Bill Ackman: The gov't has about 48h to fix a-soon-to-be-irreversible mistake | Hacker News Reader

Bill Ackman: The gov't has about 48h to fix a-soon-to-be-irreversible mistake

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56 pointsjasondavies173 comments

If he gets what he wants, I guess if you are rich you get no risk.

What about all the people who lost what to them was a lot of money in 2008, did the Gov protect them ? I do not think so. All this shows is who runs the US, not the voters but the people who has a big stake in Wall Street.

What should be done, the execs of SVC pays up for not paying attention to to what the Fed was doing.

There was another story about SVC execs selling their stock before the issue became known. Will they get in trouble, I doubt it but you can be sure they will still get their large bonus.

EDIT: added https://news.ycombinator.com/item?id=35104396

This is not about protecting investors in SVC. It's about protecting people who deposited money in an SVC bank account.

If you have less than $250K in a bank account, then all of it is automatically protected by law. So yes, all the regular people got similar protection in 2008.

And more broadly, protecting the other banks in a similar situation from their own runs. I think there's a reasonable argument to be made that it'd be cheaper in the long run to stop the contagion at SVB instead of watching another dozen banks collapse.

Maybe in the medium run. In the long run, you just establish that it's okay to make higher risk bets than you can afford to recover from because the government is too skittish to let any domino fall. That's the road to increasingly wild volatility, not a reliable economy.

Bailing out depositors is not the same as bailing out the bank. The bank should go out of business, but that doesn't mean depositors have to lose their funds.

But bailing out depositors here is essentially also a bail out of the next risk-taking bank that will go under sans a bailout. So, to some extent it does encourage long term risk taking by bank execs.

No, because bailing out the depositors will not keep the bank from going under. The bank will still go out of business and its investors will still lose all their money. Same for the next bank that goes under, even if its depositors are also bailed out.

I feel like investors are taking a calculated risk, though, whereas depositors (not unreasonably, in my opinion) thought their money in the bank was “money in the bank”.

And it was, with the caveat of "up to $250k per entity per bank". I don't think we'll remove all caveats from everything, we're just asked to removed them from something that only affects rich people.

I feel like if you have millions of dollars you should be sophisticated enough to understand FDIC insurance limits. Piling literal billions of dollars into one small bank is a calculated risk, too

I’m saying that bailing out SVB depositors will prevent First Republic Bank (for example) from experiencing a similar bank run and going out of business. So, a bail out of SVB depositors is also, in effect, a bail out of FRB. And, that dynamic creates a long term incentive for risk taking.

But preventing bank runs is the main point of deposit insurance in the first place.

What does it mean for the bank to go out of business if everybody gets their money back? That suggests that the bankers themselves did a great job turning high-risk bets with depositor money into no-risk bets. They may as well just reincorporate as another entity and do it again. (And if the have to personally retire because of regulatory "penalty", other bankers can still step in and repeat the same play until they're asked to retire as well.)

Let's say you have an account at Wells Fargo, I've invested in Wells Fargo stock, and Wells Fargo goes out of business. The idea here is that I lose all my money because I made a stupid investment, and you keep all your money because you just deposited your money in a bank.

Maybe the Wells Fargo executives could start another bank, but making you lose all your money doesn't do anything to prevent that.

Why aren't they asking to add another FDIC level with the maximum insured amount at e.g. $5m and increase insurance premiums for banks accordingly? That'd take care of it, if you have $5m in cash and want to put it into a bank account, you just pay more fees, the bank pays a significantly larger insurance premium and everyone lives happily ever after.

This feels like an Ethereum thing. Code is law, but not if it's inconvenient.

There's nothing stopping _you personally_ from purchasing insurance on your $5m at the bank from an insurer (or reinsurer) instead of socializing the cost of insuring higher-valued accounts on everyone else.

The one thing that mandatory FDIC insurance gives you over purchasing private insurance is a) the US Government is guaranteed to not go bust (and if it does, we're all living off canned goods anyway) and b) you avoid the situation where people don't do the responsible thing and then you have to bail them out anyway (this is also part of the argument behind government provided healthcare insurance, but that's another topic for another day)

Buying private insurance leaves you open to the risk of the insurance company going bust, and, it not being mandatory means people can take the risk and then come crying to the US Treasury to solve this unknowable systemic risk that everyone actually does know about--which we're already seeing heavy pressure from people to bail out these depositors who are above the insurance limits

Yeah people keep saying that but as far as I can tell from googling, there's no such thing as buying supplemental insurance for your bank account. Can you link an insurer that offers that?

If I had a personal account from my wage earnings and handful of profitable trades at Wells Fargo, my modest account would be reasonably protected through mandatory insurance and I would know that because of the FDIC sticker on every fricking window and website.

On the other hand, if I managed a large liquid asset portfolio and I considered having Wells Fargo provide banking services, I would know that my deposits would not be implicitly insured and that any substantial deposits were more like a loan to the bank, subject to their own illiquidity and insolvency. Because that's how banks work, except for the specific carve-out for small accounts. Thus, I would practice risk management suitable to my needs by vetting my bank(s) practices, diversifying my holdings, buying private insurance, or just hiring a professional who I could entrust to manage those things for me. Thankfully, because I have a large liquid asset portfolio available, I can afford to do that.

So at the end of the day, any large deposit I make with Wells Fargo is actually a risk-laden investment that I've made a calculation to play, just like that equity share that you bought on the stock market.

What about "regular" people's 401k, it took almost 10 years for it to recover. No protection there. Also if you can have a bank account above 250000, you are not a "regular person".

If you make 50K, the company that pays you probably has more than 250k in a bank account..

