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Comment by m348e912 | Hacker News Reader

https://twitter.com/DavidSacks/status/1634292056821764099

Looking at the comments here, it's possible that this may trigger a run on banks.

The subtext here is David Sacks and his friends are investors in Silicon Valley companies. Lots of Silicon Valley companies are depositors of SVB and could lose money if there is a haircut on assets over $250k, or at least will lose temporary access to their cash. David Sacks wants SVB to be bailed out by a major bank so those deposits are made good. He’s talking about a wider economic impact because that’s an argument that such a bailout is necessary for the country, not just local VCs.

The especially funny thing to me is that some VCs were telling their portfolio companies to get their money out of SVP first thing this morning. So Sacks is a VC asking for a bailout on a bank run triggered by VCs. Cry me a river.

It's nice that he took time from his busy schedule decimating Twitter to share his views. But in my opinion VCs can't simultaneously claim to be such financial geniuses that they deserve lower taxes (via the carried interest loophole) but such babes in the woods that they need Uncle Sam to bail them out for a bad financial decision. Pick a lane, buddy.

> friends

Chamath?

So gambler wants house to cover his losses because his friends and him won't be able to continue gamble if they lose.

I don’t understand the disgust I’m reading for VCs and startups. Bailing out the bank doesn’t mean we let the bank CEO get richer off this transaction (like we did in 2008). It means the startup companies making payroll are going to survive and continue building the future of technology and healthcare.

What am I missing?

It means that the bank was gambling, lost, and wants to externalize those losses onto the rest of us who weren't gambling.

Yes

An alternative is to bankrupt the partners, cancel the shares, then take action for depositors

That is what did not happen in 2008

This is exactly what's happening here. Equity investors have lost their shirts. The government protection is only for depositors.

I hope so. But we have not seen that yet.

Have the shares been canceled? Are the partners bankrupted?

Too soon to tell. Remember AIG

Funny that in threads about crypto companies failing everyone cries about "this is why we have regulations and safety valves in the financial industry!" but now when these are in force people cry about the safety valves and regulations existing, and how the companies should just be allowed to fail

Who's doing that?

Part of the issue here is that SVB was able to get into trouble because important regulations and safeguards were removed years ago.

The ones that exist to minimize the wider impact of a bank failure are working, and I don't see anyone upset about that fact.

>Part of the issue here is that SVB was able to get into trouble because important regulations and safeguards were removed years ago.

Which important regulations and safeguards were removed?

I'm thinking of the Glass-Steagall Act that was put into place after the great depression. It prevented banks from engaging in both commercial and investment banking at the same time. You had to choose what sort of bank you wanted to be. The effect of this was to prevent banks from being able to take depositor's money and put it in risky investments.

It was effectively repealed in 1999 by the Gramm-Leach-Bliley Act. Its repeal is one of the things that allowed the 2008 crash to happen.

They bought treasuries and triple A rated mortgages. what else do you expect a bank to do to when seeking yield?

They aren’t just a vault for your money - they would charge you handsomely if so.

There’s disgust for a few reasons. One is that the wealthy (including VCs) have an undue influence on society and the economy just due to being wealthy. It’s always nice to see them take a hit sometimes.

Silicon Valley is “building the future”, but at the same time can be very disconnected from the lives of many people around the country. That leads to mistrust and lack of empathy when these kinds of things happen.

I'll add on an extra layer of disguist: cash management accounts exist. They've existed for a long time. They serve literally to hedge against the risks of bank failures by automatically sweeping funds in them between multiple FDIC member banks to:

1. Increase the amount of funds covered by FDIC insurance

2. Reduce the potential for loss of funds by a bank failure

I get that it's a pain in the ass to manage a bunch of accounts, but any business with >$1mm in cash reserves really should have everything but their operational float in a CMA or manually move it around themselves into multiple banks. When I see comments about a startup that had $x million in cash with SVB I have to wonder what the hell the founder and their investors were thinking keeping all of that in a single place.

you’re not missing anything

its not just government bailout versus nothing. private equity could have come together and tried to shore of the bank in its capital raise, but nobody (not enough) wanted to be first. their own collective risk aversion is their demise. And on the greed front, people totally plan to buy the carcass and firesold assets.

