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Comment by muzz | Hacker News Reader

Depositors knowingly took the risk of having such large deposits there. They made this decision and should face the consequences of it, not the taxpayers.

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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.

Nope. This is a commonly used scare tactic.

Tan's proposed bailout is nothing like TARP

What is the difference between the two?

With TARP the government owned assets. For every dollar they invested, they could receive less, equal, or more than a dollar. Overall, they received more.

Tan is proposing the backstop deposits. In this case, the govt can receive AT MOST a dollar for every one of its dollars. The absolute best case is a break-even on the investment (and the government eating the cost of administering the program)

How are you getting to an at best break-even?

Looking at the most recent 10-K (12/21), if you have more recent figures I’d be happy to use those:

  Total deposits: 173.109B
  Total assets: 211.793B

Of the assets, those that the government would actually care about in a takeover:

  13.8B cash
  26.1B available-for-sale (presumably marked to market, so that’s supposed to represent today’s sale price)
  91.3B held to maturity securities (these aren’t marked to market AFAIK, so this represents the value if they’re held to maturity not sold today)
  73.6B in loans net of loss allowances
  Total: 204.8B

There are also a few billion of non marketable securities and “other” which I left out.

Granted, some of this has already been liquidated, but if the government paid out depositors one-for-one, and held the rest of the book to maturity they’d make 31B. That’s basically the same argument employed when stating the government “made” money with TARP.

Good points

> presumably marked to market

This is the key-- not sure if we really know what is marked to market at what isn't

> held the rest of the book to maturity

That's like 8 years? and a gain in nominal terms but to real terms ie inflation-adjusted since a 2031 dollar is worth less than a 2023 dollar

If the securities can be easily liquidated then there's really no economic loss for these guys going under. The real economic cost of a bank run is the early liquidation of good firms. If all these small and medium banks just have to sell their liquid treasuries or MBS portfolios then no big deal. Whatever working capital they're providing is pretty straightforward for some other financial institution to provide. The rest is just transfers from one party to another, no need to intervene.

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?

> but people treat it as de-facto zero risk.

FDIC guarantees deposits up to 250k and everyone should know this. I know grandmothers with better risk mitigation strategies than these startups.

Your second paragraph is pure scare tactic. Companies that fail at the basics of managing their own money against simple obvious risks should face the result of their careless. They will be replaced by better-run companies.

> Your second paragraph is pure scare tactic.

This isn't the time to be a purist. What happened happened; now you have to look hard at possible outcomes and be pragmatic about the best response.

> people treat it as de-facto zero risk

Silicon Valley was not an investment-grade bank. If you’re running a corporate treasury function, you should have sweep, have a back-up bank account and know how to pull deposits into Treasuries.

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.

Odd assumption to make

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