So this will still affect the regular person.

They should definitely NOT do a 100 cents to the $ bailout...Someone needs to take a haircut

Curious about the logic you used to determine a company's balance based on employee pay. Is this just your own number fidgeting or an actual best practice in finance?

It seems weird that a company paying someone less than $5K a month would need $250K in the bank. we had $100K seed check at my startup and I got paid $6K per month as a counter example.

Ok, so they paid you 72K year, plus employer side social security/taxes, benefits, etc. Call it 80K. Does that seem like a lot of money left over for other expenses?

Wouldn't you think that depends on how many employees the business has?

It's a bit different. Banks are supposed to be a safe place for cash. "Safe" means essentially zero risk: interest checking, CDs, etc. Low interest, low risk. This is very different from an investment account (401k or not) where risk is expected.

If I had >250K at a smaller bank, I'd be concerned.

House prices are supposed to only go up. Tech companies are not supposed to do layoffs. Countries are supposed to liberalize over time.

It’s time for a lot of people to grow up.

Truth is that there is no safe place for money. Maybe it is time of everyone to understand that. Everything has some level of risk involved. And here it is time based one.

Do you want everyone taking money out of ATM machines, stuffing it in their mattress? Literal bank runs? This sounds extreme, but that is a possibility if the public genuinely perceives there is "no safe place for money."

Just have to have them take the next step too. That money stuffed in mattress is at risk from even more reasons. The house could burn down, there might be criminals stealing it or simply the police could get hint and do civil forfeiture.

In the end, bank might be preferable option.

The first $250,000 per person per bank, essentially, is already protected. With investments and real estate living on different balances sheets, any policy change or bailout here isn't for the sake of people who might stuff money in their mattresses. They're already covered.

It's about guaranteeing that the stewards of very large wealth don't have to practice the conservative risk management strategies available to them.

Conservative risk management strategies like "only bank with BofA and JPMorgan"?

Ackman isn't wrong that the practical result of bank runs is that all accounts beyond the FDIC limit will suddenly migrate to one of two or three major "too big to fail" banks.

I'm not sure what the solution to all this is but it sure looks like a good time to buy stock in quasi-monopoly bank companies and short all the rest.

>Conservative risk management strategies like "only bank with BofA and JPMorgan"?

Or: diversify bank relationships, diversify asset classes/types, buy private insurance, etc. Deposit risk is not exactly a novelty.

> Ackman isn't wrong that the practical result of bank runs is that all accounts beyond the FDIC limit will suddenly migrate to one of two or three major "too big to fail" banks.

He might be right that immediate reactionary adjustments will rush these risk-blind deposits into big institutions, but FDIC insurance and bailout-able banks aren't the only ways to keep a liquid portfolio largely secure and money will inevitably spread out more prudently once the dust settles.

He just wants a bailout for SVB depositors because he calculated a bailout into his own risk strategy and is now developing that strategy through its next phase by whipping up the political pressure that could make it happen. It's a game.

As far as I can tell, there's no way to buy private insurance for a bank account. This seems to be a widely-held misconception.

A properly-stored crypto cold wallet is a safe place for pretty much any amount of money. Most people here tell me I don't need that because banks are safe and secure and backed by the might of the US government.

> A properly-stored crypto cold wallet is a safe place for pretty much any amount of money.

???

It's a safe place for the units of cryptocurrency identified by it, but those aren't money until it can be exchanged for something. Between you burying that USB key under the old oak tree and you digging it back up post-apocalypse, those units of cryptocurrency will have a very different exchange value. It's no different than tucking currency under a mattress, except that the odds of your 2023 cryptocoin being worthless by the time you pull it out is much higher than that the 20th century's global reserve currency becomes worthless. Although it might go the other way, your wallet contents don't sound like a very safe store of money at all.

Good luck trying to pay 500 employees every two weeks with a crypto cold wallet.

Well another option is a good multisig, which is also quite safe and works just fine for paying people every two weeks.

The best part about storing your crypto in a cold wallet long term is how it's worth dramatically less cash when you exchange back.

Yes, its value can change, but at least it doesn't just disappear because some other idiot made bad investments.

I don't know what you consider "long term", but if you asked anyone who stored their wealth in a cold wallet before 2020 they would be at worst, a couple % up right now. The vast majority would likely be up at least 100%.

These completely mindless dunks on crypto on HN are getting out of hand. You can say it's not scalable, or that it doesn't have a future for A, B, C reasons, or any other number of valid complaints. But instead they've devolved to the most degenerate falsehoods that can be disproven with a single look at the long term chart.

You said "What about all the people who lost what to them was a lot of money in 2008, did the Gov protect them? I do not think so."

My claim is that the bank accounts of regular people in 2008 were in fact protected, since anything under $250K is automatically protected, in exactly the same way proposed here.

Investors certainly lost a lot of money in 2008. And investors in this bank will lose all their money too, since bailing out the bank's investors, or the bank as a business, is not being proposed by anyone.

Almost all customers of this bank are Silicon Valley tech companies and startups. Some of them will struggle to make payroll in the coming days.

Do you really think it's sensible to let healthy companies fail and people lose their jobs or keep working without getting paid because other people had to wait far too long to recover their 401k?

This logic of equal misery makes no sense to me.

They can get bridge loans or sell their deposit claims at a discount (in exchange for the liquidity), if they didn’t otherwise have supplemental insurance.

That’s what’s at stake here, the companies would prefer to have all their money, right now. They could have almost all of their money if they are happy to wait, or they could pay, out of their money, to have their money right now.

Don’t fall into the trap of corporate sympathy here, they would not do the same for you.

