This is why we have inflation. The government won’t let wealth destruction occur. Everything is backstopped, even the poor financial decisions.
The taxpayers will pay for this through dollar devaluation and inflation.
The taxpayers will pay for this through dollar devaluation and inflation.
If you just want to take a random bank and set all its accounts on fire to reduce the money supply, that seems like a bad way to fight inflation.
All 3 are very highly connected with crypto / SPACs / VCs / any financial scam you can imagine during post-Covid bubble.
There are close to 0 'mom and pop' depositors in these banks.
So they also had some things people would think of as "regular" businesses, like local wineries, nonprofits, affordable housing developers etc. who were all in trouble.
(I think of all of those as rich people hobbies, but most people think farmers are salt of the earth working class types for some reason, so they have better images.)
This is all so silly.
You’ve got the 4 musketeers on twitter sewing fear, begging for the not a bailout bailout all while the rhetoric for student relief is summarized by “ bootstraps, you have em? Personal responsibility, you got it? “
Now they break a bank because they mismatched their maturity dates and risk and they get their bailout not one week later?
Pretty clear who this system serves.
edit:
They are "backstopping" 25B, get this, so far. Jcal is on Twitter spaces right now going over it and there's tons of subtext that people are glossing over.
This is a bailout. Now they're calling it a regulatory failure[1][2].
BTFP, the new TARP. Was TARP a bailout?
Twitter spaces had a bunch of softball questions, not a serious discussion if not to pat himself on the shoulder.
This 25B will be expanded, and we will kick the can down the road like nothing happened. Only this time, inflation is raging and we're adding more of it to the pot.
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[1]: https://www.theguardian.com/business/2023/mar/11/silicon-val...
[2]: https://theintercept.com/2023/03/11/silicon-valley-bank-used...
If you want to rant against the customers of a bad bank getting bailed out, that's fine, but the bank wasn't bailed out, it was wiped out. The new bank is the owner of the old banks assets and responsible for the old banks debts. The owners of the old bank have nothing to do with the operations of the new bank.
Banks will continue to be able to make horrendous decisions and not have any fractional reserve requirements. Executives will continue to get absurd performance benefits until losses are realized. Depositors won’t have to care that the institution where they dump millions of dollars is run by someone doing their best financial John Wayne Gacy impersonation. And we’ll all suffer because institutionally these horrendous investments are backstopped.
Please just let one of these banks fail. A few more will. Lots more should. And then maybe we’ll see them act with any sort of prudence.
What the hell else are they supposed to do with the assets that are left in the bank? Giving them to the people the bank owed money makes a lot more sense than lighting them on fire or whatever. Do people think that the FDIC/government funds end up being a significant portion of the money that goes to the depositors or something?
Hundreds of thousands of employees from tens of thousands of small businesses aren't getting paid salaries for the last 1-3 weeks. And aren't getting paid this week. And very likely are out of a job. Same for those businesses vendors and subcontractors. Hundreds of thousands left without a health care plan with two weeks notice because premiums will go unpaid and afterall the employer is the true contractor of the plan, if they go out of business because most of their cash deposits were just destroyed. That seems bad.
What sort of influence levers do these depositors have over their bank's investment policies either before of after the fact? It seems pointless.
No one is suggesting anyone burn svbs assets. Only that we do not print more money to make up the difference between the face value and the market value
Why should a bank's depositors take haircuts before its bondholders and shareholders?
>Only that we do not print more money to make up the difference between the face value and the market value
The difference is made up by FDIC special assessment on banks.
A bailout is when they save the bank owners. The SVB owners lost the bank. There's no happy result for them.
If you had your deposit for the home in Silicon Valley Bank, it would be serving you. It would probably suck if you saved that up for retirement or a mortgage, and lost it. In that scenario would you be saying how great it is because it showed the government really served you?
Bank runs are a real thing that could ruin you wherever you're banking. If the large accounts realize that that smart move is to pull their money every time Peter Thiel yells fire, because they are unprotected, other banks can go under too--maybe yours, or maybe the bank where your company's payroll funds are!
[1] Beyond the group primarily benefiting are exactly the group who should well understand something as basic as FDIC coverage limits and supplemental insurance.
[2] While it is technically true that the taxpayers will not be directly footing the bill, they neglect to mention that as soon as said taxpayers put on their consumer hats, they will in fact be paying for this in the form of increased fees/decreased interest rates on deposits/increased borrowing interest rates, no matter how slight.
The bank (which took actions) faces the consequences of no longer existing.
The customers don't lose their money.
