarian bros exist doesn’t understand the people they’re referring to — which to me is a larger issue than people behaving rationally.
Everyone’s a libertarian with respect to their own liberties.
It’s only the liberties of others that are up for debate.
So when I see “libertarian tech bros”, I laugh, because it’s clear that it is only envy speaking.
Enlisting the arm of the state to protect your liberties is always “just” - when someone else’s liberties are protected, it is “unjust”.
Bearing the consequences of one’s own actions is now widely considered as fundamentally unacceptable - the consequences must be borne by society: ideally, by your political adversaries, to be most “just”.
This is unlikely to end well.
It’s only the liberties of others that are up for debate.
So when I see “libertarian tech bros”, I laugh, because it’s clear that it is only envy speaking.
Enlisting the arm of the state to protect your liberties is always “just” - when someone else’s liberties are protected, it is “unjust”.
Bearing the consequences of one’s own actions is now widely considered as fundamentally unacceptable - the consequences must be borne by society: ideally, by your political adversaries, to be most “just”.
This is unlikely to end well.
Libertarianism is just a fancy word for anarchy. Never trust anyone who calls themselves a "libertarian", they are insane.
This argument seems about on the same level as criticizing someone against capitalism for using an iPhone.
It doesn’t, libertarians will still tell you the same thing. Don’t take from me iff you don’t give to me. On the contrary, it seems like the authors of this article would like people forced to pay for insurance to not be compensated by them.
Asking for deregulation when it suits you and government intervention when it suits you is like the right leaning version of the over-policed upper middle class suburb that's dotted with "defund the police" yard signs.
The people trying to play both sides as it suits them are just selfish and unprincipled and in both cases the movement they profess to support would be better off without them.
At some point a line has to be drawn. If you advocate for X or Y you cannot in good faith claim to be a member of political movement Z.
The people trying to play both sides as it suits them are just selfish and unprincipled and in both cases the movement they profess to support would be better off without them.
At some point a line has to be drawn. If you advocate for X or Y you cannot in good faith claim to be a member of political movement Z.
Or the “Back the Blue, we are a nation of laws”. But “defund the FBI and the IRS”
You’ve already forced me to pay for insurance. Is it me that’s the hypocrite for wanting to be compensated?
You’re asking for the insurance coverage to exceed what you paid for. If you insure a Bugatti Veyron with a policy that maxes out at $50k, that’s not the insurer’s fault.
I’m not asking for that. Some people are and I don’t support it.
There's no option to chose for better insurance otherwise I'd already have taken. The next best thing that's available is pulling out the money before everything goes wrong. Making better choices is the best insurance.
> There's no option to chose for better insurance otherwise I'd already have taken.
Sure there is. Pick a bank that offers more.
https://www.difxs.com/ "The DIF is a private, industry-sponsored insurance fund that insures all deposits above Federal Deposit Insurance Corporation (FDIC) limits at our member banks."
https://www.bankrate.com/banking/savings/ways-to-insure-exce... "Wintrust Financial has a business model that works well for excess deposit coverage. The company owns 15 separately chartered community banks in the greater Chicago area and Wisconsin. It offers the MaxSafe account, which allows an individual to insure up to $3.75 million by opening CD and money market accounts with Wintrust’s chartered banks."
If you're mega, mega wealthy, someone like Lloyds would probably be willing to write a bespoke policy.
Sure there is. Pick a bank that offers more.
https://www.difxs.com/ "The DIF is a private, industry-sponsored insurance fund that insures all deposits above Federal Deposit Insurance Corporation (FDIC) limits at our member banks."
https://www.bankrate.com/banking/savings/ways-to-insure-exce... "Wintrust Financial has a business model that works well for excess deposit coverage. The company owns 15 separately chartered community banks in the greater Chicago area and Wisconsin. It offers the MaxSafe account, which allows an individual to insure up to $3.75 million by opening CD and money market accounts with Wintrust’s chartered banks."
If you're mega, mega wealthy, someone like Lloyds would probably be willing to write a bespoke policy.
Why would I do that when I can get a bail from the Fed for free?
So, no, there's no better choice :)
So, no, there's no better choice :)
You said "There's no option to chose for better insurance otherwise I'd already have taken" and "Making better choices is the best insurance". You're now arguing, it seems, the opposite.
If you think the FDIC will always insure depositors over their statutory limits, by all means, make that choice, but don't complain you don't have one.
If you think the FDIC will always insure depositors over their statutory limits, by all means, make that choice, but don't complain you don't have one.
I'm not complaining. You're complaining that you don't like my choices.
"There's no option to chose for better insurance otherwise I'd already have taken."
That's you, complaining about your available choices. Not me.
That's you, complaining about your available choices. Not me.
you're just projecting your prejudices, you're assuming I'm complaining? It's funny because I'm not from the USA and I'm from a third world country where we had the same debate for those who take their money to overseas banks... My country has been having a non stop bank run over the last 20+ years.
Good luck with your choices :)
Good luck with your choices :)
Privatize the profits and socialize the losses.
Capitalism is failing and its on its way out. It doesn't work and only enrichs a hand full of people. No matter how many rules you put in place to regulate it.
Capitalism is failing and its on its way out. It doesn't work and only enrichs a hand full of people. No matter how many rules you put in place to regulate it.
The crisis was created by the Federal Reserve in the first place printing trillions of dollars and then jacking up interest rate. That wouldn't happen in a libertarian system.[1]
It's not hypocritical to call on the people in charge to clean up the mess they created.
[1] Not to say that a purely libertarian system would be perfect and without other problems.
It's not hypocritical to call on the people in charge to clean up the mess they created.
[1] Not to say that a purely libertarian system would be perfect and without other problems.
As usual it is the VCs that is the cause of all of this and this entire bank run
Bringing the startups they invest in begging to their knees, putting all their eggs into one bank. It almost works like a ponzi scheme.
socialism for them, capitalism for everyone else.
