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I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then wha

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.

Rapzid 4y ago
I've coined a new term for this: "All ideology and no idea." It's a the perfect opportunity to be angry at a group; in this case "tech bros", VCs, and anyone attached to Silicon Valley. Hey, it is right there in the name of the bank!
lotsofpulp 4y ago
> “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of their deposits back, because the remaining assets might not cover all of the deposits, or it might take a while to recover the deposits. And that is what people are against.
- nightpool 4y ago
  Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds
  - lotsofpulp 4y ago
    > The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds I wonder why the leaders at JPM did have not announced this yet, to say they are paying 100% book value. Seems like it would let everyone go back to enjoying their weekend, including Yellen and numerous other prominent people.
    - thephyber 4y ago
      Your attitude is flippant and ignores massive risk. Was it meant to be sarcastic? Due diligence. Risk. Opportunity costs. JP Morgan is probably re-evaluating their own assets right now with the assumption that what happened to SVB might happen to them also in a few weeks/months.
  - ptero 4y ago
    I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great! The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.
    - thephyber 4y ago
      You’re missing the point. There’s no need to liquidate the bank or do a fire sale. Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale. Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.
      - ptero 4y ago
        The source of the problem is liquidity, not the problem assets. But providing this liquidity when needed has costs. That money should not have been spent by government. Here is a simpler example: A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan. But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.
- nerdponx 4y ago
  But why? What purpose does that serve? It's hardly even inflationary, the value was basically destroyed, so the Fed conjuring replacement money doesn't seem like such a bad thing. Shareholders will still be taking a major loss, and they are the ones who ought to be held responsible, so it makes sense. You can't fault depositors for not doing thorough diligence on a 40-year-old bank with a good reputation and it doesn't make sense to punish their employees for it, especially in a cooling job market with uncomfortably high inflation.
  - lotsofpulp 4y ago
    Suppose an immigrant is starting a restaurant, and has to pay up front to some suppliers that have been in business for 40 years for kitchen equipment. And the supplier goes out of business, and the money is gone. And the immigrant has no more time or money to hire a lawyer to submit a claim to recover it. Is there a federal bailout waiting for the immigrant? Or the immigrant’s employees who might also be family members? > What purpose does that serve? The purpose is to show we are playing by the same rules. And that somehow, it is not always the poorer, the more uneducated, the ones born to the wrong parents who do not get bailed out.
    - nerdponx 4y ago
      > Is there a federal bailout waiting for the immigrant? Or the immigrant’s employees who might also be family members? Why shouldn't there be? As long as they weren't utterly reckless up to some reasonable standard, IMO they should be. This has the same empty tenor as arguments against student debt relief on whatabout/fairness grounds. > The purpose is to show we are playing by the same rules. And that somehow, it is not always the poorer, the more uneducated, the ones born to the wrong parents who do not get bailed out. Two wrongs don't make a right. I get that you're bitter. So am I. Doesn't mean we need to fuck over a bunch of people who are not at all at fault and possibly trigger systemic economic problems, contagion, recession, etc.
      - deleted 4y ago
        [deleted]
- andrewjl 4y ago
  > And I think the prominent people asking the government to bailout depositors Anyone spouting this kind of rhetoric isn't helping matters, but in any case when it comes to this situation there are really well-defined mechanisms for making depositors whole without bailouts.
Edmond 4y ago
>The government will use the bank assets to make customers, not owners, whole. The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.
- avianlyric 4y ago
  > The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. No, SVB is in receivership because they can make their depositors whole right now. They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands. The feds can take over, make depositors whole now by funding deposits from federal funds, while taking on SVBs assets and liquidating them on a timeline that maximises the value, ideally a value that covers all depositor funds. In effect the feds provide a loan to SVB depositors, backed by SVB assets. Which is far better than either forcing the FDIC to actually payout the insured amount, because depositors get their funds, and the fed avoid having to handover cash to SVB to keep them afloat. Meanwhile shareholders take a bath, because their shareholding value drops to zero.
  - baq 4y ago
    By now all the liquid assets are already sold. The question is what about the loan book. The most interesting development would be FDIC making offers to the top 5 banks which they can’t refuse, which is what I’m personally hoping for.
    - alpineidyll3 4y ago
      In many cases the loans are to depositors (and the debt is questionable). The just thing would be make depositors without debt with svb whole first, ofc there is no system of fairness in finance.
    - arlcode 4y ago
      Can't the federal government simply take the long term t-bills directly and "close" them now at theoretical face value + interest.
koolba 4y ago
> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. > Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs. On the flip side, there's nothing special about many of the customers being small businesses, or startups, or big businesses, or really anything else. There's established rules for FDIC insurance and that's what we should be following.
- imustbeevil 4y ago
  > Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. No. The feds aren't giving anyone fed money, they're selling SVB's assets and giving the people they owe their own money back. There isn't enough money to give everyone 100% back, so they won't be getting 100% back. There's no extra government money making anyone "whole". They're just winding down the assets so they don't all get stolen like FTX.
  - auntienomen 4y ago
    Extra money is precisely what Yellen is proposing. The government will backstop the depositors to prevent a run on every other non-SIFI. This is the right move.
    - belter 4y ago
      Under what regulatory framework?
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maxerickson 4y ago
It's coherent to think the FDIC shouldn't put in more than $250,000 per insured account and also that if funds in excess of that are available without FDIC participation that they should all go to depositors. People implying other things probably don't really understand how banks work.
aaomidi 4y ago
Literally not a single person is suggesting not using the banks existing assets to make depositors true. what we are saying is this should ONLY use the assets SVB has. Nothing more. I’m not sure why y’all keep making a strawman to fight this.
ajross 4y ago
> Generic screeching against the tech world There's some of this, for sure. But there's an equivalent screeching from the tech finance world[1] demanding a full government guarantee. That ain't happening, and I think it's appropriate for the fed to make that clear. FWIW: the dirty secret here is likely that there's a bunch of internal dealing going on as regards SVB. They were The Startup Bank for some reason, it's not random. And my guess is that we'll discover that a whole lot of big venture players turn out to be extremely exposed[2] to an SVB failure. A lot of VCs are probably losing their shirts here. [1] Jason Calacanis's caps lock has been stuck down since Friday. [2] Or worse. Genuine fraud has turned up in previous FDIC seizures. But no evidence exists right now.
