The venture capitalist's dilemma(newsletter.mollywhite.net)
newsletter.mollywhite.net
The venture capitalist's dilemma
https://newsletter.mollywhite.net/p/the-venture-capitalists-dilemma
93 comments
Yes, what we need is more hecklers vetos over more spending.
Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done.
If the control that already existed produced anything other than total dysfunction, things. never would have gotten to a point where half the spend isn't covered - there would be no reason for it to occur.
Your answer is to force it to happen anyway. Im sure that will end well
Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done.
If the control that already existed produced anything other than total dysfunction, things. never would have gotten to a point where half the spend isn't covered - there would be no reason for it to occur.
Your answer is to force it to happen anyway. Im sure that will end well
I think the problem is the other way around: the population's lack of experience with actual democracy is what hampers any attempt at it. If we had more democracy people would learn to be responsible with that power out of necessity.
But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This is usually not a problem with a company that makes a product or renders a service, but it can be problematic for e.g. nation states. I don't think the solution is for a wealthy few to bludgeon the dissenters into compliance but rather split the democracy up into smaller parts, that interface with negotiations and valuable exchange.
But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This is usually not a problem with a company that makes a product or renders a service, but it can be problematic for e.g. nation states. I don't think the solution is for a wealthy few to bludgeon the dissenters into compliance but rather split the democracy up into smaller parts, that interface with negotiations and valuable exchange.
I don’t believe your first paragraph for a second. We would go practically extinct before we learned. We don’t get good at things at scale that fast and raising the stakes will not change some fundamental behaviors - heck they took thousands of years to change when we were going extinct
I think at best you would end up with a much much smaller population that is an easier problem anyway (ie we can already solve it now), or we kill ourselves off before we learn. I agree with your last sentence entirely, but it's funny to frame it as a wealthy few bludgeoning others. One reason we are in the current situation is because the wealthy pay for the majority of expenses but everyone keeps trying to get them to not have more say in what gets done with their money. Whether it's a good idea to do this or not, human nature doesn't work like this, and they want say commensurate with what they contribute. It's very easy for both "sides" to villify each other and they do.
That is at least one thing you have to claim would get fixed in your first paragraph and I don't buy it you could get it to happen.
Since the wealth part really triggers people imagine you are just a random small business owner, and one day people come in and are like "hey we know you put in 60% of the effort and work and money in your business but we're going to have these 50 other people who put in less than 1% each also have equal say to you in the business choices"
Humans don't really accept that, and if you want direct democracy to work out they would have to be able to.
In fact it's the opposite, most people really get off on being able to feel superior to others in various ways, whether money or status or power or whatever.
That is great to change but ain't gonna happen fast
I think at best you would end up with a much much smaller population that is an easier problem anyway (ie we can already solve it now), or we kill ourselves off before we learn. I agree with your last sentence entirely, but it's funny to frame it as a wealthy few bludgeoning others. One reason we are in the current situation is because the wealthy pay for the majority of expenses but everyone keeps trying to get them to not have more say in what gets done with their money. Whether it's a good idea to do this or not, human nature doesn't work like this, and they want say commensurate with what they contribute. It's very easy for both "sides" to villify each other and they do.
That is at least one thing you have to claim would get fixed in your first paragraph and I don't buy it you could get it to happen.
Since the wealth part really triggers people imagine you are just a random small business owner, and one day people come in and are like "hey we know you put in 60% of the effort and work and money in your business but we're going to have these 50 other people who put in less than 1% each also have equal say to you in the business choices"
Humans don't really accept that, and if you want direct democracy to work out they would have to be able to.
In fact it's the opposite, most people really get off on being able to feel superior to others in various ways, whether money or status or power or whatever.
That is great to change but ain't gonna happen fast
Agreed. This is my view on Brexit (as a Brit). There was a democratic referendum plus somewhere between 1 and 27 general elections, prime ministers and parliamentary rebellions (it all got confusing). We as a country made a decision - not one I agreed with but still. Somehow taking that back and saying "no try again" is going to make the next decision just impossible.
You concentrate on your balance without a safety net.
Personally I think the big advantage America has is they vote for everything - sheriffs, mayors, dog catchers and presidents. It matters, because it happens a lot. Is it perfect. Hell no. But we get good at what we do most often.
You concentrate on your balance without a safety net.
Personally I think the big advantage America has is they vote for everything - sheriffs, mayors, dog catchers and presidents. It matters, because it happens a lot. Is it perfect. Hell no. But we get good at what we do most often.
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We're in hockey stick growth. Maybe we need to enter a period of "not getting anything done" (by relative standards) in order to start threading the needle and pulling this fraying fabric back together
Well, I guess I give you credit for being openly anti-democratic…?
I don’t believe non representative democracies scale well at all and that even representative ones have a scaling limit like all systems. I’m not a believer in non democracy as scaling better as much as believer that you’d be better off governing groups of a million with democracies than groups of 300 million.
Like all systems, it is better to have more systems than scale single systems to work well from size 0 to infinity
Like all systems, it is better to have more systems than scale single systems to work well from size 0 to infinity
Agree that is the best line. She is putting it lightly. Many of these people are socially inept. The resulting problem is what I call "misallocation of capital".
And then nothing will get done because everyone has a different opinion?
It won't work. We already have enough politics and corporate games at work. Are you advocating for more of that?
It won't work. We already have enough politics and corporate games at work. Are you advocating for more of that?
Well, yes, but the whole "everyone has a different opinion" is a artifically created circumstance with social media and political manipulation by those who want to elude controls.
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Yes because at work only a few people take part in the games (those with allocation control over a budget at least 50 times their own salary say). Everyone else is like slaves fighting over who gets to be head slave.
Maybe you're not aware of it or it's an issue outside of the US but everyone does it to some extent even if it's an act of self defense. And the fight to head slave that you mention is part of the games itself. Do you really get there without politics of some sort?
Capital is just another name for power and powerful people fight to maintain and accumulate more power - welcome to the world, summer child.
It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market regulation, progressive taxes, they are all forms of limiting the accumulation of capital and power.
And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well.
It's nothing short of amazing that it works, really, we are privileged to live in a society where the powerful are so limited in what they can do with their power. We can still fine tune & tax more, of course.
It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market regulation, progressive taxes, they are all forms of limiting the accumulation of capital and power.
And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well.
It's nothing short of amazing that it works, really, we are privileged to live in a society where the powerful are so limited in what they can do with their power. We can still fine tune & tax more, of course.
We didn’t just “come up with that society”: many aspects of it were deliberately constructed because previous iterations failed badly. Deposit insurance, which is the subject of this post, was a depression-era phenomenon that came into existence because many banks failed catastrophically. Many other aspects of our modern society, from old-age pensions to welfare to our global defense alliances, were also born of similar disasters.