Bringing the startups they invest in begging to their knees, putting all their eggs into one bank. It almost works like a ponzi scheme.
socialism for them, capitalism for everyone else.
> As usual it is the VCs that is the cause of all of this and this entire bank run
>Bringing the startups they invest in begging to their knees, putting all their eggs into one bank. It almost works like a ponzi scheme.
Why blame the VCs and not the bank itself for its poor investment choices (ie. buying a bunch of long dated bonds/MBS)?
>Bringing the startups they invest in begging to their knees, putting all their eggs into one bank. It almost works like a ponzi scheme.
Why blame the VCs and not the bank itself for its poor investment choices (ie. buying a bunch of long dated bonds/MBS)?
I agree with the criticism in general, but in this case the restructuring of these banks will be entirely paid for from their assets, and by a levy on other banks. No public funds will be used.
The other banks are most certainly going to pass the FDIC increased premiums along to all of us, though.
Driving up their fees will make them less competitive, so they will lose business, or have to compete more aggressively for it. Or the increased costs of banking services will reduce consumption. So yes you're right to a point, but none of this is in any way good or neutral for other banks. Their share prices have taken an absolute beating.
that money will be stolen from all the other banks customers. this is not a case of "hypocrisy" its theft.
In general I agree, but weren't libertarians pushing for physical golden money?
There's no general agreement among libertarians on what's the best money.
I'm against a gold standard because it's dumb. Gold standard worked in a time of industrial revolution, which cancels out the negative side of gold standard. Costs and prices went order of magnitude down and then there was more gold for everyone.
Literally the steam engine and electricity and light bulb and radio were brought at the time of gold standard.
I'm against a gold standard because it's dumb. Gold standard worked in a time of industrial revolution, which cancels out the negative side of gold standard. Costs and prices went order of magnitude down and then there was more gold for everyone.
Literally the steam engine and electricity and light bulb and radio were brought at the time of gold standard.
Okay then, how would you build a trustable banking industry without some certain central authority?
We can't do that.
We can't eat, drink or use money as shelter. It's with food, liquids or bricks that we can do that.
There was an argument to be made during the start 1900 about "availability" (liquidity) of money. That's all gone in the past.
Money is just an account system, and it's all just numbers in a computer database.
We can't eat numbers.
Technology made money extremely available. That also made it extremely fragile.
The best system we have so far is to have a "free market" of currencies, banks, and customers. The three of them together via trial and error decide what's best. And during that process, mistakes will be made.
We can't eat, drink or use money as shelter. It's with food, liquids or bricks that we can do that.
There was an argument to be made during the start 1900 about "availability" (liquidity) of money. That's all gone in the past.
Money is just an account system, and it's all just numbers in a computer database.
We can't eat numbers.
Technology made money extremely available. That also made it extremely fragile.
The best system we have so far is to have a "free market" of currencies, banks, and customers. The three of them together via trial and error decide what's best. And during that process, mistakes will be made.
What is "tech bro"?
Is that like... denigrating a person based on their gender... ?
Is that like... denigrating a person based on their gender... ?
Yes, ridiculous that this is allowed here, and I say this as a girl. @dang?
Ridiculous that the phrase 'tech bro' is allowed here? Why wouldn't it be allowed here? It's ridiculous the things people try and censor...
Why should it be allowed? It discriminated based on gender. Or are you ok with that when it's against men?
It would take me a huge mental effort to read "tech bros" as a discrimination based on gender - and I'm a man. They are talking about a few selected guys and decided to call them as tech bros - it's not calling for discrimination against men. No need to take it further, censor, ban.
(Note: I don't care if it's "tech bro" or "tech gal" - not everything is about indoctrination)
(Note: I don't care if it's "tech bro" or "tech gal" - not everything is about indoctrination)
I don't think it should be censored here but it is a sexist term. It is never used in a positive way. The publishing industry is female dominated. Imagine that during the recent coverage of their attempts to censor old books, people referred the individuals responsible as "pub maids" or something like that. I don't think it would be quite as accepted.
And that's ok. I do not see what tangible effect this really has on anyone. They decided to use a negative term "bro", so what? Is it that bad? Is someone really taking a hit and feeling bad (besides for the sake of feeling bad under this "rigtheous" weather). I feel like there's more people being negatively affected by this word policing than really using such a word. I would be ok either way, tech bros, pub maids - I don't really look so much into words that it would really affect my thought - but that it wouldn't be accepted is not really indication of much. There are always loud voices that will feel upset by everything.
It should simply be "tech person". There are female founders, too.
"Tech bro" isn't just a generic reference to tech founders. It refers to a particular negative stereotype of a person, usually male, who works in tech and subscribes to "bro culture." Bro culture itself usually comes from fraternity culture (as in "frat bro") and it's often associated with misogynist beliefs.
This is literally like saying "If refers to a particular negative stereotype of a person, usually from a poor neighbour hood, usually black, usually without a father" and ascribing any kind of prejudice to it. Is this seriously the kind of discussion you want to be having?
It literally isn't anything like saying that at all.
>>Is this seriously the kind of discussion you want to be having?
No, that's the discussion you'd prefer to have to detract from the actual subject of conversation in attempt to push your own agenda.
>>Is this seriously the kind of discussion you want to be having?
No, that's the discussion you'd prefer to have to detract from the actual subject of conversation in attempt to push your own agenda.
Right but “tech bro” is literally used to describe stereotype of a type of man in tech rather than all men in tech. Presumably female founders aren’t included in the same way non-bro male founders aren’t. In particular a tech bro doesn’t even have to be a founder.
But that removes the meaning of "bro". It should be "tech sibling". Of course, "bro" is short for "brother" so maybe the best solution would be "tech sib".
> Why should it be allowed?
