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There’s definitely going to be some major fallout from this. I don’t think SVB will be bought, and depositors certainly are not going to be made whole anytime s

There’s definitely going to be some major fallout from this. I don’t think SVB will be bought, and depositors certainly are not going to be made whole anytime soon. Why? Well check out SVBs most recent 10-Q. Everyone knows they had $90B in MBS but most people haven’t commented on the fact that they also had $70B in loans as part of their assets. Normally loans are considered pretty safe assets, but as others have commented a good part of these loans are to the same depositors (startups) that SVB owes money to. Additionally SVB lent money to founders to buy homes, cars, etc. Hopefully you can see where this is going now… The real question is going to be how much if any of those loans SVB can recover to cover their deposits. This could mean calling in all kinds of credit instruments from startups that are ill prepared to suddenly pay them back. Unless the loans are forgiven, in addition to making the depositors whole, SVB will still take a whole bunch of startups down with it. Those companies vendors will feel the hit too. It may take some time for the full repercussions to be felt but this is going to be a big deal. Also, for those of you who didn’t live through 2008, there were plenty of people who assured everyone that everything was OK right until the music stopped.

ericmay 4y ago
> Unless the loans are forgiven, in addition to making the depositors whole, SVB will still take a whole bunch of startups down with it. This is fine. Healthy even. There are risks inherent with investing whether that’s a startup or otherwise and so letting them fail leads to better, safer, and more innovative business models that don’t rely on low interest rates and excess cash. Ultimately SVB isn’t contagion because SVB unlike many other banks was heavily reliant on investments and securities that were highly exposed to interest rate increases. Shit happens. Businesses including banks and startups fail. World keeps spinning. Any argument for bailing out investors here is an equal argument for bailing out homeowners or any other person who was affected by high interest rates for any reason.
- hedora 4y ago
  This isn’t a case of startups failing for being poorly run. In some cases, the issue is literally (using small numbers to make it work for individuals), you have a steady job, $200K in the bank and owe $200K in loans, partially secured by the cash and partially by your income. Tomorrow, the bank calls, and says “we spent your future paychecks and life savings, so we really need you to continue making payments on that loan”.
  - ericmay 4y ago
    > This isn’t a case of startups failing for being poorly run Sure but it is a case of buying the wrong product (SVB) and then reaping the repercussions of that bad decision. It doesn’t really work for individuals because it’s a B2B transaction and not B2C. A bank is just some other business. Mismanaging the risk is the industry’s problem and now they get to eat the lunch they ordered. The world is scary, some things have insurance (FDIC which is not most deposits at SVB), and some things don’t. Is what it is. Doesn’t matter if it’s “right” or wrong - that’s a naive interpretation of business.
    - watwut 4y ago
      In some cases they were forced to used this bank by VCs. But even if not, if anything, they are the victims here. It is not like they could make full audit of bank prior decision or had any reasonable chance to see problems. That is whole reason for having regulations and goverment audits.
      - icelancer 4y ago
        People are confusing shareholders with demand deposit account holders. Shareholders can and should be wiped out with very little to show for it. That is the risk they run. Demand deposit holders getting wiped out is unthinkable. Taking any non-negligible haircut on their demand deposits (yes, even over $250k) will destroy confidence in the banking industry. This is far worse than the moral hazard of a bailout. What must be done is not a corporate bailout to protect shareholders, yet tons of people think this is "socializing losses and privatizing gains."
        watwut 4y ago
        Yes, I agree. Depositors are entirely different issue then shareholders. I think that startups mentioned in this thread are the depositors. Plus it is not just that shareholders took risk, it is also that market incentives push companies into too rules breaking and too much riks. Because it makes shares go up temporarily.
        4y ago
SkyPuncher 4y ago
I don't think SVB is the keystone, but things simply don't feel correct right now. * Inflation is unusually high right now * The working/middle class is increasingly discontent. * Rising interest rates are causing major follow on effects. * Housing prices have been blowing up. Given increasing unemployment and interest rates, it's unclear what's going to happen there. * The pandemic created insanity. Markets have made little sense over the past 3 years. They're just now returning to normal. * Many, large companies are doing layoff. The market as a whole is signaling they don't expect profitability through revenue increase - so they're reducing burn. ----- I have a hypothesis that markets are becoming increasingly optimize - which results in quicker returns, but also more frequent and harder drops/recessions.
- vineyardmike 4y ago
  I think the issue is way worse than all this, and way harder to solve - we're basically on the edge of the roaring 20s. inflation is high because companies are increase profit margin, and companies are increasing margin because there isn't enough competition. Companies would never voluntarily lower profitability, and are rewarded for short term actions, incl. layoffs, which are gutting long term stability of these companies. People, businesses, governments are increasingly indebted compared to prior generations. Housing in productive cities is way below demands, while there's empty houses in Detroit and Cleveland. Even with remote work (which is being clawed back), this isn't stabilizing and there isn't enough housing (esp. affordably). It takes years before that much housing can be built, assuming we legalize it (YIMBY v NIMBY). We don't have a strong growing population without immigration so there is no future generation big enough in this economic Ponzi scheme. The working class (with housing and all that) are screwed, while the rich get richer. Eventually there's no where left to turn for profitability though - and no more debt Wall Street can issue to keep the spending up. Then what?
  - anonyfox 4y ago
    Then finally the 99% screwed people realize that this is where (crony) capitalism is supposed to end up in the long run. Time for a forceful redistribution and system change. Can’t happen soon enough.
unity1001 4y ago
> Also, for those of you who didn’t live through 2008, there were plenty of people who assured everyone that everything was OK right until the music stopped In the 2nd or 3rd week of the 2008 crash starting, they put on CNN this guy who predicted the entire crash years ago and wrote a book about it. And also 3-5 finance experts. All of them were laughing in the guy's face as the guy explained what was happening, why it was happening and what exactly was going to happen very soon. They were discrediting, belittling him and assuring the public how everything was totally okay. All of them were actual prominent personas in finance, with education, experience, credentials and whatnot. Things happened exactly as the guy wrote in his book and explained on CNN. Everything came crashing down. What's unforgettable is how all the actual experts with credentials were reassuring the public that everthing was ok SO hard to the point of laughing in the guy's face...
- brandonmenc 4y ago
  https://www.youtube.com/watch?v=1G0tfb8ZefA https://www.youtube.com/watch?v=1G0tfb8ZefA
  - nostromo 4y ago
    The second clip with Ben Stein (?!) being as confidently wrong as a person can be is hilarious.
    - bsaul 4y ago
      i did buy stocks in 2008 though, and that was my most profitable investment in my entire life. He may have had a point.
- jonnycoder 4y ago
  If the talking heads on the news were told how to react, then it is logical that they maintain the perception that everything is ok. A lot of economic factors are controlled by perception since we are debt based economy. If everyone in the US wanted their money in cash or gold/silver, banks and the entire system would collapse because it is not there. And in 2020 the Fed removed the 10% reserve requirement so I don't see that fairing well.
Scoundreller 4y ago
> I don’t think SVB will be bought FDIC will create a bank then. Just like it did for the (now) 3rd largest bank failure in history, IndyMac: https://news.ycombinator.com/item?id=35105606 https://news.ycombinator.com/item?id=35105606
- throwanem 4y ago
  They did that yesterday. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...
WeylandYutani 4y ago
At least only SV tech douchebags are hurt. I doubt America will shed a tear for them.
ravenstine 4y ago
We are beyond the point where the music will stop. In the last 15 years we have entered the full simulation. Short of a nuclear bomb going off on American soil, there is seemingly nothing that the upper class won't wish away with make-believe. When the class divide becomes great enough, the powerful can dictate reality. Something needs to tangibly get severely messed up for the emperor to admit he's not wearing clothes. Currency is not tangible enough, and there's plenty of room for people to escape with golden parachutes.