It's just that VCs and their portfolio companies are part of the same plutocracy as the banksters of 2008. Those without gazillions in stock options are furious that all of a sudden, they cry for bail-outs. Just like 2008.

Let them crash and burn, they shouldn't have all their assets in one bank.

I don’t think people are disgusted at “startups” in general, but David Sacks deserves any scorn that comes his way after his shameless and pathetic Musk sycophancy through the whole Twitter deal.

This guy who has spent years (decades?) constantly whining about how government regulations are excessive and federal agency should be curtailed and government should stop protecting various groups from harm etc. is now suddenly crying out for urgent government help once something is hurting him and his friend circle personally.

BANG ON. The guy is sickening.

Hacker News has not been pro-startup and VC for a long time, probably at least for 10 years. It's now mostly tech workers who are not the capital class or are startup founders.

Yes, it's been eye-opening to witness this transformation!

The sentiment has just shifted among workers I think. People have understood that working for startups is a low estimated value gamble compared to non startups.

Dilution and share classes also are worse nowadays I believe.

He and his buddies were talking about playing gambling and donating earnings.

I saw it as a promotion for gambling. Listening to them talk about it made me sick

Americans love for gamlbing and alcoholism is beyond my comprehension. Like all bad things it's very bad in the long run

Why?

My money at VMFXX is almost entirely composed of safe Fed Repos with average maturity of 2-weeks. VUSXX is mostly Treasury Bills, again of maturity averaging like 2-weeks. My money at SWVXX is composed of AAA-rated bank notes, of similar 2-weeks-ish maturity average.

The idea of a bank, like SIVB, being composed of largely 30-year mortgages and 10Y or 30Y Treasury Bonds is insane. The bank deserves to die after taking such high duration risks. There should be _NO_ bailout. I can barely believe a bank was so stupid to keep customer deposits backed by something so risky.

----------

We've been preparing our financial system for the last 15 years (since 2008) for the next financial storm. We've got "stress tests" to see that various banks have severed contamination between each other, at least in theory. Lets see how good our preparations have held up.

No point giving up and bailing things out before we've even tested our new financial system regulations. We can afford to let some banks go under. Only if the contagion has a chance of spreading everywhere should we consider the last-ditch effort of a bailout.

I couldn’t give two shits about banks that go under. The businesses that concern me are the ones who lose deposits.

They won't lose deposits except insofar as they decided it was OK to exceed the 250k limit for FDIC insurance. And in deciding to do that, they were deciding to take a risk and got burned by it -- but it was a risk they willingly took on.

Asking honestly - if you just got $100m wired to your account from a Series C, what's the right way to protect your cash?

Honest answer? I don't know. But when my business was in a similar position (not from VCs and only about 25% of that amount), my business partner, attorney, and accountant sure did, so I know it can be done. IIRC, it was a fairly complex mix of different things. There certainly wasn't a single place that held all of the money.

I know that this sort of problem isn't new, and I know that there are a variety of ways to mitigate the risk to acceptable levels. I don't think you can ever completely eliminate risk.

Dealing with large amounts of money is very complex and really requires experts to do right. I'm an engineer, not a money expert. Your question is better aimed at a subject matter expert.

But my underlying point isn't even that these companies did the wrong thing. Only that they took a risk -- and starting a business is itself taking a risk. That's not necessarily a bad thing.

But when you take a risk, you're (obviously) taking a risk that the money will be lost. That's truly an unfortunate thing, but everyone knows the rules of the game.

In jest, this comment reminds be of that article about "The Gods On Hacker News" [1]. A random user just typed "when I had about $25mn in my business account..." like that's nothing, lol.

1- https://www.riknieu.com/the-gods-on-hackernews/

I gotcha. But I never had anything like $25mil. The business did. It's a rather significant difference. Even there, that wasn't profit that could be spent freely. The majority of it was already spoken for to cover expenses.

