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This is a classic case of rich people taking risk with capital, and when they fail, society shoulders the losses. Over and over again. We are socializing the lo

This is a classic case of rich people taking risk with capital, and when they fail, society shoulders the losses. Over and over again. We are socializing the losses of controllers of capital. If there were real consequences to their wealth they wouldn’t act this way. And I’m not just talking about SVB

DennisP 4y ago
It's not, because it's not about protecting the people who took the risks. Their business failed and it's not getting bailed out. The tweet, which admittedly is long and lacks paragraphs, is about protecting people who simply deposited money in a bank account. That's not supposed to be a risky endeavor.
- deleted 4y ago
  [deleted]
- prpl 4y ago
  Depositing anything over the $250k limit is a risk, but one that is standard operating procedure. The reality is that every startup/VC was happy to absorb that risk for benefits previously described. They, in fact, should have hedged their exposure at the very least.
  - chipsa 4y ago
    I’ve got 100 employees that need to get paid this month, and they need to get paid $7500. How can I not have more than $250k without having to do really complicated stuff that will make my accountant hate life? A quarter mil is a lot for a person. It’s not a lot for a business, and businesses were most of SVB’s clientele by asset amount.
    - pclmulqdq 4y ago
      Don't split into accounts at a $250k limit, but have 2 accounts with working capital in different banks. This is the same principle as having servers in 2 different datacenters. SVB's clients will not lose all their money - their assets can cover most of it. You mostly just need the second bank to cover the period in which you may not be able to access your money.
      - frollo 4y ago
        Heck, I don't think I'd manage to have $250k in liquidity in my whole life and this is my standard operating procedure for my money. You never know when some weird, once-in-a-lifetime stuff is going to hit your bank. Learned the lesson the hard way when I ended up stranded in the middle of nowhere without a working debit card for a damned IT outage.
        pclmulqdq 4y ago
        Yeah, this is why my personal money is split between 4 banks, I make sure to have Visa and Mastercard, etc. I have seen bank computer outages, fraud, and other stupid shit that shuts part of the system down, and I want my money to be highly available. There should be no reason not to run a company the same way.
        acjacobson 4y ago
        I do this too. I've been locked out of a bank account for a week or so because something in their system flagged a review. A tiny blip like that can be really impactful on handling day to day expenses - it makes sense to have a backup.
    - swatcoder 4y ago
      If you only have one payroll in reserve, then you're already living on the edge and hopefully recognize that one rare-but-real bad event could knock you out of the game. If you're lucky, someone might still come in and save you because your loss is a pittance compared to some. Good luck to you. But if you have more than one payroll, then you should consider that bank failures and other risks are part of the system and spread your capital across institutions so that no one failure wipes you out. Risk management and "accountants that hate life" are some of the overhead costs of significant assets.
    - sangnoir 4y ago
      Like every other asset you don't want your business to lose: you shouldn't under-insure bank balances. Sticking to legally mandated minimum insurance unsuited to your enterprise is negligence. When the unimaginable happens, you can easily get bridging finance on the strength of your insurance (if your insurer is not responsive enough for your payroll dates)
    - p_j_w 4y ago
      Then buy more deposit insurance.
      - DennisP 4y ago
        I googled and couldn't find a way to do that. The only options I saw were various way to split funds among multiple banks. Could you tell us where to buy more deposit insurance?
        p_j_w 4y ago
        If that's even an option then there's no reason to be having this discussion. These companies were irresponsibly putting all of their eggs in one basket and now I'm being asked to bail them out?
        p_j_w 4y ago
        Also, this: https://www.moneycrashers.com/dif-insurance-massachusetts-depositors-insurance-fund/ https://www.moneycrashers.com/dif-insurance-massachusetts-de...
- pclmulqdq 4y ago