>They can get bridge loans

Yes, I just worry that some of them might not be able to sort this out quickly enough on their own.

Also, the total amount of similarly illiquid government bonds is gigantic after interest rates have shot up so quickly. Let's not make the Lehman mistake again. It's not worth sacrificing the entire economy to ideological sensitivities (on both sides of the political spectrum).

>Do you really think it's sensible to let healthy companies fail

No but I also dont think its sensible or healthy for tax payers to cover losses incurred through mismanagement of funds for a select class of people.

An opportunity was just created for companies willing to take a risk to gain new clients, I think that should be allowed to play out.

In this particular case tax payers would not have to cover any losses at all. The actual losses are relatively small and depositors can and should be asked to take a haircut if necessary. The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough.

In general, I disagree that it is never sensible for tax payers to act as insurance of last resort provided that the insurance premium in the form of business taxes is adequate. It can be the least worst solution for society as a whole in case of a domino effect. But this is not (yet) what's happening here.

>The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough.

The market already has adequate solutions, while these shortcut intervention ideas have moral hazards. Why cant other companies that see the opportunity take the required risk?

There has been a massive inequality exacerbating bull run with record profits but the beneficiaries want to avoid even the slightest downside of that risk-taking. If my understanding is correct, this kind of behavior is trading short term instability for potentially massive long term tail risk.

> Almost all customers of this bank are Silicon Valley tech companies and startups.

I.e. "high-risk businesses that did not assess the risk of their bank (or banks) properly." That's not a good reason to shift the risk penalty to the taxpayer, IMO.

Bank balance sheets are very complex. Analysing them is not an expertise that most small businesses have or should have.

Banks are heavily regulated. They have to pass stress tests all the time. The regulator is paid for by the taxpayer to stop things like this from happening, but apparently they were asleep at the wheel.

Also, helping depositors out of this mess doesn’t necessarily mean that taxpayers lose a cent.

The social contract defines wildly different levels of risk for "money I invest in the stock market" vs "money I put in a bank".

Personally I think protecting bank depositors is a good idea. However: I would also note that many people (including Bill Ackman) have been screaming at the government & Fed to get inflation under control: specifically, they've blamed the government (and Fed) for their loose monetary and fiscal policy throughout the pandemic. And indeed the government tightened fiscal policy as they wanted, and the result was that SVB failed. Does Ackman now want the government/Fed to step in and pour its money in to shore up depositors? Won't that be more of the same inflationary policy that he's been railing against?

Unless your questions are rhetorical, I think you're making a mistake in thinking any of these people are asking for certain policies out of any principals beyond their own self-interest.

Execs at public companies always have to schedule their stock sales many months in advance. They cannot sell on a whim. The SEC is very strict about this and they do punish transgressions. Most execs sell stock on a regular monthly or quarterly schedule. Since execs are commonly paid primarily in stock, of course they will always be selling stock. It's just financially prudent to diversify your holdings no matter how much you believe in the company. As a result, you will almost always find, if you look, that execs in any public company have recently sold stock. It may even appear that they have sold a large percentage of their overall holdings, but this is often just because either they sell as they vest (again, generally considered wise financial practice) or because their stock is mostly in a different share class which needs to be converted before sale (and the "percentage" is actually a percent of their holding of the converted share class).

So I'd be extremely skeptical of any stories accusing executives of dumping stock, they are almost always benign.

I believe (and I could be wrong) that this was scheduled in January and by that point rates had already gone up quite a bit. It is pretty safe to assume that any executive at SVB knew the writing was on the wall at that point.

Many of these rich are running businesses which employed poorer salaried people like us. Not saving us directly in 2008 is ok as back them we are minority. Not saving these businesses will trigger a Lehman Brothers contagion collapse which means a lot of people like us will be out of job...meaning a lot of us have to restart our careers like 2008. Furthermore, these time it will impact higher paying jobs in techs. The lost of 1 tech worker can easily destroy 5 to 10 walmart workers level jobs. They buy less gadgets, groceries and vacations which poorer people seldom do as much as these tech workers (I have yet seeing walmart "associate" buying tesla but seen more than 200+ tech workers own one at least in the last 10 years. Guess what will happen after the collapse? China will take over. These lost tech workers will work remotely for others divulging tons of IP knowledge (I know this full well because this is essentially what my 3 companies actively engage in).

This is a classic case of rich people taking risk with capital, and when they fail, society shoulders the losses. Over and over again. We are socializing the losses of controllers of capital. If there were real consequences to their wealth they wouldn’t act this way. And I’m not just talking about SVB

It's not, because it's not about protecting the people who took the risks. Their business failed and it's not getting bailed out. The tweet, which admittedly is long and lacks paragraphs, is about protecting people who simply deposited money in a bank account. That's not supposed to be a risky endeavor.

Depositing anything over the $250k limit is a risk, but one that is standard operating procedure.

The reality is that every startup/VC was happy to absorb that risk for benefits previously described.

They, in fact, should have hedged their exposure at the very least.

I’ve got 100 employees that need to get paid this month, and they need to get paid $7500. How can I not have more than $250k without having to do really complicated stuff that will make my accountant hate life?

A quarter mil is a lot for a person. It’s not a lot for a business, and businesses were most of SVB’s clientele by asset amount.

Don't split into accounts at a $250k limit, but have 2 accounts with working capital in different banks. This is the same principle as having servers in 2 different datacenters.

SVB's clients will not lose all their money - their assets can cover most of it. You mostly just need the second bank to cover the period in which you may not be able to access your money.

Heck, I don't think I'd manage to have $250k in liquidity in my whole life and this is my standard operating procedure for my money.

