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Comment by mgraczyk | Hacker News Reader

In cases where you can't predict the future appropriately, sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful.

Keep in mind that bank shareholders and senior management are going to get wiped out and fired.

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I mostly agree with this, but I feel like the past 25 years or so, ever since "the Greenspan put", has just gone more and more in the direction of telling people that they don't need to worry about doing adequate risk assessments, because if you have powerful people that yell loud enough, and you can cause enough damage, that Washington will come to the rescue. Eventually, I just don't see this ending well.

As someone who is naturally risk averse, I feel like a sucker. I was having a conversation in a separate thread where someone remarked "How can you expect startup companies to spread their deposits across multiple banks?" Besides the fact that there are tons of account structures specifically set up to do that, as an individual, I know what these insurance limits are and have moved assets around accordingly (for me, FDIC limits weren't relevant but SIPC limits were).

How much time I wasted. I should have just gone with a powerful enough institution that I knew would get bailed out if they ever failed. I certainly won't waste my time doing this again, which is probably not the follow-on effect that the feds want.

The decisions about "is this bank adequately capitalized to serve its depositors" should be made by the regulators, not by the market. We know what it takes to run a bank safely, and its really easy to both quantify and test. This is how the "too big to fail" banks are run today. No one talks about the moral hazard of elevators (make sure you inspect it before you get on) or airplanes (make sure you do your own pre flight check) we trust that the regulators have set up processes that make this infrastructure safe for the public to use. Even with a deposit guarantee, a poorly run bank can still be closed by regulators, a bank run doesn't need to happen for a bank to be shut down, just like an elevator accident doesn't need to happen to decertify an elevator in a building.

Consider: “Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates. Reserve requirements are currently set at ZERO as a response to the COVID-19 pandemic.” ref: https://www.investopedia.com/terms/r/requiredreserves.asp

A mean reserve requirements are stupid and have no place in real risk assessment so that's a good thing.

How so?

I don't think it necessarily is adjusted for risk that specific banks take on as operators. It's likely set at some requirement to help the fed achieve its goal while also adjusting for median or 2 std dev risk.

It doesn't take a CPA to know that depositing above 250k comes with increased risk. And I think you're kind of conflating types of consumers here. People depositing above that limit are generally not working from the same limitations and lack of information that regular people are.

Exactly. Circle and USDC are essentially a bank themselves, and those deposits were just guaranteed. Risk free return.

> People depositing above that limit are generally not working from the same limitations and lack of information that regular people are.

250k is not that much money. What a weird statement.

Feels like a lot to me. That's more than a year's wages.

Consider financially responsible people in their 50’s and 60’s that have had decades to save. There are plenty of “regular”, middle class people with this type of savings in their account.

If you have that much in liquid cash, you meet virtually no definition of the term "middle class". You are upper middle class at leadt and you probably have a financial advisor who is telling you that you shouldn't locate all your money in one account unless it is yielding in a way that justifies such a risk. At least I hope you do.

Or you're just old and you don't believe in investing. Lots of people are like this.

I concede that edge case. My dad hides cash in coffee cans.

Yes, that is a lot of cash for an individual. I don't really know why anyone would sit on a lot more cash than that without at least putting a healthy portion into Treasuries or other durable assets.

For businesses, it is a trickier proposition but there are reasons that companies roll cash into assets and operate largely from credit.

Companies need to run payroll twice a month. $250k is about one months payroll to 25 people. Many companies are a lot larger than that. You also have planned and unexpected expenses and other payments. Many payroll and providers also require you to set up one account where the funds are pulled. You don’t want to move money around every week, so you keep heathy balance.

I don't disagree, but fwiw it's only about one month's payroll for 25 people if each employee makes around $200k per year.

Obviously people have different salaries but also are payroll taxes and other taxes or fees that also need to be paid like unemployment insurance and whatever else the local government has decided. Sometimes these are collected city/county as well as at state level.

Benefits also cost $500-2500/mo (if you cover 100% employee and 70% dependents).

Not complaining but just saying there are costs that are not always apparent to employees.

also rent, servers, the cost of anything else you have to run your businesses. For broadly generic tech companies, take everyones top line salaries, double them, that is your rule of thumb monthly expense line item that wraps everything up (rent, taxes, the cost of doing business, marketing spend, etc)

It’s also never adjusted for inflation, despite this mess in theory being triggered by raising of interest rates due to super high inflation. 250K when it was set in 2010 is the equivalent of almost $350K now. If we ignore that, then we’re just admitting the number is totally arbitrary and we shouldn’t even bother arguing whether it’s a lot or a little.