- hindsightbias 4y ago
  We need to know who and how much the big fish are exposed. Bailing out the Peter Thiel’s of the world is not something that should be swept under the rug.
  - ajross 4y ago
    Amusingly Thiel himself seems to have been out of SVB. He's being fingered[1] as the "cause" of the bank run and lots of people are asking if he shorted the stock. [1] Somewhat unfairly. I mean, the guy's an outrageous jerk, but from the evidence at hand it genuinely looks like he recognized the problem with their balance sheet before everyone else, got himself out, and told his companies to do the same. And he was right. That's not fraud, that's good faith financial analysis.
- mark_l_watson 4y ago
  I agree with you. I listened to the usually fantastic All In Podcast yesterday. Usually, I find the content very interesting but yesterday I felt like all four of them were all about protecting their little world. To me, it sounds like SVB cut a lot of corners and SV customers enjoyed advantages of some of these cut corners. I am deeply sympathetic to people who may not get paid for a while, or have their startups go under. That said, there are precise laws covering what the FDIC can and can not do. I think the general public is tired of very connected people and companies getting special treatment. There is certainly a danger of contagion, of regional banks taking a hit, by being compared to SVB, but that does not change my opinion, and I certainly will not stop doing business with two relatively small Credit Unions in my state.
fullshark 4y ago
The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.
- Cyph0n 4y ago
  Exactly. Rules for thee but not for me.
  - stanleydrew 4y ago
    The problem is that we don't yet know what the "rules" will be in this case, and a lot of commenters are getting out over their skis assuming that tax money is going to go into the bank accounts of SVB depositors or something similar.
  - bratbag 4y ago
    Different rules for something that could risk systemic failure, more like.
    - dragontamer 4y ago
      We literally have Dodd-Frank rules built up over the last 15 years to prevent these things from becoming a systemic failure. I get that people are still squeamish about 2008. But our banking system is quite different today compared to back then. We built up these rules so that we wouldn't have to bailout banks in these situations anymore. That's what the entire damn point was. If it doesn't work, then it doesn't work. But I for one am more than willing to test out these rules... at least for the next few weeks... to see if they actually work. If they don't work, then we strengthen our regulations over the next 10 years. If they do work, then... success. -------- We absolutely shouldn't just hit the bailout button before understanding this problem. 2008 + Dodd Frank was supposed to prevent this from being a systemic cataclysm. ----------- What probably needs to happen is for Thursday's bank run to be undone. Issue a clawback so that the $46 Billion that escaped on Thursday and punish those who bankrun / collapsed the bank in a panicky stampede. That's far, far more fair than a bailout. Redistribute the money in a more fair way, but accept the risk that SIVB made for itself and its community.
martythemaniak 4y ago
This whole saga has exposed the shocking financial illiteracy in this industry. There are laws and procedures about how to handle the situation. Banks fail all the time and the FDIC disposes of them all the time. Depositors will get their insured money on monday. The FDIC will then dispose of all the banks assets and return the proceeds to its creditors, that is depositors. Calling for the government to guarantee all deposits unconditionally is exactly calling for a bailout. Calling for the government to follow it's own laws and procedures as usual is redundant.
- a13n 4y ago
  Second biggest bank failure in the history of the US requires exceptions to be made due to the sheer volume of companies and assets involved here. We don’t want to erode global trust in US banks and dollars do we?
  - rolandog 4y ago
    Maybe the banks shouldn't be able to lobby for relaxing the regulations without which situations like these arise.
    - a13n 4y ago
      Agreed. Making depositors whole and tightening regulation aren't mutually exclusive.
  - baq 4y ago
    Normally HN has some of the best quality comments on the whole internet but the amount of FUD and just plain wrongness in this topic is surreal. The truth is: the bank’s risk management was done by a couple pigeons: one to peck ‘buy long duration’ and the other to peck ‘approved’. There is no other bank like this. Spillover risk is zero. The folks who are shouting about systemic bank run are talking their books (Ackman please shut up now if you’re reading this)
- senttoschool 4y ago
  You make valid points. I’m not sure why you’re downvoted. I think the question now is whether a bailout would provide better ROI to the US economy than no bailout. Yellen seems to think the ROI is worth it.
tempsy 4y ago
can’t people buy private insurance for their deposits above the $250k threshold? if you buy an expensive house or car you generally pay a lot more to insure that asset. not sure why people don’t think of buying insurance on their bank deposits in the same way if you find yourself in a situation where you need to hold much more than $250k in one account for whatever reason. But even if you’re an individual holding million in cash (and for whatever reason it is not invested), it isn’t exactly difficult to open 10 checking + savings accounts and putting $250k each. In fact that is the prudent thing to do.
- sneak 4y ago
  I am fairly sure that the FDIC does not want people to need private insurance for bank deposits. This is a big sign your banking system sucks and is expected to fail badly at least some of the time, the avoidance of which is why the FDIC exists. And, yes, opening ten checking accounts is difficult and inconvenient.
  - criddell 4y ago
    Then maybe banks should be required to have private insurance for accounts with balances above $250k? More conservative banks would pay very little for insurance while banks that take on more risk would pay more for insurance.
    - dannyw 4y ago
      Who, if not the government with a printing press, can insure nearly all the money in the banking system? Where does it come from?
      - criddell 4y ago
        The government could insure it. The first $250k per depositor is automatically insured and then after that they have to pay premiums per account.
        4y ago
CPLX 4y ago
Perhaps I can address your point about “generic screeching” against the tech world, by noting that the criticism here is often specific and direct. Not generic. The usual suspects have been trying to frame it in terms of the regular old startup workers that will be affected. But what about these entrepreneurs, the taxi drivers who were completely fucked by the onslaught of Uber and Lyft using financial engineering to lose money on each ride and undercut their livelihood: https://www.nytimes.com/2019/12/23/nyregion/nyc-taxi-suicides.html https://www.nytimes.com/2019/12/23/nyregion/nyc-taxi-suicide... Or these ones, who saw VC funded delivery services stealing their tips: https://www.nbcnews.com/business/business-news/why-instacart-doordash-workers-don-t-always-receive-tips-you-n965926 https://www.nbcnews.com/business/business-news/why-instacart... And so on. We would also like to see social media held accountable for the harms done to children and communities and for our existing laws against anti-competitive behavior and collusion to be enforced against search and software platforms. The chutzpah of the Silicon Valley influencer crowd over this weekend has become seriously fucking unbearable. My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk? Many of the people expressing this frustration are in favor of having the government heavily involved in preventing this kind of thing and helping if it ends up happening. But if we’re going to regulate let’s fucking regulate. To the tech people unhappy with screeching my reply is that there is nothing special about your humanity here. Your lives aren’t more important than the lives of the children of employees at the Carrier plant in Indianapolis, or the workers at the Amazon faculty on Staten Island. If your values system only applies to you and your friends it’s not much of a values system.
