The FDIC should bailout the SVB | Hacker News Reader

The FDIC should bailout the SVB

adambourg.com

9 pointssnow_mac47 comments

Apocalyptic nonsense aside (good ideas, good people, and good innovations will continue even if the current equity holders of a startup are wiped out), if the argument is "we need to make sure people can make their mortgage payments," then let's have the federal government send the affected workers checks for their mortgage payments. None of this indirect bailouts for careless VCs nonsense.

SV no longer has any moral authority about "disruption", "innovation", or any other buzzword. The entire industry should be allowed to burn to the ground so genuine growth can follow.

Well put. This is exactly why people are so emotional about this story - you've got a group of people acting like they're shaking up a stodgy old system and those who can't keep up need to whither and die. And then suddenly when things don't go their way (and this is an extremely minor thing really, most of the money is there, there are lots of private ways to backstop this), they run and cry to the government.

Iirc the rap group Geto Boys has a (great) song "We don't talk to police" about how they don't cooperate with law enforcement, and then got rightfully made fun of when they screamed about people downloading their music and demanded someone do something. The G-Code doesn't extend very far apparently, and that holds for VCs as well

> If you banked at SVB, you should not be punished, you in good faith put $300,000 of your companies revenues into your account (IT SHOULD BE SAFE) and that will let you pay your employees and bills for the next few months, the bank fails, you should not fail.

$250,000 is safe. Ya'll are apparently intelligent people. You can read the most basic fine print.

They put excess of 250k because of the expectation of a higher return. Depositors took the risk when they deposited the 250001the dollar into the account. SVB owners lobbied to reduce regulation, won, and now they got what they asked for.

Account holders should have their 250k covered and not a cent more unless the owners/shareholders of SVB foot the bill.

exactly.. they chased higher returns at a risk and lost. BOO HOO.

Roku had $487 million of its $1.9 billion at Silicon Valley Bank. 250k of that was insured. At some point this is just people being dumb and should be punished.

Roku CFO and board finance committee members should be fired.

It seems to me like SVB should be a fairly attractive acquisition target for a major bank. You get an immediate foothold in an enormous industry, and if you've got enough scale, the concentration among tech doesn't hurt you.

Seems like a Chase or even a major investment bank that wants relationships with those companies that may eventually IPO could take a short term financial hit and still easily come out on top in the medium-long term.

> I agree, let the bank fail and the bankers should go to jail.

Curious about why the bankers are getting such ire. Is there a good article describing where negligence kicked in to cause this? Because from what I can tell in my very limited understanding of this situation, they bought very safe bonds that just so happened to be exactly the wrong thing given what happened in the ensuing years.

"Very safe" was always a complete lie. It assumed a certain macro-economic environment that is now over.

Why do we allow these people to profit off the gains of their successful bets while socializing their losses?

The pitchforks are coming out at some point. "Gradually, then suddenly."

That Hemingway quote feels very relevant lately.

Okay so now I'm very confused; what was the expected "profit" here, on this investment?

Are you actually arguing that SVB and their depositors haven't seen immense profits in the past few decades? 250k is FDIC insured. Beyond that, a massive haircut is the only fair solution.

They made a bet on 10-year government bonds. It didn't work out due to rising interest rates. Whoops? Not my fucking problem. Unless they get their way and make us all pay for it.

Edit: This account is shadow-banned. I can't directly respond to the comment below. Luckily for me, I already thoroughly explained my point. This has nothing to do with "bankers" and everything to do with unbelievable hypocrisy from the SV founder & investor class. You all are so fucking full of shit. Flag this comment, please. After being totally swindled in 2008, I predict Americans are going to react to this rationally, which will be very bad for you. Good luck assholes.

I'm asking specifically what are the "profits" were/are still to be on the investment they made here?

How are "government bonds" risky? How are they "bad" in any general sense? Just doesn't seem to fit the "greedy bankers" narrative.

They're neither good nor bad. They're just assets. Investors who bought them should bear the consequences of their decision. Depositors knew that their deposits were not insured in excess of 250K. Why do we allow certain groups of people to just rewrite the rules whenever they fail? It's ridiculous. Not to mention totally antithetical to their supposed philosophy.

The answer to your question is pretty simple, actually; the "we" would would let SVB depositors fail are also the same "we" that compose the voters and participants in the US economy who would be harmed by letting SVB depositors lose out on their money.