Separately, it’s weird that a joint account is insured to 500K but a business account stays at 250K. It actually does weirdly favor wealthy individuals vs. working capital accounts for businesses that might represent many employees.

It was set to 250k from 100k… That’s quite far from ‘never adjusted’ and quite a bit more than ‘for inflation’.

The sentence clearly means that it was never adjusted from inflation from when it was adjusted to 250K, 12 years ago. You can tell that this is far from being adjusted for inflation since it is now 100K off from what it was in 2010, or 40%. This should be a "neutral" issue with respect to the SVB thing, pegging it to inflation helps everyone in the system.

That's more than most American will ever have in savings, no less

That’s a senior software Eng in LA’s annual salary. With five years of experience.

Yeah, that's actually about what I make but let's be real, this is a very small number of people. I have a financial planner.

Are there people in this asset class who aren't getting financial advice? Yes. But it's not like ma and pa kettle are getting wrung out by the savings and loan here.

It is more than the average lifetime peak retirement savings in the US (which will be in multiple accounts, generally).

And so the regulators are empowered to make a whole bunch of other decisions, such as asset and lending strategy.

I prefer to minimize regulators' control over decisions.

Perhaps you have noticed that regulators are at bottom politicians?

at the end of the day, everything in life is political.

Did you also consider that the political incentive for a regulator are at odds with the ones running the bussiness. (mainly, not getting people killed).

I prefer to minimise banking's influence over everything, because banking is itself a form of political regulation - but not a democratically accountable one.

At this point we should just nationalize the whole banking system. Currently we have the worst of both worlds: privatised profits and socialised losses; strict regulations but limited oversight or appeal; no real market competition but no real voter influence either.

we don't have "socialized losses". Tax payers aren't paying for anything here. The FDIC is run an funded by an interbank consortium. Its essential a union of banks that run a collective risk pool and decide the rules of the risk pool. It works and has worked for nearly 100 years.

> we don't have "socialized losses". Tax payers aren't paying for anything here. The FDIC is run an funded by an interbank consortium. Its essential a union of banks that run a collective risk pool and decide the rules of the risk pool.

What meaningful distinction are you drawing here? It's not practical to opt out of banking, and FDIC has no real competition (the NCUA offers exactly the same terms, and in the credit union thread fans were at pains to emphasise how equivalent to the FDIC it is). Not all taxes are collected by governments from individuals.

Cryptos?

People will be taxed for this through inflation. Where else does the money come from during a QT cycle?

I haven't looked into the details for how this will be paid, but that would be my initial guess.

Why isn't it. Pragmatically it's pretty silly to insure the first 250k and then expect people to go through the trouble of spreading their cash over a multitude of accounts. Punishing people for not having accounted for black swan events in their risk assessment is also not scalable. Do we want people to do useful stuff, or to spend their time digging the rule book to ensure they've accounted for every eventuality?

Also it's not like once you have 250k in the bank, you're suddenly a finance wizz, omniscient of all the tricks and tips with regard to treasury management. Even as you get into the low millions of net worth, it's not like you suddenly became a HBS graduate. A lot of regular hard working people end up hitting those limits and wouldn't reasonably be expected to learn about treasury-foo. A lot of young or small businesses are in the same lot. Being somewhat wealthy doesn't turn you into a fine financier. And even if you think those folks should hire advisors, it's not like they can afford to hire the right ones with this relatively small amount of wealth.

I think resentment of having gone through the pain of spreading your cash, in vein, isn't a good reason to screw up hundreds of thousands of salaried employees, and a bunch of regional banks.

If you have more than 250k in the bank you should be smart enough to split it into multiple accounts or hire someone to do treasury management.

I've never run a large company but I feel like it wouldn't be feasible when you have transactions routinely over 250k, like how I'd imagine most of these companies would be with their payroll.

I think the solution to that is placing predence on the bank selection mechanism. You could audit banks' lending positions and make risk adjusted based decisions.

Lots of people have way more than that due to retirement accounts (which sometimes need more liquidity or people want to get out of the market so they have more cash on hand). Or even if you have a down payment on a house in most of the coastal states. 250k in the bank is not much money these days.

I just don’t understand this attitude. It’s 250k. We’re not talking about all that much money. Why do you think people with 250k should have extra knowledge or access to special advisers?

I think you're out of touch with how much money Americans have in savings

Vs say, 1k in savings or 10k in savings, somebody with >250k in savings certainly can pay some form of fiduciary

Well, it's not just individuals with their savings. It's businesses, too.