- thinkmassive 4y ago
  > My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk? Not sure to whom you’re referring, but they’re not libertarians.
  - deleted 4y ago
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  - 4y ago
bradleyjg 4y ago
” Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. If the bank had sufficient assets to make all depositors whole the FDIC wouldn’t have stepped in. It doesn’t. I assume, then, you agree uninsured deposits ought to take a haircut proportional to the shortfall? If so, you have the same position as all the “salty” posters.
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gerad 4y ago
I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of a traditional bank it usually wouldn’t hit them hard since most funds are FDIC insured. I can imagine being incensed about stockholders and debt holders being made whole, if that were to happen - since then people would learn the wrong lesson here. But nobody think that’s going to happen. If depositors aren’t protected, then it’s going to have a lot of downstream impacts (people won’t make payroll, and employees who have no responsibility won’t get paid). And again, it’s not like folks who chose were gambling with a shady bank to get high interest rates, in many ways SVB was considered the least risky and most conservative bank to use as a startup. At least that’s why we chose it.
- rayiner 4y ago
  Why shouldn’t depositors learn a lesson that they should get additional insurance beyond the $250,000?
  - ouid 4y ago
    Being at the top of the line in bankruptcy proceedings is the law. So they shouldn't be generally subject to lessons from the government that go beyond that...
    - Denvercoder9 4y ago
      Nobody is saying that depositors shouldn't be at the top of the line. They're saying that if there's not enough money to pay back even them, the goverment shouldn't jump in to make up the shortfall (beyond the $250K it has insured).
      - ouid 4y ago
        parent comment is in response to OC laying out the standard payment schedule for bankruptcy proceedings...
jmull 4y ago
Hang on... The issue here is not about whether the government should seize SVB assets rather than return them to depositors. Hopefully no one is arguing for that. (The issue is about what the government should do -- if anything -- about (1) shortfalls depositors may face; (2) delays depositors may face in accessing the funds that do remain.)
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idopmstuff 4y ago
I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you own stock in a company that goes bankrupt. Claw back executive pay if that's something you can do. But kill a bunch of startups because of their choice of financial institution? I just don't get where that comes from.
- belter 4y ago
  It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.
  - kemiller 4y ago
    Many were restricted by covenant with their investors to only use SVB.
    - grugagag 4y ago
      Id like to hear more about that.
      - roflyear 4y ago
        I've heard it was mostly they had credit agreements with svb that required them to bank exclusively with svb
        eternalban 4y ago
        Is this correct then? : SVP gives easy credit to VC friends. VC friends use that credit as investment in startups who are told they must use SVP. So money moves from magic-money-printer -> SVP -> VC -> Startup -> SVP. Then SVP takes those deposits and invests it elsewhere. Now they are making money from loan to VC and reinvestment of those same monies that are deposited back. So a bank like SVP seems designed to enable VCs with easy credit to de-facto control an important (and balooning) niche of the economy and by their control over the beauty pageant of which startup idea gets money (and PR) they also control what kind of technology becomes dominant. (For example, these VCs share significant credit/blame for creating the surveillance tech. They share blame for creating an engineering culture that must serve full throttle growth business models. etc.) Is there a social graph of SVP and VCs involved? Are these people pals, friends, "effective" ideologues, etc.?
HervalFreire 4y ago
These are start ups and people with connections to VCs who get free money to do all kinds of moonshot businesses. Start ups are basically pet projects of rich billionaires. The majority of people in the world don't have those connections or opportunities, so there's definitely hate.
HervalFreire 4y ago
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mattkrause 4y ago
Are people seriously arguing for $250k and not a penny more, regardless? I thought the argument some were making is that depositors should be guaranteed up to $250k and then get a proportionate share of whatever’s left (which is not zero!)
chiefalchemist 4y ago
> "This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. From the broader public's perception, you're splitting hairs. The gov - at taxpayer's expense - *are* ______ing* depositors with deposits over $250k. Depositors who are well aware of the limits of what's covered. Depositors with more advisors than most taxpayers have bank accounts. Capable and well educated people made poor decisions. Why is The Nanny State the solution? Again?? * call it what you want, but it's special treatment of the very well to do.
- madamelic 4y ago
  > The gov - at taxpayer's expense - are ______ing* depositors with deposits over $250k. The FDIC isn't funded by the government. FDIC runs and provides this insurance by premiums paid by banks. No taxpayer money is going into SVB. https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp... > The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding. > When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides. We are still currently at "using premiums" and moving into "liquidating bank assets".
  - chiefalchemist 4y ago
    Premiums aren't paid by the banks. The banks aren't printing money. The premiums are paid by those using the bank. The sleight-of-hand wording is great for swaying preception but it an unacceptable deviation from transparency. It's like the saying "...paid for by a grant from the Federal Government..." Nah. It was - one way or another - paid for by taxpayers.
colinprince 4y ago
SVB sought - and received! - reduced scrutiny of the institution, alluding to the “low risk profile of our activities and business model” https://www.theguardian.com/business/2023/mar/11/silicon-valley-bank-weaken-risk-regulations-svb https://www.theguardian.com/business/2023/mar/11/silicon-val... https://archive.is/aSx6E https://archive.is/aSx6E
spaceman_2020 4y ago
Isn’t the entire point of having hundreds of banks the idea that competition will give customers choice, and that they can choose to bank with anyone based on their own risk tolerance?
joseftexas 4y ago
Depositors are consider investors in banks. 250K and below will be insured by Feds. Anything above will be considered like civil forfeiture that will be given to debts with higher seniority. Salary and bonuses of staff will take the highest seniority. Then secured loans. Depositors will likely get a portion of their remaining money just before shareholders. This is very well established principle. You can go checkout how much depositors in Lehman Brothers gotten their money back.
- manuelabeledo 4y ago
  > Depositors are consider investors in banks. This is nowhere near the truth. If it was, then actual shareholders would recover at least $250,000 from their investment. As it stands, shareholders are poised to recover pretty much nothing.
ttsgeysygd 4y ago
FDIC will unfreeze a non trivial amount of depositors funds by Wed or Thursday. They sold a lot of assets Friday. I’m personally not predicting huge job losses. There are lots of war chest sized balances in SVB that it doesn’t matter if they take longer to get made whole. So if they effectively unfreeze say two million per account or 45% whichever is larger on Wed/Thur and then balance in a couple of months I think Job losses will be minimal.