Because free expression matters.
You don't have a "right" to not be offended.
Adults are able to participate in conversations that make them uncomfortable.
Children require protection from certain forms of speech until they've developed the maturity to be able to handle it.
Censorship of the type that you're advocating is infantile. We don't need to keep adults safe from speech.
And yes, btw, I also find the phrase "tech bros" offensive.
It's difficult to have a meaningful conversation without risking offense.
So should we all just discuss weather and sports? Or only allow speech around us that agrees with our current beliefs?
Because free expression matters.
You don't have a "right" to not be offended.
Adults are able to participate in conversations that make them uncomfortable.
Children require protection from certain forms of speech until they've developed the maturity to be able to handle it.
Censorship of the type that you're advocating is infantile. We don't need to keep adults safe from speech.
And yes, btw, I also find the phrase "tech bros" offensive.
It's difficult to have a meaningful conversation without risking offense.
So should we all just discuss weather and sports? Or only allow speech around us that agrees with our current beliefs?
No, it's the non-Maoist stuff that dang & HN mods censor.
If you call out neon hair safe space ("leftist") hypocrisy... your comment is flagged within minutes.
If you call out neon hair safe space ("leftist") hypocrisy... your comment is flagged within minutes.
Can you give examples of Maoist posting on HN? By which I mean actual Maoism, not just general leftism.
Lately, my response to calls to censor 'this one thing' is 'ban everything' and skip all the baby steps. At least then people will immediately realize what is actually bad about word prohibition.
It's in the title of the article. HN guidelines for comments presumably don't apply to articles. (It wouldn't be good for me to call another HNer a 'tech bro', but we can discuss an article that uses the phrase, no?)
The irony is that the same author, Emma Haslett, recently wrote an article about women facing increasing child-care costs.
https://www.newstatesman.com/business/2023/03/childcare-cost...
In her lefthand (main thread article): Denigrates men interested in technology jobs which pay well and are intellectually arduous to even learn let alone practice.
In her righthand (article I link to above): Complains that women need more money for childcare.
Gee, it's almost as though left-leaning journalists are trying to drive men and women apart.
"Men, as a woman, I tell you: You're terrible! Now go fund women's lifestyles, we need your money!"
https://www.newstatesman.com/business/2023/03/childcare-cost...
In her lefthand (main thread article): Denigrates men interested in technology jobs which pay well and are intellectually arduous to even learn let alone practice.
In her righthand (article I link to above): Complains that women need more money for childcare.
Gee, it's almost as though left-leaning journalists are trying to drive men and women apart.
"Men, as a woman, I tell you: You're terrible! Now go fund women's lifestyles, we need your money!"
yeahsure22(3)
""Brogrammer" or "tech bro" are slang terms often used to label a stereotypically masculine programmer. "
I've only ever known one masculine programmer, out of dozens I've met.
Programming is a sedentary & solitary activity.
It doesn't seem to attract masculine, sex-god type males. If anything, it's the opposite scenario.
I've only ever known one masculine programmer, out of dozens I've met.
Programming is a sedentary & solitary activity.
It doesn't seem to attract masculine, sex-god type males. If anything, it's the opposite scenario.
I don't know the current usage, but historically this seems off. When these terms arose, they referred to programmers who relied on cliques, marketing and hype as opposed to great software engineering.
The "move fast and break things" types who shout down opposition because they always outnumber the diligent quiet types. Who have their memes, foosball, beanbags, etc. Who were successful in SV because they didn't give a damn. Who then used DEI as a shield to progress politically.
Who then set up crypto schemes under the "effective altruism" flag.
So no, gender or masculinity is not central to the term. Complete lack of morals and deception is.
The "move fast and break things" types who shout down opposition because they always outnumber the diligent quiet types. Who have their memes, foosball, beanbags, etc. Who were successful in SV because they didn't give a damn. Who then used DEI as a shield to progress politically.
Who then set up crypto schemes under the "effective altruism" flag.
So no, gender or masculinity is not central to the term. Complete lack of morals and deception is.
why is the term "bro" instead of "hoe"?
Isn't "whore" more demonstrative of lack of morals, compared to "brother"?
It's a silly conversation-- Clearly "tech bro" is misandrist.
It enviously discounts men for success in technology, often while simultaneously expecting something from said men (such as emotional or financial support, again, while simultaneously insulting them... yeah, not productive).
Isn't "whore" more demonstrative of lack of morals, compared to "brother"?
It's a silly conversation-- Clearly "tech bro" is misandrist.
It enviously discounts men for success in technology, often while simultaneously expecting something from said men (such as emotional or financial support, again, while simultaneously insulting them... yeah, not productive).
> why is the term "bro" instead of "hoe"?
Because the vast majority of programmers are men, hence we use men related adjectives/words. These things describe stereotypes, there is no "tech hoe" stereotype as far as I can tell
https://www.statista.com/statistics/1126823/worldwide-develo...
Same reason why in France we say "infirmieres" (feminine) to say nurse although the neutral should be "infirmiers" (masculine): because 85%+ nurses are women
> Clearly "tech bro" is misandrist.
Yet no one ever complained about it ever
American reading way to much into these gender stuff should be an Olympic sport
Because the vast majority of programmers are men, hence we use men related adjectives/words. These things describe stereotypes, there is no "tech hoe" stereotype as far as I can tell
https://www.statista.com/statistics/1126823/worldwide-develo...
Same reason why in France we say "infirmieres" (feminine) to say nurse although the neutral should be "infirmiers" (masculine): because 85%+ nurses are women
> Clearly "tech bro" is misandrist.
Yet no one ever complained about it ever
American reading way to much into these gender stuff should be an Olympic sport
Pretty sure people complain about it in every single HN thread that uses the term
> in every single HN thread
Can we find a smaller and more biased sample ?
