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> 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

> 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.
      - kilburn 4y ago
        > 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. Says who? 2/3 of amercians live paycheck-to-paycheck [1]. The only thing that a banking system has to provide them is day-to-day operations plus a small cushion (much smaller than 250k). For that people accumulating over 250k is a privilege, one thay may as well come with the risk of getting it wiped out in very rare events such as this one. [1] https://www.prnewswire.com/news-releases/23-of-the-us-population-now-lives-paycheck-to-paycheck-301536811.html https://www.prnewswire.com/news-releases/23-of-the-us-popula... > yet tons of people think this is "socializing losses and privatizing gains." Think about the 2/3rds of americans above. Why shouldn't they think that?
  - bhawks 4y ago
    SVB was literally playing by the rules outlined in banking regulations to reduce risks. Those rules are dumb, don't really reduce risk and don't fit SVBs business customers but they must be followed. Society forced SVB to structure it's capital this way - society should be responsible to make the customers of SVB whole (SVB equity holders should be wiped out though - the risks of the business model are clear and arguably they should be aware of them as owners). Afterwards we as a society should take a long hard thought about the success record of centrally planned economies.
    - watwut 4y ago
      I really don't think this is true.
    - ericmay 4y ago
      SVB went bust and it busted because it made very poor decisions and had double interest rate exposure and unlike other banks (JPM, WF, BA, etc.) its depositors jointly all took their money out and created a bank run. SVB didn’t ask VCs and founders to all withdraw their money. There’s nothing for society to do except for the FDIC to sort it what’s left and make sure the insured get their money and then the remaining assets are split up as fairly as possible. > Afterwards we as a society should take a long hard thought about the success record of centrally planned economies. I disagree. Going down the centrally planned economy route would be a huge mistake for the US (it’s a universal mistake for all countries except perhaps in dire circumstances like a global war). We should avoid central planning mistakes like bailing out or subsidizing bad businesses. Etc.
    - bregma 4y ago
      > Those rules are dumb, don't really reduce risk Yes, they reduce risk. They do not eliminate risk. If you're gambling on a "sure thing" or "have a system" it doesn't mean you're always going to beat the house. The house relies on suckers and rubes misunderstanding risk.
    - lp0_on_fire 4y ago
      "society" is a funny way of spelling "banking lobbyists and the politicians in their pockets".
- jojobas 4y ago
  In the above situation you should be able to refinance. SVB's problem is that it gave out loans it can't quickly recall at very low interest rates and these loans are now worth less than their face value.

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.
    - kilburn 4y ago
      > 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. Says who? 2/3 of amercians live paycheck-to-paycheck [1]. The only thing that a banking system has to provide them is day-to-day operations plus a small cushion (much smaller than 250k). For that people accumulating over 250k is a privilege, one thay may as well come with the risk of getting it wiped out in very rare events such as this one. [1] https://www.prnewswire.com/news-releases/23-of-the-us-population-now-lives-paycheck-to-paycheck-301536811.html https://www.prnewswire.com/news-releases/23-of-the-us-popula... > yet tons of people think this is "socializing losses and privatizing gains." Think about the 2/3rds of americans above. Why shouldn't they think that?
- bhawks 4y ago
  SVB was literally playing by the rules outlined in banking regulations to reduce risks. Those rules are dumb, don't really reduce risk and don't fit SVBs business customers but they must be followed. Society forced SVB to structure it's capital this way - society should be responsible to make the customers of SVB whole (SVB equity holders should be wiped out though - the risks of the business model are clear and arguably they should be aware of them as owners). Afterwards we as a society should take a long hard thought about the success record of centrally planned economies.
  - watwut 4y ago
    I really don't think this is true.
  - ericmay 4y ago
    SVB went bust and it busted because it made very poor decisions and had double interest rate exposure and unlike other banks (JPM, WF, BA, etc.) its depositors jointly all took their money out and created a bank run. SVB didn’t ask VCs and founders to all withdraw their money. There’s nothing for society to do except for the FDIC to sort it what’s left and make sure the insured get their money and then the remaining assets are split up as fairly as possible. > Afterwards we as a society should take a long hard thought about the success record of centrally planned economies. I disagree. Going down the centrally planned economy route would be a huge mistake for the US (it’s a universal mistake for all countries except perhaps in dire circumstances like a global war). We should avoid central planning mistakes like bailing out or subsidizing bad businesses. Etc.
  - bregma 4y ago
    > Those rules are dumb, don't really reduce risk Yes, they reduce risk. They do not eliminate risk. If you're gambling on a "sure thing" or "have a system" it doesn't mean you're always going to beat the house. The house relies on suckers and rubes misunderstanding risk.
  - lp0_on_fire 4y ago
    "society" is a funny way of spelling "banking lobbyists and the politicians in their pockets".
jojobas 4y ago
In the above situation you should be able to refinance. SVB's problem is that it gave out loans it can't quickly recall at very low interest rates and these loans are now worth less than their face value.