machina_ex_deus 4y ago
Let's stop pretending this bank was an arbitrary choice. This bank was corrupt, it took overblown risks by design for years including even lobbying for lax regulation. The VCs whose money those startups are built upon, have connections to this bank. This entire back acted like some VC venture, with explicit design of taking the risk of zero return. 0 dollars should be given to depositors. Absolutely zero. These griefters learned how to use the common people as meat shields. It's the CFO of Lehman brothers. Let the VCs who supported this lose their investments and be forced to raise money now. If those businesses are worth something, investors will buy them. Let the VCs who gave bad advice be wiped clean from the investment. Their choices led to this.
mlindner 4y ago
There's a middle ground here that few people seem to have. 1. There should be no bailout. 2. The bank had a ton of assets and those assets still belong to the depositors. 3. The depositors shouldn't necessarily be made whole beyond their $250,000 insured amount, but denying them the bank deposits is also wrong. Getting 80 cents on the dollar for their deposits seems completely fine for example, or whatever that number turns out to be based on remaining assets. 4. Nothing is deserved to the bank owners/shareholders. If there happens to be more assets than there was deposits, then this money can go to owners/shareholders.
- theGnuMe 4y ago
  That's how it actually works. The FDIC administers the asset sale.
VLM 4y ago
One of the strangest misconceptions I've seen on HN and in general is some variation on the incorrect theme of "all the money is gone except the FDIC insurance". The last I saw from Moody's was they're expecting "eighty-something" percent recovery rate, assuming no bailout or rule flexibility and no last minute forced merger. This isn't like FTX where all the money is gone and ha ha you're not getting a penny of it back, ever. The SVB situation is a hyper regulated industry and the regulators flipped out when the asset ratio dropped below 95% or something like that, and as such, there will be inevitable expenses of a total shutdown, so figure everyone below $250K gets 100% back via insurance and everyone else gets $250K plus whatever was above $250K paid out at probably around eighty five percent when its all said and done (this is a guess although Moody's usually isn't all that wrong). Historically when smaller banks collapsed (my hometown bank for example back in '08) the regulators semi-forcibly merge the small bank into a large bank and there's zero loss, you're just magically now a customer of some out of town megabank. The big bank eats the loss in a wink-and-nod agreement where the big bank gets some future favorable regulatory treatment in exchange, semi-informally. The problem with SVB is it is, or was, huge. So finding a huger bank to merge with will be tricky to impossible. Which was kind of the point of regulation intended to keep competition higher by making lots of small banks instead of few large ones. The worst case outcome according to the last I saw from Moodys was big depositors will take maybe a fifteen percent haircut over $250K. The propaganda claims, of course, that all the money is gone and its 1933 again on Monday morning and the usual workers of the world unite stuff. But its not really THAT bad. Idle speculation I've seen in chats that the solution to SVB being way too f-ing huge to merge with anyone is a forcible separation followed by a forcible multi-merge. So each 1/4 of you will be new customers with 100% rate of return of JP, BoA, Citi, and WF respectively. (off the top of my head those are the four largest banks by assets, I could be wrong) This is just internet chat nonsense I wouldn't plan on it. Although it is an innovative solution to having a "too big to fail" bank failure.
duxup 4y ago
It also heads off the big risk, additional bank runs. If depositors see strong signs of support they won’t run. They may very well be saving other banks without even having to deal with them with this move. No bank can survive a bank run beyond a certain point.
paulpauper 4y ago
“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. Except shareholders suffered massive or total losses in 2008, such as AIG or Washington Mutual, despite it being a bailout. A bailout means all depositors are made whole, not the shareholders.
- schrodinger 4y ago
  Pretty sure shareholders of bailed-out banks[1] weren't destroyed. For example JPM is up 155% since it's 2007 pre-crash high. That won't be the case for SIVB shareholders. 1: https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#:~:text=Participants,-See%20also%3A%20Supervisory&text=The%20banks%20agreeing%20to%20receive,Mellon%20and%20State%20Street%20Corp https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#....
- zerocrates 4y ago
  WaMu was not a bailout, it was allowed to fail.
Grustaf 4y ago
Financial literacy is very low, also among tech workers. Even most founders only have very vague ideas about how finance works.
mstachowiak 4y ago
Reminds me of Charlie Munger's belief that the world is driven by envy, not greed. https://www.cnbc.com/2022/12/10/billionaire-charlie-munger-world-is-driven-by-envy-not-greed.html https://www.cnbc.com/2022/12/10/billionaire-charlie-munger-w...
norwalkbear 4y ago
It will hurt silicon valley extremely hard. It already is, paychecks won't be coming, trust is gone. Silicon valley was seen as brilliant but now is a joke. Ironically most small to mid non tech businesses will be just fine.
starkd 4y ago
For anyone interested, the All-In podcast did an excellent job covering this on Friday. Particularly, David Sacks stressed this would not be a bailout, but merely backstopping deposits. SVB did nothing illegal or wrong, so it is not an Enron situation. https://www.youtube.com/watch?v=CEee7dAk25c https://www.youtube.com/watch?v=CEee7dAk25c
refulgentis 4y ago
This is facile and representative of so much of the internet. Our ears our closed to each other, we cherry pick the weakest arguments, or ones that aren’t made at all. No one seriously thinks there’s only $250K/client available. People are saying the same thing you are, just gleefully.
Clubber 4y ago
>“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Did the depositors (we're talking companies here) not know that the FDIC limit was $250K? If they did, why didn't they hedge accordingly by opening accounts at other banks? Was this not an unreasonable expectation of a company to do? If I did the same thing, would I expect the government to cover the difference between the asset sale value and the insured amount?
ec109685 4y ago
The flip side is also true: people claiming that unless the government provides a bailout, depositors above 250k will be wiped out. There’s a procedure to handle this, including dispersing the assets: “The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
dantheman 4y ago
Any government money beyond FDIC insured amount is a bailout.
unity1001 4y ago
> make customers, not owners, whole Framing bailout with a different word like 'make whole' does not make it not a bailout. The bank played with those people's deposits and screwed it up. Rescuing all the deposits would just exonerate the bank of all its wrongdoing and set a bad precedent. "There are no repercussions for bad business management". Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware". If you dont agree with that principle, it means that you are not subscribing to capitalism, but to social democracy in which capitalist principles are overridden by socialist principles to protect the public. And the moment you go that way, you open the door for questioning a lot of the setup that rules the modern economy.
- gwright 4y ago
  > Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware". Why do you think that? There is no axiom of "capitalist philosophy" that says "when one party screws up all parties must maximally feel the pain". There is a framework for unwinding these sorts of things. Depositor agreements as well as the relevant regulations and laws regarding business agreements and contracts are all part of the "capitalist philosophy".
  - unity1001 4y ago