  The thing is that it's not exactly supposed to be a risk-free endeavor either. No method of storing money is risk-free (particularly not free methods of storing money). There is some tail risk to any use of a bank over the FDIC limit, and everyone who parks a lot of money knows it. It would be reasonable to assume that "Silicon Valley Bank" would be overexposed to market fluctuations in Silicon Valley, just as Silvergate was overexposed to crypto. Big SVB depositors probably won't lose a lot of their money anyway, but they may lose access to it for some time, which is a big deal for a short-term deposit account.
- swatcoder 4y ago
  The rules of the game are public. As a depositor, you know how much of your deposit is insured and how much is at the mercy of the bank's liquidity and solvency. Your uninsured deposit is a loan to your bank, and the more vulnerable you are to that loan failing, the more scrupulous you should be in choosing the bank you lend it to. Despite a consistent history of periodic busts, the silicon valley culture behaves with absurd optimism. New entrants don't believe that the good times will ever turn and that catastrophic risk is a real thing to attend to, and old hands think they know how to win the hot potato game this time. The potato is getting really hot now, and things will just get worse in the long run if you don't let the community learn that people get burnt and need to be more careful as they play the game.
- deleted 4y ago
  [deleted]
- sangnoir 4y ago
  Depositing more money than insured is a risky endeavor! They could have insured thr additional amount beyond the FDIC limit, but chose not to, now they want the government to make them whole.
- bcrosby95 4y ago
  I don't know if it's quite that simple. My (admittedly newfound) understanding is SVB offered outsized benefits to startups on the condition that you simply bank with them.
- aaomidi 4y ago
  Let me turn this around: People to folks with student loans: "You know what you were signing up for." Why is it unreasonable to say: "You know that banks only protect up to 250K, why are you surprised? Do better next time." If its reasonable to protect the customers of the bank above what FDIC already does, then I don't wanna hear the same folks complain about loan forgiveness.
jsutton 4y ago
Socializing losses is what enables high risk high reward businesses. Without it, the US wouldn't be half the innovative country it is now.
- kennywinker 4y ago
  When people complain about privatized profits and socialized losses, usually the part they’re upset about is the privatized profits
  - deleted 4y ago
    [deleted]
  - drewcoo 4y ago
    citation needed
    - kennywinker 4y ago
      [dead]
- inpdx 4y ago
  It's not high risk by that definition.
- swatcoder 4y ago
  If you just keep amplifying volatility by throwing more money onto the table, you will eventually see a bust that sees you leave the casino for a life on the streets. It can look like ratcheting for a while when you've collected a few of big wins, but eventually one of your busts will be so big that it wipes you out entirely. That wouldn't be so great for that country you're talking about.
skippyboxedhero 4y ago
It isn't. Regulators are given a legal responsibility to oversee these institutions because they are (still) essentially trading on govt credit. That is why financial regulations exist: to give people confidence that bank failures won't happen. 95% of people are unable to perform the credit analysis necessary (and some banks don't even report this information publicly) to make lending decisions. And if regulators were unable to perform this kind of analysis in this case, I am not sure why people think savers will be able to. So the way the system works is to accept that these kind of things will not achieve perfect outcomes in every single case, in order to create a system that secures funding for the place that employs you (this is what FDIC is, it is a massive insurance scheme). If you are saying: why don't we have a system in which this doesn't happen? You are saying: why don't we have a system in which the economy is significantly smaller? And btw, in that system you will also never obtain the coveted short-term perfection. And finally, unsecured creditors would be bailed out but shareholders would be written down to zero. I am not really clear if most people actually understand what happened in 2008. One of the narratives is that everyone wealthy got paid out, and things went on as normal...this didn't happen. Your point about "this wouldn't happen if people had the incentive"...okay, did regulators have the incentive? Everyone had the incentive, but sometimes people are wrong.