>punishing people for not having accounted for black swan events in their risk assessment is also not scalable

For a country that seems hellbent on abandoning individuals of lesser means to the vagaries of fate, to frequently swoop in to save those already of better standing when misfortune strikes seems pretty hypocritical.

Sickness is still the most frequent cause of bankruptcy in our country. What social programs we have prickle with difficulties in gaining or maintaining access, seemingly designed to make life harder for those already forced through misfortune to require them.

Half our political establishment regularly suggests the destruction of even these, intending to leave individuals with nowhere to turn at all.

> Punishing people for not having accounted for black swan events in their risk assessment is also not scalable. Do we want people to do useful stuff, or to spend their time digging the rule book to ensure they've accounted for every eventuality?

So you want government to provide complete health insurance, after all. we want people to spend their time doing usefull stuff not studying the very complex intersection of all known diseases and medical beurocracy?

I do, in fact.

>So you want government to provide complete health insurance, after all. we want people to spend their time doing usefull stuff not studying the very complex intersection of all known diseases and medical beurocracy?

Yes, obviously. That we have the bulk of our population in precarious wage slavery under threat of medical bankruptcy at best, and a slow painful agonizing death of preventable causes at worse, is a crime against humanity given this is the richest country in human history.

But would the government run solution sacrifice personal freedom? After all, when you socialize costs, you get free rider problems.

Will I have to pay more if I'm obese? Can I get cut off the system for not taking a vaccine?

I'm hesitant to make the government a partner in my personal choices regarding diet, recreational fun like hang gliding, lifestyle choices, etc.

> So you want government to provide complete health insurance, after all.

Yes. This would be the single biggest boon to small business the US had ever enacted.

Yes, exactly.

>Why isn't it. Pragmatically it's pretty silly to insure the first 250k and then expect people to go through the trouble of spreading their cash over a multitude of accounts

How is it silly? From the perspective of the FDIC, if you have two seperate accounts (at 2 seperate banks) that represents a drop in risk. It's unlikely 2 banks with fail and now FDIC only has to replenish 250K instead of 500k.

I'm not following your logic here. If there's 10 people each with a $2.5m deposit at a separate bank each and they all spread their accounts to $250k in each of the 10 banks, the FDIC still has a risk of $2.5m per bank right?

How likely is it that all 10 banks fail at once?

Well, my example is for 1 of 10 banks failing but probably somewhat likely without regulations if people panic and start bank runs.

Think about this with some numbers: if there are 100 banks, and every business puts 1% of their cash into each bank, the overall risk is the same as if 1% of businesses put 100% of their cash into a random bank out of the 100.

The cost to FDIC if an individual bank fails is the same in both the above scenarios, even though in the first businesses put a lot more effort into spreading out their funds. It looks less like it could have less risk to the FDIC, but really isn’t making any difference.

The odds that 100% of businesses each decide to pull their money out of the same bank at the same time is less than 1% of businesses who invested at the same bank pulling out their money. Especially if they are in the same industry and know the same people urging a sudden withdrawal. Maybe even mostly located in the same geographic region.

But if the FDIC insures all deposits anyway, then there would never be a bank run to begin with because nobody would panic that they wouldn't get their money out, so spreading risk among multiple banks is a "solution" to an artificial problem.

It's a solution to a bank run because of fear of the banks going under. It's not a solution to a bank run because an industry needs cash quickly. For instance, Silvergate had a lot of crypto firms as clients, and in late 2022/early 2023 all those clients needed cash. You can imagine something similar happening in other industries.

I don't see a problem with a rule or regulation that limits individual daily withdrawal limits. That would solve that specific issue as well, and anybody who needs to withdraw more than that per day clearly has enough funds to have accountants that can coordinate across multiple banks.

10 people can go a few days without access to 10% of their money much easier than 1 person can go a few days without access to 100% of their money. And hopefully more customers means more scrutiny for each bank.

>How can you expect startup companies to spread their deposits across multiple banks?

Buy one year CDs from many banks and T-bills.

I've been a student of housing bubbles for a long time. I remember back in 2003 I was participating in an online forum covering the bubble. The conventional wisdom back then was that when the bubble popped not even the Fed or Alan Greenspan and his helicopters could cover the losses. The hundreds of billions if not trillions of dollars that would be needed would cause runaway inflation.

Then, they did it. The bastards managed to somehow buy tens of billions of mortgage backed securities every month for years. They bailed out automakers and banks with backdoor 0% loans while claiming the "investments" were profitable for the average citizen. Zombie Fannie and Freddie are still out there gobbling up mortgages. It's insane.