You never know when some weird, once-in-a-lifetime stuff is going to hit your bank. Learned the lesson the hard way when I ended up stranded in the middle of nowhere without a working debit card for a damned IT outage.

Yeah, this is why my personal money is split between 4 banks, I make sure to have Visa and Mastercard, etc. I have seen bank computer outages, fraud, and other stupid shit that shuts part of the system down, and I want my money to be highly available.

There should be no reason not to run a company the same way.

I do this too. I've been locked out of a bank account for a week or so because something in their system flagged a review. A tiny blip like that can be really impactful on handling day to day expenses - it makes sense to have a backup.

If you only have one payroll in reserve, then you're already living on the edge and hopefully recognize that one rare-but-real bad event could knock you out of the game. If you're lucky, someone might still come in and save you because your loss is a pittance compared to some. Good luck to you.

But if you have more than one payroll, then you should consider that bank failures and other risks are part of the system and spread your capital across institutions so that no one failure wipes you out.

Risk management and "accountants that hate life" are some of the overhead costs of significant assets.

Like every other asset you don't want your business to lose: you shouldn't under-insure bank balances. Sticking to legally mandated minimum insurance unsuited to your enterprise is negligence.

When the unimaginable happens, you can easily get bridging finance on the strength of your insurance (if your insurer is not responsive enough for your payroll dates)

Then buy more deposit insurance.

I googled and couldn't find a way to do that. The only options I saw were various way to split funds among multiple banks. Could you tell us where to buy more deposit insurance?

If that's even an option then there's no reason to be having this discussion. These companies were irresponsibly putting all of their eggs in one basket and now I'm being asked to bail them out?

Also, this:

https://www.moneycrashers.com/dif-insurance-massachusetts-de...

The thing is that it's not exactly supposed to be a risk-free endeavor either. No method of storing money is risk-free (particularly not free methods of storing money).

There is some tail risk to any use of a bank over the FDIC limit, and everyone who parks a lot of money knows it. It would be reasonable to assume that "Silicon Valley Bank" would be overexposed to market fluctuations in Silicon Valley, just as Silvergate was overexposed to crypto.

Big SVB depositors probably won't lose a lot of their money anyway, but they may lose access to it for some time, which is a big deal for a short-term deposit account.

The rules of the game are public. As a depositor, you know how much of your deposit is insured and how much is at the mercy of the bank's liquidity and solvency. Your uninsured deposit is a loan to your bank, and the more vulnerable you are to that loan failing, the more scrupulous you should be in choosing the bank you lend it to.

Despite a consistent history of periodic busts, the silicon valley culture behaves with absurd optimism. New entrants don't believe that the good times will ever turn and that catastrophic risk is a real thing to attend to, and old hands think they know how to win the hot potato game this time.

The potato is getting really hot now, and things will just get worse in the long run if you don't let the community learn that people get burnt and need to be more careful as they play the game.

Depositing more money than insured is a risky endeavor! They could have insured thr additional amount beyond the FDIC limit, but chose not to, now they want the government to make them whole.

I don't know if it's quite that simple. My (admittedly newfound) understanding is SVB offered outsized benefits to startups on the condition that you simply bank with them.

Let me turn this around:

People to folks with student loans: "You know what you were signing up for."

Why is it unreasonable to say: "You know that banks only protect up to 250K, why are you surprised? Do better next time."

If its reasonable to protect the customers of the bank above what FDIC already does, then I don't wanna hear the same folks complain about loan forgiveness.

Socializing losses is what enables high risk high reward businesses. Without it, the US wouldn't be half the innovative country it is now.

When people complain about privatized profits and socialized losses, usually the part they’re upset about is the privatized profits

citation needed

It's not high risk by that definition.

If you just keep amplifying volatility by throwing more money onto the table, you will eventually see a bust that sees you leave the casino for a life on the streets. It can look like ratcheting for a while when you've collected a few of big wins, but eventually one of your busts will be so big that it wipes you out entirely. That wouldn't be so great for that country you're talking about.

It isn't.

Regulators are given a legal responsibility to oversee these institutions because they are (still) essentially trading on govt credit. That is why financial regulations exist: to give people confidence that bank failures won't happen.

95% of people are unable to perform the credit analysis necessary (and some banks don't even report this information publicly) to make lending decisions. And if regulators were unable to perform this kind of analysis in this case, I am not sure why people think savers will be able to.

So the way the system works is to accept that these kind of things will not achieve perfect outcomes in every single case, in order to create a system that secures funding for the place that employs you (this is what FDIC is, it is a massive insurance scheme).

If you are saying: why don't we have a system in which this doesn't happen? You are saying: why don't we have a system in which the economy is significantly smaller? And btw, in that system you will also never obtain the coveted short-term perfection.

And finally, unsecured creditors would be bailed out but shareholders would be written down to zero. I am not really clear if most people actually understand what happened in 2008. One of the narratives is that everyone wealthy got paid out, and things went on as normal...this didn't happen. Your point about "this wouldn't happen if people had the incentive"...okay, did regulators have the incentive? Everyone had the incentive, but sometimes people are wrong.

Let me sum this up for you, "Privatize the profits and socialize the costs"

Exactly.

This would only be the case if the company didn't benefit society at large. These companies pay taxes, drive the economy and innovation, and help the USA be the superpower it is.

Mostly privatize the profit and slightly socialize the costs.

Trickle up economics 101

The US has been doing trickle 360 degrees economics. Up is also a direction.

I’m not sure I believe your assertion that the companies in question “pay taxes.” If you operate at a loss you get to deduct that loss. And there are lots of loopholes every company used to avoid paying their fair share. Unless you mean the employer share of the payroll taxes, which are paid on behalf of each employee and in my opinion don’t count.

