Comment by nrmitchi | Hacker News Reader

Comment by nrmitchi | Hacker News Reader

Parent Full thread

I understand what you mean here. I don't think it's people having no empathy for employees (or even founders) who did not act in bad faith.

We are (or were) in a situation where the entire ecosystem blew up because VCs and funds inadvertently incited a bank run.

Backstopping capital so payroll can be made obvoiusly helps out employees, founders, and companies alot, but the ones that benefit the most financially on an absolute basis are these investors.

It just feels a bit disingenous to hear an argument that "this small company out of the Midwest needs to make payroll" (which is an example I just made up, any relation to real companies are entire coincidental), while ignoring the argument that "If the government doesn't backstop this my $3B fund goes to $0".

In summary I have a lot of sympathy for employees, and even founders who were held to terms that were completed standard and seemed reasonable at the time.

I have less empathy for the group that are (were) vocally calling for bail-outs and trying to incite further panic in an effort to protect their own investments.

Edit: switch the example to avoid inadvertently matching a real life example way too closely.

Banking shouldn’t be an investment. The entire economy runs on the idea that banks are fundamentally secure. This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good

> This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good

It is not good. The insurance limits goes hand in hand with regulations. Different higher insurance limit needs to imply higher regulations and more control. This particular bank and these particular VCs lobbied heavily to have the regulations eased up. They won. These particular VCs forced their startups to have money in this bank, because it was good for them.

That is literally structural reason to not bail it all out. It is the "we are risk takers, we take profits from higher risk, but when it fails and cause damages someone else must protect our investments" strategy of VCs.

There is a huge spectrum of coverage possibilities in between 250k and “effectively infinity”

The $250K should be thought of as a minimum protection level, not a moral imperative to be a maximum protection level.

This effectively ends up being a subsidy for risky, well-connected people while being a tax on responsible, not-especially-well-connected people.

Yeah but the problem is that nobody wrote that down beforehand. It's not good to make it up as we go during emergencies. It's good to have clear rules written down ahead of time.

> It's not good to make it up as we go during emergencies

Complicated, fragile emergencies are precisely the time to consider exceptions to hard rules. After all, if all our rules were perfect, we wouldn’t have an emergency to begin with.

No, because those exceptions become the new rule, and fragile emergencies are a bad time to think through what the new rule should be. "Hard cases make bad law."

I feel the need to say this in every comment because I don't expect people to read my other comments, but I do support what was done here, assuming the private buyer solution was tried and it failed, I just also think it's bad that things are run this way.

> No, because those exceptions become the new rule

I disagree that this necessarily sets the new rule. Sure, sometimes it creates new precedents, but the necessity for an exception should go on to inform new hard set rules to prevent the necessity for exceptions in the first place. In this case, a return to a more regulated banking sector, hopefully.

This is not dissimilar from highly agile work environments that require frequent process changes to achieve the ultimate goal.

It is entirely dissimilar from highly agile work environments, because neither the federal government nor the financial system are highly agile. And even in far more agile systems, path dependency and status quo bias are very powerful.

I would make a very large wager with you that in a decade it will be unquestioned that last night was the night US bank deposits of any size became fully government backed. Maybe that's even a good thing! I dunno, I have no idea what all the downstream effects will be. But the banking system now works a different way than it did on Thursday morning, and I think it's reasonable to question the wisdom of a change this huge being made over one random weekend.

Why do you think the Fed was making things up as they went along? The rules were written down years ago and they were followed in this case.

https://www.fdic.gov/bank/historical/crisis/chap2.pdf

I think you may have missed the news last night. They just invented three brand new facilities within 72 hours of SVB collapsing. That is making it up as you go.

Yes, people make mistakes and then learn from them. Sometimes not every scenario can be anticipated. In this instance a bunch of startups got caught in this mess and 250k won't be enough for them to survive/meet their employees' payroll. I appreciate the govt stepping in and hopefully rewriting the rules based on the learnings.

"The entire economy runs on the idea that banks are fundamentally secure"

We should organize bank runs more often to verify that statement.

you say that in jest, but this event did expose that we (especially geriatric legislators) are not prepared to tackle a "social media" climate. 10 years ago neither could this Prisoners dilemma have taken place, nor could so much money have been physically drained in cash minus online banking.

And yet somehow almost every other bank didn't fail due to interest rate hikes. They seem to be prepared enough for the social media climate.

*so far.

Other banks don't have a tight nit group of customers so bank runs don't spread as quick.

Most, maybe all, banks don't have enough funds to cover a full on bank run because almost all treasuries bought over a year ago are worth less than their original value.

If people would accept 0% interest on their deposits, banking could be a fundamentally secure non-investment.

But people do like their interest... and in order for banks to take your $100 and give you back $101, well, that $1 has to come from somewhere.

It would have to be negative, as in an up front cost to the consumer.

Banks need to make money to cover operating costs at the very least. It's not that people don't accept 0% interest on deposits, it's that consumers would have to pay money to a bank to keep it operating with no risk.

Take that situation and then introduce a new bank that makes loans and therefore can pay depositors x% in interest on their deposits. If enough people decide that's a better deal than paying for total security, they'll take it.

The entire point of a low FDIC policy is to keep the small players safe while forcing the large players to make prudent decisions with their capital. Bailouts introduce moral hazard that says no big players need to scrutinize the risk adjusted returns they're getting. It's free money to those with money whole everyone else pays for it.

I mean, my Chase checking account is still only paying 0.01% interest. Many many people seem to be ok with ~0% interest on their day-to-day cash needs.

How would you run banks (or anything else for that matter) that wouldn't be an investment? A public service?

Yeah, like credit unions

Credit unions are not public services. They are essentially banks where deposits are shares. A credit union could blunder on long term loans just as well as a commercial bank.

"By all measures, credit unions fail less often than similarly sized banks. During 1980–2018, asset-weighted credit union failure rates were far lower than those of banks: 0.10% vs. 0.22%"

Source https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...

Sure, however, when a credit union takes a loss, it's worn by the depositors, not by shareholders for there are none.

I wondered the same thing. I think it's another veiled call for socialism. It would be weird (not the right word) to have government banks buying government and corporate bonds to pay a common interest rate and have no liability at all for bad investments.

As an employee of an otherwise decent company who happened to bank with SVB, I was mainly resentful of being stuck in the same boat as the latter group

Ugh yeah, I honestly find it really demotivating that I share an industry with these people. Unbelievably, they have managed to be even more insufferably disgusting than the bankers during the GFC. I would have never believed it possible.

hilariously "15 person company run by a Mom out of ohio" was literally one of the tweets going around trying to get empathy for people who had money at svb https://twitter.com/lcmichaelides/status/1634654751479541760

I looked into her company. It seems to be some sort of personal assistant service for $600/mo, $1500/quarter, or $5,900/year. And there's a page trying to convince employers to get the service for their employees so that they can be more productive at work.

Small company from Ohio? Sure. But their target demographic is definitely not small town Ohioans.

She and her husband are both Duke MBAs and ex-McKinsey.

Oh damn, maybe that’s why it came to mind.

I updated the comment because referencing an explicit example was *not* my intent.

Reply on news.ycombinator.com