Yet here we are. Another round of bailouts that this time are rationalized as “not a bailout” because the bag holders, through no fault of their own, depositors, are the ones left holding the bag. A bank run was produced and in the name of financial and systemic risk avoidance, the free market finds itself, yet again, in need of a not-a-bailout backstop.
Other commenters stating that “the banks will pay, not the tax payers” need to get their heads out of the sand.
What we see at these banks is that the large shareholders themselves have enough impact to cause a bank run, and they don't have the security of the FDIC to fall back on. So doesn't this show that the FDIC insurance was never enough to do what it was supposed to? What is being done here is breaking the game-theory payout structure that causes bank runs in the first place. It will prevent the same bank-run contagion individual investors are susceptible to from happening with larger investors. If we accept that the 250k insurance is worthwhile, then this seems good for the same reasons.
If your objection is that depositors were not paying to properly insure themselves, then you should be happy with what is happening--depositors will be forced to pay to insure themselves via the bank, and bank service prices will reflect the cost of being properly insured. Shouldn't we all have been paying the price of properly insured banks all along as consumers, anyway.
Isn't this a move in the right direction?
Why should I be happy that the rest of us are now being volunteered to pay for insurance coverage for the group most able to understand the risk they were taking and pay for it themselves? If that weren't bad enough, this new coverage only applies for some banks. This is exactly the socialization of losses that so infuriates the general public. Not only are we paying for it, albeit indirectly, but most of us aren't even eligible for it ourselves.
This is yet another move in the exact wrong direction.
[1] i.e. the majority of individuals and small businesses who tend to be less sophisticated. As a result this quite easily understood system was put into place. I also don't buy any argument that something average Americans understand is just too complex or arcane for a group of largely 'qualified investors' and VCs.
Because, now you don't have to worry about all the banks collapsing with run-contagion, which is a problem with large enough scale (collapsing the economy) that it does affect you.
You should be happy in the way an apartment's occupants are happy when the fire department puts out a fire in a different apartment in the building, even though it "didn't affect my apartment."
We're being spoon-fed the not-a-bailout rhetoric by a bunch of pyromaniacs. Your analogy would be great were it not the case that this is the nth case of arson. We put arsonists in jail for doing things that put us at risk, why are banks different?
The banks mismanaged their risk and here we are looking to blame lack of regulation and the government because it let an arsonist run amuck.
I see no reason why we shouldn't all open a bank, be imprudent, and ask for a bailout, citing system-risk to the financial system should we not get it.
>an act of giving financial assistance to a failing business or economy to save it from collapse
It could be called a bailout of the banking system or of the American economy - but it's not bailing out SVB by any measure.
How is that a good plan when you would lose the bank? The owners of SVB lost everything!
Some of them did get bonuses that day - of course then they lost their jobs. I'm not sure if there's a mechanism to claw back excess bonuses, but if SVB goes through bankruptcy after this it should be possible.
Not sure why people are acting as If, without government intervention, depositors would lose everything
Svb is insolvent today but they weren't assetless
No they are not. The shareholders and bond holders are getting wiped out. It is only the depositors that are being made whole. This is not like 2008 where they loaned cheap money to banks to keep them afloat but allowed the owners to remain.
https://www.cnbc.com/2023/03/13/wall-street-not-taxpayers-wi...
The banks that failed in the last week were closer to monopolies than most banks and it doesn't seem like it helped.
You live in one of the richest countries in the world and probably make 4x median income even for the US anyway. Move somewhere else if you want your money to go further.
Neither alone is enough.
Other than giving your 97% uninsured money to a place without checking its financial situation and pretending you're not just another creditor.
There are places with cheap housing in the US, generally not in the good jobs areas but if you're retiring that's not so much a problem.
* that's when people move out of their parents' house or decide to not have roommates anymore
One of the most painful ways to learn is in production, but if that’s what we have to do…
All shareholders just got reduced to either zero, no? Or at least they only can get something, with whatever remains after the assets are sold off.
I swear some people see "government" and just assume everything is a big porky wasteful spending bill implemented by clueless populists.
Otherwise there is no reason for depositors to do due diligence, and we get a less effectively managed economy as a result.
Consumers do much, if not most, of the management of industry, but that's only if consumers are fully exposed to the costs incurred by their choices. It's because consumers bear the costs in cosmetic procedures that such procedures are getting cheaper while healthcare gets more expensive:
When people buy TVs, cars, fridges or shop for a laser eye surgery procedure, they seek out credible third party assessors, in the form of Wikipedia articles, Consumer Report magazines, end user ratings, etc to inform their decisions.
The collective intelligence of the consumer market will also increase as more people participate as price and quality conscious consumers.