The fact is that it’s really important to do due diligence on any institution that you’re putting more than six figures into. I would expect any “sophisticated investor” to understand the risks to the degree that they would be able to make an informed decision.

Why do payroll taxes not count? Employees are able to provide the value because there is an employer that enables them to.

It's a little more complicated.

Nobody wants to socialize the loss for the bank's management or stockholders. They're gonna be wiped out regardless.

But we socialize losses for bank depositors all the time, it's a lot less objectionable generally. It's just harder to be sympathetic when the depositors are risky startups.

Risky startups run (or funded) by people like Bill Ackman who have been urging the Fed to tighten its monetary policy [1], which is precisely the policy that caused SVB to fail.

[1] https://twitter.com/BillAckman/status/1529133155801829380

> It's a little more complicated.

I'd beg to disagree. Bank makes bad bets. VCs put all their eggs in bad bank. VCs now hold a gun to our head.

"But the depositors?!" Who is a depositor of more than $250K cash in an account who can't take a 20-30% haircut, because they didn't understand FDIC insurance? And why shouldn't they? Because they're special?

This is an argument that only makes sense to people with mid 6 figure salaries, a gold plated benefits package, stock options/grants, Uber Eats for lunch. Everyone else says -- "Looks like those depositors made a mistake, huh?"

How is this socialized costs when FDIC insurance premiums are paid by the banks?

Because we're talking way above and beyond what FDIC insurance covers.

What? He is primarily asking for another private bank to acquire SVB not a bailout. Even if a bailout happens this may be smaller than the sum US spends randomly.

E.g., we sent ~$80 billion to Ukraine in a year. https://www.cfr.org/article/how-much-aid-has-us-sent-ukraine....

If you agree there is a good argument for sending money to Ukraine benefitting US then why not agree there is an argument protecting against bank runs and depositors? SVB's total deposits are in that range (ignoring other assets they have).

Did you really just compare a war, where somewhere in the order of 200,000 people have died, with a bank collapse?

Did you just do an emotional appeal devoid of logic (but taking advantage of deaths of 200,000 people)?

Well, if you believe that the only thing the lives at stake have to do with are emotions, then yes I did. But usually the reason for spending money is considered part of the rational decision making process.

Well, at least you care more than Zelensky.

https://www.ndtv.com/feature/oscars-reject-ukraine-president...

Btw, the govt is responsible for this mess as they prevented narrow banking. So, nothing morally wrong with a public bailout.

https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...

In a way, the govt is obligated to bailout the depositors as the govt. prevented safer forms of banking.

And to reiterate the amount will be small compared to US govt spending on allies and internal losses due to govt. corruption and ineptitude.

https://foreignpolicy.com/2021/01/28/report-transparency-int...

https://www.cnbc.com/2023/03/09/how-medicare-and-medicaid-fr...

https://www.concernusa.org/story/foreign-aid-by-country/

Any kind of bailout for this crash has a big optics problem, because the typically sympathetic depositors to a failed bank are in this case big risk taking startups.

Two wildly different groups are in trouble with any bank failure: First, the bank equity holders and senior management. Second, the depositors.

In general, I'm sure everyone believes that first group - the risk takers - should be wiped out. Moral hazard etc. etc. etc.

But that second group is usually really sympathetic! These are just bank deposits. You don't WANT people to have to scrutinize their bank's credit risk, that's why we have the FDIC!

But here the depositors are themselves massive risk takers - tech startups. And so politically, seeing the depositors get a handout is going to be a tough pill to swallow. Even though the risk that blew them up (bank credit) wasn't the risk typically associated with their business model.

And here I was thinking that the best thing one can do for the economy is to let the market run freely and without any intervention from that pesky government who's always trying to regulate things it doesn't comprehend

The FDIC $250,000 insurance is there to protect the depositors.

The amount is not a secret.

If you keep more than that in cash in a bank account, you take a known risk and must definitely not be bailed out.

You did not need to keep that large amount in cash. You could have bought short-term US treasury bills with every cent above $250k, and your deposits would have been perfectly safe. All of it.

Let me get this clear: Is Ackman arguing that there was some sort of implied guarantee, beyond the $250K insurance limit, that the federal government would never let anyone lose money if held in an account at a federally insured bank?

Because WTF. This is precisely moral hazard. The rich can't lose money... in Silicon Valley of all places.

Generally, the FDIC will go over $250k if the bank has the assets for it - the guarantee is $250k, but you could be made mostly whole. People online in the banking sphere are suggesting that SVB accounts may be getting a 20-30% haircut (except those at $250k or under, which are not going to lose anything).

Bill Ackman wants them to insure every dollar held at SVB, but not necessarily make a rule to always do this. He only wants his own bank accounts insured, not other peoples'.

Edit: Clarifying - the FDIC doesn't pay anyone to get to a balance over $250k, but they are the ones who administer the bank when it is in bankruptcy, and they use the bank's assets to cover depositors' interests first. In some bank failures, the FDIC ends up spending almost nothing on the insurance because the assets end up covering the accounts completely.

The FDIC doesn't go above the $250k in that case--the assets cover it. I don't think the FDIC has ever paid above and beyond the insured amount to make people whole

A lot of times their takeovers end up with people being made whole, but because they transfer the assets and deposits into another, healthy bank, and the FDIC makes up the losses in the assets, but those losses are going to be less than if they had just paid all depositors their $250k

I think sometimes historically FDIC has misjudged the banks asset values and payed out too big an advance for uninsured funds (and then hence had to absorbe the loss themselves upon liquidation)

They typically (at least where there's been documentation of the deal) where they limit their losses--one instance they sold the bank and guaranteed 20% of the assets. No way for them to misjudge that, they know the maximum they're going to pay out there even if they become 100% worthless

Wonder what Bill Ackman's stance is on student loan forgiveness

If the government is going to guarantee 100% of deposits de facto but not de jure, that seems weird. Perhaps FDIC should guarantee 100% of deposits, but then banking regulations should be designed with that in mind.

