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> 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

> 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?
    - icelancer 4y ago
      > Think about the 2/3rds of americans above. Why shouldn't they think that? Because: > 2/3 of amercians live paycheck-to-paycheck [1]. Their paychecks are drawn from these demand deposit accounts. This money above $250k is not being stored in an account like Scrooge McDuck just trying to get the highest score. This money is being held in a transitive fashion to pay employees, vendors, and lines of credit. This is what people are not understanding.
  - mcculley 4y ago
    Nobody should have complete confidence in a bank. When I was young, I worked for a guy who ran multiple businesses and used multiple banks. He showed me how he balanced his treasury across multiple banks and instruments to minimize risk. He had lived through the Great Depression and seen banks fail. I took his advice seriously and have always used multiple banks. I am always concerned when any one account is higher than the FDIC limit. This requires cash flow planning and long term instruments, but it is what one has to do in this world.
    - pas 4y ago
      and this is a dumb waste of resources/time/money/energy. the government should run a safe and boring bank for people and small businesses. no loans, no credit cards, just deposits (and allow people to buy safe bonds/ETFs through other banks). they are already going to guarantee most accounts anyway.
- ericmay 4y ago
  > In some cases they were forced to used this bank by VCs. Hmm it definitely wouldn’t have anything to do with SVB executives wooing VCs with lavish perks and favorable terms to increase deposits though right? That’s definitely not how the industry works. Anywho - they are still victims and they should be made whole with remaining assets after FDIC makes depositors hole (which is a tiny percentage of deposits at SVB) - no doubt about that, but beside that these businesses and VCs are sophisticated and able to take on and assess risk. They were all calling to remove assets and urging portfolio companies to do the same because they understand the game. Not a lot of regular folks at SVB were. There’s a clear difference in sophistication. Next time maybe they’ll bank across a few organizations to reduce risk. Or maybe ask questions even. If you’re going to use taxpayer dollars to bailout these businesses in excess of remaining assets you may as well pay lifetime salaries for the employees who worked at SVB. Don’t see a big difference there. I wouldn’t support either action.
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".

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?
  - icelancer 4y ago
    > Think about the 2/3rds of americans above. Why shouldn't they think that? Because: > 2/3 of amercians live paycheck-to-paycheck [1]. Their paychecks are drawn from these demand deposit accounts. This money above $250k is not being stored in an account like Scrooge McDuck just trying to get the highest score. This money is being held in a transitive fashion to pay employees, vendors, and lines of credit. This is what people are not understanding.
- mcculley 4y ago
  Nobody should have complete confidence in a bank. When I was young, I worked for a guy who ran multiple businesses and used multiple banks. He showed me how he balanced his treasury across multiple banks and instruments to minimize risk. He had lived through the Great Depression and seen banks fail. I took his advice seriously and have always used multiple banks. I am always concerned when any one account is higher than the FDIC limit. This requires cash flow planning and long term instruments, but it is what one has to do in this world.
  - pas 4y ago
    and this is a dumb waste of resources/time/money/energy. the government should run a safe and boring bank for people and small businesses. no loans, no credit cards, just deposits (and allow people to buy safe bonds/ETFs through other banks). they are already going to guarantee most accounts anyway.
ericmay 4y ago
> In some cases they were forced to used this bank by VCs. Hmm it definitely wouldn’t have anything to do with SVB executives wooing VCs with lavish perks and favorable terms to increase deposits though right? That’s definitely not how the industry works. Anywho - they are still victims and they should be made whole with remaining assets after FDIC makes depositors hole (which is a tiny percentage of deposits at SVB) - no doubt about that, but beside that these businesses and VCs are sophisticated and able to take on and assess risk. They were all calling to remove assets and urging portfolio companies to do the same because they understand the game. Not a lot of regular folks at SVB were. There’s a clear difference in sophistication. Next time maybe they’ll bank across a few organizations to reduce risk. Or maybe ask questions even. If you’re going to use taxpayer dollars to bailout these businesses in excess of remaining assets you may as well pay lifetime salaries for the employees who worked at SVB. Don’t see a big difference there. I wouldn’t support either action.

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".