Money printer go brrrrrrrr.

None of this is surprising to people who know how bank money actually works. The US congress literally has unlimited nominal credit and practically unlimited useful credit, and it can grant same to any of its creatures.

Of course they could, money is a fiction after all. As long as we all keep walking around believing that fiction, there's no real problem with just inventing more money out of thin air.

The fiction has certain properties when it encounters the real world though, so there are sometimes downstream consequences, but none that could ever totally dissolve the fiction. Only enough people starting to disbelieve in the fiction itself could do that, and people mostly won't do that because money is too useful.

Well if I don't produce that fiction on demand for something called "taxes" I get put in a cage or even killed by men with guns. So I'm pretty motivated to go along with the fiction until the men with guns stop making me.

Indeed, we make sure the fiction is very convincing:

https://www.youtube.com/watch?v=PHnRXST5FUw

Sorry you had to spend like an hour opening a second account. But yes, not wasting people's time (not requiring small and medium businesses to hire CPAs to evaluate banks' books) is exactly the outcome the feds want.

I think you are wrong to not keep doing this (and I also don’t believe you’ll stop doing it unless it’s actually hard to continue doing, vs. the initial setup being difficult). I can tell you that after this I will start doing it. I don’t see these events as proving anything for the future. I have no idea what the political climate will be next time around, or any other factors. It’s like being down 9-0 in a soccer game and saying “hey, remember that one epic game we were also down 9-0 but then came back 9-10? Everything is fine.” What? No way. I don’t want my team down 9-0 at the half, ever.

BTW, in my experience many many people are risk averse in specific things they see that others don’t. It’s super hard to be an expert on everything. Talk to someone that knows about construction and they’ll have similar laments about home maintenance. Is it bad to “bail out” people that have their homes washed away in a hurricane? I honestly don’t know. But what I do know is that I’m definitely not jealous of them for making a silly location choice and “not paying the price”. That experience is not fun. I promise this episode was fairly disruptive even with this outcome. It is much better to look on from the outside than wonder whether a bunch of people you don’t know will save you. You’ll feel really bad if the next one isn’t bailed out because something is different and it gets you because you stopped doing something that aligned with your values just because of this thing this time.

The Greenspan Put was 37 years ago.

you should have just went to a private elite school instead of working hard your while life too. /s

"Punishing the sinful" isn't about morals, it's about incentives, and ensuring a level playing field where sinning doesn't improve your long-term competitiveness.

Will senior management have to return their 2021 performance bonuses? If not, successful sinning is just a matter of ensuring you cash out early.

Who are you trying to disincentivize? How would it dissuade the bank's management if depositors took a haircut? What behavior do you think punishing depositors would prevent? Do you think depositors should hire an accountant and economist to review their bank's balance sheet every quarter?

If they have more than $250K in the one institution: yes, they should.

Better yet would be spreading their deposits around, but if they don't want to do that, they should take the necessary steps to evaluate the risk appropriately.

Ok but that's a bad policy that makes no sense and I'm glad the fed, Treasury, and FDIC are stepping in to change it. Sad that congress hasn't done anything over the past few years, but better the problem be solved than letting faith in our financial system collapse.

It does seem like a weird loophole and charade to have to split money among many banks. Just give businesses a way to store their money without earning interest and with no risk. As far as I know that’s not an option under our banking system

It's neither a loophole nor a charade: it's diversification to reduce exposure to risk. Bank failures are somewhat coordinated, sure. Still, it's much more likely that one bank fails than N>1 banks. Since you are exposed to less risk, your insurer (FDIC) is also exposed to less risk. It makes complete sense for the insurer to incentivize this sort of behavior.

But what it really incentivizes is putting all your money in a too-big-to-fail bank. That's much easier and just as safe as opening a dozen, or hundreds of accounts. And it results in there being 3 banks in the whole country.

There is, in truth, only one “bank” in this country. The Federal Reserve Banks that hold the master ledger for the official US Dollar market. Everything else downstream is basically redundant legacy infrastructure from a time before pervasive broadband network infrastructure.

That would be news to anyone who actually works in finance.

Personally, seeing the government bail out corporations is what causes me to loose faith in our financial system.

This isn't a bailout (unless you also consider FDIC a bailout). And fortunately most people don't see it that way, so this was the right move.

I dunno, but POTUS appears to be fine with this being described as bailout.