DennisP 4y ago

It's not, because it's not about protecting the people who took the risks. Their business failed and it's not getting bailed out. The tweet, which admittedly is long and lacks paragraphs, is about protecting people who simply deposited money in a bank account. That's not supposed to be a risky endeavor.

deleted 4y ago
[deleted]
prpl 4y ago
Depositing anything over the $250k limit is a risk, but one that is standard operating procedure. The reality is that every startup/VC was happy to absorb that risk for benefits previously described. They, in fact, should have hedged their exposure at the very least.
- chipsa 4y ago
  I’ve got 100 employees that need to get paid this month, and they need to get paid $7500. How can I not have more than $250k without having to do really complicated stuff that will make my accountant hate life? A quarter mil is a lot for a person. It’s not a lot for a business, and businesses were most of SVB’s clientele by asset amount.
  - pclmulqdq 4y ago
    Don't split into accounts at a $250k limit, but have 2 accounts with working capital in different banks. This is the same principle as having servers in 2 different datacenters. SVB's clients will not lose all their money - their assets can cover most of it. You mostly just need the second bank to cover the period in which you may not be able to access your money.
    - frollo 4y ago
      Heck, I don't think I'd manage to have $250k in liquidity in my whole life and this is my standard operating procedure for my money. You never know when some weird, once-in-a-lifetime stuff is going to hit your bank. Learned the lesson the hard way when I ended up stranded in the middle of nowhere without a working debit card for a damned IT outage.
      - pclmulqdq 4y ago
        Yeah, this is why my personal money is split between 4 banks, I make sure to have Visa and Mastercard, etc. I have seen bank computer outages, fraud, and other stupid shit that shuts part of the system down, and I want my money to be highly available. There should be no reason not to run a company the same way.
      - acjacobson 4y ago
        I do this too. I've been locked out of a bank account for a week or so because something in their system flagged a review. A tiny blip like that can be really impactful on handling day to day expenses - it makes sense to have a backup.
  - swatcoder 4y ago
    If you only have one payroll in reserve, then you're already living on the edge and hopefully recognize that one rare-but-real bad event could knock you out of the game. If you're lucky, someone might still come in and save you because your loss is a pittance compared to some. Good luck to you. But if you have more than one payroll, then you should consider that bank failures and other risks are part of the system and spread your capital across institutions so that no one failure wipes you out. Risk management and "accountants that hate life" are some of the overhead costs of significant assets.
  - sangnoir 4y ago
    Like every other asset you don't want your business to lose: you shouldn't under-insure bank balances. Sticking to legally mandated minimum insurance unsuited to your enterprise is negligence. When the unimaginable happens, you can easily get bridging finance on the strength of your insurance (if your insurer is not responsive enough for your payroll dates)
  - p_j_w 4y ago
    Then buy more deposit insurance.
    - DennisP 4y ago
      I googled and couldn't find a way to do that. The only options I saw were various way to split funds among multiple banks. Could you tell us where to buy more deposit insurance?
      - p_j_w 4y ago
        If that's even an option then there's no reason to be having this discussion. These companies were irresponsibly putting all of their eggs in one basket and now I'm being asked to bail them out?
      - p_j_w 4y ago
        Also, this: https://www.moneycrashers.com/dif-insurance-massachusetts-depositors-insurance-fund/ https://www.moneycrashers.com/dif-insurance-massachusetts-de...
pclmulqdq 4y ago
The thing is that it's not exactly supposed to be a risk-free endeavor either. No method of storing money is risk-free (particularly not free methods of storing money). There is some tail risk to any use of a bank over the FDIC limit, and everyone who parks a lot of money knows it. It would be reasonable to assume that "Silicon Valley Bank" would be overexposed to market fluctuations in Silicon Valley, just as Silvergate was overexposed to crypto. Big SVB depositors probably won't lose a lot of their money anyway, but they may lose access to it for some time, which is a big deal for a short-term deposit account.
swatcoder 4y ago
The rules of the game are public. As a depositor, you know how much of your deposit is insured and how much is at the mercy of the bank's liquidity and solvency. Your uninsured deposit is a loan to your bank, and the more vulnerable you are to that loan failing, the more scrupulous you should be in choosing the bank you lend it to. Despite a consistent history of periodic busts, the silicon valley culture behaves with absurd optimism. New entrants don't believe that the good times will ever turn and that catastrophic risk is a real thing to attend to, and old hands think they know how to win the hot potato game this time. The potato is getting really hot now, and things will just get worse in the long run if you don't let the community learn that people get burnt and need to be more careful as they play the game.
deleted 4y ago
[deleted]
sangnoir 4y ago
Depositing more money than insured is a risky endeavor! They could have insured thr additional amount beyond the FDIC limit, but chose not to, now they want the government to make them whole.
bcrosby95 4y ago
I don't know if it's quite that simple. My (admittedly newfound) understanding is SVB offered outsized benefits to startups on the condition that you simply bank with them.
aaomidi 4y ago
Let me turn this around: People to folks with student loans: "You know what you were signing up for." Why is it unreasonable to say: "You know that banks only protect up to 250K, why are you surprised? Do better next time." If its reasonable to protect the customers of the bank above what FDIC already does, then I don't wanna hear the same folks complain about loan forgiveness.

jsutton 4y ago

Socializing losses is what enables high risk high reward businesses. Without it, the US wouldn't be half the innovative country it is now.

kennywinker 4y ago
When people complain about privatized profits and socialized losses, usually the part they’re upset about is the privatized profits
- deleted 4y ago
  [deleted]
- drewcoo 4y ago
  citation needed
  - kennywinker 4y ago
    [dead]
inpdx 4y ago
It's not high risk by that definition.
swatcoder 4y ago
If you just keep amplifying volatility by throwing more money onto the table, you will eventually see a bust that sees you leave the casino for a life on the streets. It can look like ratcheting for a while when you've collected a few of big wins, but eventually one of your busts will be so big that it wipes you out entirely. That wouldn't be so great for that country you're talking about.

skippyboxedhero 4y ago

It isn't. Regulators are given a legal responsibility to oversee these institutions because they are (still) essentially trading on govt credit. That is why financial regulations exist: to give people confidence that bank failures won't happen. 95% of people are unable to perform the credit analysis necessary (and some banks don't even report this information publicly) to make lending decisions. And if regulators were unable to perform this kind of analysis in this case, I am not sure why people think savers will be able to. So the way the system works is to accept that these kind of things will not achieve perfect outcomes in every single case, in order to create a system that secures funding for the place that employs you (this is what FDIC is, it is a massive insurance scheme). If you are saying: why don't we have a system in which this doesn't happen? You are saying: why don't we have a system in which the economy is significantly smaller? And btw, in that system you will also never obtain the coveted short-term perfection. And finally, unsecured creditors would be bailed out but shareholders would be written down to zero. I am not really clear if most people actually understand what happened in 2008. One of the narratives is that everyone wealthy got paid out, and things went on as normal...this didn't happen. Your point about "this wouldn't happen if people had the incentive"...okay, did regulators have the incentive? Everyone had the incentive, but sometimes people are wrong.