SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

Where do I sign up to play with these levels of leverage of other people's money too?

Where even getting margin called on extremely big margins compared to my initial investment, the government would sweep in because that margin wasn't even mine to play with?

Where I get absolutely ridiculous interest rates from the Fed which I don't need to pass on to my meat shield clients, I just get literally free money from the central bank?

All these privileges for no responsibility. This has to end. If we all admit it's other people's money, and we all admit that in failure, the government will also cover for them, and they get to play these completely absurd investments with leverage of 20 to 1, their privilege is just unjustified.

When the broker fucks up and let you blow your margins, the broker pays the bills. But banks get to blow the margins with everyone's money and somehow the government only comes in when they blew it, but wasn't responsible to keep tabs on their margin in the first place? And there's barely any margins, the leverage ratios are insane.

Of course debt holders would require much higher interests. The whole thing is just a sad scheme where the government is letting privileged entities a monopoly of using leverage on other people money, while the government holds the tail risk.

I would love to get 20 to 1 margin with the government taking all the tail risk to zero and allowing me to dip below zero by design. If I blew it I could start again just like Lehman CFO which moved over to SVB.

If you take their responsibility, you have to take their privileges too.

But isn’t resetting the shareholders to zero exactly the problem? If we’re keeping score, the shareholders should owe the government exactly how much money was used to make the debt holders whole, right?

>If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly.

Similarly, ceasing steroid use will reduce muscle mass.

I know how it works. They get 10 to one leverage while the government effectively insures their counterparty risk for free.

That's absolutely ridiculous. Where do I sign up. I want to gamble other people money at 10 to one leverage and nobody suing me if I fall.

My cushion if I make a margin account at the bank is what, 2 to 1? Do you know the interest rates you pay for these margins? Compare that to interest rates the banks give their customers.

They are absolutely privileged, by law. You as an individual or even as a corporation don't get this privilege.

Why is it in their interest not to risk it in a ridiculous way? If I had several margin accounts of 10 to 1 that can only go down to zero, the highest return isn't by spending it wisely. It's by spending it in the most risky way, getting that sweet 10x on that risk and the rest can go to zero for all I care. I don't even need a positive expectation value investment to have a positive expectation value from this shenanigan.

Even investing in an unfair coin toss of 40% to double, getting free 10 to one margins my expectation value is an absurd 400% return starting from what should be negative expectation value investment.

The banks have privileges that are absolutely rigging the game in the most distorted ways possible. The shareholders equity doesn't justify their privileges.

You can't regulate away bad incentives which come from the privileges that other regulations grant.

We're only in this mess because banks have excessive privileges. These privileges lead to misaligned incentives. No amount of regulation can realign the incentives back. Only revoking their privileges.

Their privileges include being the only entities able to deal with the Fed and hold deposits .

Let people bank directly at the Fed. Or with crypto. But banks don't deserve a special privilege of being the only way people can hold money.

Furthermore, loans should not be transferable.

Now banks will actually have to price loans correctly. And putting your money in a bank would be a choice they will have to tempt you with, by actually giving real interest rates. And you won't have misaligned incentives, because there is no captive audience.

Giving your money to the bank would be a risk you're doing willingly. A risk they will pay you for taking instead of robbing from you by their regulatory privileges.

> conclusion to this one is that it still is and what was done in 2010 (Dodd-Frank) is a joke and clearly insuffisant

SVB was exempted from much of Dodd-Frank and Basel III.

Except SVB’s customers aren’t “normal people”… they’re VCs, their funds and portfolio companies

> The situation is that the depositors will eventually get some money. And that should be good enough.

No, it's not "good enough". Far too many companies can no longer make payroll as a result of this.

Sure, but they could have sold off a lot of their long term assets earlier instead. To me, the problem was not an outright lack of hedges, rather it was continuing to take too much risk all of the way down. Hedges only make sense to me if they were a cheaper way to achieve the same thing as selling the assets.

The collapse of the regional banking sector across the country and possibly silicon valley as a whole is going to affect regular taxpayers a lot more than a few billions in temporary spending by the federal government. Doubly so because most of the funds are in risk free securities that can be easily liquidated over time. Remember that SVB is one in a long list of small to mid sized banks that made such investments in the last couple of years and now have to realize losses because of it. If left unchecked plenty more banks are going to have runs next week. The government's job is not to sit by and say "I told you so!" but do the best it can to prevent the iceberg from tipping. People forget that taxpayers made a profit on TARP bailouts and prevented the collapse of the banking system and the economy in doing so.

You're technically right, but people treat it as de-facto zero risk.

You also need to look at second-order effects. If startups go out of business because of this, that's a drain on unemployment funds. Those are income taxes not getting paid. Then there are downstream job losses on top of it. It could set back the sector for years, giving other countries sudden advantage in tech. In addition, some LPs are pension funds, so taxpayers would have to make up pension shortfalls. Then there's the risk of contagion now that everyone will be looking at their bank closely. You really don't want to take that chance.

Companies need to get some money very quickly, and you really want them to get at least 95 cents on the dollar back within a month.

It's one thing to let tech suffer because of its own hubris, but because of a run on a traditional bank?

If 'knowing the risks' means banks cannot be trusted then the economy as a whole will be devastated. Banking is a pillar - alternatively we can go back to the 1930s and store money under mattresses.