Can we find a smaller and more biased sample ?
It is indeed a silly conversation, because you apply nitpicking and tangents to a term that refers to a culturally comprehensive concept that the reader is supposed to understand in context.
The term "bro" refers to the clique aspect, same as "fraternity" or "sorority". It could have been "tech sis", but the majority of tech bros were male, certainly at the time the term was coined.
The term "bro" refers to the clique aspect, same as "fraternity" or "sorority". It could have been "tech sis", but the majority of tech bros were male, certainly at the time the term was coined.
Simpler answer that doesn’t require weird psychoanalysis: bro is used because of the perception (possibly reality?) of the ratio of men to women in tech.
I’ve never thought the term had anything to do with masculinity - unless it’s the toxic kind.
I’ve notice an uptick in people getting into programming because it’s “a good job”.
As opposed to a few decades ago when my experience was more “I like computer and want to know how they work. Being payed for it is nice”
Not a judgement values. I just advise people who want a tech job that programming is tedious and frustrating. If you’r ok with that, everything is on the table really. And I don’t mind working with new folks type
As opposed to a few decades ago when my experience was more “I like computer and want to know how they work. Being payed for it is nice”
Not a judgement values. I just advise people who want a tech job that programming is tedious and frustrating. If you’r ok with that, everything is on the table really. And I don’t mind working with new folks type
I've been calling my gym crew gymbros, despite half of them being female.
I suppose I've not really thought about the gendered nature of it being short for brother.
To me its like calling a group of people 'guys'.
I suppose I've not really thought about the gendered nature of it being short for brother.
To me its like calling a group of people 'guys'.
Everybody is a hypocrite, it will be news when someone isn't one.
When people put their money where their mouth is HN shits on them for "voting against their interest".
"It was particularly unfortunate that this was happening to a sector that has historically rejected state interventions of any kind, railing against attempts at heavier regulation and insisting all its problems would be solved if only the government would just back off. "
What an utterly silly claim, demonstrating the author's ignorance. The IT industry, based in Silicon Valley, worked hand-in-hand with governments at all levels from municipal to federal-- taking subsidies and giving innovations in return.
Not only that, but technologists rejecting state intervention?! California is THE nanny state-- California & the Bay Area are hot beds for demands for government intervention-- particularly of the neomarxist variety.
She doesn't bother to state a premise, she just assumes the reader takes it at face value.
What an utterly silly claim, demonstrating the author's ignorance. The IT industry, based in Silicon Valley, worked hand-in-hand with governments at all levels from municipal to federal-- taking subsidies and giving innovations in return.
Not only that, but technologists rejecting state intervention?! California is THE nanny state-- California & the Bay Area are hot beds for demands for government intervention-- particularly of the neomarxist variety.
She doesn't bother to state a premise, she just assumes the reader takes it at face value.
zpeti(2)
[deleted]
Libertarian: an individual lacking in understanding of secondary effects, in effect, actual reality.
To me a libertarian is just anyone who thinks everyone is, and should be, a sociopath, and build their views off of that. Although they prefer the term "self-interested rational actor". Or they might not even admit that terminology, but if you dig into their views they will reduce to it even if they don't realise that themselves.
Of course it's well known by now, and even most modern economists have accepted this: the vast majority of people are not in fact wholly self interested. Though they are still rational in the sense that preferences are transitive.
Of course it's well known by now, and even most modern economists have accepted this: the vast majority of people are not in fact wholly self interested. Though they are still rational in the sense that preferences are transitive.
Is there a political philosophy less understood, or more mischaracterized, than Libertarianism?
By its own adherents? Probably not.
Maybe, but the people of influence who profess to be libertarians are not exactly committed adherents of a carefully thought-out libertarian philosophy (except maybe Thiel, although his libertarianism has a religious caste). In general, the SV libertarian is an egotist who talks up a poorly understood distortion of libertarian thought because it's a fig leaf for their rapacious amorality, and they cast off its tenets whenever it suits them.
Probably not since even among themselves they can’t agree what it really is.
One thing universally agreed is that everyone should stay away of them at parties.
Between libertarians and Lisp people.. I don’t know man.. :)
One thing universally agreed is that everyone should stay away of them at parties.
Between libertarians and Lisp people.. I don’t know man.. :)
[deleted]
In general most people fit the widest definition of Libertarianism which is:
"People should be free to do whatever they want except for these specific conditions which I consider important and do not negatively impact me very much but may negatively impact others a lot"
"People should be free to do whatever they want except for these specific conditions which I consider important and do not negatively impact me very much but may negatively impact others a lot"
Sure, Marxism.
Nothing is less understood, or more mischaracterized, as Anarchism (Libertarian Socialism).
(And, no, Libertarianism is not Anarchism. It is Libertarian Capitalism.)
(And, no, Libertarianism is not Anarchism. It is Libertarian Capitalism.)
Isn’t kind of the point of Anarchism that everyone is free to make up their own mind on what Anarchism means?
What? It is a word. Words have meanings.
Anarchism is a political philosophy and movement that is skeptical of all justifications for authority and seeks to abolish the institutions it claims maintain unnecessary coercion and hierarchy, typically including, though not necessarily limited to, governments, nation states,[1] and capitalism. Anarchism advocates for the replacement of the state with stateless societies or other forms of free associations. As a historically left-wing movement, usually placed on the farthest left of the political spectrum, it is usually described alongside communalism and libertarian Marxism as the libertarian wing (libertarian socialism) of the socialist movement.
Anarchism is a political philosophy and movement that is skeptical of all justifications for authority and seeks to abolish the institutions it claims maintain unnecessary coercion and hierarchy, typically including, though not necessarily limited to, governments, nation states,[1] and capitalism. Anarchism advocates for the replacement of the state with stateless societies or other forms of free associations. As a historically left-wing movement, usually placed on the farthest left of the political spectrum, it is usually described alongside communalism and libertarian Marxism as the libertarian wing (libertarian socialism) of the socialist movement.