    > Why do you think that? There is no axiom of "capitalist philosophy" that says "when one party screws up all parties must maximally feel the pain". That was a capitalist business in which the depositors were LENDERS of that business with the understanding that the business would use their money for profit making activities and give them an interest rate and other returns in the process. Along with whatever investment scheme the bank was providing for its clients. Those depositors could have chosen any bank in the US, and most of them have the power to choose any bank in the planet. But they chose SVB for what it provided. It was a business decision. They chose the highest yields by choosing this risky bank. And now that the risk taking caused a crash and burn, the rest of the public who did not take those risks cannot pay for the sunken bank or its mega depositors. They all took risks, its their burden to bear. Profits cannot be privatized and risk socialized instead. > There is a framework for unwinding these sorts of things. Depositor agreements as well as the relevant regulations and laws regarding business agreements and contracts are all part of the "capitalist philosophy". Precisely. And the limit is $250,000. The government is responsible with bailing out that amount by law. Not the rest. Doing otherwise not only bails out risk taking depositors who took a risk while keeping all the profits - it also reduces SVB's liabilities and risk and props up its value. Its an indirect bank bailout too. Laws and regulations that protect the players in an economy come from socialism. Not capitalism. In capitalism, 'buyer beware' is the rule and those who take risk and screw it up are left to sink with their bad choice. You live in a social democracy created by imposing socialist practices on capitalism. If the laws said that "Up to $1 billion of each depositor account can be bailed out", yes, it could have been done. But it doesnt say that. And any such bail out of such mega deposits by using public money is a middle finger given to everyone who did not take such risks.
sbaiddn 4y ago
Dont confuse the issue. No one has a problem with creditors getting as much of their money as possible by selling assets. The problem is that SVB's book value of assets is far smaller than the debts. Imagine their value on a firesale. the creditors then take a haircut. It's basic bankruptcy. What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money. Some argue, and they have an excellent point that if SVB's creditors aren't bailed out it could trigger a contagion. Thats a formidable risk. However, we already did mass banking sector bailout less than 15 years ago and it turns out all it did was incentivize irresponsible behavior.
- gruez 4y ago
  >What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money. But by not bailing them out, you're punishing the depositors, which I wouldn't exactly characterize as "gambling with the house's money".
  - sbaiddn 4y ago
    If a bank is giving depositors unparalleled benefits to bank with them [1], alarm bells should ring. Let me be blunt. The last place I'd do my personal banking is the local bank of a region who's mantra includes: "move fast and break things". [1] benefits include interest rates above average or offer to finance your start up.
    - gruez 4y ago
      > If a bank is giving depositors unparalleled benefits to bank with them [1], alarm bells should ring. >[1] benefits include interest rates above average or offer to finance your start up. Can you be specific? Which parts of SVB's offerings were suspiciously generous? You mention interest rates, so I checked their archived page as of feb 23 and found that they were offering 4.5% for their money market account. This seems roughly consistent with market offerings[1]. You also mentioned "offer to finance your start up", but is that really supposed to be suspicious? That's literally one of a bank's primary functions. [1] https://www.economy.com/united-states/money-market-rate https://www.economy.com/united-states/money-market-rate >Let me be blunt. The last place I'd do my personal banking is the local bank of a region who's mantra includes: "move fast and break things". This feels like something that's only obvious because of hindsight. You could easily make an equally compelling case that you shouldn't bank with banks from new york, because that's the financial capital of the US, and it's the evil bankers that caused the 2008 financial crises.
ScoobleDoodle 4y ago
Clarifying the answers to the two misconceptions: 1) “Depositors shouldn’t get anything beyond the insured $250,000” and 2) “This is a bailout” FDIC pays out the $250,000 insurance to SVB depositor accounts. FDIC recoups those costs from the SVB assets, and then pays out depositor account holders as much % as possible from liquidating the remaining SVB assets. It sounds like the latter will be disbursed in several increments as the assets are liquidated. All of that assuming no buyer by Monday. If there is anything left after depositors are made while, then that might go to shareholders.
atomicnumber3 4y ago
It's been awful. Everyone on Reddit is so hopelessly confused about the issue that they can't even complain about it right. "No bailouts!" Nobody has been (seriously) talking about them. Shareholders in SVB are toast 100%. Debtors too probably. "We should nationalize banks that fail!" That's basically what receivership is. We just don't call it nationalizing because the government just wants to make depositors whole and then get their hands out of the pie. "We need more (or less) regulation!" The FDIC stepping in right now - where it appears the bank is solvent but can't satisfy liquidity requirements - is exactly when it should. SVB as a business failed but (it appears) depositors are being made whole by the sale of the banks assets. The system appears to have worked while also not cutting the bank prematurely (nobody seems to be complaining that SVB wasnt in major trouble).
stillbourne 4y ago
Isn't you company responsible to insure its own assets above the FDIC deposit limit? I guess personal responsibility only applies to poor people not corporations.
chernevik 4y ago
Much of the "schadenfreude" is backlash at special pleading, distortion of facts and word games. If the tech community reaction was "wow, this sucks, we're going to have to manage a lot of crap" the general reaction would be very sympathetic. But when the consensus position is "gimme money to cover my mistake", I have to say "no" rather than "geez, that's terrible".
pdntspa 4y ago
> to make customers, not owners, whole The entire business world could use a hard lesson here
elevenoh 4y ago
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dragonwriter 4y ago
> “This is a bailout”. It would be if shareholders were to get their money back It would be a bailout of SVB shareholders if shareholders got their money back. But its a bailout of someone in any case.
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yibg 4y ago
One thing I don’t get. People are making a few claims: 1) anything beyond 250k is a known risk, you should’ve spread the money around. 2) why should tax payers be on the hook for more than the 250k amount? The companies took the risk and lost. But if everyone spread their money around and kept each account less than 250k. Then in effect isn’t everyone insured for everything anyways? Imagine there is a service that seamlessly took your total amount and spread it between various accounts for you to keep each account balance less than 250k. Now the totality of bank deposits are in effect all 100% insured. How is this now different from insuring all deposits regardless of size besides adding a middleman?
- chrisbolt 4y ago
  The deposits are spread over a more diversified set of banks and the risk is reduced.
  - yibg 4y ago
    Not for FDIC. 10 people each with 1mm in 10 different banks. If FDIC covers the entire amount when 1 bank fails, they pay 10mm. If all 10 people spread 100k across 10 different banks and 1 bank fails, FDIC pays 100k x 10 which is still 1mm.
- CJefferson 4y ago
  For many people, and companies, there are not enough banks for them to do that.
joe_the_user 4y ago
