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Comment by fullshark | Hacker News Reader

The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.

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Except this is the opposite of what happened in 2008 with bailing out the banks. Then, the banks got public money to remain solvent. Here, the bank is taking the hit and the government is ensuring the depositors get their funds back. In 08 people were kicked out of their homes and banks were propped up with public funds. Here, the depositors are being made whole and the bank is going out of business. The salt is your typical 0 knowledge hot take.

It’s absolutely in the interest of the greater economy to have a functioning banking system backing high risk/high reward activities like Silicon Valley. And charge the risk appropriately high fees, of course. SV has been a very bright spot in the economy for several decades now - through thick and thin.

If anything, it’s a lesson about how assets should be accounted for in corporate statements. It’s also a statement that the perception of SV is a little sour and could use some reflection. Maybe look for ways to better engage the rest of the community and figure out where resentment stems. (I’d guess calling large swaths of the US “fly over country”, charging high prices, and other consumer feedback involved.)

Tangent: In decades of socializing in NYC and the Bay Area, I've only ever seen the term 'flyover country' used by people complaining that the coastal elites look down on them. Never once heard the term from an actual coastal elite.

And I live in “flyover country” and hear it plenty and it is a fact of life and business here.

Look, when corporations like Amazon look for a new HQ they head to places like NYC. They say it’s because of the larger labor pools there. And it’s even valid to an extent - Arizona keeps getting semi fabs because they already have semi fabs and labor. The opposite would be looking for some location with the characteristics to grow over time into the location a company wants and making the expanse a long term project. Population characteristics absolutely can change on the scale of decades.

Edit-Just to put a point on this. “Flyover country” is undeveloped country. It’s cheaper to develop. If you want to build a huge fab in the middle of nowhere it’s going to cost little more than the costs of supplies and labor. And there’s always a way to get labor if the price is right. Do it in NYC or SF and you’re competing with all the other current/future uses of that land and it’s going to be expensive. Probably going to face zoning restrictions.

Sounds like you're agreeing with me. "Flyover country" is what the people who live there call it. No need to put the words in anyone else's mouth.

What I’m saying is if SV had a history of developing economy outside of the coasts there might be less salt. Denver’s kind of a good case in point. It’s seen a huge tech influx. There’s probably less salt towards tech/SV there than elsewhere. And if not, the reasons may be informative for anyone looking to better the image of SV. But living there is also sky high-and maybe it’s time to look for ways to move on to cheaper pastures.

I guess Texas is a coastal elite State now? Well, we do have a coast..

There's a country song called 'Flyover States' by Jason Aldean thats pretty good!

I think of NYC and CA as flyover country since I never go there, but fly right over it to get to Europe or Asia ;P

> Here, the depositors are being bailed out

There. Now its correct. Rephrasing something does not change its nature.

The 2008 bailouts were done with that excuse too. They were 'too big to fail', and it would 'affect everyone' so that they were bailed out to 'help' the main street.

> It’s absolutely in the interest of the greater economy to have a functioning banking system backing high risk/high reward activities like Silicon Valley.

It is. And its totally against the interest of the greater economy to bail out those who screw it up by taking great risks. Its against the interest of the greater economy to bail out those who didnt take any risk either. Because it socializes the risk while privatizing the reward. That's why people hate bailouts.

All those startups and wealthy entrepreneurs put their money in the wrong bank. The wrong bank was shown as the best bank through a lot of fallacies, ranging from groupthink to obligations pushed on startups by VCs. Nobody came up and tried to raise awareness about how bad this setup was. Those who tried to do it were unheard. Those most affected from this, the rich VCs, all the SV funds, tech ecosystem top dogs, 'thought leaders', investors, are the ones who created this environment and caused this to happen.

Now, when the cows are coming home, asking for a bailout is socializing the risk while privatizing the profits.

The only exception can be made in the case of the state taking a ginormous amount of ownership of everything that it bailed out and not sell its shares out until it milked its money's worth to cover its bailout amount plus an above-market profit rate from that investment...