Yeah, methinks the joke slipped past… I know what anarchists tend to think anarchism means… what’s funny to me is that “words have meanings” — those s’s are significant there — implies either an appeal to an unspecified authority that an anarchist should be skeptical of, claim to being such an authority that any other anarchist should also be skeptical of, or deference to some vague majoritarian tyranny that any anarchist should reject out of hand.
Libertarianism of any stripe has this same bootstrap problem: if I’m not free to redefine words, then I’m not free.
Libertarianism of any stripe has this same bootstrap problem: if I’m not free to redefine words, then I’m not free.
Communism, probably.
This is not tech bros. Capitalism itself is the problem. Capitalism always socializes loses and privatizes profits. Do you think that democrat bankers like Jamie Dimon don't run for government assistance at every chance they get?
This is not a problem of a few "libertarian tech bros". The capitalists run the show, they run the government.
This is not a problem of a few "libertarian tech bros". The capitalists run the show, they run the government.
Capitalism would get your bank and their depositors bankrupt, end of story.
It was the USSR that were using heavy machine industry to finance and subsidize unproductive companies, leading to monopolies and corruption.
It was the USSR that were using heavy machine industry to finance and subsidize unproductive companies, leading to monopolies and corruption.
"Capitalism would get your bank and their depositors bankrupt, end of story."
Except that's not capitalism. America is real, actually existing capitalism, and only poor people get bankrupt, not banks or bankers. Capitalism is not about fairness or justice or whatever ideal. Is about maximizing profits and exploiting wage labor. "Socializing" loses maximizes profits, so that happens. Poor people getting bankrupt maximizes profits, so that also happens.
"It was the USSR that were using heavy machine industry to finance and subsidize unproductive companies, leading to monopolies and corruption."
I'm not sure what the argument is here. Nationalizing industries is not socialist per se. But you said it yourself "subsidize unproductive companies". So the objective was not to maximize profits, but to protect national interests and the development of socialism. Also, the USSR has a long and complicated history, from Lenin's War communism to NEP, to rapid industrialization, to perestroika, to liberalization. So we can't make sweeping generalizations.
But is unfair to talk about "monopolies and corruption" if you look at "western democracies" today. Monopolies. You realize that today only 5 or 6 companies (Unilever, Nestlè, Pepsico, etc.) control the vast, vast majority of food in the world? And "corruption". Corruption is legalized in the USA and banks and tech companies freely decide what the government should or should not do, get tax cuts, grants, subsidies, low-interest loans and so on. That's corruption through and through.
Except that's not capitalism. America is real, actually existing capitalism, and only poor people get bankrupt, not banks or bankers. Capitalism is not about fairness or justice or whatever ideal. Is about maximizing profits and exploiting wage labor. "Socializing" loses maximizes profits, so that happens. Poor people getting bankrupt maximizes profits, so that also happens.
"It was the USSR that were using heavy machine industry to finance and subsidize unproductive companies, leading to monopolies and corruption."
I'm not sure what the argument is here. Nationalizing industries is not socialist per se. But you said it yourself "subsidize unproductive companies". So the objective was not to maximize profits, but to protect national interests and the development of socialism. Also, the USSR has a long and complicated history, from Lenin's War communism to NEP, to rapid industrialization, to perestroika, to liberalization. So we can't make sweeping generalizations.
But is unfair to talk about "monopolies and corruption" if you look at "western democracies" today. Monopolies. You realize that today only 5 or 6 companies (Unilever, Nestlè, Pepsico, etc.) control the vast, vast majority of food in the world? And "corruption". Corruption is legalized in the USA and banks and tech companies freely decide what the government should or should not do, get tax cuts, grants, subsidies, low-interest loans and so on. That's corruption through and through.
Capitalism can work, it just has never been implemented properly in reality.
Only half kidding.
Only half kidding.
Libertarians are, and always have been, ridiculous. It's nothing more than Reagan-era deregulation. And just like trickle-down economics there is a mountain of evidence to show how ridiculous it is that gets ignored.
Watch this space. The narrative ofn this will shift to how the FDIC's actions were unnecessary once the capital-owning class realizes they got hosed here. The depositors got paid, banks (through the FDIC insurance fund) paid for any shortfall and SVB shareholders were left holding the bag.
We could tackle inflation with taxation. We certainly can't have that. So we're left with interest rates. Well, VCs like--even depend on--zero interest rates. So they don't like that either. But it's better than getting taxed. So Sacks, Calacanis, Elon and the like will chirp about this on the timeline and frame it as a government failure.
These libertarians are really just conservatives. That too is self-serving ultimately. Don't lose sight of that.
Watch this space. The narrative ofn this will shift to how the FDIC's actions were unnecessary once the capital-owning class realizes they got hosed here. The depositors got paid, banks (through the FDIC insurance fund) paid for any shortfall and SVB shareholders were left holding the bag.
We could tackle inflation with taxation. We certainly can't have that. So we're left with interest rates. Well, VCs like--even depend on--zero interest rates. So they don't like that either. But it's better than getting taxed. So Sacks, Calacanis, Elon and the like will chirp about this on the timeline and frame it as a government failure.
These libertarians are really just conservatives. That too is self-serving ultimately. Don't lose sight of that.
Then again, what they invested their money in was government bonds, which lost value due to the government increasing the interest massively after selling those bonds at a low fixed interest. If a business did that, they would win the scumbag of the year prize.
https://study.com/academy/lesson/duration-risk-definition-ex...
This is a separate concept from Credit Risk, which is how risky the borrower is. The bank did not manage its risks, but it was salvageable, they just needed to raise money, but then the VCs organized the bank run.