ericmay 4y ago

> Unless the loans are forgiven, in addition to making the depositors whole, SVB will still take a whole bunch of startups down with it. This is fine. Healthy even. There are risks inherent with investing whether that’s a startup or otherwise and so letting them fail leads to better, safer, and more innovative business models that don’t rely on low interest rates and excess cash. Ultimately SVB isn’t contagion because SVB unlike many other banks was heavily reliant on investments and securities that were highly exposed to interest rate increases. Shit happens. Businesses including banks and startups fail. World keeps spinning. Any argument for bailing out investors here is an equal argument for bailing out homeowners or any other person who was affected by high interest rates for any reason.

hedora 4y ago
This isn’t a case of startups failing for being poorly run. In some cases, the issue is literally (using small numbers to make it work for individuals), you have a steady job, $200K in the bank and owe $200K in loans, partially secured by the cash and partially by your income. Tomorrow, the bank calls, and says “we spent your future paychecks and life savings, so we really need you to continue making payments on that loan”.
- ericmay 4y ago
  > This isn’t a case of startups failing for being poorly run Sure but it is a case of buying the wrong product (SVB) and then reaping the repercussions of that bad decision. It doesn’t really work for individuals because it’s a B2B transaction and not B2C. A bank is just some other business. Mismanaging the risk is the industry’s problem and now they get to eat the lunch they ordered. The world is scary, some things have insurance (FDIC which is not most deposits at SVB), and some things don’t. Is what it is. Doesn’t matter if it’s “right” or wrong - that’s a naive interpretation of business.
  - watwut 4y ago
    In some cases they were forced to used this bank by VCs. But even if not, if anything, they are the victims here. It is not like they could make full audit of bank prior decision or had any reasonable chance to see problems. That is whole reason for having regulations and goverment audits.
    - icelancer 4y ago
      People are confusing shareholders with demand deposit account holders. Shareholders can and should be wiped out with very little to show for it. That is the risk they run. Demand deposit holders getting wiped out is unthinkable. Taking any non-negligible haircut on their demand deposits (yes, even over $250k) will destroy confidence in the banking industry. This is far worse than the moral hazard of a bailout. What must be done is not a corporate bailout to protect shareholders, yet tons of people think this is "socializing losses and privatizing gains."
      - watwut 4y ago
        Yes, I agree. Depositors are entirely different issue then shareholders. I think that startups mentioned in this thread are the depositors. Plus it is not just that shareholders took risk, it is also that market incentives push companies into too rules breaking and too much riks. Because it makes shares go up temporarily.
      - 4y ago