[0] https://mobile.twitter.com/POTUS/status/1635080376572956672

> Do you think depositors should hire an accountant and economist to review their bank's balance sheet every quarter?

Basically, yes, but without the hyperbole - an accountant yes, an economist no. This is not that hard. Treasury management is a specific function of any company.

I definitely don't blame these startups for not being financial experts, but VCs absolutely should have been coaching their client companies how to manage their cash safely.

Imagine what the world would look like if you got what you're asking for. Tens of thousands of extra dollars of overhead to open a bank account? To save literally nothing directly for taxpayers, and a few dollars per account for banks? I would strongly prefer to he socialized insurance and safety net in this case, and I'm a die hard capitalist.

You seem to think that the world doesn't already work like this. There are tons [1] of [2] products [3] that are offered specifically to make it easy to spread cash around at multiple institutions. And that in and of it self is beneficial, because it is essentially diversifying the risk of those deposits. Now, with what the fed has done, why would anyone bother spreading their risk around?

1. https://www.intrafinetworkdeposits.com/

2. https://www.wintrust.com/maxsafe.html

3. https://www.moneycrashers.com/cash-management-account/

Seems like the FDIC is achieving the exact same outcome with a lot less hassle and overhead for everyone.

I think this is exactly it. More and more this arrangement is starting to sound like the baseless justification used for US healthcare: a bunch of middle men milking value for little actual benefit.

Addressing risk can be more efficient and we can make the system far more efficient by cutting out all of this overhead and red tape. As long as the banks are properly disincentivized in other ways from being over-leveraged and taking too much risk, this arrangement would just be much better overall.

It very quickly devolves to socialism, however. Without the incentive to make money, you lose market competition. Eventually it collapses to a handful of big players, but they are all extremely constrained by the government insofar as they are really one government run operation with different names. Suddenly all market efficiencies are lost and you end up in a worse position than the market originally presented.

I'm not sure why you think the incentive to make money evaporates if deposits are assured.

A bank makes money from deposits by making available a % of them for loan originations. If all deposits are assured, then either the bank cannot take on any risk, or they can take on risk with the knowledge that the gov will foot the bill for any loss scenarios.

If the gov removes the potential for risk, banks will be free to make wildly speculative loans/investments, which will of course fail in time, causing the gov to tighten regulations even more until all profit is driven out of the game. Thus the gov would be the sole regulator of loans centralizing banking.

Sure,maybe you get some banks that pop up and offer assured deposits by only floating operating costs from risk-free assets like treasuries, but then you're looking at pay-to-bank for economic times with unusually low treasury rates.

Maybe I'm being hyperbolic, but it seems like a potential evolution when moral hazard isn't controlled.

So the government regulates how much risk they're allowed to take. They already do that with leverage ratios, for instance. I'm just not sure I see the problem with changing the status quo, but I do see the benefits of assuring all deposits.

Right now every single business of even moderate size has to have dedicated treasurers distribute payroll and other cash across multiple banks to ensure they fall under the FDIC insurance level cutoff. This is a totally unnecessary waste of time and capital, and so reduces market efficiency. If companies could just deal with one bank and offload risk management to people who should be better informed about doing it properly, backstopped by the government who ensures they stick to sane rules, how is this not a net win?

I agree moral hazard is an issue, and much stricter penalties for malfeasance of over risk, both for banks and for credit rating agencies are needed IMO. Moral hazard is already an issue though as 2008 and SVB have shown.

This is a simplification, but: the bank should have to offer depositors an interest rate (or other value-add, such as competitive services) that makes it worth their while to trust the bank with their deposits. A bank that makes very conservative investments/loans can only offer a low interest rate to depositors, because they earn less profit on the spread, but their depositors will accept it because of the safety of the institution. A bank that makes speculative investments/loans can offer a high interest rate to depositors, because they earn enough to offer it, and they'll need to, to attract depositors away from the safer conservative institutions.

A bank that can offer a government-backed guarantee to depositors can offer a low interest rate while making big profits, and pay big dividends to their shareholders and executives, steal market share from their conservative competitors while making themselves more systemically essential in the process, and leave the public on the hook if they fail.

If you allow banks to make extremely speculative investments with depositor money, you end up with Ponzi-like behavior that ultimately hurts unsophisticated retail folks. Just like all the crypto "banks" offering 20% staking that are collapsing now.

All you've described is a way to build a pitfall for naive investors so they can lose the first $20k they've ever saved.

As I read his post, he's talking about punishing the bank executives as much as the depositors.

So, clawing back every penny they took for doing sound risk management while not actually doing it is totally fair.