This is a separate concept from Credit Risk, which is how risky the borrower is. The bank did not manage its risks, but it was salvageable, they just needed to raise money, but then the VCs organized the bank run.
The bank run should have been neutralised by the Fed lender of last resort function.
The problem was that the bank didn't have the collateral or the income to pay the Fed's rate.
The assets the bank had were poor quality and didn't generate enough income. If the Fed won't lend, why would anybody invest in the bank. Far better to turn up at the auction and pick up the assets for cents on the dollar.
The problem was that the bank didn't have the collateral or the income to pay the Fed's rate.
The assets the bank had were poor quality and didn't generate enough income. If the Fed won't lend, why would anybody invest in the bank. Far better to turn up at the auction and pick up the assets for cents on the dollar.
Yes, and government banking regulations seem to have been almost entirely focused on credit risk rather than duration risk because they were focused on the last crisis - banks were effectively actively penalised for keeping their money in higher credit risk but lower duration risk investments like corporate bonds instead of minimal credit risk but high duration risk ones like long-term treasury bonds and government-backed MBSes. There's been an entire wave of articles in the left-leaning parts of the press blaming this all on libertarians and corporations convincing the government to lift regulations created in the wake of the 2008 crisis and causing a repeat of it by doing so that just completely ignore this distinction.
(Disclaimer: I am not a libertarian, though I was once.)
These arguments have a fundamental flaw, arguing that a libertarian enjoying some government benefit is "hypocrisy." This is nonsense.
Libertarian tech bros pay into our system just like everyone else. Given the progressive income tax, those who are billionaires likely pay more in years where they make money than just about anyone else. So if the government is in the position to offer money, what good does it do for them to refuse? If they refuse, will the government be embarrassed and adopt libertarians' preferred policies? It's no more hypocritical than a socialist defending her private property.
Personally, I think if libertarians are serious, they should seek out every government benefit they're qualified for, and encourage everyone else to do the same. If libertarians are right, then the shaky foundations of the Progressive system can be toppled over by overuse.
I think the real thing being unmasked is that libertarianism is often ideology without grounding in reality. They can't account for the world of second bests, and the Progressive system has twisted and destroyed so much of what was once free that getting to a libertarian world would be like a society-wide kernel panic.
Thiel deserves credit for being one of the (quasi-)libertarians who seems to recognize this and has attempted alternatives like that seasteading thing, though they typically haven't gotten off the ground.
These arguments have a fundamental flaw, arguing that a libertarian enjoying some government benefit is "hypocrisy." This is nonsense.
Libertarian tech bros pay into our system just like everyone else. Given the progressive income tax, those who are billionaires likely pay more in years where they make money than just about anyone else. So if the government is in the position to offer money, what good does it do for them to refuse? If they refuse, will the government be embarrassed and adopt libertarians' preferred policies? It's no more hypocritical than a socialist defending her private property.
Personally, I think if libertarians are serious, they should seek out every government benefit they're qualified for, and encourage everyone else to do the same. If libertarians are right, then the shaky foundations of the Progressive system can be toppled over by overuse.
I think the real thing being unmasked is that libertarianism is often ideology without grounding in reality. They can't account for the world of second bests, and the Progressive system has twisted and destroyed so much of what was once free that getting to a libertarian world would be like a society-wide kernel panic.
Thiel deserves credit for being one of the (quasi-)libertarians who seems to recognize this and has attempted alternatives like that seasteading thing, though they typically haven't gotten off the ground.
> Given the progressive income tax, those who are billionaires likely pay more in years where they make money than just about anyone else.
Nonsense. Rich people assets (i.e. stocks) aren't taxed. That's why Amazon doesn't pay any taxes.
https://www.cbsnews.com/news/amazon-taxes-1-2-percent-13-bil...
Nonsense. Rich people assets (i.e. stocks) aren't taxed. That's why Amazon doesn't pay any taxes.
https://www.cbsnews.com/news/amazon-taxes-1-2-percent-13-bil...
> Nonsense. Rich people assets (i.e. stocks) aren't taxed. That's why Amazon doesn't pay any taxes.
Amazon is a corporation, not an individual billionaire tech bro. Not sure what relevance Amazon's tax situation has to this discussion.
Amazon is a corporation, not an individual billionaire tech bro. Not sure what relevance Amazon's tax situation has to this discussion.
I think your broader point is generally true and often missed so have an upvote, but in this case the FDIC is going beyond it's stated policy. Demanding that the floor of the FDIC's guarantee be lifted/ignored seems distinctly anti-libertarian regardless of whether it was the right thing to do practically. Draining a substantial portion of the FDIC's insurance program's funds seems anti-libertarian. Refilling that portion through (likely) additional requirements on banks that didn't have these issues seems anti-libertarian.
I guess you could make the broader point that people comfortable with government intervention would have argued for full depositor guarantees, so in some since libertarians are playing the same game but that seems much more tenuous to me.
Per your general point, it was very well written! I like to say that you aren't a hypocrite for playing by the rules of checkers even if you wanted to be playing chess but were overruled.
I guess you could make the broader point that people comfortable with government intervention would have argued for full depositor guarantees, so in some since libertarians are playing the same game but that seems much more tenuous to me.
Per your general point, it was very well written! I like to say that you aren't a hypocrite for playing by the rules of checkers even if you wanted to be playing chess but were overruled.
I think these are all fair points, and if the author of that article were capable of making them, I'd be sympathetic. Instead we got a litany of non-libertarians (including Larry Page! lol) plus David Sacks. Peter Thiel is also guilty, you see, because he's buddies with Sacks and once upon a time worked with Elon.
The underlying problem here is the naturalistic fallacy. Libertarianism is a set of statements about how the world should be, not about how it is. I think this is a flaw with the ideology, because I don't see a path from the "is" world to the "ought" world, but that's beside the point. Your chess vs checkers analogy is right on.