Exactly. The rules here are well known. If you can't take the hit of your bank failing, no matter how rare you think it may be, you should protect yourself against it

Every single CFO and company treasurer knows what the FDIC is and what the limits are. If your one bank collapsing means you can't make payroll, you failed as the financial guide of your company

That said, if we as a society want to protect all deposits that's actually not a terrible idea. We just have to accept what that means, that banks are going to be even more boring institutions than they are, and we have to structure our regulations to make that a feasible arrangement

Dramatically changing the rules of the game in the middle of the play because we don't like the (known ahead of time) outcome of the existing rules is silly and means we basically have no rules

> Every single CFO and company treasurer knows what the FDIC is and what the limits are.

That's a hell of an operational ask for a 2 person startup with (for example, looking at the site we're on) $500k.

I suppose I could take $4m and break that up into 16 different banks, but 16 kyc convos, 16 logins, etc... what a waste of time and energy.

>what a waste of time and energy

There are services that do this for you. And, maybe it's a risk you're willing to take. Startups are inherently very risky ventures, so out of all the other risks being taken your bank failing is probably low on the risk register in comparison. I think it's ridiculous for established public companies like Roku to get caught flat-footed here, though

At the end of the day it's a known risk, and if you're going to play in the game, you know the rules going into it

Or you could buy insurance on the balance above 250k.

Assuming the insurance company is solvent

That's almost certainly a scam; I don't believe any counterparty short of the US government can actually insure against eg SVB.

Twitter finally has long posts, and they are 100% as incredibly awful & terrible as prophecy has foretold.

With how the system is supposed to work, isn't anyone who have uninsured deposits supposed to buy their own insurance? If the risk of bank failure is low, then the insurance premium should be very low. If the premium is high, that's an indication that the risk is too high and maybe you should find an alternative.

Let companies fail, but take care of the people that relied on them, if necessary. That should be the principle of a free market, if you insist on keeping it free.

Companies shouldn't fail just because their bank lost their money. That's ridiculous and not at all the principle of a free market.

Well, mitigating counterparty risk should be priced into goods, so yes, it's the free market.

banks are a part of the market, why should they be exempt from market conditions?

>That should be the principle of a free market, if you insist on keeping it free.

In a free market when companies and banks go down people are just fucked. This is why we don't (and shouldn't) have a free market.

I agree. I'm ordoliberal, as I recently learned.

This guy lost all credibility re: this stuff after his meltdown on CNBC

> consider the feasibility of a world where each depositor must do their own credit assessment of the bank they choose to bank with

Isn't this exactly the problem the FDIC solves? Nobody with less than $250K need worry about who they bank with if they see the FDIC logo.

How strong of a guarantee is it? Have there been other examples of a bank failure where depositors with less than $250k were refunded?

It happens all the time. Here's a summary of relatively recent history: https://www.fdic.gov/bank/historical/bank/

I believe the FDIC has come through 100% of the time since it came into existence in the 1930s. Here's what they say: "Since the start of FDIC insurance on January 1, 1934, no depositor has lost a penny of insured funds as a result of a failure." I believe that's true.

https://www.fdic.gov/about/what-we-do/

Yes, but it also creates the obligation for regulators to add the safety of the system which did not happen here.

The problem of regulators being unable to proactively stop a crisis (and then using that as part of an agenda to expand their powers further...before they fail again, and then say they could have stopped it with more power) hasn't gone away though.

Btw, if you doubt this, I have already seen stories briefed into the media out of regulators saying that this happened because Congress passed a bill lowering the threshold for stress tests...ignoring the fact that SVIB was still being overseen by three distinct regulators, was still doing stress tests, and the problem concerned extremely liquid financial instruments that were reported in full in their totally public reporting.

Matt Levine says essentially the same thing [0]:

> There was a run on SVB in part because there hasn’t been a big bank run in a while, and people — venture capitalists, startups — were naturally worried that they might lose their deposits if their bank failed. Then the bank failed. If it turns out to be true that they lose their deposits, there could be more bank runs: Lots of businesses keep uninsured deposits at lots of banks, and if the moral of SVB is “your uninsured transaction-banking deposits can vanish overnight” then those businesses will do a lot more credit analysis, move their money out of weaker banks, and put it at, like, JPMorgan. This could be self-fulfillingly bad for a lot of weaker banks. My assumption is that the FDIC, the Federal Reserve, and the banks who are looking at buying SVB all really don’t want that.

But what it means is, there isn't (or there can't be) "uninsured" deposits, because they would cause unacceptable systemic risk.

Then the next question is, of course: why should there be insured deposits, why pay the premiums, if in effect all deposits are insured by vertue of the necessity of protecting the system?

[0] https://www.bloomberg.com/opinion/articles/2023-03-10/startu...

No-one is saying this. Ackman isn't saying this. He says explicitly that depositors outside of FDIC will need to be paid through the sale of assets.

What he is saying is that the bank should be recapped (with existing equity essentially wiped out), the govt should put in place a support package to help with the sale of assets (that would likely be profitable for the taxpayer, as in 2008), and the franchise value (which is undoubtedly positive) should be preserved.

I do not agree with elements of this but the FDIC system isn't supposed to work proactively. The insurance element of the system is working, they have stopped depositors doing things that will harm the value of the assets, it is working.