SkyPuncher 4y ago

I don't think SVB is the keystone, but things simply don't feel correct right now. * Inflation is unusually high right now * The working/middle class is increasingly discontent. * Rising interest rates are causing major follow on effects. * Housing prices have been blowing up. Given increasing unemployment and interest rates, it's unclear what's going to happen there. * The pandemic created insanity. Markets have made little sense over the past 3 years. They're just now returning to normal. * Many, large companies are doing layoff. The market as a whole is signaling they don't expect profitability through revenue increase - so they're reducing burn. ----- I have a hypothesis that markets are becoming increasingly optimize - which results in quicker returns, but also more frequent and harder drops/recessions.

vineyardmike 4y ago
I think the issue is way worse than all this, and way harder to solve - we're basically on the edge of the roaring 20s. inflation is high because companies are increase profit margin, and companies are increasing margin because there isn't enough competition. Companies would never voluntarily lower profitability, and are rewarded for short term actions, incl. layoffs, which are gutting long term stability of these companies. People, businesses, governments are increasingly indebted compared to prior generations. Housing in productive cities is way below demands, while there's empty houses in Detroit and Cleveland. Even with remote work (which is being clawed back), this isn't stabilizing and there isn't enough housing (esp. affordably). It takes years before that much housing can be built, assuming we legalize it (YIMBY v NIMBY). We don't have a strong growing population without immigration so there is no future generation big enough in this economic Ponzi scheme. The working class (with housing and all that) are screwed, while the rich get richer. Eventually there's no where left to turn for profitability though - and no more debt Wall Street can issue to keep the spending up. Then what?
- anonyfox 4y ago
  Then finally the 99% screwed people realize that this is where (crony) capitalism is supposed to end up in the long run. Time for a forceful redistribution and system change. Can’t happen soon enough.

unity1001 4y ago

> Also, for those of you who didn’t live through 2008, there were plenty of people who assured everyone that everything was OK right until the music stopped In the 2nd or 3rd week of the 2008 crash starting, they put on CNN this guy who predicted the entire crash years ago and wrote a book about it. And also 3-5 finance experts. All of them were laughing in the guy's face as the guy explained what was happening, why it was happening and what exactly was going to happen very soon. They were discrediting, belittling him and assuring the public how everything was totally okay. All of them were actual prominent personas in finance, with education, experience, credentials and whatnot. Things happened exactly as the guy wrote in his book and explained on CNN. Everything came crashing down. What's unforgettable is how all the actual experts with credentials were reassuring the public that everthing was ok SO hard to the point of laughing in the guy's face...

brandonmenc 4y ago
https://www.youtube.com/watch?v=1G0tfb8ZefA https://www.youtube.com/watch?v=1G0tfb8ZefA
- nostromo 4y ago
  The second clip with Ben Stein (?!) being as confidently wrong as a person can be is hilarious.
  - bsaul 4y ago
    i did buy stocks in 2008 though, and that was my most profitable investment in my entire life. He may have had a point.
jonnycoder 4y ago
If the talking heads on the news were told how to react, then it is logical that they maintain the perception that everything is ok. A lot of economic factors are controlled by perception since we are debt based economy. If everyone in the US wanted their money in cash or gold/silver, banks and the entire system would collapse because it is not there. And in 2020 the Fed removed the 10% reserve requirement so I don't see that fairing well.

Scoundreller 4y ago

> I don’t think SVB will be bought FDIC will create a bank then. Just like it did for the (now) 3rd largest bank failure in history, IndyMac: https://news.ycombinator.com/item?id=35105606 https://news.ycombinator.com/item?id=35105606

throwanem 4y ago
They did that yesterday. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...

WeylandYutani 4y ago

At least only SV tech douchebags are hurt. I doubt America will shed a tear for them.

ravenstine 4y ago

We are beyond the point where the music will stop. In the last 15 years we have entered the full simulation. Short of a nuclear bomb going off on American soil, there is seemingly nothing that the upper class won't wish away with make-believe. When the class divide becomes great enough, the powerful can dictate reality. Something needs to tangibly get severely messed up for the emperor to admit he's not wearing clothes. Currency is not tangible enough, and there's plenty of room for people to escape with golden parachutes.