SVB chief pressed Congress to weaken risk regulations
theguardian.com
theguardian.com
https://news.ycombinator.com/item?id=35115963
(311 points/11 hours ago/153 comments)
First, in my mind, the original principle of regulation IS the individuals saying "well, THAT sucked... Let's not do THAT again". Otherwise everybody has to make a mistake for themselves and that's inefficient. We need to learn as a society and across generations.
Second, modern life is complex and we need to divide and conquer. Most of us live in Interconnected society strongly dependent on competent work by others. There are some things we should take for granted. In this particular case, if I put basic cash into a basic deposit account that's not designed to give me high yield or differentiated exposure or whatever, then I want regulations and a system to make it so.
There are 10,000% too many regulations that are insufficiently examined and overly prescriptive out there.
But I don't agree that depositors should always pay cost because we are all depositors and we can't all always manage that risk individually and I think we as society mostly said, this is a risk that pertains to all and we should manage it holistically as such.
If all a company has to do is check the boxes of regulators (which they're good at) and now there is a guarantee that nothing else needs to be done since the bailout is all but explicit. You don't care as a customer. The business doesn't care since it's following the rules. And every decade or so we have a bailout.
Remember that these industries are heavily regulated. And those regulations are always insufficient. Triple A CDO-squared were treated to be as safe as cash according to regulations when they ended up being worth closer to 30 cents to the dollar
So, we definitely don’t want that guy sticking around.
"Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling" - https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
https://podcasts.apple.com/us/podcast/all-in-with-chamath-ja...
"Investors implore the government to step in after Silicon Valley Bank failure" - https://www.cnbc.com/2023/03/11/silicon-valley-bank-failure-...
Turns out, greed is a powerful driver; and, humans are fully capable of self-serving mental gymnastics.
Not textbook capitalism, the fake kind we have. The one where businesses clammor for "free markets" and no regulation, but only when it suits them.
- privatizing gains, socializing losses - free markets/competition while they are poor, monopolies once they are on top
As a good capitalist you would aim to dismantle the very things that enabled your rise to power.
The natural state of capitalism trends toward monopolies, regulatory capture, cronyism, price fixing, wage theft, information asymmetry, and bailouts.
No. Those are two different things.
See: 1940-1970 Japan, South Korea, 1980-2023 China.
Socialism by definition is having a centralized authority stepping in to regulate and control what goes on, for the "good of the people". In a free market capitalistic society, if you lose your money on a private enterprise, then you have to deal with it yourself, no one is coming for your rescue.
As a result its definition in the minds of Americans is very often something completely different than the actual definition.
Basically it's just the evolution of language. They're two different words now, depending which side of the Atlantic you're on.
Having more money than the FDIC insures is not very hard for any business larger than a few people.
Government should absolutely be in the business of protecting the people storing their money in the bank.
People investing in a bank as a security should be responsible for that risk, yes, because they’ll be getting the profits if successful.
The step in part is what VCs and corps are asking for which is to be made whole. In reality they should have realized -- as sophisticated actors -- that large amounts of money are always at risk. Even if you put them in a bank because it is not a vault. They're investments that you just don't have control over.
If the wish was to secure their millions to billions of capitals it should have been invested by them in some sort of instrument. This is what any treasury in a large corp already does. So it isn't unknown knowledge.
It would be as if they stored their most critical IP in a cloud server. It went down and now they want to be made whole.
You can't arbitrate away large financial risk anymore than you can technical risk. So you must understand it when you're dealing with substantial amounts of it.
FDICs 250K limit works fine for unsophisticated retail customers.
This "they should have known better" narrative is garbage. Companies have no choice but to park money in amounts greater than $250K. Some of the companies with SVB (as I understand it) were required to bank with them. There's also the fact that SVB might well have been fine if not for the Thiel-induced run on the bank.
But even if I bought into the idea that primary depositors were at fault, I'm not keen to see all the collateral damage that's going to come out of this and hit workers and their families.
Socialism is not about a (functioning) central regulation, like we have in many countries around the world and many countries based in Europe.
Yet, even in the health care system the inssurers are private and doesn't belong to the people. It is just regulated how the system works.
This is just my definition of “government”.
The above (true) story happened under a capitalist system, and has nothing at all to do with socialism.
Perhaps the problem is the people can only imagine either capitalism or the Soviet Union and nothing in between. Guess what, you can have a mix where it makes sense. There's no need to obsessively pull out every socialism trope as if one were ChatGPT at every hint of an extremely mild criticism of capitalism.
