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Comment by jmclnx | Hacker News Reader

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

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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).

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