This would be a radical change in US banking policy.

It shouldn't be done in haste... and there's no need to -- if this does indeed shake confidence in regional and community banks and we want to preserve them, then we can do something to reverse that. (Much better, by the way, to see how it actually goes down so that the solution can be tailored to the problem.)

The fake 48h deadline is a dead giveaway this is a scam... that false sense of urgency.

Haven’t been on Twitter in a while. The giant run on paragraph format is definitely a huge step down compared to the tweet thread. Yikes.

To be fair, you absolutely can use paragraphs when doing this. The tweeter just didn't bother.

It'd still be worse to me than a thread. I'd rather see specific reactions to pieces, rather than all replies & reactions being muddled together.

For some reason my script for turning twitter links into nitter and putting the tweet on archive.org failed and I wound up getting the twitter web experience, which includes a box of "More Tweets" which are popular tweets from other accounts that are connected to @billackman by some similarity or network algorithm.

I don't mean to discredit him by association, but the association is entirely stablecoin posters, antivax, federal reserve conspiracies, january 6 "truthers", "traditional white culture" enthusiasts and a Bed, Bath and Beyond retrospective. So maybe think twice about taking financial advice from somebody who uses the single-tweet essay function twitter now has.

Save the whales! Wonder how many of the companies are in his portfolio.

The government is going to save the depositors. FDIC will liquidate SVB’s assets and pay the depositors back. They might take a haircut in the process.

Always wonder what trades people have on when they start talking like this.

I'm not in favor of this but most of the money lost will be by bondholders.

Why would you keep more than a 250K in a single savings account? If it's an investment you should invest it. If it's for liquidity why not split over multiple banks? Personally I don't keep that kind of money in a savings account but what's the story for people who do?

Mostly because it's easier from an accounting and money management perspective. Now Roku's $460+ million on deposit is unfathomable.

Is the overhead from say, 10 accounts as opposed to 1 really that onerous? If you have 25 million in cash that you want liquid is a savings account really the best vehicle?

I wonder why he thinks it’s unlikely a buyer steps up by Monday. He says that 98% of deposits will be covered in liquidation. The FDIC can backstop any remaining amount. And, all that’s left is a rich client base and the infra of a previously successful top-20 bank. Aren’t the remaining parts an extremely attractive asset for another bank or PE?

The FDIC cannot backstop the remaining amount, that isn't how the FDIC works.

And the remaining parts aren't attractive if they have to be sold in order to meet demands for liquidity by creditors. That is the point he is making. Value in these situations is recursive, and can only be preserved if the govt steps in to break the doom loop.

My guess: SVB collapse took everyone including the FDIC by surprise. It has unfolded very quickly. Bill Ackman makes the point that the FDIC/government should have realized their exposure and been monitoring them much more closely. This is likely a valid point.

Is that not true for pretty much every collapse in the history of collapses? If everyone saw it coming from far away, it wouldn't be a sudden collapse, it would be slow and controlled demolition or they'd undertake repairs way before anything was falling apart. It's the nature of these collapses that you don't see them coming, everything looks fine one minute and the house vanishes the next.

Should the government always guarantee everything with no limits, because "they should have seen it coming and should have done something a long time before it collapsed"?

No, it's unusual. Usually the FDIC is ahead enough to do a planned takeover on a Friday with the aim of re-opening Monday morning. This might be the first honest to goodness bank run we've seen since the FDIC was created.

No, this collapse is pretty rare. Typically they seize the bank after it closes on a Friday, have a buyer lined up in a secret auction conducted before the seizure, and on Monday the bank re-opens as a branch of the acquiring bank. It usually happens this way because the FDIC and state regulators usually do see it coming from a mile away

Out of over 550 seizures since 2000, only 31 did not operate under this pattern

SVB was closed at noon in the middle of the day and there was no one to acquire the assets and deposits. This happened very quickly and obviously got out of control faster than anyone realized

Thanks, I'm still not convinced something that happens in ~5% of cases is the exception to get rid of the rules, but that adds some context and perspective.

Upthread you wrote: >Should the government always guarantee everything with no limits, because "they should have seen it coming and should have done something a long time before it collapsed"?

I never said anything about guaranteeing everything with no limits. I don't believe that is reasonable. Maybe you are reacting to something Bill Ackman wrote in his tweet?

If the FDIC/gov had been monitoring them much closer it opens up the set of potential solutions way wider than "government closes your bank in the afternoon on Friday because you wouldn't have made it to the end of day."

Maybe this actually was happening and there were reasons events unfolded this way. Maybe it wasn't. It seems like it wasn't.

Enjoy your weekend.

Obvs a prediction, but while the limit is 250k - the FDIC will act to protect depositors with higher amounts - probably a private aquisition of some kind.

May be worth upping the (advertised) 250k insurance limit, as the de facto amount is already higher.

generic billionaire logic:

- be richer than God

- don't rescue a venerable, functional institution that is modestly, temporarily impaired, partly due to terrible risk management and partly due to a tsunami of cash flowing in and then starting to flow out. (SVB didn't have to buy Treasurys, could have lent overnight, deposited at Fed and taken interest on excess reserves. Instead they stretched for a relatively puny yield pickup and got badly burned.)

- don't calm the waters. instead, tell people to take money out

- short SVB stock and make a killing

- say it's Biden's fault and he has to do something and bail the startup ecosystem out

- https://tenor.com/view/the-big-lebowski-youre-not-wrong-just...

Bill Ackman didn't do all these things but as a group that's what people like him and Thiel and Musk 100% did. They want to be disruption chaos monkeys and then have the taxpayers bail them out of a mess they created. Remember than when they go bananas about Biden wanting them to pay similar tax rates to middle class folk.