The main objection in this post is that certain members of our society seem to view those developments as “old fashioned” and unnecessary, and would like to roll them back. Some go so far as to advocate for and donate considerable wealth to politicians who promise to do so. But of course when those people are themselves exposed to the exact risks those systems were designed to protect against — suddenly they’re enthusiastically in favor of government protection.
The lesson here is that you should not look at our society and take it for granted. It took work to get us here, and it takes constant work to keep it in place. There are people who would throw it away for a momentary profit, and those people will tell you their beliefs are founded in principle. But for your own protection, you should pay attention to how seriously they take those principles when their money is on the line, and update your mental model accordingly. In this case the answer is: they do not take those principles very seriously at all.
The main objection in this post is that certain members of our society seem to view those developments as “old fashioned” and unnecessary, and would like to roll them back. Some go so far as to advocate for and donate considerable wealth to politicians who promise to do so. But of course when those people are themselves exposed to the exact risks those systems were designed to protect against — suddenly they’re enthusiastically in favor of government protection.
The lesson here is that you should not look at our society and take it for granted. It took work to get us here, and it takes constant work to keep it in place. There are people who would throw it away for a momentary profit, and those people will tell you their beliefs are founded in principle. But for your own protection, you should pay attention to how seriously they take those principles when their money is on the line, and update your mental model accordingly. In this case the answer is: they do not take those principles very seriously at all.
Of course it didn't all spontaneously emerge, it was a result of a long political struggle of the masses against those in power; I was condensing for brevity and specifically mention existing room for improvement. I disagree though with your the read of the article. In the author's own words:
> I would probably argue that venture capitalists are not good for society regardless of what they’re investing in. ... I am feeling particularly secure in my opinion on the investor class after the shitshow we just witnessed ... > People are realizing that despite the hundreds of billions of dollars being deployed each year by venture capital firms in pursuit of “innovation”, the world doesn’t really feel hundreds of billions of dollars better off for it.
The sentiment here is clear, and has nothing to do with rolling back old-fashion regulations. Rather, it's a pure and unadulterated call against investor freedom and profit driven innovation. It's, dare I say it?, a call for economic Stalinism: stripping the "investor class" of their power to direct economic activity, investment and innovation. The author is silent about the implications of those ideas, but let's just say the historic record is not excellent.
This is what I reacted to, and I'm telling the author to chill, go a little easier on that thick ideological slurpee, perhaps read a little more and come back when they come to appreciate the finer nuances of how society really works.
> I would probably argue that venture capitalists are not good for society regardless of what they’re investing in. ... I am feeling particularly secure in my opinion on the investor class after the shitshow we just witnessed ... > People are realizing that despite the hundreds of billions of dollars being deployed each year by venture capital firms in pursuit of “innovation”, the world doesn’t really feel hundreds of billions of dollars better off for it.
The sentiment here is clear, and has nothing to do with rolling back old-fashion regulations. Rather, it's a pure and unadulterated call against investor freedom and profit driven innovation. It's, dare I say it?, a call for economic Stalinism: stripping the "investor class" of their power to direct economic activity, investment and innovation. The author is silent about the implications of those ideas, but let's just say the historic record is not excellent.
This is what I reacted to, and I'm telling the author to chill, go a little easier on that thick ideological slurpee, perhaps read a little more and come back when they come to appreciate the finer nuances of how society really works.
She’s not proposing legislation. She’s saying these guys are hypocrites who privatize the wins and socialize the losses.
> And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits
This is naive to the point of absurdity, when the rich and powerful quite often are gifted loopholes for the profits to not be taxable, with a wink and a nudge from the "democratically elected public authority".
I would certainly love to live in your illusion that "we are privileged to live in a society where the powerful are so limited in what they can do with their power" when they are constantly bailed out from their mistakes and get literal "get out of jail free cards" from their misdeeds. Things that would get you in prison get them a slap on the wrist at most.
This is naive to the point of absurdity, when the rich and powerful quite often are gifted loopholes for the profits to not be taxable, with a wink and a nudge from the "democratically elected public authority".
I would certainly love to live in your illusion that "we are privileged to live in a society where the powerful are so limited in what they can do with their power" when they are constantly bailed out from their mistakes and get literal "get out of jail free cards" from their misdeeds. Things that would get you in prison get them a slap on the wrist at most.
> naive to the point of absurdity, when the rich and powerful quite often are gifted loopholes for the profits to not be taxable
This is not how I read OP. You’re reading a Panglossian “we’re in the best of all worlds.” I read we’ve found a good solution, but it’s a work in progress.
Democracy alone has evolved through the centuries, ranging from electoral fetishism to enlightened autocracy. Progressive taxation, meanwhile, is a mostly modern invention. Yes, it’s easier to take a cheap shot at how the rich are powerful, but that’s OP’s other point, the rich are always powerful. How they are incentivised to use that power, and how they accumulate it, is a much more productive (and intellectually challenging) discussion than pointing out we aren’t in a utopia. (We know that. Everyone knows that.)
This is not how I read OP. You’re reading a Panglossian “we’re in the best of all worlds.” I read we’ve found a good solution, but it’s a work in progress.
Democracy alone has evolved through the centuries, ranging from electoral fetishism to enlightened autocracy. Progressive taxation, meanwhile, is a mostly modern invention. Yes, it’s easier to take a cheap shot at how the rich are powerful, but that’s OP’s other point, the rich are always powerful. How they are incentivised to use that power, and how they accumulate it, is a much more productive (and intellectually challenging) discussion than pointing out we aren’t in a utopia. (We know that. Everyone knows that.)
The rich will always be powerful. The irony is that we do live in the best of all worlds, but it still sucks. There's no utopia, there's only dystopia.
And I disagree that democracy will ever be improved, at least not with humans at the helm.
And I disagree that democracy will ever be improved, at least not with humans at the helm.
> I disagree that democracy will ever be improved, at least not with humans at the helm
Again, this is an easy and thoughtless take without a proposed alternative. (Benevolent AI is just benevolent dictatorship with a veneer.)
It's also gratingly at odds with very modern history. History that, granted, is not part of our public education corpus.
Again, this is an easy and thoughtless take without a proposed alternative. (Benevolent AI is just benevolent dictatorship with a veneer.)
It's also gratingly at odds with very modern history. History that, granted, is not part of our public education corpus.
I proposed no alternative because there is no alternative.
A benevolent AI would not work as humans will be the ones to define the constraints under with the benevolent AI operates. Make no mistake, the ruling class will define constraints that will give them more power.
My remark about "humans at the helm" may have given you the false impression that I am optimistic about technology solving our societal woes. I apologize for that. I state that there's no eucatastrophe to save us from ourselves. My remark was intended as a sardonic statement that while there are humans, nothing will ever be improved. These problems are as old as humanity, and will only cease being problems when humanity ceases to exist.