Allowing people to starve and die isn't really in the best interest of the very people who would starve and die, so... "we" won't let that happen.

I'm not saying we allow them to starve and die. They can apply for SNAP, EBT, and Medicaid, just like everybody else if they become truly penniless. Get a job delivering Jimmy Johns. Or just sell their vacation homes.

And again, we as a society do not find destitution/poverty to be an acceptable outcome for the "crime" of simply banking.

You seem to not understand who would be effected by this the most. It's not the people with vacation homes, it's their employees.

But the people you're suggesting should take a haircut (the depositors) did not make a bet on 10-year government bonds. They just put their money in a well-reputed bank. Why would they take a haircut? Wipe out SVB equity holders, sure, but depositors did nothing wrong here.

Also, you're probably not shadowbanned, sometimes there's just a delay before you can respond to a comment responding to yours. No need to name call.

This account is absolutely shadow-banned. It deserves to be. Just like VCs with balances in SVB larger than 250k deserve to lose their shirts.

Juat to confirm, I can see your comment and reply to it, so it doesn't look like you're shadow banned.

It's deboosted. Comments with 50+ karma show up at the bottom of every thread.

Again, it's deserved. I get it.

Not sure I'm getting it. The big return on investment that VCs get is justified by the big risk, isn't it? So why shouldn't we as a society say, "you risked big, and this time you lost big"?

Maybe I’m misunderstanding the issue, but how did the people losing money here make speculative investments? Is there some expected return on opening an account with SVB? I thought these were just normal depositor accounts being wiped out.

They deposited excess of 250k in hopes of getting a better return on the money than traditional banks.

You _are_ misunderstanding. They banked at SVB betting on higher returns than other safer options and lost that bet. They were only ever told they would get 250k of that bet back. Now they are whining about it.

Do you have any information about how much higher this return was?

In any case, this is a failure of government regulation. If the FAA started allowing cheaper flights on aircraft that had less stringent maintenance standards but let passengers know that it was "at your own risk," then I would question the FAA and the airline industry, not the passengers opting for the cheaper flight.

The $250k FDIC limit on accounts with hundreds of millions of dollars is ridiculous and doesn't sufficiently protect the financial system. That is the regulator's and Congress's responsibility to provide better governance. That a bank like SVB was allowed to exist, with its client base highly concentrated in one very particular industry sector, is also a governance failure.

A startup company's bank account, where it holds VC investment cash and pays out salaries and invoices from, is not something that should experience occasional random disasters where the bank suddenly disappears into a thin air along with your US dollars. This is like a major transportation or industrial disaster, punishing the victims (depositors in this case) doesn't make sense. The focus should be on making the planes, trains or bank accounts safer of future users while compensating the victims of disasters and building trust in industries and regulators. Due to the unique nature of banking, punishing the victim also risks cause the phenomenon of bank runs to spread to other banks and causing further disasters at a time when the economic situation is fragile to begin with.

Silicon Valley lobbying to be Too Big To Fail. I predict they will get their way. What a complete joke. They'll be laughing all the way to the (solvent) bank.

This is really more of an embarrassment for the banking industry and bank regulators. The immediate threat is also to the banking system itself, as the question on everyone's mind is which bank will have a run on it next. That is definitely not the kind of situation that the world needs to wake up to on Monday. I'm really hoping they'll announce that a collection of some banks (or ideally all US banks with Fed accounts) has pooled resources together into a fund that will bail out SVB and any of its peers that might need bailing out. Since bank runs psychological, the act of announcing that a bank on the brink of a run will be bailed if a run happens would hopefully prevent the run from happening. After the banking industry is done bailing SVB out, US banking regulators should require banks like SVB to better manage their concentration risks.

If we don't wake up to a situation on Monday morning where every SVB depositor has been somehow promised that they'll made whole, then the Fed will be repeating the exact same experiment it tried when it allowed Lehman Brothers to fail. The lesson from that little episode was that if you allow the first bank to fail instead of bailing it out, then you'll set off a chain reaction where you'll be forced to bail out multiple banks instead of just ones and your economy will be left a smoking ruin as a result.

LFG (let's fucking go). I've been repeatedly told that failure is good; that it's "corrective". SV needs to put its money where its big fat mouth is.