There's a couple of services that will split up your deposit into 20-different banks, so that you achieve $5 Million FDIC insurance rather than just $250,000.

Also, if any particular bank fails, you only risk 1/20th of your cash.

EDIT: I never managed $100M before however. Maybe that stops being a potential plan at these sizes.

I learned yesterday about CDARS.

These spread your deposits over (up to) thousands of banks, keeping each account below FDIC insurance limits. You can choose demand deposit accounts, or CDs or money market accounts if you want interest.

All accounts roll up into a single bank statement from your primary bank.

He is suggesting that the Fed/FDIC make depositors whole, not necessarily bail out the bank.

There is a good chance that depositors will be made whole regardless, but even if it does require some intervention it is probably worth it to prevent this from spreading to other banks. There are very valid reasons why certain organizations would need to keep more than $250k in an account, and if everyone of them started transferring their money to a handful of the safest institutions, then things could quickly get out of control.

It is not insane at all. Banks match expected duration of their assets and liabilities. This bank made a number of errors and was caught in a classic liquidity squeeze. Not the first and won't be the last.

Sorry, but the systemic risk here is vastly overstated. Yes, this will be painful to the tech sector but they made some truly awful decisions and have to pay the piper.

We should also consider the moral hazard at play here. How are future tech CEO's going to go into work every day and completely crush it 200% if they know that the government will bail them out if their monkey jpeg startup fails? A bailout will only breed lazy entrepreneurs, taking hard-earned tax dollars away from America's job-doers.

Dunno if you’re being intentionally tongue in cheek, but a monkey jpeg startup is pretty lazy/scammy/bs-y

I believe it is a reference to the NFT craze.

So, yes to all 3.

all I’m seeing is that the monkey jpeg startup just needs to never take VC capital from Andreesen Horowitz and then won’t be tied to using that one bank

just stick with selling directly to collectors and you already have enough money

>just stick with selling directly to collectors and you already have enough money

Uh, oh! Unregistered security...

I’ll accept that if baseball cards are securities too

As a rule let's not use Twitter comments as indicators of anything, but most I see seem to either be enjoying the chaos or confused as to how SVB's bad decisions leading it to fail will lead to other banks failing.

I don't use Twitter. The Tweets I see when I click this link are 80% political shitflinging from one side of US politics (even the replies to each one are 100% one-sided), and 20% non-political. Why?

Because that’s estimated to maximise the chance of you signing up?

Twitter attempts to manipulate your emotions by showing you controversial things to keep you looking at ads as long as possible, just like every other social media company.

Is that universally a bad thing? Are all US Banks so thinly capitalized that none of them could survive a run? If so, then doesn't that make one question why you'd ever keep money in a Bank in the first place?

I get that the FDIC insurance is supposed to make you whole as long as you have less than $250K in a bank. But then you have to ask if the FDIC can actually cover that for several banks at a time - particularly at a time when the debt ceiling has not been raised and so Treasury can probably ill afford additional unplanned spending.

What you are talking about here is the financial apocalypse. If a hundred million people all lose the money in their bank accounts, then we go back to the barter system overnight. The thing you will be bartering will likely be seeds and ammunition.

Though I’ve never connected the dots the way you have, the last time major commercial banks (like WaMu) failed it was because of being caught swapping much riskier assets than this article is pinning the blame of SVB failing for. Also, when it was clear that there was a risk for cascade collapse of major commercial banks, fed leadership and potentially people from the fdic went to congress and told them to stop playing partisan football, and TARP was passed within a week.

If SVB really failed because it misstepped and believed it would make more money off of government bonds and didn’t, I don’t really see there being a risk of the major banks collapsing. If lots of smaller banks banked on (no pun intended) doing the same thing though…

There is no evidence of this

Did he delete this tweet?

https://twitter.com/TheyCallMeTarz/status/163431641123228877...

I don't think the statement is completely misplaced as other comments on this thread indicate. Everyone has to be wondering if their bank is next. Just an anecdote, but, I'm sitting here wondering if I should sell the bank bonds I bought because the counterparty risk just skyrocketed. It doesn't take much to get the snowball going.

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