A benevolent AI would not work as humans will be the ones to define the constraints under with the benevolent AI operates. Make no mistake, the ruling class will define constraints that will give them more power.
My remark about "humans at the helm" may have given you the false impression that I am optimistic about technology solving our societal woes. I apologize for that. I state that there's no eucatastrophe to save us from ourselves. My remark was intended as a sardonic statement that while there are humans, nothing will ever be improved. These problems are as old as humanity, and will only cease being problems when humanity ceases to exist.
It's pretty easy to improve democracy, get better constituents.
Also it's pretty easy to list actual small tweaks. Does that count as improving democracy itself?
Education works, even if its "efficacy" is pretty low.
Also it's pretty easy to list actual small tweaks. Does that count as improving democracy itself?
Education works, even if its "efficacy" is pretty low.
>It's pretty easy to improve democracy, get better constituents.
Simple solutions aren't the same as easy ones.
Education absolutely does work wonders on social and economic fronts, but it is unevenly distributed and the administration of it is easily subverted.
Simple solutions aren't the same as easy ones.
Education absolutely does work wonders on social and economic fronts, but it is unevenly distributed and the administration of it is easily subverted.
Everything from wage theft to dumping millions of gallons of crude oil in bodies of water is little more than a fine if you are a registered corporation.
Exactly. Democracies, it turns out, are actually very difficult to fully implement for a plethora of reasons. We, for the most part in the "west" live in a technocracy to which governing bodies are subservient and acquiescent. My personal desire is that as our current world continues to unravel, enough people wake up to this fact and say, "no more". That would be a grand step towards a better democracy.
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“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.”
Applies to the democracy + capitalism combination, as well.
We can try to improve upon it, but should be carefull to not kill the goose that lays the golden eggs.
Applies to the democracy + capitalism combination, as well.
We can try to improve upon it, but should be carefull to not kill the goose that lays the golden eggs.
"Except for all the others, democracy is the worst form of government"
One can believe that the combination of democracy and capitalism is the best thing humanity could come up with, and realize it still sucks.
Humans are tribal above all else. We evolved to cooperate on small bands hunting animals in some African savannah, not to cooperate in large scale as the world we create requires. Any government system we come up with will become dysfunctional because we are unfit for the world we created.
My point still stands. The ruling class is as powerful as they always were, and operate on rules designed by them, so that they can better oppress the lower classes. And I don't advocate that a different system would be any different. There will always be a ruling class.
Humans are tribal above all else. We evolved to cooperate on small bands hunting animals in some African savannah, not to cooperate in large scale as the world we create requires. Any government system we come up with will become dysfunctional because we are unfit for the world we created.
My point still stands. The ruling class is as powerful as they always were, and operate on rules designed by them, so that they can better oppress the lower classes. And I don't advocate that a different system would be any different. There will always be a ruling class.
> the rich and powerful quite often are gifted loopholes for the profits to not be taxable.
Those loopholes aren't free and their nature is typically temporary. One example would be tax cuts in exchange for committing to provide N jobs.
Those loopholes aren't free and their nature is typically temporary. One example would be tax cuts in exchange for committing to provide N jobs.
Nothing is more permanent then temporary loopholes.
They exist only for long enough time until the next loophole is put in place.
> One example would be tax cuts in exchange for committing to provide N jobs.
Gotta love this one. Trickle down economics at its best. "Thanks for going through the trouble of getting richer by expanding your business. Here's some extra tax exemptions for your sacrifice. The silly peasants will pay taxes in your stead".
They exist only for long enough time until the next loophole is put in place.
> One example would be tax cuts in exchange for committing to provide N jobs.
Gotta love this one. Trickle down economics at its best. "Thanks for going through the trouble of getting richer by expanding your business. Here's some extra tax exemptions for your sacrifice. The silly peasants will pay taxes in your stead".
> tax cuts in exchange for committing to provide N jobs.
Does this ever work? That is does it work better than not giving tax cuts in the long run.
Committing costs very little, especially if the tax advantages are not clawed back if the jobs fail to materialise. How does one really measure the number of jobs created by the tax cut versus those that might well have been created even if there were no tax cut.
Does this ever work? That is does it work better than not giving tax cuts in the long run.
Committing costs very little, especially if the tax advantages are not clawed back if the jobs fail to materialise. How does one really measure the number of jobs created by the tax cut versus those that might well have been created even if there were no tax cut.
They get a tax cut and commit to paying N people less than the value they create for their companies, what's the cost? You must have accidentally erased that part while editing.
One counterexample would be Peter Thiel's Roth IRA.
They’re not free, but they’re cheaper than taxes.
cornholio(2)
> And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well.
I think the conclusion I'm coming to, at least for now, is that while that is in fact the system that we owe much of our current wealth to, it is not necessarily the system we currently live under. Yet we do have a society that likes to pretend it is still the system.
I think the conclusion I'm coming to, at least for now, is that while that is in fact the system that we owe much of our current wealth to, it is not necessarily the system we currently live under. Yet we do have a society that likes to pretend it is still the system.
> It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history.
I would disagree emphatically with this statement. Prior to the advent of capitalism (200 years ago) there was significantly more long term vs short term thinking in society.
We as a people and culture often engaged in massive generation spanning projects where the people who would see and benefit from the results could be generations in the future and the people who started the project would be long dead before it was finished. How much of this do we see today? The ROI cycle now is what a quarter, a few years...
While I don't disagree that power tends to accumulate and is seldom given away, the focus wasn't solely on the acquisition and hoarding of capital. You can see the change in architecture, city design, the arts, and almost every aspect of life. Even simple utilitarian structures were often built as monuments of progress expected to serve generations. We can't even expand existing highways to meet demand.
There always were and always will be the selfish in society but society as a whole wasn't always this selfish.
I would disagree emphatically with this statement. Prior to the advent of capitalism (200 years ago) there was significantly more long term vs short term thinking in society.
We as a people and culture often engaged in massive generation spanning projects where the people who would see and benefit from the results could be generations in the future and the people who started the project would be long dead before it was finished. How much of this do we see today? The ROI cycle now is what a quarter, a few years...
While I don't disagree that power tends to accumulate and is seldom given away, the focus wasn't solely on the acquisition and hoarding of capital. You can see the change in architecture, city design, the arts, and almost every aspect of life. Even simple utilitarian structures were often built as monuments of progress expected to serve generations. We can't even expand existing highways to meet demand.
There always were and always will be the selfish in society but society as a whole wasn't always this selfish.
Yet "capitalism" is actually the best way to limit that power of powerful people and make status pretty closely linked with ability.
In every other attempt at forming different societies (from feudalism to capitalism) it's generally the ones good at power games that win, not the ones with the actual best abilites.
It is said of Stalin he was the best power game player ever born, he was equalled by no one in power accumulation games.