That is to say, if business X did not do risk management because it is small and unsophisticated, it is okay to let business X wind down, whereas it is not okay to let a human go hungry because they are unsophisticated. Humans have rights, Businesses do not. I'm as conservative as they come (look at my post history), and I am flabbergasted by people from both sides of the aisle who honestly, truly believe businesses have a right to exist, including welfare for when they are unable to.
When it comes to human life, given by God, we are obligated to spend almost any amount that we can in order to preserve that life. When it comes to business existence, we are not. By all means, welfare programs should immediately be expanded to help the individuals affected (including the business owner) to not go hungry, or be without medical care. By no means should the business continue to operate via welfare magic.
Hopefully, for the business owner, the individual welfare availability will give him/her some time to get back on their feet and potentially start the business again with new capital if needed. But the source of that capital is not a concern of the government. That's for the private market.
it really just comes down to the bank's portfolio. the bonds that these exposed banks had were US government bonds and held at a loss. A probably 10% loss.
if the Federal Reserve winds up owning those government bonds, it actually is destroying the dollars it receives from the treasury. which is actually the Federal Reserve's entire plan in tackling inflation.
also, wiping out shareholders destroys wealth.
Instead, one must destroy value the right way to achieve lower inflation. A surprise insolvency that wipes deposits that never were really considered investments at risk... nah ... not a good destruction of wealth. But take heart, stockholders were zeroed and bondholders maybe not far behind.
Except in this case where businesses who used SVB get a Mulligan?
inflation weakens it, waters it down. Destruction is when it fails..
inflation can and probably will lead to destruction. but a bank failing not not being propped up like during the GFC is destruction.
Arguably, they should have let those banks fail. instead this inflation is a direct result of that propping up (plus a bunch of other money printing actions)
So many people here are just imposing their incorrect assumptions about what's happening over the facts of what's actually happening. There's plenty of legitimate anti-government arguing about regulatory-capture to be done in other threads.
If a thing X goes down in number, the value of X increases.
If you want to get money out of the economy, this is the opportunity to tax negative externalities, the very things you want to have less of. But the central planners instead reach for the wrong tool: raising interest rates. They should be flexing their fiscal policy muscle. It should be a tax bonanza on fossil fuels, plastic pollution, overfishing and much much more! You can solve actual environmental issues this way!
Well, when people default on their loans and can't refinance them, they'll default and that money will disappear from the economy. That's on the bank underwriters, and that's when their balance sheets deserve to go lopsided. Not because of central planners raising interest rates.
I far, far prefer a UBI to the Banking System for putting money in people's hands. An underwriter at a bank guesses whether a business will be able to repay a loan with interest over 10 years. A consumer knows whether they want to buy something today with their UBI money. I'd prefer the money enter the system via consumer choices, not underwriters at banks.
People often ask "how can we afford UBI". They don't understand how money is issued and destroyed. The banks currently issue the money with zero reserve requirements, and it's only destroyed when people can't afford to pay the loans. We could equally just ask "how can we afford the banking system?" We can afford either system, it's just a question of who gets the actual money, and I'd rather consumers make that decision. Because then it goes towards things people actually need, as opposed to making fatcats richer.
This "banks are victims from Fed rate policy" narrative is not accurate. A bond portfolio consisting entirely of 10-30 year hold-to-maturity securities is absolute, pure greed and insanity. Any bond manager not engaging in degenerate activity will hold a mix of bond maturities.
This is the bank equivalent of putting all your clients' money into a single stock ticker, and people are doing incredible mental gymnastics to claim that SVB was a victim of external forces
In fact I'd prefer everything to be on-chain rather than credit rating agencies being months behind. Especially if the Fed is raising rates so quickly!
In fact, I'd prefer UBI to be phased in as an alternative to the banking system, together with corresponding taxes on negative externalities. Like this:
https://en.wikipedia.org/wiki/Carbon_fee_and_dividend
When Andrew Yang ran, I met with his campaign and made https://yang2020.app for them. I really asked them to be a TWO-issue campaign, tying the UBI to carbon taxes, but he never did that. So he didn't have a good answer to "how are we going to pay for it". And to this day, the Forward Party needs to make a good case for it.
I don't believe these kinds of things can be done at the national level, which is why I started Intercoin: https://community.intercoin.app/t/new-ubi-movement-mayors-ci...
The people who make decisions about interest rates have no authority over fiscal policy, and the people that control fiscal policy (who theoretically could cobtrol monetary policy as well) have segregated themselves from interest rate decisions in large part to avoid fears that they will monetize the debt undermining confidence im the currency.
Why was reducing rates in response to the COVID crisis a "problem"?