The financial illiteracy is the most disturbing thing here. Commentator can only rail against "the tech world" in this instance if they've failed to grasp that supporting large depositor here this isn't a tech world issue but a financial system issue. And that goes with a generally decline in how knowledgeable the average HN commentator is. At this point, large bank deposits are implicitly guaranteed and if one pulls that away, the world's financial system would likely fall apart. You can argue this system is terrible and talk about how to change but no one who knows the impact of this stuff want "1929 on steroids" and neither is anyone with power going to implement it.
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braingenious 4y ago
>Depositors shouldn’t get anything beyond the insured $250,000 My understanding of what I’ve seen people mention is that depositors shouldn’t get more than the insured 250k from the FDIC insurance fund, not that bank assets shouldn’t be used to make depositors whole. This sentiment doesn’t come out of nowhere. There have been a few panicked and very angry VCs on social media effectively calling for an immediate and retroactive increase in the limit for FDIC-insured funds. Essentially there are some folks that want the government to step in to make depositors whole will leaving bank assets to be divvied up to make investors whole. Some folks see this crisis and immediately jump to “how can I take maximum personal advantage?” It is those people that are creating confusion and pushback wrt the FDIC’s involvement here.
1vuio0pswjnm7 4y ago
"I get the schaudenfraude, but this will not hurt big tech and VCs and much as tens of thousands of small businesses, and the people employed at them." It's good for those "businesses" if VC and Big Tech are unharmed because were it not for VC investment and Big Tech acquisitions, these "companies" would have no money to pay the people who "work" at them. Legitimate businesses that can pay employees from revenues and generate profits are generally not SVB's customers. They can use normal banks. Arguably a "job" that depends on interest rates being "zero" and investors writing checks cover payroll is not something anyone should be relying on longterm. "Generic screeching against the tech world" is a red herring. Perhaps it is easy for "tech" companies to dish out hype but difficult for them to accept any negative commentary. The question that must be considered is whether the "tech" company's so-called "business model" really is one. Arguably these "companies" never had a successful business model and never found one, if they remain reliant on VC, SVB and Big Tech. Intermediaries, surveillance, data collection, advertising services, all purely parasitic activity. If this is not something the world really needs and is willing to pay for, entities like SVB and their customers will burn out or fade away. Big Tech fans commenting on HN have used the phrase, "The market has spoken" in the past to foreclose any debate on the merits of the so-called "tech" industry. Well, here the market is speaking.
stcredzero 4y ago
"Generic screeching against the tech world." This is why direct democracy can't work for long. The average voter has a hazy and sometimes downright broken model of reality. I don't know how else to describe someone who wants to get back at Facebook by ganking the paycheck of some engineer at a 10 person startup.
lazyeye 4y ago
Think of in terms of the same sneering contempt we've seen from Silicon Valley towards middle America. Except the idea that Silicon Valley taxpayers should contribute to bailing out anyone else would have been seen as laughable, middle America hasn't been earning multiples of Silicon Valley, and middle America hasn't been censoring everybody else, or monetising privacy abuse/destruction of youth mental health on a scale never before seen in human history.
- Apocryphon 4y ago
  “Learn to weld”, is a refrain I’ve heard.
  - lazyeye 4y ago
    Perfect.
rkhacker 4y ago
>“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? To me such statements feel like - either you are with me or against the humanity. Of course, the government should not gobble the money that belongs to the depositors and the fund should be distributed fairly to the depositors post liquidation. But making whole the deposits through the tax payers money will not be right. This is a business failure and what is insured is only what is guaranteed to be paid back. That is the risk business take when they engage in such transactions. Individuals who had more than $250k sitting in bank account must be well-off and prudent enough to decipher the FDIC insurance limit.
deltree7 4y ago
HN has been brainwashed by Progressive Universities and reddit. Period.
analog31 4y ago
Maybe the solution is to explain in plain terms what's going to happen. In other words, how much money there is, where it's coming from, and where it's going. What are these assets? I'm assuming they include the loans that will be called in. When a bank calls in its loans, do they have immediate access to the money, or do the customers in turn have to sell their own assets to pay back the loans? On the other hand, if the bank had sufficient assets to make their depositors whole, how did they fail in the first place?
twblalock 4y ago
Seriously, it’s like a lot of people think the depositors should only get back $250k, and giving them back what remains of the rest of their money is a bailout. It’s not, it’s what the FDIC always does.
gnulinux 4y ago
> Appropriate them, and leave small and mid businesses hanged to dry? Yes this is exactly what I support should happen. The remaining assets can of course be used towards depositors (even beyond $250k FDIC insure). But beyond that, tough luck. In our American systems thousands, millions of people and small businesses fail and the answer is "tough luck". Their failure is too small for anyone to care. But when big banks fail government helps them, which is how this is seen as. If you have more than $250k in a bank account sitting somewhere, you're objective not destitute and you objectively do not need tax money to help you out any further. So, yes "tough luck". This is not depositors fault, but it's also not tax payers fault. A bailout is a bailout. If depositors are bailed out, it is still a bailout.
boh 4y ago
Uninsured assets are what they sound like: uninsured. That's why companies typically hold a minimum amount of their assets as cash, and the cash they do hold isn't typically concentrated in one place. Credit risk is a huge aspect of financial management. If you don't manage risk you get losses. The "small business" sympathy campaign is typical of situations like these (pretty much touted in every bank failure) to justify public spending for private losses. The public doesn't get profit from company risk (particularly for tax dodging/low employment tech companies), it should not be expected to take the losses.
3np 4y ago
The word "bailout" is a distraction and red herring. For example, FT and Yellen use it as a weasel word here. I notice several articles and threads derailing into conflations of semantic arguments around what a bailout is with specifics of the topic. This is a trend (and, I suspect, tactic) on other topics and it only serves polarization. Try to not fall into this trap. It can be possible to call it out in a way which does not further derail the conversation. (Saying it's a trend does not mean it's merely a recent thing BTW) https://en.wikipedia.org/wiki/Weasel_word https://en.wikipedia.org/wiki/Weasel_word https://en.wikipedia.org/wiki/Equivocation https://en.wikipedia.org/wiki/Equivocation https://en.wikipedia.org/wiki/Essentially_contested_concept https://en.wikipedia.org/wiki/Essentially_contested_concept https://en.wikipedia.org/wiki/Persuasive_definition https://en.wikipedia.org/wiki/Persuasive_definition Whether the statement "this is a bailout" is true or not is actually irrelevant.
NDizzle 4y ago
Please explain why Roku had half a billion dollars sitting in a checking account and how we rectify that, and 119.5 billion other problems, without yet more money printing that affects everyone. Move fast and break things, banking edition. Can I sign something somewhere to opt out of responsibility for these kind of things?