The possible exception to this is small tribes, where it was usually the people who added the most to a tribe that got power (if you were a power game player two friends could basically topple you).
But we're not going back to tribal life, so there we go. Capitalism is still the best of all the bad systems we have.
In every other attempt at forming different societies (from feudalism to capitalism) it's generally the ones good at power games that win, not the ones with the actual best abilites.
It is said of Stalin he was the best power game player ever born, he was equalled by no one in power accumulation games.
The possible exception to this is small tribes, where it was usually the people who added the most to a tribe that got power (if you were a power game player two friends could basically topple you).
But we're not going back to tribal life, so there we go. Capitalism is still the best of all the bad systems we have.
Is status really linked to ability? Was SBF an anomaly, or just might it have been the case that he benefitted from obvious unearned social capital, like his Stanford professor parents? And that he, like plenty of others, told a story about “doing good by doing well” that so many wealthy people love to hear?
I'm incredibly curious what your sources are. Many of the confident claims in your comment go counter to what I've learned.
Highly regulated capitalism maybe. Unregulated capitalism is a dystopia generator.
I used to really enjoy the All In Podcast. However their recent "all in for their best interests" was too much for me. The topic of interest rates vs. not having a recession is really complicated. I believe that long term extremely high inflation would be much more crushing for middle and lower income segments of the population since they don't have the kinds of real assets that float as the dollar floats. This is why I personally believe that raising rates is required.
I believe that the character and soul of a society is how well they give less privileged people at least a chance to earn shelter and food. I was less extreme in my views before I started volunteering at a local food bank and got to know people whose lives collapsed because of one bad family illness, etc.
I believe that the character and soul of a society is how well they give less privileged people at least a chance to earn shelter and food. I was less extreme in my views before I started volunteering at a local food bank and got to know people whose lives collapsed because of one bad family illness, etc.
One interesting aspect to me: If you extend the dilemma to N prisoners, and one prisoner starts shouting from the rooftops that he’s starting to rat people out, it does seem rational to immediately start doing the same.
Like, once you know the Founders Fund companies are rushing to pull their cash, yeah you should maybe start thinking about getting out too, before you’re the only uninsured depositor left.
Like, once you know the Founders Fund companies are rushing to pull their cash, yeah you should maybe start thinking about getting out too, before you’re the only uninsured depositor left.
VCs are like bankers, lawyers, agents and unions - maybe in some carefree competition-free utopia they're unnecessary, but they're absolutely crucial in the real one where companies compete for capital and resources, and custom inside deals are the normalized way to win.
By the time it gets out that a bank is too illiquid to cover its deposits, the situation is already too unstable for any kind of careful coordination of thousands of parties with real concerns about their valuable resources.
Imagine the results of an email sent to everyone in Silicon Valley:
—
“So the local bank screwed up and can’t cover all its deposits. But let’s get together to see if we can all agree to wait this out as a disciplined block of customers.
How is Thursday for everyone?
(It’s very important that we all cooperate. So if I don’t hear from any of you in the next 20 minutes, I reserve my own right to start withdrawals.)”
—
That’s not going to work!
The bank will be toast before half the recipients get their email.
This has absolutely nothing to do with an “investor class”.
And everything to do with bad bank risk management and timely contingency planning.
Imagine the results of an email sent to everyone in Silicon Valley:
—
“So the local bank screwed up and can’t cover all its deposits. But let’s get together to see if we can all agree to wait this out as a disciplined block of customers.
How is Thursday for everyone?
(It’s very important that we all cooperate. So if I don’t hear from any of you in the next 20 minutes, I reserve my own right to start withdrawals.)”
—
That’s not going to work!
The bank will be toast before half the recipients get their email.
This has absolutely nothing to do with an “investor class”.
And everything to do with bad bank risk management and timely contingency planning.
Sorry, I don’t like VCs (no specific reason, just don’t like people with tons of money), but a person’s choice of bank shouldn’t be the deciding factor in whether or not they get to keep their money.
Do more wealthy VCs and firms have more tooling available to be able to properly vet their capital storage houses before deciding to reside there? Sure. But unless we decide that banks should be public facilities with the aim of strictly housing money, I’m not sure any amount of vetting could actually guarantee a depositor’s safety at a bank. And I just don’t think it should be your fault if your bank’s investment branch are nincompoops. You have no control over that, and certainly no degree of control from a quarter to quarter standpoint where the personnel of your bank might shift and change far past your vetting.
So would I have lost sleep if VCs lost their deposits? No. But am I glad they were made whole, even if I think they shouldn’t have that much money in the first place? Yes.
Do more wealthy VCs and firms have more tooling available to be able to properly vet their capital storage houses before deciding to reside there? Sure. But unless we decide that banks should be public facilities with the aim of strictly housing money, I’m not sure any amount of vetting could actually guarantee a depositor’s safety at a bank. And I just don’t think it should be your fault if your bank’s investment branch are nincompoops. You have no control over that, and certainly no degree of control from a quarter to quarter standpoint where the personnel of your bank might shift and change far past your vetting.
So would I have lost sleep if VCs lost their deposits? No. But am I glad they were made whole, even if I think they shouldn’t have that much money in the first place? Yes.
They were not "persons", they were "companies", and, as such, every financial-related action that such a company carries out (like choosing the shady bank instead of a well-established one) might in fact bring it down. That's how business works for companies.
And SVB was a shady bank, hence why it had begun to run out of funds before the VCs started losing their minds on Twitter, and also because there are many stories of them (SVB) opening up accounts and giving lines of credit much more freely compared to an established bank or even to a more cautious "mom-and-pop" bank.
And SVB was a shady bank, hence why it had begun to run out of funds before the VCs started losing their minds on Twitter, and also because there are many stories of them (SVB) opening up accounts and giving lines of credit much more freely compared to an established bank or even to a more cautious "mom-and-pop" bank.
Its fascinating how narratives can have such a outsized impact on our worldview, often distorting reality. In this context, we see the "evil bankers" vs "free market" trope but in reality, neither sides couldn't be further from the truth.
You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it.
Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability.
These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply.
The progressive and libertarian narratives were both fighting against their own interests, which is why I find them both amusing. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.
You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it.
Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability.
These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply.
The progressive and libertarian narratives were both fighting against their own interests, which is why I find them both amusing. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.
> “I mean, I would probably argue that venture capitalists are not good for society regardless of what they’re investing in.”