Their 2021 bonuses? What about their 2022 bonuses that were paid our hours before the feds took over the bank.

By game theory, if you let sinners prosper, you will produce more sinners. In the most pure sense not punishing the sinful is wrong, always.

That misses the point that it is possible to both help everyone and punish the sinners.

Here is a game I recommend that you play: https://ncase.me/trust/

I think it gives a great explanation why what you are saying in good faith is not quite right. Not punishing the sinful both pushes the problem into the future and makes it bigger.

https://twitter.com/petercontibrown/status/16350760923390525...

> Point is that a system of such asymmetries rewards so many at public cost - and that includes the other stakeholders who are today “wiped out” (but still get to keep their gains from the good years). /end

Yep, and that is exactly the point. They must not get to keep their gains and they must lose an additional amount proportional to their chance of success.

The expected value of corruption must be negative.

We tried it your way many times, and it failed in every case (civil war reconstruction, Treaty of Versailles, Iraq provisional authority, response to the great depression, etc).

When we do the other thing and focus on protecting the innocent instead of punishing the guilty, things have worked out far better (Marshall Plan, Covid response, this).

This isn't war, this is corruption.

The context is wildly different. For one, war is chosen by a countries aristocracy while the lower classes have little agency in the matter. It is not the lower classes of these countries that are guilty, but the upper class, and therefore plans to help the lower class victims despite their complicity are pragmatic and sound. It is not pragmatic to punish slaves that attacked you, you would seek to arm them so they are not enslaved...

Punishment must be proportional to a person's power.

The COVID response against China is still pending, both of our countries are gearing up for war. Rhetoric around Taiwan has increased, and there is active work to reduce dependency on China.

The Marshall plan had nuremburg trials.

There's a bit of irony in mentioning the COVID response, considering the knock-on effects of that are partially/largely to blame here.

If we ignore the fact that there may very well be some who are 'guilty' in the COVID saga, that certainly didn't have the same story as a bank that made poor bets, and the (relatively) wealthy depositors of said bank that made poor risk calculations and got burned by the black swan.

Have you considered the covid response openly violated the Constitution's 5th Ammendment? The gov shut down businesses for the public good (took private property) without just compensation. And what marginal compensation was offered was done so through PPP and was corruptly incentivized.

I would describe the covid response as anything but working out well.

I'm talking specifically about fiscal and monetary response, and whether or not we punished people, addressing the comment I was replying to.

For example it was good that we gave out PPP loans fairly literally even though it causes major fraud. If we had moved slower and endured that bad actors couldn't get away with abuse, the response would have been worse.

> For example it was good that we gave out PPP loans fairly literally even though it causes major fraud.

My point was addressing the incentive scheme for PPP: banks got paid a percentage of the origination amount so processed the largest loans first, and by the time they got to the smaller applications, they ran out of money. https://www.forbes.com/sites/jasonbfreeman/2020/04/23/ppp-la...

The 5th Ammendment doesn't say the government can provide just compensation to some people. It says they must provide just compensation to all that their seizure of private property directly impacts.

Fraud is of course another issue, but my main concern is the corrupt incentive structure and glaring 5A violation.

>> and senior management are going to get wiped out and fired.

Yeah, let's punish the management like we did in 2008...

"SVB executive was Lehman Brothers CFO prior to 2008 collapse"

https://m.economictimes.com/news/international/business/svb-...

And to really punish him, we shall strip him of his "Class A" shareholder status at San Francisco FED.

https://www.bloomberg.com/news/articles/2023-03-11/svb-ceo-b...

But not before we let him cash in $3.6M in stock. https://www.forbes.com/sites/brianbushard/2023/03/10/svb-fin...

Let this be a lesson to all of you other banks.

Look, it's a meme, you're not supposed to take them seriously. The guy is an executive at SVB Securities, a separate branch that is completely fine.

He didn't work at the part of Lehman that failed, and he didn't work at the part of SVB that failed.

>senior management are going to get wiped out and fired

Wasn’t one of executives working at Lehman Brothers or some such before? This is just failing upwards and doing same thing.

You mean those executives that sold their shares of the bank weeks before, ending up with with fat stacks and completely unaffected?

Yeah I kinda doubt they'll get what's coming to them unfortunately. Insider trading's only a crime when it's poor people doing it.

Not entire, but enough to raise eyebrows, IIRC

Do you think punishing depositors would disincentivize those executives?

And do you have any examples of poor people being charged with insider trading? Every case I have seen is rich people trading.