Feedback is an important mechanism for the gradual improvement of any system.
2% tax raise for the top 1% of wage earners? Socialist. Gets used to flip votes in the elections.
Even very poor Americans who would literally have a much higher standard of living under socialism are taught to despise it.
Pretty much the same for people living in oppressed countries. They would benefit from at least some liberties but are taught to despise them (and the west for having them).
The West has directly supported the overthrow of a fair number of rather progressive leaders, at least by world scale.
Are you sure about that? The very poorest Americans likely have higher living standards than you think. Homelessness due to mental illness or drug abuse is a separate population, I mean working poor.
What socialist system would you like to hold up as an example?
Americans have a distaste because they see people who prefer attempting a dangerous escape from those socialist countries to living in them.
I grew up in Poland and you will take 'socialism bad' banner from my cold, dead hands.
But in reality I am for a mix of both, but 'socialism bad' is just an overly simplistic, propaganda loaded agenda that does nothing to push your society towards a more balanced track than it is on now.
If you get a chance, please ask these women what they think about it (if they are old enough to remember).
They say the selection and abundance of food and products is much greater now, but that the quality of food is lower.
They're surprised when I tell them that I sometimes have to work during the weekend and oftentimes extra hours during the week as they assumed this only happens under socialism. They've also enjoyed more regular retreats that I do.
They say that the general quality of education seemed higher, excluding the propaganda.
They didn't have to pay tens of thousands for their education and be in debt as soon as they're adults.
They also admit that they can't really imagine buying and actually owning a house during their lifetimes with current market prices and admit that they didn't really have to think that much about such basic sensitivities back then.
But I am not in favor of that system, because as you may not be aware there are many more ways to implement certain socialist policies without eliminating the benefits of democracy and keeping the market free where it makes sense.
Capitalism makes sense in some places, it just doesn't make sense everywhere.
We should also have a system, the same system, where investment is a risk. But parking your money in a bank account should not be a risky endeavor.
Why? It is. Transparently. There are measures of how risky different banks are.
For ordinary people, the risks should be insulated. And they are. Deposits are insured. Unemployment is insured. If you have more than $250k in a non-investment grade bank, you should have a strategy for mitigating that risk. If you have tens of millions of dollars of cash, you should have a treasury function.
Essentially, you buy e.g. lower rates on a personal loan by keeping your company's cash with them, far beyond the insured amount. It's not just "I could've chosen any bank, I just wanted my money securely stashed somewhere", it's "I put my money here, knowing it's not insured beyond this amount, but I get favorable rates in return". The lines between deposit and investment get really blurry there.
The fact that SVB pays depositors should have been an indication that there was risk.
There ain’t no such thing as a free lunch.
"...The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding. When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides." - https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
To say that capitalism doesn't incentivise this sort of practice is pretty naïve.
Capitalism leads to the concentration of wealth that allows these incentives to appear.
Edit: How I enjoy the salty tears of people who drive by downvote without a rebuttal out of cognitive dissonance. Delicious.
The same corruption happens in every other system including socialism but even if that system abolishes money the corruption would be done through power, coercion, and influence.
I am not railing against democracy. I am saying democracy is being undermined by certain unchecked aspects of capitalism, specifically in the US. In many European countries, this is much less of a problem because campaign finance is very strictly regulated. And in general the solution employed in Europe has been more financial regulation, not a small state. And it's been highly effective.
And yes, socialist countries can also be corrupt, and definitely have been. I never said otherwise. Saying X about capitalism is not automatically saying !X about socialism.
Similarly, saying that socialism can also harbour corruption is not equivalent to saying capitalism has nothing to do with corruption in capitalist countries.
It's false dichotomies all the way down.
Second point, wealth is by definition a creature of rarity. The same is true of influence. Everyone has some degree of influence over others but useful influence is what one person has that others don't. So you can't really evenly distribute wealth over any meaningful time period. You can certainly eliminate mechanisms for relating it to other uses but then you've destroyed it.
The problem you are trying to articulate has been studied. It is actually the concentration of power that is the problem. Influence, wealth, coercion are traded by some to those that hold power in order to direct it in a way that they want -- this is called corruption.
Both capitalism and socialism are economic systems. When combined with democracy they can enable corruption because it is the concentration of power in the hands of the leaders that is the critical element -- not what is used to trade for it.
When you're looking at European socialist countries you'll find the successful ones are either low population or the power int the hands of the leaders is fairly restricted because of societal structures. Meaning the instrument isn't there. Ask soon as you scale it up it rots a lot faster than ay capitalist society.