Rapzid 4y ago

I've coined a new term for this: "All ideology and no idea." It's a the perfect opportunity to be angry at a group; in this case "tech bros", VCs, and anyone attached to Silicon Valley. Hey, it is right there in the name of the bank!

lotsofpulp 4y ago

> “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of their deposits back, because the remaining assets might not cover all of the deposits, or it might take a while to recover the deposits. And that is what people are against.

nightpool 4y ago
Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds
- lotsofpulp 4y ago
  > The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds I wonder why the leaders at JPM did have not announced this yet, to say they are paying 100% book value. Seems like it would let everyone go back to enjoying their weekend, including Yellen and numerous other prominent people.
  - thephyber 4y ago
    Your attitude is flippant and ignores massive risk. Was it meant to be sarcastic? Due diligence. Risk. Opportunity costs. JP Morgan is probably re-evaluating their own assets right now with the assumption that what happened to SVB might happen to them also in a few weeks/months.
- ptero 4y ago
  I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great! The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.
  - thephyber 4y ago
    You’re missing the point. There’s no need to liquidate the bank or do a fire sale. Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale. Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.
    - ptero 4y ago
      The source of the problem is liquidity, not the problem assets. But providing this liquidity when needed has costs. That money should not have been spent by government. Here is a simpler example: A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan. But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.
nerdponx 4y ago
But why? What purpose does that serve? It's hardly even inflationary, the value was basically destroyed, so the Fed conjuring replacement money doesn't seem like such a bad thing. Shareholders will still be taking a major loss, and they are the ones who ought to be held responsible, so it makes sense. You can't fault depositors for not doing thorough diligence on a 40-year-old bank with a good reputation and it doesn't make sense to punish their employees for it, especially in a cooling job market with uncomfortably high inflation.
- lotsofpulp 4y ago
  Suppose an immigrant is starting a restaurant, and has to pay up front to some suppliers that have been in business for 40 years for kitchen equipment. And the supplier goes out of business, and the money is gone. And the immigrant has no more time or money to hire a lawyer to submit a claim to recover it. Is there a federal bailout waiting for the immigrant? Or the immigrant’s employees who might also be family members? > What purpose does that serve? The purpose is to show we are playing by the same rules. And that somehow, it is not always the poorer, the more uneducated, the ones born to the wrong parents who do not get bailed out.
  - nerdponx 4y ago
    > Is there a federal bailout waiting for the immigrant? Or the immigrant’s employees who might also be family members? Why shouldn't there be? As long as they weren't utterly reckless up to some reasonable standard, IMO they should be. This has the same empty tenor as arguments against student debt relief on whatabout/fairness grounds. > The purpose is to show we are playing by the same rules. And that somehow, it is not always the poorer, the more uneducated, the ones born to the wrong parents who do not get bailed out. Two wrongs don't make a right. I get that you're bitter. So am I. Doesn't mean we need to fuck over a bunch of people who are not at all at fault and possibly trigger systemic economic problems, contagion, recession, etc.
    - deleted 4y ago
      [deleted]
andrewjl 4y ago
> And I think the prominent people asking the government to bailout depositors Anyone spouting this kind of rhetoric isn't helping matters, but in any case when it comes to this situation there are really well-defined mechanisms for making depositors whole without bailouts.

Edmond 4y ago

>The government will use the bank assets to make customers, not owners, whole. The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.

avianlyric 4y ago
> The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. No, SVB is in receivership because they can make their depositors whole right now. They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands. The feds can take over, make depositors whole now by funding deposits from federal funds, while taking on SVBs assets and liquidating them on a timeline that maximises the value, ideally a value that covers all depositor funds. In effect the feds provide a loan to SVB depositors, backed by SVB assets. Which is far better than either forcing the FDIC to actually payout the insured amount, because depositors get their funds, and the fed avoid having to handover cash to SVB to keep them afloat. Meanwhile shareholders take a bath, because their shareholding value drops to zero.
- baq 4y ago
  By now all the liquid assets are already sold. The question is what about the loan book. The most interesting development would be FDIC making offers to the top 5 banks which they can’t refuse, which is what I’m personally hoping for.
  - alpineidyll3 4y ago
    In many cases the loans are to depositors (and the debt is questionable). The just thing would be make depositors without debt with svb whole first, ofc there is no system of fairness in finance.
  - arlcode 4y ago
    Can't the federal government simply take the long term t-bills directly and "close" them now at theoretical face value + interest.

koolba 4y ago

> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. > Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs. On the flip side, there's nothing special about many of the customers being small businesses, or startups, or big businesses, or really anything else. There's established rules for FDIC insurance and that's what we should be following.

imustbeevil 4y ago
> Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. No. The feds aren't giving anyone fed money, they're selling SVB's assets and giving the people they owe their own money back. There isn't enough money to give everyone 100% back, so they won't be getting 100% back. There's no extra government money making anyone "whole". They're just winding down the assets so they don't all get stolen like FTX.
- auntienomen 4y ago
  Extra money is precisely what Yellen is proposing. The government will backstop the depositors to prevent a run on every other non-SIFI. This is the right move.
  - belter 4y ago
    Under what regulatory framework?

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maxerickson 4y ago

It's coherent to think the FDIC shouldn't put in more than $250,000 per insured account and also that if funds in excess of that are available without FDIC participation that they should all go to depositors. People implying other things probably don't really understand how banks work.

aaomidi 4y ago

Literally not a single person is suggesting not using the banks existing assets to make depositors true. what we are saying is this should ONLY use the assets SVB has. Nothing more. I’m not sure why y’all keep making a strawman to fight this.

ajross 4y ago

> Generic screeching against the tech world There's some of this, for sure. But there's an equivalent screeching from the tech finance world[1] demanding a full government guarantee. That ain't happening, and I think it's appropriate for the fed to make that clear. FWIW: the dirty secret here is likely that there's a bunch of internal dealing going on as regards SVB. They were The Startup Bank for some reason, it's not random. And my guess is that we'll discover that a whole lot of big venture players turn out to be extremely exposed[2] to an SVB failure. A lot of VCs are probably losing their shirts here. [1] Jason Calacanis's caps lock has been stuck down since Friday. [2] Or worse. Genuine fraud has turned up in previous FDIC seizures. But no evidence exists right now.

hindsightbias 4y ago
We need to know who and how much the big fish are exposed. Bailing out the Peter Thiel’s of the world is not something that should be swept under the rug.
- ajross 4y ago
  Amusingly Thiel himself seems to have been out of SVB. He's being fingered[1] as the "cause" of the bank run and lots of people are asking if he shorted the stock. [1] Somewhat unfairly. I mean, the guy's an outrageous jerk, but from the evidence at hand it genuinely looks like he recognized the problem with their balance sheet before everyone else, got himself out, and told his companies to do the same. And he was right. That's not fraud, that's good faith financial analysis.
mark_l_watson 4y ago
I agree with you. I listened to the usually fantastic All In Podcast yesterday. Usually, I find the content very interesting but yesterday I felt like all four of them were all about protecting their little world. To me, it sounds like SVB cut a lot of corners and SV customers enjoyed advantages of some of these cut corners. I am deeply sympathetic to people who may not get paid for a while, or have their startups go under. That said, there are precise laws covering what the FDIC can and can not do. I think the general public is tired of very connected people and companies getting special treatment. There is certainly a danger of contagion, of regional banks taking a hit, by being compared to SVB, but that does not change my opinion, and I certainly will not stop doing business with two relatively small Credit Unions in my state.

fullshark 4y ago

The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.