Probably not, but it is rather exhausting to see this happen again and again and seeing them get bailed out without consequences every time. At least something would be different.

Maybe it's just hearsay but it feels like every person on wallstreetbets who got lucky with options then got the IRS knocking on their door accusing them of everything in the book. They've said it themselves that with the cost cutting in last decades they don't have the resources to build cases against large players anymore. They go after people they can reliably force to pay up without having to fight them too much. Al Capone would've gotten off scot free in today's world, just like most of congress does despite singlehandedly outperforming the best index funds out there.

That's tax evasion, not insider trading.

I can’t believe anyone would put any stock in such “evidence”. No one is going to say “yeah, I pushed the limits of tax filing and got busted, nice catch IRS”. They’re going to say “I was just minding my own business when the IRS robbed me with their machine guns”.

Punishing Depositors no but punishing them yes. There should be personal finanacial Clawback and potentially even legal conseguences for this type of mismangement. When Their personal wealth is at risk they will be more careful. As it is right now, they don't risk anything and will try the same thing again. The worst thing that can happen to them is to loose "unrealiasied profits" not loosing anything already realised.

There should be personal finanacial Clawback and potentially even legal conseguences for this type of mismangement.

There is. That’s what derivative actions are - a mechanism for shareholders to sue the board and management for breaching their fiduciary duties. My guess is that one will be filled Monday.

This is … quite the misrepresentation though? No one sold their entire stake, one executive’s (albeit, sure, the CEO) pre-planned sale of a small portion of his holding executed two weeks ago.

Not a great look, but quite from what you’re insinuating.

Well the notes I've seen is the CEO selling 11%, General Counsel selling 19%, CFO selling 32%, and CMO 25%, and that's just in February. I would call that notable at the very least, and assume they sold the rest in March if they had any sense.

None of those people could sell anything (never mind everything) in March without violating law, unless that selling aligned with preexisting 10b5 plans to sell. You can look at the insider action[0] yourself, everything but the Becker sale looks like routine sale / disposition of options/equity comp, and even that isn’t that aberrational compared to his sales in ‘22 and ‘21.

I think you’re right about the proportional sizes, but it looks like the other officers only held a few thousand shares each, so routine grant/sale transactions were a much larger share of their individual holdings.

[0] https://www.nasdaq.com/market-activity/stocks/sivb/insider-a...

Senior management is going to have their recent sales of millions of dollars and significant percentages of their stock and the bonuses they received hours before the FDIC took over reversed? Because otherwise they weren't really "wiped out" or even close to it.

> sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful

I'm conflicted about this. In the last seventy-two hours, I made a ridiculous amount of money standing still because risks that shouldn't have paid are being done so by people who shouldn't have to pay them. I personally benefit. But we've given tech companies a visible privilege American farms, factories and municipalities don't enjoy. T

It's the old saying, if you owe the bank a million dollars you have a problem, if you owe the bank $100m then the bank has a problem.

> Keep in mind that bank shareholders and senior management are going to get wiped out and fired.

And do the same thing again. Wasn't the CEO ex-Lehman?

In finance there's a lot of employee transition right after bonuses are dished out, and incidentally SVB just delivered theirs

https://www.cnbc.com/2023/03/11/silicon-valley-bank-employee...

I think that's fine as long as you are willing to then help anyone in that situation in the future. Not just people who are big enough to be "important".

Except the CEO and Chief Risk Officer already cashed out a year ago.

Didn't one of their execs work at lehman and arthur anderson?

They should claw back SVB CEO pay and televise the moment the funds move. Show the CEOs number going down and some other public number going up. Bonus points if his face is televised at that moment at well

That's all that's really necessary in terms of handling moral hazard and public perception that this is yet another bailout. Let ppl see the CEO suffer and they will be fine with having taxes foot the bailout bill. It's sad but a spectacle is necessary here.

Do you think software engineers who write bugs should also be publicly humiliated? Should your bonus be clawed back if you tech lead a project that ends up failing because of bugs?

If I put at risk the financial stability of the United States, then yes.

It's a plausible position to take.

If your bug ends up risking the economy of the country definitly yes. But Public Humiliation is not the solution because if it worked we ould not have the same executives who failed LB fail yet another Bank. There should be Legal conseguences for this type of mismanagement.

Do you think doctors should be responsible for patient deaths?

What of they killed the patient out of negligence, and they were drunk on the job?

These people can be high, drunk and negligent simultaneouslyHl, and they are still untouchable.

In the other professions which use the title "engineer", all of these are commonplace.

