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Comment by AmericanOP | Hacker News Reader

Before people get too excited about letting it all burn, I recommend everyone watch this talk by an economist on the 2008 recovery:

https://www.youtube.com/watch?v=RrFSO62p0jk

Spoiler alert (18:30): It was entrepreneurship that turned the economy around. Not fed policy.

SVB put their deposits in US Treasury Bonds. Commonly regarded as the safest investment vehicle there is. Then the fed raised interest rates, completely screwing over this strategy. Then VCs panicked, like sheep.

So now we're in a situation where the most successful startups in the innovation sector are at risk of being wiped out while the US economy is being guided toward recession to cool inflation. Go watch that talk- then tell me you really think its a good idea to let it all burn.

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US Treasury Bonds are one of the safest investment vehicles, IF you match the interest and maturity to your liabilities. You cannot go and buy bonds that will mature and give you 1% per annum in 10 years when you have a debtor awaiting payment in 90 days. That's the huge risk mismanagement SVB did.

Having said that, I don't think startups will suffer big time - but they were the ones also who created the bankrun fueled by VC panic. However mismanaged SVB was, given enough time they had enough resources to turn this around.

This needs to be sticked at top. It’s not that hard to build a Treasury ladder with three month bills. This is not complicated and you don’t need to be Warren Buffett to figure this out.

One thing to remember about your last point is that the startups and VC’s that DIDN’T cause the bank run are the ones that will be hurt by this. So if anyone is in here thinking “they shouldn’t have tried to withdraw their money, thereby creating a bank run, if they didn’t want to lose their money!” You have to realize that there two separate groups of people here: the ones that withdrew their money and caused the bank run, and the other ones that didn’t cause the bank run and lost their money.

That said, I don’t blame anybody for causing the bank run. If I had a reason to believe that my personal bank might not be able to give me my money if I didn’t get it out right now, there is zero chance that I would leave my money there to vanish just to avoid causing a bank run for other people. Morals break down when my life savings and livelihood are on the line.

So what you're saying is the bank made investments based on a whole lot of assumptions. These assumptions were quickly invalidated by US policy changes and then the bank lost everything.

Yes, absolutely let it all burn. They risked it all on their "strategy" and lost. Why should they get bailed out in literally any way? I don't see the government showing up to bail me out when my "strategy" gets me liquidated, why the hell do these banks deserve that treatment? Let them face 100% of the consequences of their choices.

This is the second completely detached from reality statement you have made. The US government requires that banks spend 90% of their deposits on tbonds so that they can continue to fund the process of money creation.

The strategy is mandated by regulation post 2008. The mistake svb made was buying 10 year instead of 3 month. Hard to explain that one other than the fed said inflation would be transitory and it wasn’t.

> The mistake svb made was buying 10 year instead of 3 month. Hard to explain that one other than the fed said inflation would be transitory and it wasn’t.

So what you're saying is the bank made investments based on a whole lot of assumptions. These assumptions were quickly invalidated by US policy changes.

Got it.

The bank is already gone. It's been wiped out.

The discussion is now about the depositors.

Depositors lent their money to the bank. They took a risk by trusting a bank to manage their money for them. The bank took their money, invested it and lost it all.

Let them lose too.

It didn’t lose it all. About 90% is still there as assets and is being sold as we speak. The liquid assets have been sold already, so 50% will go back to the depositors next week.

If it hadn't become insolvent in the first place, there would have been no need to liquidate its real assets in order to pay off liabilities.

Of course but the point still stands. If it lost it all we’d all be in serious trouble. It lost ~10% and there’s a nonzero chance depositors will be made whole anyway (with zero taxpayer money involved).

You are unbanked? How well does this work in 2023?

I wish. Not completely. I do make every possible effort to move wealth off of banks though.

There are hundreds of billions in assets owned by SVB. The accounts with grocery assets likely contain companies that will be future unicorns.

What is there to burn? A large bank will likely purchase the assets/debts outright, the shareholders will get screwed, and the depositors likely be made whole. There's no bailout in that scenario

If your strategy is keeping money in an FDIC insured bank account the government will absolutely bail you out. You have a guaranteed bail out up to the deposit insurance limits and a high-probability bailout for close to 100% of your funds through FDIC resolution.

The money in FDIC is the banks’ money! Zero taxpayer investment.

NitPick: The Deposit Insurance Fund invests in Treasury securities, so technically there is a little taxpayer money from interest payments.

But the contributions to the Fund are all from member banks, not from the Federal budget.

https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp....

Something tells me you don't understand the difference between the bank, its shareholders, and its account holders. Unless you just think its peachy that a bunch of businesses lose everything because their bank made some actually not all that risky investments and some people got spooked. This isn't 2008.

> Something tells me you don't understand the difference between the bank, its shareholders, and its account holders.

I understand the "difference" fine. I just refuse to believe there actually is a difference. They're all the same to me: people who lent their money to the bank so it could be invested and pay them dividends.

> Unless you just think its peachy that a bunch of businesses lose everything because their bank made some actually not all that risky investments and some people got spooked.

Why, that's exactly what I think. Looks like that "not at all that risky investment" didn't bring the outcome everyone expected. Oops. Looks like the free market screwed them over again. Such is life.

I suppose it's fine if they manage to liquidate the bank's assets and recover some of it. If they really insist on recovering it all, maybe they should liquidate the bank manager's personal property as well. As long as they don't see even one cent of taxpayer money, it's moral.

Because of secondary effects. It's not like SVB failure is limited to just depositors and start-ups. Which means way more damage than just the nominal amount lost.

You need failures to 'ripple through the economy'

Removing these ripples brings greater risk, which is artificial stability and moral hazard

And taking your analogy further, show me one body of water in nature that doesn't have ripples and waves on its surface (that vary in magnitude)

SVB did not put their deposits only in tbonds.

https://news.bloomberglaw.com/bankruptcy-law/svb-mbs-sales-m...

> It was entrepreneurship that turned the economy around. Not fed policy.

Then get yourselves out of this mess.

By design the feds wanted to increase unemployment and salaries. Problem solved? I'm not trying to be mean or condesending. But who would / should the unemployed / wages come from? What sector?

It turns out that you can make everyone unemployed and it won’t fix the supply/labor shortage created by a lack of immigration and supply chain disruptions. The fed is using a hammer to fix a chipped vase because it’s all they know what to do.

I strongly agree. The feds do not have the tool set to fix the problem on inflation. 50% of inflation is opportunity by companies testing new price points.

We are in a pickle I don't think we are ready for what's to come in the future. I feel there will be a lot of pain in the future for the “little guy”

In 2008 and 2020 they had all sorts of special acquisition funds to do targeted support, now when the little guys is screwed suddenly they don’t have anything but raising interest rates? Like not even targeted interest rates?

You know what I think? This is just like any other time in history the labor class started getting too big for its britches. We are being told to go back down and stay there.

And that’s a really stark reality now that might change someone peoples support for government.

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