Definitely. Personally, I have __never__ purchased anything from Amazon, looked anything up with Google, shipped anything with FedEx, gotten somewhere with Uber, received a COVID vaccine from Moderna, used an iPhone or Android cell phone, played an Atari or EA video game, used a Mac or Windows computer, used any program that relies on NVIDIA GPUs, sent money via Paypal/Venmo/CashApp, contacted someone using a Cisco phone or router, found a job or closed a sale via Linkedin, watched a video with YouTube, shared a file with Dropbox/Google Drive/OneDrive, stayed in an Airbnb, booked travel with Kayak/Expedia, bought a home that I found on Zillow, bought anything online via Stripe/Shopify, bought anything in-person via Square terminal, looked a Facebook/Instagram/Snapchat/Twitter post, bought groceries with Instacart, ordered food with Doordash, hosted code on Github, made a video call with Zoom, looked at a Figma/Sketch design for work.
It was, in any case, of course certain that all of these things would exist.
> For all the talk of unbridled innovation, venture capital services only very specific types of innovation: those that stand to produce large exits for investors, and with relatively low risk, regardless of whether the business itself holds much promise or provides any societal benefit.
Yes. Anyone who has ever worked for or invested in a startup can attest to how low-risk and predictable they are. If only they were more volatile: then my life would be more interesting.
3% of seed-stage startups eventually exit? If only I could count on success like that each time I drive my car, take a flight, or cross the street.
Definitely. Personally, I have __never__ purchased anything from Amazon, looked anything up with Google, shipped anything with FedEx, gotten somewhere with Uber, received a COVID vaccine from Moderna, used an iPhone or Android cell phone, played an Atari or EA video game, used a Mac or Windows computer, used any program that relies on NVIDIA GPUs, sent money via Paypal/Venmo/CashApp, contacted someone using a Cisco phone or router, found a job or closed a sale via Linkedin, watched a video with YouTube, shared a file with Dropbox/Google Drive/OneDrive, stayed in an Airbnb, booked travel with Kayak/Expedia, bought a home that I found on Zillow, bought anything online via Stripe/Shopify, bought anything in-person via Square terminal, looked a Facebook/Instagram/Snapchat/Twitter post, bought groceries with Instacart, ordered food with Doordash, hosted code on Github, made a video call with Zoom, looked at a Figma/Sketch design for work.
It was, in any case, of course certain that all of these things would exist.
> For all the talk of unbridled innovation, venture capital services only very specific types of innovation: those that stand to produce large exits for investors, and with relatively low risk, regardless of whether the business itself holds much promise or provides any societal benefit.
Yes. Anyone who has ever worked for or invested in a startup can attest to how low-risk and predictable they are. If only they were more volatile: then my life would be more interesting.
3% of seed-stage startups eventually exit? If only I could count on success like that each time I drive my car, take a flight, or cross the street.
There can always happen the situation that customers of a bank want their money that they deposited there back.
In the insurance sector, the situation that a singular event (say, a hurricane) causes damages to a lot of customers at once is a well-known phenomenon, named a "cumulative event". Every insurance company has to model this and thus there exist mathematical tools for this such as copulas: https://en.wikipedia.org/wiki/Copula_(probability_theory)
A bank should better the model the event that a lot of customers want their money back, too. If it does not, there is something deeply wrong with the bank's risk management.
Thus, in my opinion, the article victim-blames venture capitalists to be "evil" while the true culprit are the bankers who did not factor in the cumulative event that lots of customers want their money back (which was given to the bankers by the customers to be held in safe custody) into their risk management.
In the insurance sector, the situation that a singular event (say, a hurricane) causes damages to a lot of customers at once is a well-known phenomenon, named a "cumulative event". Every insurance company has to model this and thus there exist mathematical tools for this such as copulas: https://en.wikipedia.org/wiki/Copula_(probability_theory)
A bank should better the model the event that a lot of customers want their money back, too. If it does not, there is something deeply wrong with the bank's risk management.
Thus, in my opinion, the article victim-blames venture capitalists to be "evil" while the true culprit are the bankers who did not factor in the cumulative event that lots of customers want their money back (which was given to the bankers by the customers to be held in safe custody) into their risk management.
> which was given to the bankers by the customers to be held in safe custody
That simply not how banking works. Many individuals think of banking that way, and they can because FDIC insures their deposits for up to $250k. (Which for the average person might as well be infinite.) But companies are supposed to understand and manage risk better. A corporate bank account is not and has never been a black box to just dump your funds in without worry.
That simply not how banking works. Many individuals think of banking that way, and they can because FDIC insures their deposits for up to $250k. (Which for the average person might as well be infinite.) But companies are supposed to understand and manage risk better. A corporate bank account is not and has never been a black box to just dump your funds in without worry.
> I would probably argue that venture capitalists are not good for society regardless of what they’re investing in
That's kind of a stupid and black and white argument. It can be good, might not be. Overall customers decide. If society deems slavery ok, then some VCs can and will make money with it.
Shitting on VCs from someone that advocates for crypto and "aLtErNaTiVe MoDeLs". This bullshit can only come from someone who never dealt with funding in a startup. I'd rather have a bunch of VCs getting me and my idea instead of having to manage investor relations for thousands of crypto bros. Also: crowdfunding fails if you have complex special solutions which no one understands. The probability that there's a low number of VCs even getting your idea is way higher than getting a critical number of crowdfunders to get your idea so you can even try.
That's kind of a stupid and black and white argument. It can be good, might not be. Overall customers decide. If society deems slavery ok, then some VCs can and will make money with it.
Shitting on VCs from someone that advocates for crypto and "aLtErNaTiVe MoDeLs". This bullshit can only come from someone who never dealt with funding in a startup. I'd rather have a bunch of VCs getting me and my idea instead of having to manage investor relations for thousands of crypto bros. Also: crowdfunding fails if you have complex special solutions which no one understands. The probability that there's a low number of VCs even getting your idea is way higher than getting a critical number of crowdfunders to get your idea so you can even try.
Legality and morality are not the same thing. There are many activities that may be technically legal but still make you someone society would be better off without.
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> VCs, and capitalists in general, put money at risk in the hope of generating wealth above their initial capital. , absent the internet-controlled juice-squeezers.
You're so close to getting the point, yet so far. The whole point of the article is that there is nothing in the VC handbook that has anything to do with the "benefits society" part of your "They produce goods or services that benefit society" statement.
In fact, if slavery is magically made legal today, I will bet that the Anderssen Horowitzs of this world will fund the Adam Newmanns of this world to start a slave trading startup before the weekend is over. And we need people like Molly White to keep them accountable, to build consensus on what's legal but not moral, and push for a better society where we can live with human dignity.
You're so close to getting the point, yet so far. The whole point of the article is that there is nothing in the VC handbook that has anything to do with the "benefits society" part of your "They produce goods or services that benefit society" statement.
In fact, if slavery is magically made legal today, I will bet that the Anderssen Horowitzs of this world will fund the Adam Newmanns of this world to start a slave trading startup before the weekend is over. And we need people like Molly White to keep them accountable, to build consensus on what's legal but not moral, and push for a better society where we can live with human dignity.