Potentially, yes. Something with real-world catastrophic consequences should require you to prove you weren’t being negligent. In this case, it feels like the equivalent of running for a while knowing that your QA team was empty and ignoring failing tests for a year.

Fortunately our criminal justice systems presumes innocence

Whether or not he committed fraud, I think most people are tired of seeing bank (and tech) executives cause real-world harm and make out like bandits. Civil forfeiture is used against poor people all the time for far, far less obvious issues than this one.

As someone who has been on the other side of many of these controversies, I know from experience that the popular narrative is generally wrong and fueled by anger and vengeance rather than sense or justice. I don't have any insider knowledge in this case but the discourse reminds me a lot of times I've seen well intentioned people make good decisions that anyone else would have made in the same position, then the mob viciously demands blood when something goes wrong.

Civil forfeiture isn't a means to punish people for wrongdoing, and neither should we try to retroactively change the rules to try to punish people who you believe wronged you.

> Civil forfeiture isn't a means to punish people for wrongdoing

Could have fooled me.

Thing is, when you are the CEO and you make the big paycheck, being a target for the mob is part of the job. 1,000 years ago if the crops failed, and the peasants started going hungry, either the priest or the lord was blamed. They can't control the weather, but it was someone's responsibility to make sure there was enough food stored.

The common sentiment is that the people who caused the failure should not be allowed to keep the money they made driving the ship ashore. Nobody is forced to be a CEO with million-dollar comp. It isn't some travesty of justice when they are held accountable.

Well I'm hopeful we can move beyond medieval practice and that the presumption of innocence will prevail. Fortunately things seem to be going well for team rule-of-law.

Again, what presumption of innocence? The bank failed, they should have to give up the bonuses and stock gains. It should be statutory to prevent a moral hazard.

> medieval practice

Calm down, no one said we should hang, draw and quarter them, exile them, or do anything untoward. It's a capitalist system, and this is a capitalist penalty.

You said "1,000 years ago if the crops failed, and the peasants started going hungry, either the priest or the lord was blamed."

I'm saying we should not look to the distant past for guidance on how to handle situations like this.

The presumption of innocence applies here because we shouldn't punish individual bank employees unless we demonstrate to a jury of their peers that they broke a law that existed at the time they broke the law. The default should be they keep their bonus and if they broke the law, they pay a fine. Fortunately they are protected by the constitution, there is no possible way the government can take their money without a trial.

It's an analogy about leadership? I didn't suggest a medieval punishment and I obviously recognize we don't do bills of attainder in America. I'm speaking for what the average person is feeling. Literally started off with saying "the average person is sick of seeing rich people get away with it".

But again, what presumption of innocence? I'm saying that if you are a bank CEO and your bank fails, it doesn't actually matter whether a reasonable choice was made or not. Bank failures affect all Americans, so there should be a penalty for causing that disruption. Most people would call that fair.

For criminal charges, yes, but that doesn’t mean there aren’t other consequences. For example, a professional engineer can lose their license if they are found to be negligent or deceitful even if it doesn’t rise to the level of criminal charges. This is one of the reasons why most other fields using the term “engineer” don’t think software meets the same level, and having known a couple of people who completed PE qualifications I can understand why.

I don’t think that would make sense for all software development but it certainly doesn’t seem unreasonable to think that, say, the FSD team at Tesla or the accounting team at a bank should be held to a higher level of expectations (and presumably pay) than the ad click optimization team at some retailer.

The CEO cashed out $3.6 million in stock two weeks ago.

A planned sale that was filed and broadcasted back in January.

Executives are shameless. They'll lie to your face, backstab you to get more funds for their department over yours, and whatever else to get ahead for themselves. And they'll do it smiling all the way because they know they still win with their bags of cash payouts despite being "humiliated".

The only way people like that will learn is by sending them to prison. Their actions were so egregious, so completely in disregard for our financial system, that it's impossible to not have done any of that without intent. I'm sure if they turned over all electronic and paper documentation, there's gonna be a written strategy somewhere directing all this.

I think that there are two types of trust at stake here:

1. Trust that bank deposits won't disappear.

2. Trust that the financial system is fair.

A bailout sacrifices 2 for 1.

Letting SVB fail sacrifices 1 for 2.

My proposal is for a bailout, while doing the bare minimum necessary to prevent a backlash. Remember that the death penalty still gets the thumbs-up from voters in many places in America. It's foolish to think that the people who distrust Silicon Valley will be able to "move past this" in a mature, dispassionate way, given the namesake of the bank.

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