He’s correct. The $250k limit is stupid - Deposits at highly regulated banks should be insured in full. Shareholders should loose everything but not depositors. Bank executives should also be regulated like lawyers and accountants they should be fined heavily and never work in Finance again.

If SVB is not saved quickly the consequences are likely to be dire, there will a run on many more banks and many small companies will go bankrupt if they can’t make payroll. It was a massive mistake not to bailout Lehman Brothers unfortunately Janet Yellon is so useless that I expect they’ll probably repeat it.

The $250k limit is not stupid, it is deliberate. The point is to protect normal people and small companies. Not to provide federal coverage against irresponsible behavior for corporations and billionaires.

What irresponsible behavior are you talking about? Having $4M of operating cash held in an account at a medium-sized bank? A company that can comfortably get by with < $250k of cash reserves is small indeed.

The actual irresponsible behavior here seems to have been on the part of SVB in treating T bonds and excessively correlated business loans as low-risk assets, and on the part of regulators for allowing this because SVB wasn’t quite big enough to have to follow the real rules. But there was no good way for SVB’s depositors to know any of this.

Heck, SVB was older than a decent fraction of its depositors and their executives. It’s was an institution around here. You can wander around a few towns and find their branches. What were people and businesses supposed to do? Walk around, point to the SVB branch and say “nope, not those folks — they don’t understand interest rate risk”?

What is irresponsible about placing cash on deposit at a regulated bank?

Capitalism will be much less efficient if businesses can’t trust banks to perform their most fundamental function of keeping their money safe.

> What is irresponsible about placing cash on deposit at a regulated bank?

What's irresponsible about under-insuring your business-critical equipment in an inspected building that meets code?

Answer to both is regulations can only prevent some failures, and the solution to unexpected failures is insurance, which the Free Market(tm) is adept at providing - and businesses should be paying for to keep all of their money safe, not the bare minimum afforded by the FDIC

Why would anyone with less than $250K pull out their deposits? Seems like these "bank runs" only make sense for individuals worth more than $250K to get their "uninsured" money out.

Honest and naive question - how safe is the FDIC $250k? I have seen so many situations in life where the rule was one thing and the result was "well sorry, it didn't work that way this time"

In theory? The cushion is about 1.2% or so of the total deposits [1]. In practice: Short of the federal government collapsing the 250k$ per depositor per institution will be paid.

[1] https://www.fdic.gov/analysis/quarterly-banking-profile/fdic... unless I'm misunderstanding the number

I'm finding the commentary on this issue from different parts of the web interesting. Obviously many people here are directly or only one degree of separation away from being directly effected, therefore this place seems to be most sympathetic in demanding bailouts.

Wallstreetbets are happily egging on the chaos for lols. Crypto bros are seeing a mix of opportunity and/or potential market collapse in the few lucid moments they get day to day. And the wider public either dont know, dont understand or dont care.

personally im happy to let it burn to the ground. Risk and reward only works when unmitigated risk is punished. Asking the adults to step in every time a banker is irresponsible cant continue.

Maybe so. But the flip side of that is that (IMO) a bank that qualifies for FDIC insurance on any sort of scale should have to follow the same risk-controlling rules (Basel III, etc) as any other large bank.

The government has a strong interest in making money be money — someone who holds USD and uses it for transactions should be able to be confident that it won’t evaporate. Currently, one does so in an FDIC-insured bank or by purchasing short-dated [0] treasuries.

And if the government backs a guarantee like this, it should exercise a corresponding amount of control over what becomes of that money.

[0] Hey SVB, you forgot the short-dated part.

We had protection against this shit. It was called the Glass-Steagall Act. But rich people weren't getting rich enough, so they were yet again allowed to play with other people's money.

That never, ever turns out well, because it turns out that most capitalists are clever at getting rich and fantastically stupid at understanding how systems work at a macro scale. Which is how we got 2008 and what's about to happen, which is gonna be hilarious, for "19th century Russian novel" values of hilarious.

How much of his personal fortune is Bill Ackman putting up to guarantee deposits?

Call daddy to socialize the loses while we pocket the profits.

It seems like people are so focused on class warfare and politics that they completely shut off the problem solving side of their brain. Assuming there’s no buyer found by Monday, the fed should just step in and guarantee deposits via a bridge loan at payday-loan interest rates. The interest will offset defaults and taxpayers will make money, which also means the fed can sell off this debt to the private sector. But, time is of the essence which is why govt assistance is needed. Depositors are mostly businesses that will be able to solve for the long term interest payment impacts. The problem for them is purely short term liquidity.

Why are we bailing out the rich people? Again?

We're not, we're bailing out startup companies. You know, the main audience of this social media platform we're on?

I don't think anyone involved with those is exactly in poverty. So there is lot more deserving people around the globe.

We're not talking about poverty. We're simply talking about restoring the bank deposits of early stage companies.

Also it's not "bailing out" in this case. SVB has a liquidity problem. What they need is a couple billion short term debt (which they just about got before things blew up) to support cash outflows while they unwind their bond positions.

This is not the same as tax payer money going straight into the pockets of creditors ala FDIC insurance.

that's a lot more than 288 characters

Yeah, I was wondering the same. I'm not a T user. Is there no character limit now?

I guess someone lost a lot of money here...

Really, though, the Biden admin is going to do a bailout if they can. SVB is the bank for some of their biggest donors (including bill ackman).

can someone explain how a tweet this long is possible?

There are no libertarians in a bank run.

There are no more libertarians any more, period. Exit is the only fundamental right.

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