Comment by roenxi | Hacker News Reader

Comment by roenxi | Hacker News Reader

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I broadly like the things Molly is bringing attention to, but there are some problems here:

1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationship where they are also major equity holders in the companies banking at the bank - ie, they've benefited hugely from the de-risking even if nominally they are getting wiped out.

2) "No libertarians in a bank run" - what, did libertarians suddenly become self-sacrificing when I wasn't watching? Libertarianism is recognising that people shouldn't be forced to pay taxes to fund these bailouts and that people should be allowed to avoid the dollar while conducting business if they wish. If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. Since these libertarians aren't idiots, they took the bail out. They aren't dignified, sure, but they never pretended they were going to hold themselves up as sacrifices.

3) "the Fed’s not-a-bailout of Silicon Valley Bank and Signature Bank seems ultimately to be the right choice "

I mean, if you concede that then ok but is anyone naive enough to believe that the wealthy took everyone else's money hostage by accident? It has been clear for a decade that as long as it is a crisis rich people will get free money. Therefore, the powerful have arranged their affairs so they won't lose money except in a crisis. The easy approach is letting the rules play out to their logical conclusions. People overestimate how important the banking sector is, it makes more sense to plan how to transition through a collapse and rebuild it than it does trying to hold up all the idiots currently in charge of all the important decisions. They aren't competent, that is why the system keeps trying to purge them!

Note the remarkable resiliency of the crypto system because it keeps jettisoning all the parts that go bust without rescuing them. Bitcoin's value is more resilient than the banking system right now sans-bailouts.

> This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in

Only when looking in hindsight.

Unless those extremely wealthy people knew that in the eventuality of a bank run the government would offer them shelter, as the government normally does for the ruling class. But that is not in a sense part of her criticism?

> If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout.

But that's explicitly *not* how the game was set up. The game was set up so everyone gets insured up to a limit, and if you're rich enough to be beyond that limit, then you should be paying market rate for insurance on those funds (which is, like, a thing they could have done).

They chose to forego insurance for their funds, and when it all collapsed they screamed bloody murder demanding the government make them whole. They demanded the government _change_ the rules to socialize their losses. If you demand government intervention when the market goes haywire that's fine, but you turn in your libertarian badge when you come demanding government handouts.

> you should be paying market rate for insurance on those funds

which, if you bought short term treasuries, you can easily just get that safety for "free" (aka, there's no such a need for insurance, unless you believe the insurers are safer than the US gov't).

Having it at a bank should've been equivalent, since you can make the bank's scale of economies in the buying/selling of short term treasuries to make it even easier (dare i say, even transparent). However, when a bank does this, they want to squeeze even a tiny bit more profit, and thus, instead of buying the requisite amount of short term treasuries, they bought long dated bonds/treasuries, which is insanely risky.

The VC depositor should've been financially savvy enough to look at their bank and see this, so i argue they did not deserve the bailout beyond the existing mandated FDIC one. it's causing moral hazard in the banking sector.

> But that's explicitly not how the game was set up.

Sorry, but yes, it was. It might not have been written down, but if all it took was for a few people to "scream bloody murder demanding the government make them whole," we need to look deeper at the implicit assumptions surrounding that system. And, part of those assumptions is that truly wealthy individuals get a greater level of service from that system than the rest of us, including bailouts like this. The same goes for "too big to fail" type institutions (viz JPMC and other big banks who are directly benefiting from a loss of confidence in institutions like SVB).

Right, but those are the "implicit" rules, and I was very specifically referring to the "explicit" rules.

I agree that the explicit rules are not the implicit rules. That is a big part of the critique. I'm accusing any "libertarians" who demanded a government bailout in this instance of being just as fake, and just as bullshit, as those explicit rules are.

I don't understand why there is so much focus on the insurance limit. I'm not sure if such limits are reasonable in the first place because they create somewhat problematic incentives: Assume a bank has plenty of assets, but is temporarily out of liquidity. Why wouldn't an insurer like FDIC force the bank to trigger the insurance policy, cap all deposits at the limit, and realize huge profits after taking over the bank and bridging the liquidity gap?

The FDIC doesn't cap all deposits at the limit when they take over a bank. That would be insanity.

What they do is insure all deposits up to the limit.

When a bank fails, the assets are used to pay out the depositors (similar to a bankruptcy). If the assets are enough to cover 90% of deposits, then depositors will be made 90% whole. The insured amount is the *exception* to this process, where your amounts below the insured limit will be made whole even when there is an asset shortfall.

I don't think the law would allow the FDIC to cap depositors at the insurance limit, even if the underlying assets are enough to make the depositors whole.

If the rules are what are advertising before the crisis then we'd have evidence of that by now. They are not the rules. The rules are that money will be printed and bailouts given. There are a lot of things that might surprise us, but the fact that the response to a crisis turned out to be a bailout was always a given.

Libertarian means they should acknowledge that these bailouts are making everyone worse off. But if we're going to do the bailouts anyway? I want libertarians to be first in line. There is no point letting authoritarians gain an advantage because of theoretical considerations; there were ample opportunities for the libertarian solution to be bought in from 2007-2022. They weren't, so at this point there is no reason for the brunt of the damage to fall on people who believe in freedom.

To pull a quote from the article "No atheists in a foxhole. No libertarians in a bank run"

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