In reality, they are total grifters who will milk the general public for every dime they can get.

!remind me 6 months

Fortunately, the FDIC lacks the statutory authority to bail out SVB. Without congressional action it would really be an extraordinary move by the treasury.

Capitalism only works if companies can die. We (the public) cannot continue to let financial institutions pursue ever riskier investments, banking on the idea that the government will bail out the reckless.

Can you explain to me what the "risky investments" were here that SVB partook in?

Whatever investments they made that are now sour enough to not cash out to pay their depositors. Yeah, that's a bit circular, but I think that's how it works. There's some risk in every investment, or so my 401(K) plans tell me every quarter.

But that's the question I'm asking; what specific investment did they make that went "sour"? I can't find one when I look, that's not what I'm reading happened at all but I'm open to the idea that I'm missing something.

Their risk was not being diversified. They were heavily invested in long-term TBills. As interest rates have climbed, the value of those long-term TBills have fallen. Had they established ladders of different maturation lengths, they may have been able to weather the storm.

As usual, Money Stuff[0] has an amusing and informative description of the events. A choice quote

  And so if you were the Bank of Startups, just like if you were the Bank of Crypto, it turned out that you had made a huge concentrated bet on interest rates. Your customers were flush with cash, so they gave you all that cash, but they didn’t need loans so you invested all that cash in longer-dated fixed-income securities, which lost value when rates went up. But also, when rates went up, your customers all got smoked, because it turned out that they were creatures of low interest rates, and in a higher-interest-rate environment they didn’t have money anymore. So they withdrew their deposits, so you had to sell those securities at a loss to pay them back. Now you have lost money and look financially shaky, so customers get spooked and withdraw more money, so you sell more securities, so you book more losses, oops oops oops.

[0]: https://newsletterhunt.com/emails/24927

Right but it sounds like their investment didn't "go sour"; this isn't then an example of "greedy bankers", more like "lazy bankers" or possibly even "unforeseeable circumstances".

....Do you not understand that a bank is a creature of "we'll keep it safe until you need it?"

That a bank, even if the ultimate investment of float they did, finds themselvesbin a position they cannot reconstitute sufficient float to pay out it's liabilities has ultimately engaged in bad/risky investments?

Risk can happen in terms of "Wow those turned out to be really crappy mortgages," ot in "Well, I just dumped all that money in single year TBills, and the interest rate went up!"

Any bond in an increasing interest rate environment in the abscence of enough time being available to fully mature is setting principle on fire. Because you can't cash out, because no one will buy.

That's what went sour. You bet peoples money on things'll stay the same... And you were wrong, and there was no time to paper over it with the coupons of those bills.

> this isn't then an example of "greedy bankers", more like "lazy bankers" or possibly even "unforeseeable circumstances".

A distinction without a difference. They made bad decisions for whatever reason, or they got unlucky for whatever reason, or some combination of the two. That's why companies go out of business. They are not special.

We distinguish intent all the time for various legal reasons, and if something done for the right reasons goes wrong, the empathy is certainly more readily available.

I have yet to see any real reason to suggest this was anything other than a blunder. A relatable one too, as nobody in 2021 thought the fed would have to hike interest rates at the rate they have since.

They put a lot of money into long-term bonds before the latest interest rate hikes. These bonds now sell at a discount, so they can no longer cover all deposits by selling them.

This is a very good/short description that explains what happened. It's not that they made risky investments but rather lack of diversity plus the insider trading of everyone pulling their money did they in. No sympathy.

Right, so where are the “gains”? Where is the greed? It doesn’t seem like there is an unreasonable upside here, just a misunderstanding/mistake in handling the assets.

Your ideas on this topic are so bizarre. Are you arguing here that the bank owners and employees were not paid? That they didn't pursue a strategy they believed would give them higher returns, and failed?

Best not to engage in their sealioning.

I'm arguing nothing, and am trying to better understand why people are continually claiming it was their "greed" that caused this failure, and not their incompetence.

They didn't seemingly pursue a strategy that would have resulted in their pay increasing meaningfully, in fact it seems like they pursued a strategy they believed was safe and cautious. It wasn't, but they did seem to think so.

But I don't have all of the facts and this is not my wheelhouse, so I'm asking questions for clarity. "I don't know" is a reasonable answer, but not one I find around here much.

*too

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