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SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all
- jefftk 4y agoI wish people would distinguish between "SVB does not deserve a bailout" as in "let it fail" vs as in "wipe out the shareholders and bond holders, but, sure, bail out the depositors"
- Ekaros 4y agoThe situation is that the depositors will eventually get some money. And that should be good enough. If they were so stupid they put all of their money in single bank account they deserve to fail.
- SkyPuncher 4y ago> The situation is that the depositors will eventually get some money. And that should be good enough. No, it's not "good enough". Far too many companies can no longer make payroll as a result of this.
- nytesky 4y agoMy expectations is they will liquidate all current holdings of SVB, and probably half their assets are down 20% because of interest rate pummeling of long dated bonds, so maybe everyone gets a check on Monday or Friday for 90% of their total assets at SVB. Payroll gets made, most companies will be fine, some runways are a wee bit shorter. I think fast is better than perfect in this scenario.
- muzz 4y agoLooks like that's happening: https://www.bloomberg.com/news/articles/2023-03-11/fdic-races-to-start-returning-some-uninsured-svb-deposits-monday https://www.bloomberg.com/news/articles/2023-03-11/fdic-race...
- name-form 4y agoThat is what will happen, and the assets will be liquidated against some depositor holdings.
- HWR_14 4y agoAs I understand it, the FDIC normally steps in early enough that even non-insured accounts get made while.
- theossuary 4y agoNo, it is good enough. They knew the rules going in. No rrason to change them after the fact because it now personally affects them. FDIC will write checks up to 250k, and return any/all recovered funds to depositors. We can discuss changing that moving forward, but SVB is already done and dusted.
- swatcoder 4y agoIf you had a payroll to make this month and only had that much in cash on hand, you were already a marginal business and a gust of wind could have knocked you out. Your bank failing was that gust of wind. You’ll definitely get up to $250k back soon and probably more, and hopefully you can sort out the disruption and find a way to carry on. If, on the other hand, you had a lot more cash on hand but parked it all as uninsured deposits in one bank, you should be screaming at whatever mentor told you that was a reasonable thing to do. Either your mentor was a hack with little financial experience or they were conniving against taxpayers and believed bailouts would magically come to their rescue and remediate well-known tail risk. Somebody done you wrong, kid. Take it up with them, not the rest of us.
- zarzavat 4y agoThe root cause of all of this is that the US is so corrupt that a large bank was able to exempt itself from international banking standards. So it really is “the rest of us” who are to blame, by passively accepting corruption and feckless regulators. Taxpayers should pay the bill, it might incentivize them to get off their ass for once.
- ClumsyPilot 4y ago> Taxpayers should pay the bill, it might incentivize them to get off their ass for once like they did in 2008? I would rather pay off student loans
- jayparth 4y agoWhat happened in 2008? I was very young then so I don’t know.
- paranoidrobot 4y agoThe Global Financial Crisis. https://en.wikipedia.org/wiki/2007%E2%80%932008_financial_crisis https://en.wikipedia.org/wiki/2007%E2%80%932008_financial_cr...
- antibasilisk 4y agoi guess they should have thought of that before they deposited their money into a business that plays games with money to scam wealth out of the economy
- ericb 4y agoI guarantee that you have almost no understanding of whatever the bank you use is really doing. Feel free to point me to the balance sheet, and explain it. Of course, that won't matter because in the event that you can explain it, there's no guarantee you're not being unknowingly defrauded. Save your schadenfreude, it's gross.
- antibasilisk 4y agoWhat I'm saying applies to all banks including the ones I use, not just SVB. I'm fully aware of the fact a significant portion of my money is in the hands of a bunch of coke addicts.
- lovich 4y agoWe already insure 250k in deposits through the FDIC. If you have more than 250k in cash, I don't think its unreasonable to expect that you need to start investing time/money in managing your reserves and not have the rest of society fund the risks you're taking. If companies want to lobby for some sort of tax like unemployment tax on wage labor, to fund a business version of unemployment, it might be a different story.
- hiharryhere 4y ago250k is not a lot. A 15-20 person company could conceivably spend more than that month, especially with dev salaries, rent etc. How many of those have a treasury function?
- nytesky 4y agoThey have to “make payroll” but couldn’t they cut all employees down to minimum wage? And then promise a performance bonus when money is restored and they haven’t quit. Tech workers are usually at will, no union, so I think salary is completely discretionary. This would be for hours going forward, not the payrolls due for hours already worked.
- deleted 4y ago[deleted]
- more_corn 4y agoExactly. SVB has ceased to exist. The bank is not being bailed out. The depositors are. You know, the normal people who’s only error keeping money in a bank.
- youngtaff 4y agoExcept SVB’s customers aren’t “normal people”… they’re VCs, their funds and portfolio companies
- erincandescent 4y ago...portfolio companies which need to make payroll payments to normal people
- youngtaff 4y agoStill doesn’t make the majority of SVB’s customers normal people
- kreutz 4y agoWith thousands of your "normal people" on payroll by proxy.