David Sacks had a concise statement about what he thought the world should be based on what it is.[0] I'm not sure how it works in practice, but it is a coherent worldview. Given that we don't live in a world corresponding to his proposal, but in one where certain people making loud noises can get their way, I don't see any hypocrisy, even though it may be embarrassing.
Thanks for the upvote – I'm at -3 so far. :D
[0] https://mobile.twitter.com/DavidSacks/status/163436339349803...
The underlying problem here is the naturalistic fallacy. Libertarianism is a set of statements about how the world should be, not about how it is. I think this is a flaw with the ideology, because I don't see a path from the "is" world to the "ought" world, but that's beside the point. Your chess vs checkers analogy is right on.
David Sacks had a concise statement about what he thought the world should be based on what it is.[0] I'm not sure how it works in practice, but it is a coherent worldview. Given that we don't live in a world corresponding to his proposal, but in one where certain people making loud noises can get their way, I don't see any hypocrisy, even though it may be embarrassing.
Thanks for the upvote – I'm at -3 so far. :D
[0] https://mobile.twitter.com/DavidSacks/status/163436339349803...
Depositors are not investors in a bank. They just want a checking account and to make payments. Why should they have to waste time spreading $250K chunks around multiple banks? It's inefficient.
Equity and bond investors are the only ones who should lose their shirts when a bank fails.
If we're the have a distributed payment system, then full deposit insurance and a flexible lender of last resort is the only sensible approach.
The alternative is everybody has their payment accounts at the central bank, which will then mean, by accounting identity, that the central bank will end up as the only depositor in every bank.
Which given that the central bank is the regulator who should be checking asset quality is perhaps the way to go. That way when a bank fails, the entity responsible for ensuring they don't stands the loss.
We need heterogenous banks who will lend on different criteria. Otherwise we'll end up in the situation where only the propertied will get bank liquidity.
However heterogeneity means that some banks, like SVB, will inevitably fail when they get it wrong.
Equity and bond investors are the only ones who should lose their shirts when a bank fails.
If we're the have a distributed payment system, then full deposit insurance and a flexible lender of last resort is the only sensible approach.
The alternative is everybody has their payment accounts at the central bank, which will then mean, by accounting identity, that the central bank will end up as the only depositor in every bank.
Which given that the central bank is the regulator who should be checking asset quality is perhaps the way to go. That way when a bank fails, the entity responsible for ensuring they don't stands the loss.
We need heterogenous banks who will lend on different criteria. Otherwise we'll end up in the situation where only the propertied will get bank liquidity.
However heterogeneity means that some banks, like SVB, will inevitably fail when they get it wrong.
Why do you need to hold that much cash in deposits though? There are alternatives that provide essentially the same kind of liquidity such as money market funds, which are used by other businesses. The rules were pretty clear: deposits are insured only up to $250k, anything above that isn't risk-free. If you don't want to have the slight overhead of finding alternatives for anything that supersedes that amount, you should have had to accept the risk that you might lose anything above those $250k.
Are you serious? How do you think companies that earn over 1M per month operate? Do you think they all receive the cash on the same day and make the payouts on that day itself?
> you should have had to accept the risk that you might lose anything above those $250k.
This laughably impractical. If you run any medium/large SaaS company you have payments continuously rolling in and you have to build up a balance to pay the salaries. The bank account is in a constant state of flux and a lot of times its at multiples of the insurance limit because a certain payment hasn't gone through yet, and a large advance just came in. Are you expecting every company to risk manage these large amounts in real time? Is that where companies should be spending their resources on? What's the point of having financial institutions and regulations when you're expected to micro manage basic aspects of the financial rails the whole economy runs on.
> you should have had to accept the risk that you might lose anything above those $250k.
This laughably impractical. If you run any medium/large SaaS company you have payments continuously rolling in and you have to build up a balance to pay the salaries. The bank account is in a constant state of flux and a lot of times its at multiples of the insurance limit because a certain payment hasn't gone through yet, and a large advance just came in. Are you expecting every company to risk manage these large amounts in real time? Is that where companies should be spending their resources on? What's the point of having financial institutions and regulations when you're expected to micro manage basic aspects of the financial rails the whole economy runs on.
It sometimes feels people really like dunking on those impacted by this especially since there's a lot of schadenfreude about SV and especially the VCs that embarrassed themselves, but I feel like the correct answer isn't "hahahaha those idiot companies didn't make 100 bank accounts and perfectly shuffle everything in realtime", but "hm, isn't it a bit strange that we're incentivised to go to extremes with this relatively inefficient activity"
Why not just buy insurance for the amount going over 250k? I am sure that all reputable insurance companies offer that product well priced.
Or you could just insure your deposits like I am sure all big companies do.
Just like banks bigger than SVB remember to hedge their currency risks (Which one could argue that SVB with a 88b$ position probably should have considered also).
Actually, having started a company in Denmark, this was an offer the bank we got bank account with had.
It is actually laughable that you can assume that one can run a million dollar company without considering insuring your deposits.
Just like banks bigger than SVB remember to hedge their currency risks (Which one could argue that SVB with a 88b$ position probably should have considered also).
Actually, having started a company in Denmark, this was an offer the bank we got bank account with had.
It is actually laughable that you can assume that one can run a million dollar company without considering insuring your deposits.
IMO banks should be doing this anyway (insure deposits). I think most time founders are so engrossed in product-market fit and growth that finance is after thought. You're provided an "army" with VC cash and you are expected to be own an entire category with that army. It seems rational to me that most people would be thinking strategy and future attack plans rather than the extremely rare chance that the whole army itself gets kidnapped.
Ideally we as a society, should be able to offer people peace of mind to deposit large sums of money and not worry about it being lost. Expecting everyone to perform financial gymnastics just to keep their money feels like a complete waste of resources.
