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Comment by fyzix | Hacker News Reader

By "banks", I mean 90% of the other banks in the country that would've failed, absent the SVB depositor bailout.

If the FED didn't step in, every regional bank in the country would experience a bank run as people would withdraw everything and deposit in the "too big to fail" banks for safety.

Why I think the depositors should've suffered a haircut: What the FED did, was implicitly guarantee the deposits, this incentivize banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail. This is like a real life cheat code for bankers and unfair to the rest of us regular folks who has to suffer the consequences of our actions.

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>banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail

This isn't true, is it? While they do get to keep profits, if the bets don't pay off, the bankers - shareholders, bondholders, employees, executives - all get wiped out (as happened with SI, Signature and SVB). The depositors get bailed out.

They get to keep profits if they win, but lose everything if they don't. No moral hazard, right?

> as happened with SI, Signature and SVB

I concur...While this might be true for smaller banks, the same cannot be said about the "too big to fail" banks.

The bankers are closet creatives; they're probably going set up structures where the equity-holders are on paper running something that looks like a charity and there is a class of "depositors" who are making suspiciously high returns. They just need to figure out how to get the money into their sphere of control as a deposit rather than as equity.

Indeed, in the SVB case there is probably an interesting story around why all these startups were banking with this one bank. It suggests complex relationships between entities and it wouldn't be that weird if it turns out the people being bailed out and the equity holders going broke are the same physical people.

So they should be told not to do that and be put in prison if they persist. We (the people) make the rules, but the regulators are rather too cosy with the bankers.

I'd start by stopping any securitization and having the banks keep all their loan assets on their own balance sheets.

We don't make the rules. They do.

If sensible people made the rules the financial industry would be stable and boring, inequality would be far lower than it is, prosperity would be far wider, and life would generally be more pleasant and financially successful - not just for a small cadre of middle class programmers, but for everyone.

How often we've heard these sentiments. "If only sensible people (meaning the ones who agree with me) made the rules..."

I'm not quite sure what your point is. We ask exactly that question to voters at each election.

I think there's some sort of clipping effect distorting things. If your losses are limited at your assets, then the bet (heads: I gain 2X my assets, tails: I lose 2X my assets) has positive EV.

It's not just banks, this is how limited liability works.

Convincing people not to bank run every single bank is not a bailout of all those banks, jeez.

And are you talking about people with more than 250k, or everyone else?

The former wouldn't destroy banks, and if you think insurance for everyone else is a problem then why has it taken 90 years to be such an issue?

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