This statement doesn't make sense to me:

> Its against the interest of the greater economy to bail out those who didnt take any risk either. Because it socializes the risk while privatizing the reward.

In the first sentence you say there is no risk being taken by a group, and in the second sentence you imply there is a risk being taken that a group should not be bailed out of. Could you elaborate? What non-risk taking risky group are you taking about here?

Are you arguing that the depositors were also risk takers here? What were their options to mitigate that risk besides not use a bank?

The public has an interest in enabling high risk ventures, BUT, this must happen through a well designed mechanism that sustains itself. Like how I explained in my comment later: Through the taxes levied for that reason, through insurance fees charged to fund that mechanism and so on.

But none of these apply in this case. High risk decisions were made by all of these actors, including most of the depositors, while privatizing all the profits. The very CEO of the bank is a libertarian and he publicly advocates that government should disappear. All the depositors are either part of the VC crowd, or startups that are practically controlled by those VC crowd. And most of the money (ironically) still belongs to that actual VC crowd indirectly because those VCs control the startups that they gave those funds to.

So basically it was all privatized profits until the risky decisions came home and suddenly a need for socializing the losses came to being, causing even the die hard libertarian CEO of SVB to start publicly demanding that the govt. should bail them out, in a public display of total lack of principles. (then again Ayn Rand did the same).

Yes, the depositors were also risk takers. They took the risk of trusting that high-risk bank that lobbied for watering down regulations for more profit. They took the risk of trusting the VCs who forced them to put their money in that bank. Non startup/VC related clients took the risk of putting their money in that bank for reasons ranging from higher gains to groupthink. Those were decisions taken by them. The public cannot be expected to save them from the consequences of that risk taking without getting back its money's worth. And no - the return cannot be 'a more lively startup ecosystem'. The expected return can only be money. That the public so desperately needs for repairing the society.

There's a marketing angle to calling yourself "Silicon Valley Bank."

This is just the ugly side of that marketing playing out.

Meanwhile, the FDIC is required to do whatever is less costly to the FDIC insurance fund. There really isn't a lot of choice in the matter from the government's perspective.

Because if a normal business goes bust leaving customers out of pocket, it’s usually only a small percent of the customers “wealth” (and often insurance will cover it).

If someone’s bank goes bust they can loose a much larger proportion of their wealth. Often causing them to go bust, causing more bankruptcies and job losses.

Governments act as insurer of last resort for most bank defaults, because the confidence of the banking system and money is integral to the countries existence.

> If someone’s bank goes bust they can loose a much larger proportion of their wealth

But only if they decide to hold their wealth in uninsured deposits to save money or effort.

I don’t understand this debate. The article says nothing about whether or not depositors will be bailed out.

It says exactly that:

“ Janet Yellen said on Sunday that the US government was working closely with banking regulators to help depositors at Silicon Valley Bank but dismissed the idea of a bailout. […] “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.”“

The quote says the opposite of that. Depositors are not investors or owners. How can so many people misread this?

Reread it.

She is saying the bank will go out of business, and any people who owned stock in it will lose all of that money, hence the difference from 2008. And then continues on to say that _depositors_, i.e. the people who had savings accounts there, will be helped (although she notably didn't commit to 100%).

I think we should assume that they are going to be making the advance deposit earlier in the week rather than later, and it will be as large as they can possibly make it.

What it says though, is that bailing it out is off the table.

Which has an effect on the investors outcome, hence help depositor better, or at lower cost.

It's an investors, depositors, and tax payers dilema.

The brightest and only fair outcome would be that a private funds/bank aquires SVB. That way everyone is made whole at the expense of nobody. A very unlikely scenario given nobody would touch a beyond help entity with, potentially, liabilities turning out greater than the overall assets left. Intengible assets may save the day, still a bit of hope there.

Well put, can pull the "capitalism" at the expense of few to many yet "socialist" when conductive for mostly a few, but not many times.

I still think they will get away with bailing out several banks that will otherwise fall hence the system. Via means that adhere to whatever rules were put in place.

Exactly. Rules for thee but not for me.