We have a form of slavery around today, and it is indeed how most tech billionaires became billionaires: http://www.breckyunits.com/an-unpopular-phrase.html
> In fact, if slavery is magically made legal today
Then society deems it ethically ok. You're argument is void. If society thinks things are ok, why are VCs the heavenly instance to rectify that?
> And we need people like Molly White to keep them accountable
You mean crypto shills will enforce ethics? Lol
Then society deems it ethically ok. You're argument is void. If society thinks things are ok, why are VCs the heavenly instance to rectify that?
> And we need people like Molly White to keep them accountable
You mean crypto shills will enforce ethics? Lol
Molly White a crypto shill? Her writing career is dominated by crypto skepticism and skewering crypto shills.
> VCs, and capitalists in general, put money at risk in the hope of generating wealth above their initial capital. They produce goods or services that benefit society, absent the internet-controlled juice-squeezers.
VCs hoarding even more capital doesn't contribute anything to society, they are all 100% rent-seeking juice-squeezers. They are a huge example of why capitalism is so broken.
> Society has benefited greatly from capitalism. I wouldn't leave it up to the likes Molly White to produce anything meaningful.
Society and the world has been - and continues to be - tremendously damaged by capitalism. But of more interest is the ad hominem against Molly White.
I know Molly's work and I'm quite confident that she did a lot more for the world - especially in the crypto space and wikipedia space - than you ever did. See how I can play your game too?
The behaviour of Facebook and Google, or Microsoft (in the past) of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions, especially while 60% of just people in the USA live paycheck to paycheck.
To me it's not Venture Captitalism but Vulture Capitalism.
VCs hoarding even more capital doesn't contribute anything to society, they are all 100% rent-seeking juice-squeezers. They are a huge example of why capitalism is so broken.
> Society has benefited greatly from capitalism. I wouldn't leave it up to the likes Molly White to produce anything meaningful.
Society and the world has been - and continues to be - tremendously damaged by capitalism. But of more interest is the ad hominem against Molly White.
I know Molly's work and I'm quite confident that she did a lot more for the world - especially in the crypto space and wikipedia space - than you ever did. See how I can play your game too?
The behaviour of Facebook and Google, or Microsoft (in the past) of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions, especially while 60% of just people in the USA live paycheck to paycheck.
To me it's not Venture Captitalism but Vulture Capitalism.
> of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions
Does it really? Honestly, it's hard to take such sentiments seriously when you start mentioning these particular "hype" billionaires.
For one, it seems like most spite comes of expecting them to act like some godly idols, instead of like some dudes. But largely, it's just that there are so much worse examples, dealing in so much worse things.
You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior.
Does it really? Honestly, it's hard to take such sentiments seriously when you start mentioning these particular "hype" billionaires.
For one, it seems like most spite comes of expecting them to act like some godly idols, instead of like some dudes. But largely, it's just that there are so much worse examples, dealing in so much worse things.
You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior.
> You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior.
It's not about them as personalities, but what they represent. And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
It's not about them as personalities, but what they represent. And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
> It's not about them as personalities, but what they represent.
So... Still personalities since they don't really represent anything but themselves.
> And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
Their flaws are no worse than yours. And people you've named don't have THAT kind of power. Musk barely scratched a shred of power with twitter but was viciously attacked by people with actual power and quickly shown his place.
In any case, your rage should be directed towards someone from the military industrial complex for example - these people actually murdered people and engineered wars in order to get money.
Gates, Musk and so on are harmless children in comparison. This basically looks like another variation of rant about holywood/rap-singers/bloggers and their endless flaws that are oh so harmful to otherwise totally functional society. Really treating a serious issue as some kind of joke or a tabloid material.
So... Still personalities since they don't really represent anything but themselves.
> And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
Their flaws are no worse than yours. And people you've named don't have THAT kind of power. Musk barely scratched a shred of power with twitter but was viciously attacked by people with actual power and quickly shown his place.
In any case, your rage should be directed towards someone from the military industrial complex for example - these people actually murdered people and engineered wars in order to get money.
Gates, Musk and so on are harmless children in comparison. This basically looks like another variation of rant about holywood/rap-singers/bloggers and their endless flaws that are oh so harmful to otherwise totally functional society. Really treating a serious issue as some kind of joke or a tabloid material.
> people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions
You picked the guy who’s curing malaria and the one who kickstarted the modern electric vehicle and rocket industries. Yes, they’re flawed. But all humans are, especially the ambitious. I’m struggling to imagine an alternate system where e.g. they’re in better form as elected representatives.
You picked the guy who’s curing malaria and the one who kickstarted the modern electric vehicle and rocket industries. Yes, they’re flawed. But all humans are, especially the ambitious. I’m struggling to imagine an alternate system where e.g. they’re in better form as elected representatives.
> You picked the guy who’s curing malaria and the one who kickstarted the modern electric vehicle and rocket industries. Yes, they’re flawed. But all humans are, especially the ambitious. I’m struggling to imagine an alternate system where e.g. they’re in better form as elected representatives.
You may struggle to imagine an alternate system but others don't. Billionaires should not exist. Relying on billionaires to do good is ludicrous.
Tesla was founded by others, Elon bought Tesla.
Rocket industries are not good for the environment or our future. We can do mostly without them. Maybe to keep GPS up and running but that's it.
You may struggle to imagine an alternate system but others don't. Billionaires should not exist. Relying on billionaires to do good is ludicrous.
Tesla was founded by others, Elon bought Tesla.
Rocket industries are not good for the environment or our future. We can do mostly without them. Maybe to keep GPS up and running but that's it.
I broadly like the things Molly is bringing attention to, but there are some problems here:
1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationship where they are also major equity holders in the companies banking at the bank - ie, they've benefited hugely from the de-risking even if nominally they are getting wiped out.
2) "No libertarians in a bank run" - what, did libertarians suddenly become self-sacrificing when I wasn't watching? Libertarianism is recognising that people shouldn't be forced to pay taxes to fund these bailouts and that people should be allowed to avoid the dollar while conducting business if they wish. If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. Since these libertarians aren't idiots, they took the bail out. They aren't dignified, sure, but they never pretended they were going to hold themselves up as sacrifices.
3) "the Fed’s not-a-bailout of Silicon Valley Bank and Signature Bank seems ultimately to be the right choice "
I mean, if you concede that then ok but is anyone naive enough to believe that the wealthy took everyone else's money hostage by accident? It has been clear for a decade that as long as it is a crisis rich people will get free money. Therefore, the powerful have arranged their affairs so they won't lose money except in a crisis. The easy approach is letting the rules play out to their logical conclusions. People overestimate how important the banking sector is, it makes more sense to plan how to transition through a collapse and rebuild it than it does trying to hold up all the idiots currently in charge of all the important decisions. They aren't competent, that is why the system keeps trying to purge them!
