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If i screw up my investments i am stuck with the consequences. SVB screws up and we are all forced to bail them out? No thank you.
by greenthrow 4y ago
If i screw up my investments i am stuck with the consequences. SVB screws up and we are all forced to bail them out? No thank you.
- fnordpiglet 4y agoYou’re not bailing them out, you’re bailing out their depositors who had no say in the investments. The principals of SVB just lost it all to the FDIC, they weren’t bailed out in the least.
- greenthrow 4y agoRead the article. I am not talking about FDIC insurance. I am talking about the bailout that is discussed at towards the end of the article.
- crazygringo 4y agoThe article is talking about a bailout of depositors, not investors. Not letting the bank fail is a form of bankruptcy in a way. The owners lose most or all of the value of their ownership, but the bank is sold to new owners so it can continue to run.
- dsugarman 4y agoThat's not how this article reads, I think the right course of action would be to make the depositors whole and let the bank fail.
- mertd 4y agoThat's exactly what's happening but many depositors need to be "made whole" faster than the liquidation would allow because they need to make payroll in literally a few days time.
- bagels 4y agoMost of them don't need to be made whole to make payroll in the short term. The FDIC is talking about a dividend for next week.
- mertd 4y agoYes but some need more than the insurance limit I suppose and again in two weeks etc...
- hedora 4y ago93% of the account holdings were uninsured. Many startups burn more than the FDIC’s $250K limit in two weeks. That’s equivalent to having 50 employees making $125K each, and zero other expenses. I’m guessing anyone with more than 20-30 employees is staring down missed payrolls.
- fnordpiglet 4y agoThe FDIC insurance comes into play after all other options have been exhausted. Given the FDIC can draw on the treasury and SVB has assets significantly in excess of deposits there’s literally no chance anyone will lose anything other than the management of SVB.
- fnordpiglet 4y agoThey aren’t insolvent and have assets to more than cover depositors. The FDIC take over is about stabilizing the bank, not destroying it. Why would you let a bank fail if it’s unnecessary ? They have enormous amounts of business relationships along a huge number of dimensions that are fully functional and fine and meaningfully contribute to the lives of millions. Why tear that up? Spite?
- IG_Semmelweiss 4y agobecause the management has failed. management needs to go. Many, many employees need to go. I'm not sure what % that is, but that's for new ownership to determine
- fnordpiglet 4y agoI think all of this is a forgone conclusion. Public intervention isn’t a great career move.
- markonen 4y agoHave they, though, if marked to market? After the deposit outflows this week?
- fnordpiglet 4y agoYou don’t have to value it marked to market. You can value it as net present value of the hold to maturity value. That’s not a liquid price, but it’s the value if used as collateral against a credit line from the feds.
- csomar 4y agoThe bank failed. It's worth $0 now.
- fnordpiglet 4y agoThat’s just false. Being unable to secure liquidity to pay depositors doesn’t make you worthy $0. The bank failed to honor its charter and is rechartered under a FDIC controlled bank. But SVB is not gone, nor is it worth $0.
- cowthulhu 4y agoIt’s bailing out the depositors, not the bank itself. But I get your sentiment. Worth noting though that based on what I’ve read, the bank has plenty of assets to repay depositors… the issue is just that these assets aren’t super liquid. So if there was some form of bailout, it would be more of a bridge loan type deal than a true bailout assuming I understand the situation.
- greenthrow 4y agoYour understanding does not fit with the article or anything else I read, which indicates there is a hole in their assets.
- eightysixfour 4y agoThey’re confusing cause and the current situation. The cause was not a joke in the balance sheet, it was a liquidity crisis, SVB created a hole by taking a haircut on the illiquid assets to try and keep the house of cards up. Few of the explainers are covering both parts of this.
- cperciva 4y agoThe long-duration bonds in question were plenty liquid. The problem is that SVB couldn't sell them without realizing losses -- and because they were listed as "held to maturity" on SVB's balance sheet, SVB had been hiding those losses to give a false appearance of solvency.
- eightysixfour 4y agoLiquidity at a substantial loss on a long term maturity that would otherwise pay out as predicted is practically illiquid for a bank. This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue.
- caddemon 4y ago
- deleted 4y ago[deleted]
- diebeforei485 4y agoTaxpayer money won't be required here. SVB will get sold to a bigger bank. Providing short-term liquidity will be profitable for the taxpayer.
- jonstewart 4y agoIt didn’t seem probable at the time, but the taxpayer did pretty well with all the bailouts in 2008.
- bagels 4y agoOf banks or of auto manufacturers?
- somsak2 4y agoThe government made quite a bit of money in profit overall. Auto manufacturers were <15% of the total amount. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
- Scoundreller 4y agoDid they? Making a 17% return over 13 years on the riskiest “investments” imaginable (think: injections that the market said “fuck no!” to) is an atrocious return, and a net loss after accounting for inflation. It’s a bit unclear because some of those loans were paid back years ago, but even if it works out to be over 6 or 7 years, it’s still pretty bad. Gov should have juiced its returns by requiring 100% equity wipeouts in exchange for gov’s ultra-high-risk loans/investments.
- ttul 4y agoI believe SVB is done. It won’t be sold. They wound it up. It’s over.
- vineyardmike 4y ago
- cscurmudgeon 4y ago1. You are bailing out depositors not SVB. 2. Depositors have no other option in general. https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
- greenthrow 4y agoThe article is talking about bailing out SVB, which in turn can then make the depositors whole. This is like arguing that if I screw up my investments and put myself in a bad position that the government should bail me out for the sake of everyone I owe money to.
- crazygringo 4y agoNo the article isn't. It's clearly referring to depositors.
- cscurmudgeon 4y ago> This is like arguing that if I screw up my investments and put myself in a bad position that the government should bail me out for the sake of everyone I owe money to. Nope. Not even close. > The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. https://www.fdic.gov/about/what-we-do/index.html https://www.fdic.gov/about/what-we-do/index.html
- twblalock 4y agoIf we don't help depositors then bank runs at other banks are more likely. That hurts everyone, including yourself if the contagion gets really bad. If helping depositors also ends up helping the bankers, we still have to do it. In cases like this, people need to set aside moral outrage and look at what will actually happen.
- greenthrow 4y agoI'm not arguing about FDIC insurance. Anyone who deposited beyond what was insured knew the risk they were taking.
- bagels 4y agoEveryone's evaluation of the risk will dramatically rise if the depositors are not bailed, increasing the probability that this happens at the next bank, and so on.
- hedora 4y agoIn the past, the FDIC has always made depositors whole. If that changes, then many, many people will start moving money around to compensate.
- MrMan 4y ago[flagged]
- plutonorm 4y agoWhat is worse is we allow the mistakes to go unpunished - because then we will have more episodes like this down the line. If there are no consequences then the bad practise will continue. Anything that breaks away from the survival of the fittest is abdication of long term success in favour of short term stability. I don think that is a good trade for the system as a whole.
- biorach 4y agoYou're confused about what's going on here. Only depositors are being bailed out.
- MrFoof 4y agoWe didn't bail them out. Banks pay insurance premiums to the FDIC. These premiums create the reserve the FDIC uses to pay for these exact situations.
- IG_Semmelweiss 4y agoagreed. Bail out is bad. Takeover is good. Failure of entity is bad. Failure of equityholders is good. All we need here is a change in management and owners. The bank should live but without any assistance (bailout) from taxpayers beyond FDIC limits
- icelancer 4y agoNo. "SVB" is its shareholders. They are going to be wiped out. You are not bailing them out.