- youngtaff 4y agoThose normal people still aren't SVB customers… they don't decide where their employer banks or why they bank there Yes, they're exposed to SVB failing but as everything in life we're all exposed to failures we have no influence over VCs, founders etc had influence over where companies money was kept, and ultimately whether to start a run on the bank and kill it
- isitmadeofglass 4y ago[dead]
- helianer 4y agoWhy would they hedge? They would lose pretty much all of the return that they were getting by going long duration. The problem is that their portfolio was too long duration, not a lack of hedging.
- muzz 4y agoRight, the problem was greed driving risk
- zabzonk 4y agoi don't know what the hedge would be, but if they made some return rather than a loss?
- credit_guy 4y ago> Why would they hedge? They would lose pretty much all of the return that they were getting by going long duration. In general you are right. But last year was special. Everyone and their grandmother knew the Fed will hike rates, numerous times. The Fed did not tire to tell that to whomever bothered to listen. Not putting any interest rates hedge on in such a situation sounds a bit crazy.
- helianer 4y agoSure, but they could have sold off a lot of their long term assets earlier instead. To me, the problem was not an outright lack of hedges, rather it was continuing to take too much risk all of the way down. Hedges only make sense to me if they were a cheaper way to achieve the same thing as selling the assets.
- machina_ex_deus 4y agoWhat's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they lose? Let it all fail. If you don't let it fail, might as well go full on CDBC and revoke banks privilege and role in managing money. What's even the point of having banks when the banks don't really hold the risk themselves? Why have them as gatekeepers? They don't deserve a single dollar earned from risk that they don't hold.
- salawat 4y agoBecause: In the United States, banks can empower the government in such a way as to crack down on 'problematic' things without a direct Constitutional crisis. See Bank of America voluntarily handing the FBI their firearm related transaction dataset. Private industry goves government a plausible deniability proxy in short.
- gruez 4y ago> What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. They're not exactly risking nothing. Capital requirements mean that each dollar of deposits need to be backed by more than a dollar worth of assets. The extra assets serves as a cushion in case something goes wrong. That cushion makes up the equity of the bank, and comes from shareholders. If the bank "fails", the shareholders lose it all, so it's in their interest to prevent that from happening.
- machina_ex_deus 4y agoI know how it works. They get 10 to one leverage while the government effectively insures their counterparty risk for free. That's absolutely ridiculous. Where do I sign up. I want to gamble other people money at 10 to one leverage and nobody suing me if I fall. My cushion if I make a margin account at the bank is what, 2 to 1? Do you know the interest rates you pay for these margins? Compare that to interest rates the banks give their customers. They are absolutely privileged, by law. You as an individual or even as a corporation don't get this privilege. Why is it in their interest not to risk it in a ridiculous way? If I had several margin accounts of 10 to 1 that can only go down to zero, the highest return isn't by spending it wisely. It's by spending it in the most risky way, getting that sweet 10x on that risk and the rest can go to zero for all I care. I don't even need a positive expectation value investment to have a positive expectation value from this shenanigan. Even investing in an unfair coin toss of 40% to double, getting free 10 to one margins my expectation value is an absurd 400% return starting from what should be negative expectation value investment. The banks have privileges that are absolutely rigging the game in the most distorted ways possible. The shareholders equity doesn't justify their privileges.
- paxys 4y agoSVB is not getting a bailout. It is dead. Its share price is $0 and all shareholders are walking away with nothing. The government's decision on whether to bail out its depositors or not isn't going to be (and shouldn't be) based on how well the bank was run, especially given that it was fully compliant with all regulations.
- muzz 4y agoDepositors knowingly took the risk of having such large deposits there. They made this decision and should face the consequences of it, not the taxpayers.
- paxys 4y agoThe collapse of the regional banking sector across the country and possibly silicon valley as a whole is going to affect regular taxpayers a lot more than a few billions in temporary spending by the federal government. Doubly so because most of the funds are in risk free securities that can be easily liquidated over time. Remember that SVB is one in a long list of small to mid sized banks that made such investments in the last couple of years and now have to realize losses because of it. If left unchecked plenty more banks are going to have runs next week. The government's job is not to sit by and say "I told you so!" but do the best it can to prevent the iceberg from tipping. People forget that taxpayers made a profit on TARP bailouts and prevented the collapse of the banking system and the economy in doing so.
- say_it_as_it_is 4y agoThere are multiple parties sharing this moral hazard. The group includes captured politicians and administration who have SVB's back and have assured them about bailing out.
- egberts1 4y agoI am kinda shocked that the focus is still on hedging against a 100% singular (riskiest) form of T-bill investing. Shouldn't we be looking at the implementing Basel III capital requirements for ALL financial companies, and not just toward banks (thus exempting non-banks such as SVB)?