Note the remarkable resiliency of the crypto system because it keeps jettisoning all the parts that go bust without rescuing them. Bitcoin's value is more resilient than the banking system right now sans-bailouts.
1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationship where they are also major equity holders in the companies banking at the bank - ie, they've benefited hugely from the de-risking even if nominally they are getting wiped out.
2) "No libertarians in a bank run" - what, did libertarians suddenly become self-sacrificing when I wasn't watching? Libertarianism is recognising that people shouldn't be forced to pay taxes to fund these bailouts and that people should be allowed to avoid the dollar while conducting business if they wish. If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. Since these libertarians aren't idiots, they took the bail out. They aren't dignified, sure, but they never pretended they were going to hold themselves up as sacrifices.
3) "the Fed’s not-a-bailout of Silicon Valley Bank and Signature Bank seems ultimately to be the right choice "
I mean, if you concede that then ok but is anyone naive enough to believe that the wealthy took everyone else's money hostage by accident? It has been clear for a decade that as long as it is a crisis rich people will get free money. Therefore, the powerful have arranged their affairs so they won't lose money except in a crisis. The easy approach is letting the rules play out to their logical conclusions. People overestimate how important the banking sector is, it makes more sense to plan how to transition through a collapse and rebuild it than it does trying to hold up all the idiots currently in charge of all the important decisions. They aren't competent, that is why the system keeps trying to purge them!
Note the remarkable resiliency of the crypto system because it keeps jettisoning all the parts that go bust without rescuing them. Bitcoin's value is more resilient than the banking system right now sans-bailouts.
> This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in
Only when looking in hindsight.
Unless those extremely wealthy people knew that in the eventuality of a bank run the government would offer them shelter, as the government normally does for the ruling class. But that is not in a sense part of her criticism?
Only when looking in hindsight.
Unless those extremely wealthy people knew that in the eventuality of a bank run the government would offer them shelter, as the government normally does for the ruling class. But that is not in a sense part of her criticism?
> If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout.
But that's explicitly *not* how the game was set up. The game was set up so everyone gets insured up to a limit, and if you're rich enough to be beyond that limit, then you should be paying market rate for insurance on those funds (which is, like, a thing they could have done).
They chose to forego insurance for their funds, and when it all collapsed they screamed bloody murder demanding the government make them whole. They demanded the government _change_ the rules to socialize their losses. If you demand government intervention when the market goes haywire that's fine, but you turn in your libertarian badge when you come demanding government handouts.
But that's explicitly *not* how the game was set up. The game was set up so everyone gets insured up to a limit, and if you're rich enough to be beyond that limit, then you should be paying market rate for insurance on those funds (which is, like, a thing they could have done).
They chose to forego insurance for their funds, and when it all collapsed they screamed bloody murder demanding the government make them whole. They demanded the government _change_ the rules to socialize their losses. If you demand government intervention when the market goes haywire that's fine, but you turn in your libertarian badge when you come demanding government handouts.
> you should be paying market rate for insurance on those funds
which, if you bought short term treasuries, you can easily just get that safety for "free" (aka, there's no such a need for insurance, unless you believe the insurers are safer than the US gov't).
Having it at a bank should've been equivalent, since you can make the bank's scale of economies in the buying/selling of short term treasuries to make it even easier (dare i say, even transparent). However, when a bank does this, they want to squeeze even a tiny bit more profit, and thus, instead of buying the requisite amount of short term treasuries, they bought long dated bonds/treasuries, which is insanely risky.
The VC depositor should've been financially savvy enough to look at their bank and see this, so i argue they did not deserve the bailout beyond the existing mandated FDIC one. it's causing moral hazard in the banking sector.
which, if you bought short term treasuries, you can easily just get that safety for "free" (aka, there's no such a need for insurance, unless you believe the insurers are safer than the US gov't).
Having it at a bank should've been equivalent, since you can make the bank's scale of economies in the buying/selling of short term treasuries to make it even easier (dare i say, even transparent). However, when a bank does this, they want to squeeze even a tiny bit more profit, and thus, instead of buying the requisite amount of short term treasuries, they bought long dated bonds/treasuries, which is insanely risky.
The VC depositor should've been financially savvy enough to look at their bank and see this, so i argue they did not deserve the bailout beyond the existing mandated FDIC one. it's causing moral hazard in the banking sector.
> But that's explicitly not how the game was set up.
Sorry, but yes, it was. It might not have been written down, but if all it took was for a few people to "scream bloody murder demanding the government make them whole," we need to look deeper at the implicit assumptions surrounding that system. And, part of those assumptions is that truly wealthy individuals get a greater level of service from that system than the rest of us, including bailouts like this. The same goes for "too big to fail" type institutions (viz JPMC and other big banks who are directly benefiting from a loss of confidence in institutions like SVB).
Sorry, but yes, it was. It might not have been written down, but if all it took was for a few people to "scream bloody murder demanding the government make them whole," we need to look deeper at the implicit assumptions surrounding that system. And, part of those assumptions is that truly wealthy individuals get a greater level of service from that system than the rest of us, including bailouts like this. The same goes for "too big to fail" type institutions (viz JPMC and other big banks who are directly benefiting from a loss of confidence in institutions like SVB).
Right, but those are the "implicit" rules, and I was very specifically referring to the "explicit" rules.
I agree that the explicit rules are not the implicit rules. That is a big part of the critique. I'm accusing any "libertarians" who demanded a government bailout in this instance of being just as fake, and just as bullshit, as those explicit rules are.
I agree that the explicit rules are not the implicit rules. That is a big part of the critique. I'm accusing any "libertarians" who demanded a government bailout in this instance of being just as fake, and just as bullshit, as those explicit rules are.
I don't understand why there is so much focus on the insurance limit. I'm not sure if such limits are reasonable in the first place because they create somewhat problematic incentives: Assume a bank has plenty of assets, but is temporarily out of liquidity. Why wouldn't an insurer like FDIC force the bank to trigger the insurance policy, cap all deposits at the limit, and realize huge profits after taking over the bank and bridging the liquidity gap?
The FDIC doesn't cap all deposits at the limit when they take over a bank. That would be insanity.
What they do is insure all deposits up to the limit.
When a bank fails, the assets are used to pay out the depositors (similar to a bankruptcy). If the assets are enough to cover 90% of deposits, then depositors will be made 90% whole. The insured amount is the *exception* to this process, where your amounts below the insured limit will be made whole even when there is an asset shortfall.
I don't think the law would allow the FDIC to cap depositors at the insurance limit, even if the underlying assets are enough to make the depositors whole.
What they do is insure all deposits up to the limit.
When a bank fails, the assets are used to pay out the depositors (similar to a bankruptcy). If the assets are enough to cover 90% of deposits, then depositors will be made 90% whole. The insured amount is the *exception* to this process, where your amounts below the insured limit will be made whole even when there is an asset shortfall.