Maybe the solution is to create a tier A bank that gives you no returns, charges you a flat fee, and any amount of money deposited is guaranteed. I know people do that with treasuries, but thats a lot of extra steps to put money in and out.
Keep in mind, tiny teams with no "finance person" easily receive more than 1M as part of seed or series A. Very rarely is their first hire for managing that money. Should it be? Is it worth it? Or should you rely on the financial system and regulation protecting your own money.
Ideally we as a society, should be able to offer people peace of mind to deposit large sums of money and not worry about it being lost. Expecting everyone to perform financial gymnastics just to keep their money feels like a complete waste of resources.
Maybe the solution is to create a tier A bank that gives you no returns, charges you a flat fee, and any amount of money deposited is guaranteed. I know people do that with treasuries, but thats a lot of extra steps to put money in and out.
Keep in mind, tiny teams with no "finance person" easily receive more than 1M as part of seed or series A. Very rarely is their first hire for managing that money. Should it be? Is it worth it? Or should you rely on the financial system and regulation protecting your own money.
Well you can do that in cash or crypto. But you still want to the banks protection, right?
You could go down and withdraw your 20mil dollars and put them in your couch. But you kind of like that the bank takes care of security for you.
But you don't want to pay for that insurance?
When you start a company, you already insure tonnes of things. You employees, etc. Why not your financial position.
Do you also expect the society to take care of your liability insurance? or health insurance?
(It is actually laughable, that Americans think that the government should insure their deposits but not their health)
You could go down and withdraw your 20mil dollars and put them in your couch. But you kind of like that the bank takes care of security for you.
But you don't want to pay for that insurance?
When you start a company, you already insure tonnes of things. You employees, etc. Why not your financial position.
Do you also expect the society to take care of your liability insurance? or health insurance?
(It is actually laughable, that Americans think that the government should insure their deposits but not their health)
I think you're strawmanning here. I'm not against deposit insurance. I merely suggested it should actually be part of the banking regulation.
Like maybe it's a default line item monthly fee to insure your deposits and you can choose to opt out of it. The default is to protect your funds. My guess is very few people will opt out, including me.
Like maybe it's a default line item monthly fee to insure your deposits and you can choose to opt out of it. The default is to protect your funds. My guess is very few people will opt out, including me.
It is a part of the regulation, up to USD 250k, which appears to be a good limit for people who should be aware of doing stuff like this themselves (in EU it is EUR 100k, so the US more than doubles that amount).
I think this just shows the irresponsibleness of people with large deposits.
I think this just shows the irresponsibleness of people with large deposits.
Depositors loan banks money. Of course they are investors. Debt investors.
The deal was you had a government guarantee (well FDIC, a government corporation) up until $250k, and anything past that was best effort. Typically, this effort involved finding a new private bank to guarantee the deposits. For amounts over the insured limit, typically there would be a delay. The whole "We're just going to loan the money and print it into existence and we're also going to do that for other banks and oh yeah we will charge every American account holder for it" is novel.
The deal was you had a government guarantee (well FDIC, a government corporation) up until $250k, and anything past that was best effort. Typically, this effort involved finding a new private bank to guarantee the deposits. For amounts over the insured limit, typically there would be a delay. The whole "We're just going to loan the money and print it into existence and we're also going to do that for other banks and oh yeah we will charge every American account holder for it" is novel.
I believe the $250k limit is intended to encourage large accounts to invest in assets directly, and to have a limit to the FDIC liability in case of bank failure.
Or encourage people to buy their own insurance for the uninsured part. We are all free to call up an insurance company to do that.
> Depositors are not investors in a bank.
You're saying that like only investors should be exposed to risk.
Everything you do has an implied risk. If I buy a house I am not an investor. Yet if it gets destroyed and I don't have insurance the government won't make me whole again.
Why should big bank depositors be protected when home owners, farmers, cancer patients, &c are not? They are not investors either.
You're saying that like only investors should be exposed to risk.
Everything you do has an implied risk. If I buy a house I am not an investor. Yet if it gets destroyed and I don't have insurance the government won't make me whole again.
Why should big bank depositors be protected when home owners, farmers, cancer patients, &c are not? They are not investors either.
> Equity and bond investors are the only ones who should lose their shirts when a bank fails.
Responsible executives should too (and I don't just mean whatever remaining equity that they hadn't cashed out yet).
Responsible executives should too (and I don't just mean whatever remaining equity that they hadn't cashed out yet).
You buy storage service from a company. Either you insure your storage, you make sure the storage company insure the entire storage or you risk the uninsured part.
The article points out that the libertarians turn authoritarian after they loose the amounts they have not insured - they call for somebody to ad-hoc insure it.
(In the same vein as this comment: Why should I risk loosing my expensive paintings to fire of theft when I deposit it with a storage company?)
The article points out that the libertarians turn authoritarian after they loose the amounts they have not insured - they call for somebody to ad-hoc insure it.
(In the same vein as this comment: Why should I risk loosing my expensive paintings to fire of theft when I deposit it with a storage company?)
> The article points out that the libertarians turn authoritarian after they loose the amounts they have not insured - they call for somebody to ad-hoc insure it.
Some did that. Other tech bros, such as myself (and my next job was on the line, since the company that extended me an offer banked there), called to let the bank fail.
Some did that. Other tech bros, such as myself (and my next job was on the line, since the company that extended me an offer banked there), called to let the bank fail.
Then you're a good tech bro. But I don't think "libertarians turn authoritarian" implies "all". It's just how people speak. They usually mean "some".
Context: https://en.wikipedia.org/wiki/New_Statesman
> Today, the magazine is a print–digital hybrid. According to its present self-description, it has a liberal and progressive political position.[3] Jason Cowley, the magazine's editor, has described the New Statesman as a publication "of the left, for the left"[4] but also as "a political and literary magazine" with "sceptical" politics.