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Almost all customers of this bank are Silicon Valley tech companies and startups. Some of them will struggle to make payroll in the coming days. Do you really

Almost all customers of this bank are Silicon Valley tech companies and startups. Some of them will struggle to make payroll in the coming days. Do you really think it's sensible to let healthy companies fail and people lose their jobs or keep working without getting paid because other people had to wait far too long to recover their 401k? This logic of equal misery makes no sense to me.

prpl 4y ago
They can get bridge loans or sell their deposit claims at a discount (in exchange for the liquidity), if they didn’t otherwise have supplemental insurance. That’s what’s at stake here, the companies would prefer to have all their money, right now. They could have almost all of their money if they are happy to wait, or they could pay, out of their money, to have their money right now. Don’t fall into the trap of corporate sympathy here, they would not do the same for you.
- fauigerzigerk 4y ago
  >They can get bridge loans Yes, I just worry that some of them might not be able to sort this out quickly enough on their own. Also, the total amount of similarly illiquid government bonds is gigantic after interest rates have shot up so quickly. Let's not make the Lehman mistake again. It's not worth sacrificing the entire economy to ideological sensitivities (on both sides of the political spectrum).
ashwagary 4y ago
>Do you really think it's sensible to let healthy companies fail No but I also dont think its sensible or healthy for tax payers to cover losses incurred through mismanagement of funds for a select class of people. An opportunity was just created for companies willing to take a risk to gain new clients, I think that should be allowed to play out.
- fauigerzigerk 4y ago
  In this particular case tax payers would not have to cover any losses at all. The actual losses are relatively small and depositors can and should be asked to take a haircut if necessary. The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough. In general, I disagree that it is never sensible for tax payers to act as insurance of last resort provided that the insurance premium in the form of business taxes is adequate. It can be the least worst solution for society as a whole in case of a domino effect. But this is not (yet) what's happening here.
  - ashwagary 4y ago
    >The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough. The market already has adequate solutions, while these shortcut intervention ideas have moral hazards. Why cant other companies that see the opportunity take the required risk? There has been a massive inequality exacerbating bull run with record profits but the beneficiaries want to avoid even the slightest downside of that risk-taking. If my understanding is correct, this kind of behavior is trading short term instability for potentially massive long term tail risk.
WkndTriathlete 4y ago
> Almost all customers of this bank are Silicon Valley tech companies and startups. I.e. "high-risk businesses that did not assess the risk of their bank (or banks) properly." That's not a good reason to shift the risk penalty to the taxpayer, IMO.
- fauigerzigerk 4y ago
  Bank balance sheets are very complex. Analysing them is not an expertise that most small businesses have or should have. Banks are heavily regulated. They have to pass stress tests all the time. The regulator is paid for by the taxpayer to stop things like this from happening, but apparently they were asleep at the wheel. Also, helping depositors out of this mess doesn’t necessarily mean that taxpayers lose a cent.

prpl 4y ago

They can get bridge loans or sell their deposit claims at a discount (in exchange for the liquidity), if they didn’t otherwise have supplemental insurance. That’s what’s at stake here, the companies would prefer to have all their money, right now. They could have almost all of their money if they are happy to wait, or they could pay, out of their money, to have their money right now. Don’t fall into the trap of corporate sympathy here, they would not do the same for you.

fauigerzigerk 4y ago
>They can get bridge loans Yes, I just worry that some of them might not be able to sort this out quickly enough on their own. Also, the total amount of similarly illiquid government bonds is gigantic after interest rates have shot up so quickly. Let's not make the Lehman mistake again. It's not worth sacrificing the entire economy to ideological sensitivities (on both sides of the political spectrum).

ashwagary 4y ago

>Do you really think it's sensible to let healthy companies fail No but I also dont think its sensible or healthy for tax payers to cover losses incurred through mismanagement of funds for a select class of people. An opportunity was just created for companies willing to take a risk to gain new clients, I think that should be allowed to play out.

fauigerzigerk 4y ago
In this particular case tax payers would not have to cover any losses at all. The actual losses are relatively small and depositors can and should be asked to take a haircut if necessary. The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough. In general, I disagree that it is never sensible for tax payers to act as insurance of last resort provided that the insurance premium in the form of business taxes is adequate. It can be the least worst solution for society as a whole in case of a domino effect. But this is not (yet) what's happening here.
- ashwagary 4y ago
  >The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough. The market already has adequate solutions, while these shortcut intervention ideas have moral hazards. Why cant other companies that see the opportunity take the required risk? There has been a massive inequality exacerbating bull run with record profits but the beneficiaries want to avoid even the slightest downside of that risk-taking. If my understanding is correct, this kind of behavior is trading short term instability for potentially massive long term tail risk.

WkndTriathlete 4y ago

> Almost all customers of this bank are Silicon Valley tech companies and startups. I.e. "high-risk businesses that did not assess the risk of their bank (or banks) properly." That's not a good reason to shift the risk penalty to the taxpayer, IMO.

fauigerzigerk 4y ago
Bank balance sheets are very complex. Analysing them is not an expertise that most small businesses have or should have. Banks are heavily regulated. They have to pass stress tests all the time. The regulator is paid for by the taxpayer to stop things like this from happening, but apparently they were asleep at the wheel. Also, helping depositors out of this mess doesn’t necessarily mean that taxpayers lose a cent.