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The mechanism is to watch the banks you have money in. A company still has to pay it's bills. To pay bills, you need some money in a bank, it's unavoidable. So
by danielmarkbruce 4y ago
The mechanism is to watch the banks you have money in. A company still has to pay it's bills. To pay bills, you need some money in a bank, it's unavoidable.
So, let's say you are a company with 4 banks accounts. Each has $500k in it. One of them is SVB. You probably just move the $500k into one of the other bank accounts. It's no big deal per se, but you do it. That's a run on the bank if lots of companies do the same thing.
- ericd 4y agoThere’re always T-Bills…
- danielmarkbruce 4y agoYour employees don't accept t-bills as payment. Your suppliers don't accept them either. To do business, you need money in a bank account. Not all your money, but a decent chunk of money needs to be there for day to day.
- ericd 4y agoSure, you need some, but many small businesses leave it all in a bank. It's easy to just set up recurring buys of 4 week t-bills that you can halt at any time, payroll is predictable, and suppliers are commonly on net 30-90.
- danielmarkbruce 4y agoYup, and you stop using a bank which is in trouble.
- astrange 4y agoEmployees will take risky stuff like equity as payment, but the IRS won't take it for their payroll taxes.
- danielmarkbruce 4y agoThe number of employees who take equity as a significant portion (>50%) of their comp rounds to zero.
- imtringued 4y agoI wouldn't want to get paid in equity if the IRS didn't accept it for tax payments either. If you accept 100% of your compensation in equity you are bankrupt because you can't pay your taxes. This is a chicken and egg situation.
- astrange 4y agoI take 10% of my salary in an equity IOU (ESPP) and I'd do more if they'd let me. But they only let execs into the deferred compensation plan.
- gorm 4y agoNot after hyperinflation
- neural_thing 4y agoOr just use a Too Big To Fail bank. The government will never allow JPM/WF/BofA to go under, that'd wreck the economy.
- danielmarkbruce 4y agoMaybe. Smart people assumed Lehman wouldn't be left to sink. It was. And it caused a lot of problems. And the people who realized afterward that it was a mistake are retiring right about now.
- neural_thing 4y agoLehman had assets of ~4% of GDP and was a pure investment bank. JPM has assets of ~15% of GDP and has 66 million household clients. I'll take the odds that it's too big to fail.
- danielmarkbruce 4y agoThese are logical sounding arguments, and you are going to be right more often than not. But humans make these decisions, they made the decision to let Lehman sink and it was obviously bad in retrospect, and there were many folks who were opposed to the bailouts in 08. There are better options than playing these odds. Spread across banks, hold short term treasuries etc. Treasury functions at a company exist for a reason.
- neural_thing 4y agoTrue, true, but I don't want to take zero risk. I want to take some risk. For example, I do own short term Treasuries, but I want to borrow against them to short some stocks I don't like. And as soon as I have a margin account, my counterparty risk changes drastically due to how brokers work.