They really aren't. The vast majority of elections are determined by the partisan make-up of the district in question.
For the most part, you seem to have inverted causation. It looks like more popular candidates attract more money, not that candidates with more money end up being more popular.
There's a (semi-)decent write-up here: https://fivethirtyeight.com/features/money-and-elections-a-c...
Though I'm very opposed in general to the idea that causation is one sided here.
I can easily see it as a cycle. Popular candidates get more money, can buy more attention which makes them more popular, get more money, buy even more attention, and so on.
There's also the gnarly topic of money and the big media which is involved at every step here as well.
It's an extremely complicated topic with many moving parts interacting in all sorts of interesting ways.
I’m sorry but you’re going to need to be more specific. The U.S. isn’t the only country that uses money.
You say capitalism allows for the concentration of power. You’ll need to explain how other systems of government get around concentrating power in a game theory stable way.
Your argument, as written, boils down to “If people didn’t have money they couldn’t use money to bribe politicians and therefore politicians would be free from influence.” And you use that to lay the blame at capitalism’s feet. This is likely not what you think - but it’s how I’ve read what you wrote.
> who drive by downvote without a rebuttal
We don’t comment on downvotes here. That’ll get you more downvotes.
> How I enjoy the salty tears of people
This isn’t Reddit. We don’t communicate this way here.
And I spoke about the US specifically because capitalism is implemented differently in different countries. More on this in my responses to your siblings.
It's definitely a matter of the way you've read my post. You're inferring a lot of stuff I didn't say, which doesn't logically follow from what I did say.
As for the edit, I'm just testing a psychological pet theory of mine.
"The Rise of Shadow Banking in China: The Political Economy of Modern Chinese State Capitalism" - https://iems.ust.hk/publications/thought-leadership-briefs/t...
"Shadow banking in China" - https://en.wikipedia.org/wiki/Shadow_banking_in_China
Listened to the latest All-In episode and have been reading some Twitter threads, heard everything from this is going to wipe out 10 years of capitalist progress to people indicating they never heard about Held to Maturity accounting(i.e a CFA level 1 topic) to predicting a bank run on Monday if no bail out to suggesting that government would double their money if they bailed these companies out a la TARP.
For euqity/bond holders of the bank, probably.
For depositors like in this case, a little bit complex. What about possible contagion? Where will the contagion be stopped? Or just let it destroy the world if possible.
> nor expect sympathy or compensation
Maybe compensation like Bernie-Madoff style, remove all the profits of other persons. But this works fine by me because it will probably destroy crypto.
Workarounds include depositing money in a brokerage account (and buying risk-free t-bills) or spreading it out across multiple bank accounts. Smart and risk-aware people did that, dumb people didn't (or alternatively, through specific rules that Silicon Valley Bank set, were prevented from taking their money elsewhere).
But as always, system tends to take decisions that increase moral hazards as time goes on. Swift and easy solution in the moment, but bad in the long run.
(Probably not productive to bring crypto into this discussion in my view.)
Are you willing to loose your job & house because of the contagion?
> (Probably not productive to bring crypto into this discussion in my view.)
You aren't even a bagholder I'm afraid. Bagholder is having a stock that has fallen 90%. You (I think) have nothing and anonymous.
Again, I thought crypto was an !insane! ponzi since when bitcoin was $300 (that's when I studied it a little).
I don't think there is an official definition of bagholder as far as I'm aware.
Many people out of a job on Monday(including me). Many other banks getting a bank run.
You should do therapy on the damage of the hype of crypto. For your own sake.
It's also the reasons why you had to invest in it in the first place. Not just that it failed.
I only give advice on things I believe & do myself. I did the similar thing with leveraged etfs and know well the why & aftermaths.
Now consider which would be the better buy. Twitter for $40 something billion or bail all these investors out for similar money and own the startup banking business almost entirely. I know what id do if I was sitting on billions looking for capital returns ala Apple.
(Apple could outright buy this market, use the returns from banking to issue monthly/quarterly dividends, and still have hundreds of billions in cash. They could then buy some significant portion of the emerging launch market. Wait a few years to mature. Then declare their checkmate on the global economy. Edit-correction, they’ve done buybacks so they’d have to issue some stocks or raise funds. Point remains.)
"106 Must-Know Startup Statistics for 2023 - Embroker" - https://www.embroker.com/blog/startup-statistics/#:~:text=03....