Different rules for something that could risk systemic failure, more like.

We literally have Dodd-Frank rules built up over the last 15 years to prevent these things from becoming a systemic failure.

I get that people are still squeamish about 2008. But our banking system is quite different today compared to back then. We built up these rules so that we wouldn't have to bailout banks in these situations anymore. That's what the entire damn point was.

If it doesn't work, then it doesn't work. But I for one am more than willing to test out these rules... at least for the next few weeks... to see if they actually work. If they don't work, then we strengthen our regulations over the next 10 years. If they do work, then... success.

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We absolutely shouldn't just hit the bailout button before understanding this problem. 2008 + Dodd Frank was supposed to prevent this from being a systemic cataclysm.

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What probably needs to happen is for Thursday's bank run to be undone. Issue a clawback so that the $46 Billion that escaped on Thursday and punish those who bankrun / collapsed the bank in a panicky stampede.

That's far, far more fair than a bailout. Redistribute the money in a more fair way, but accept the risk that SIVB made for itself and its community.

What happened from a regulatory perspective is pretty straightforward; in 2018 large regional banks like SVB successfully lobbied for a partial Dodd-Frank exemption. (https://www.npr.org/sections/thetwo-way/2018/05/22/613390275...)

How do you expect Dodd-Frank to prevent every regional bank depositor with half a brain cell attempting to move their deposits to a big 4 first thing Monday morning?

Do you understand the consequences of that? If that happens, dozens and perhaps eventually hundreds of regional banks will fail and many many more depositors will be out money.

Do you understand how crap SIVB's books were? 50%+ held to maturity? Long dated 10Y and 30Y bonds? A complete lack of a Risk Officer from April 2022 through January 2023?

Given how utterly terribly SIVB was run, I'm not exactly expecting a major issue come Monday. I'm looking at the books of like Ally Bank, and they're way better. https://d18rn0p25nwr6d.cloudfront.net/CIK-0000040729/f4eb406...

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If there are other banks as poorly run as SIVB, they probably do deserve to collapse. But I also don't expect there to be many banks with that level of stupidity.

At Silicon Valley Bank, we're basically looking at a bank, whose Risks were completely slept on during the entire period of the fastest rising federal funds rate in the last half-century. (Or really, the position of Chief Risk Officer was vacant for this entire period). I assume the other banks had better risk management.

Mostly agree, but panic isn't always rational and I suspect most people will react emotionally rather than look at their bank's books like you did.

If the banks books are solid, they should survive a 25%ish decline in deposits, which was roughly the level of SIVB on Thursday.

I don't expect a 25% decline across the industry however. The knock-on effects will be smaller. With a smaller "shockwave" of runs, combined with stronger bank fundamentals, I really don't think we're looking at a big domino-effect 2008-like collapse here.

There is zero precedent for clawbacks from on demand accounts at a regulated financial institution. This isn't even a "capital B" Bankruptcy, so I have doubts clawbacks would be legal.

That would also throw gasoline on the fire as people cease to trust even withdrawn money as whole. It's now in your interest to get your money out of any bank showing any weakness as early as possible.

Clawback SVB money Monday and we'll have a run on First Republic Tuesday and possibly 20 other institutions by the end of the week until we get to Ally and that will empty the FDIC piggybank.

Which is why the cooler heads at the FDIC try to make all depositors whole. Hopefully they can find someone to take SVB's assets on in HTM valuation and maybe some government equity in exchange for ownership. (Remember the government made money on its equity deals in 2008).

> It's now in your interest to get your money out of any bank showing any weakness as early as possible.

Wouldn't it be the opposite? It would lead to there being no incentive to withdraw since you'd only have to give it back.

SVB explicitly argued that it was not capable of risking systemic failure and on that basis gained an exemption from Dodd-Frank rules that would have prevented them from failing to hedge against interest rate risk that took them down.

https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-g...

There has to be some accounting for that.

The problem is that we don't yet know what the "rules" will be in this case, and a lot of commenters are getting out over their skis assuming that tax money is going to go into the bank accounts of SVB depositors or something similar.

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