I don't think the law would allow the FDIC to cap depositors at the insurance limit, even if the underlying assets are enough to make the depositors whole.
If the rules are what are advertising before the crisis then we'd have evidence of that by now. They are not the rules. The rules are that money will be printed and bailouts given. There are a lot of things that might surprise us, but the fact that the response to a crisis turned out to be a bailout was always a given.
Libertarian means they should acknowledge that these bailouts are making everyone worse off. But if we're going to do the bailouts anyway? I want libertarians to be first in line. There is no point letting authoritarians gain an advantage because of theoretical considerations; there were ample opportunities for the libertarian solution to be bought in from 2007-2022. They weren't, so at this point there is no reason for the brunt of the damage to fall on people who believe in freedom.
Libertarian means they should acknowledge that these bailouts are making everyone worse off. But if we're going to do the bailouts anyway? I want libertarians to be first in line. There is no point letting authoritarians gain an advantage because of theoretical considerations; there were ample opportunities for the libertarian solution to be bought in from 2007-2022. They weren't, so at this point there is no reason for the brunt of the damage to fall on people who believe in freedom.
To pull a quote from the article "No atheists in a foxhole. No libertarians in a bank run"
It’s funny that Molly (a VC) ascribes so much power to VCs that they can literally create bank runs on their own.
No.
VCs don’t make decisions on where a company keeps its cash; the founder/CEO does. And founders freaked the f-ck out. Let’s make sure to remember that founders had 100% agency in the decisions they made about their cash.
Here’s a selection of comments in the Whatsapp founders group Im in - all founders, no VCs:
Thursday 3/8 (36 hours before FDIC takeover):
“I'd consider moving to one of the too big to fail banks..”
“I agree the risk is higher then we thought before, I'm in SVB, with 4% - and looking to understand where to go now.”
“It's a numbers game - if a lot of people do what I do at the moment - it will fall.....”
“Does someone have a contact at Chase for B2B SaaS customers? I'm thinking it's wise to already have an account open there in case it will seem like we need to move off SVB.”
“Let's say we want to open a Chase account and move company funds?”
“for those that have their money in SVB and do not have another company bank account - what are the immediate options?”
“If there is a risk of a bank run, why not take the money out”
“Basically our whatsapp group creates bank runs now... power to the founders?”
“we just moved 85% of our money out”
“I just pulled ours”
It’s not surprising a VC would think she has more power than she actually has, but she also clearly has no idea about the wildfire that was spreading among founders themselves. Founders don’t give a sh-t about what their investors think (generally) - founders make the decisions they think are best because they have the most to lose (or win) from being wrong (or right). And they are much, much, much more likely to trust their fellow founders than their VCs.
No.
VCs don’t make decisions on where a company keeps its cash; the founder/CEO does. And founders freaked the f-ck out. Let’s make sure to remember that founders had 100% agency in the decisions they made about their cash.
Here’s a selection of comments in the Whatsapp founders group Im in - all founders, no VCs:
Thursday 3/8 (36 hours before FDIC takeover):
“I'd consider moving to one of the too big to fail banks..”
“I agree the risk is higher then we thought before, I'm in SVB, with 4% - and looking to understand where to go now.”
“It's a numbers game - if a lot of people do what I do at the moment - it will fall.....”
“Does someone have a contact at Chase for B2B SaaS customers? I'm thinking it's wise to already have an account open there in case it will seem like we need to move off SVB.”
“Let's say we want to open a Chase account and move company funds?”
“for those that have their money in SVB and do not have another company bank account - what are the immediate options?”
“If there is a risk of a bank run, why not take the money out”
“Basically our whatsapp group creates bank runs now... power to the founders?”
“we just moved 85% of our money out”
“I just pulled ours”
It’s not surprising a VC would think she has more power than she actually has, but she also clearly has no idea about the wildfire that was spreading among founders themselves. Founders don’t give a sh-t about what their investors think (generally) - founders make the decisions they think are best because they have the most to lose (or win) from being wrong (or right). And they are much, much, much more likely to trust their fellow founders than their VCs.
When a bank runs, you run. Trying to pin the blame on depositors is misguided. There are real villains to the SVB story. Regulators. Senior management. Goldman Sachs.
I don’t think the depositors should be blamed for attempting to get their money out of the bank once it became insolvent, but they certainly weren’t blameless in their own risk management prior to that.
Roku keeping half a billion dollars at svb without doing capitalization audits, or venture firms steering portfolio companies there without recommending backup banks is a business failure plain and simple. Those actions deserve scrutiny and the decision makers deserve blame.
Roku keeping half a billion dollars at svb without doing capitalization audits, or venture firms steering portfolio companies there without recommending backup banks is a business failure plain and simple. Those actions deserve scrutiny and the decision makers deserve blame.
> Roku keeping half a billion dollars at svb without doing capitalization audits, or venture firms steering portfolio companies there without recommending backup banks is a business failure plain and simple
One hundred percent. I was more attacking this conspiratorial line around so and so's tweets prompting the run.
One hundred percent. I was more attacking this conspiratorial line around so and so's tweets prompting the run.
Can you explain why Goldman Sachs?
> Can you explain why Goldman Sachs?
They bought SVB’s loans at a $2bn loss to SVB [1] and then advised them to go to market with non-binding capital commitments [2][3][4] all while billing SVB $100mm for the trouble [5]. In short, they gave terrible advice, tanked the bank and then made bank, all while West Coast punditry began blaming depositors.
[1] https://www.ft.com/content/84728014-c900-48cd-be87-8defbf557...
[2] https://ir.svb.com/news-and-research/news/news-details/2023/...
[3] https://www.ft.com/content/7e7fdddb-724c-42fd-98ee-5d7248d53...
[4] https://www.wsj.com/articles/how-goldmans-plan-to-shore-up-s...
[5] https://www.nytimes.com/2023/03/15/business/dealbook/goldman...
They bought SVB’s loans at a $2bn loss to SVB [1] and then advised them to go to market with non-binding capital commitments [2][3][4] all while billing SVB $100mm for the trouble [5]. In short, they gave terrible advice, tanked the bank and then made bank, all while West Coast punditry began blaming depositors.
[1] https://www.ft.com/content/84728014-c900-48cd-be87-8defbf557...
[2] https://ir.svb.com/news-and-research/news/news-details/2023/...
[3] https://www.ft.com/content/7e7fdddb-724c-42fd-98ee-5d7248d53...
[4] https://www.wsj.com/articles/how-goldmans-plan-to-shore-up-s...
[5] https://www.nytimes.com/2023/03/15/business/dealbook/goldman...
This seems to be the telling quote - and is to me the point.
We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look like - but we'll figure it out.