Cyph0n 4y ago
Exactly. Rules for thee but not for me.
- stanleydrew 4y ago
  The problem is that we don't yet know what the "rules" will be in this case, and a lot of commenters are getting out over their skis assuming that tax money is going to go into the bank accounts of SVB depositors or something similar.
- bratbag 4y ago
  Different rules for something that could risk systemic failure, more like.
  - dragontamer 4y ago
    We literally have Dodd-Frank rules built up over the last 15 years to prevent these things from becoming a systemic failure. I get that people are still squeamish about 2008. But our banking system is quite different today compared to back then. We built up these rules so that we wouldn't have to bailout banks in these situations anymore. That's what the entire damn point was. If it doesn't work, then it doesn't work. But I for one am more than willing to test out these rules... at least for the next few weeks... to see if they actually work. If they don't work, then we strengthen our regulations over the next 10 years. If they do work, then... success. -------- We absolutely shouldn't just hit the bailout button before understanding this problem. 2008 + Dodd Frank was supposed to prevent this from being a systemic cataclysm. ----------- What probably needs to happen is for Thursday's bank run to be undone. Issue a clawback so that the $46 Billion that escaped on Thursday and punish those who bankrun / collapsed the bank in a panicky stampede. That's far, far more fair than a bailout. Redistribute the money in a more fair way, but accept the risk that SIVB made for itself and its community.

martythemaniak 4y ago

This whole saga has exposed the shocking financial illiteracy in this industry. There are laws and procedures about how to handle the situation. Banks fail all the time and the FDIC disposes of them all the time. Depositors will get their insured money on monday. The FDIC will then dispose of all the banks assets and return the proceeds to its creditors, that is depositors. Calling for the government to guarantee all deposits unconditionally is exactly calling for a bailout. Calling for the government to follow it's own laws and procedures as usual is redundant.

a13n 4y ago
Second biggest bank failure in the history of the US requires exceptions to be made due to the sheer volume of companies and assets involved here. We don’t want to erode global trust in US banks and dollars do we?
- rolandog 4y ago
  Maybe the banks shouldn't be able to lobby for relaxing the regulations without which situations like these arise.
  - a13n 4y ago
    Agreed. Making depositors whole and tightening regulation aren't mutually exclusive.
- baq 4y ago
  Normally HN has some of the best quality comments on the whole internet but the amount of FUD and just plain wrongness in this topic is surreal. The truth is: the bank’s risk management was done by a couple pigeons: one to peck ‘buy long duration’ and the other to peck ‘approved’. There is no other bank like this. Spillover risk is zero. The folks who are shouting about systemic bank run are talking their books (Ackman please shut up now if you’re reading this)
senttoschool 4y ago
You make valid points. I’m not sure why you’re downvoted. I think the question now is whether a bailout would provide better ROI to the US economy than no bailout. Yellen seems to think the ROI is worth it.

tempsy 4y ago

can’t people buy private insurance for their deposits above the $250k threshold? if you buy an expensive house or car you generally pay a lot more to insure that asset. not sure why people don’t think of buying insurance on their bank deposits in the same way if you find yourself in a situation where you need to hold much more than $250k in one account for whatever reason. But even if you’re an individual holding million in cash (and for whatever reason it is not invested), it isn’t exactly difficult to open 10 checking + savings accounts and putting $250k each. In fact that is the prudent thing to do.

sneak 4y ago
I am fairly sure that the FDIC does not want people to need private insurance for bank deposits. This is a big sign your banking system sucks and is expected to fail badly at least some of the time, the avoidance of which is why the FDIC exists. And, yes, opening ten checking accounts is difficult and inconvenient.
- criddell 4y ago
  Then maybe banks should be required to have private insurance for accounts with balances above $250k? More conservative banks would pay very little for insurance while banks that take on more risk would pay more for insurance.
  - dannyw 4y ago
    Who, if not the government with a printing press, can insure nearly all the money in the banking system? Where does it come from?
    - criddell 4y ago
      The government could insure it. The first $250k per depositor is automatically insured and then after that they have to pay premiums per account.
      - 4y ago

CPLX 4y ago

Perhaps I can address your point about “generic screeching” against the tech world, by noting that the criticism here is often specific and direct. Not generic. The usual suspects have been trying to frame it in terms of the regular old startup workers that will be affected. But what about these entrepreneurs, the taxi drivers who were completely fucked by the onslaught of Uber and Lyft using financial engineering to lose money on each ride and undercut their livelihood: https://www.nytimes.com/2019/12/23/nyregion/nyc-taxi-suicides.html https://www.nytimes.com/2019/12/23/nyregion/nyc-taxi-suicide... Or these ones, who saw VC funded delivery services stealing their tips: https://www.nbcnews.com/business/business-news/why-instacart-doordash-workers-don-t-always-receive-tips-you-n965926 https://www.nbcnews.com/business/business-news/why-instacart... And so on. We would also like to see social media held accountable for the harms done to children and communities and for our existing laws against anti-competitive behavior and collusion to be enforced against search and software platforms. The chutzpah of the Silicon Valley influencer crowd over this weekend has become seriously fucking unbearable. My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk? Many of the people expressing this frustration are in favor of having the government heavily involved in preventing this kind of thing and helping if it ends up happening. But if we’re going to regulate let’s fucking regulate. To the tech people unhappy with screeching my reply is that there is nothing special about your humanity here. Your lives aren’t more important than the lives of the children of employees at the Carrier plant in Indianapolis, or the workers at the Amazon faculty on Staten Island. If your values system only applies to you and your friends it’s not much of a values system.

thinkmassive 4y ago
> My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk? Not sure to whom you’re referring, but they’re not libertarians.
- deleted 4y ago
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bradleyjg 4y ago

” Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. If the bank had sufficient assets to make all depositors whole the FDIC wouldn’t have stepped in. It doesn’t. I assume, then, you agree uninsured deposits ought to take a haircut proportional to the shortfall? If so, you have the same position as all the “salty” posters.

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gerad 4y ago

I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of a traditional bank it usually wouldn’t hit them hard since most funds are FDIC insured. I can imagine being incensed about stockholders and debt holders being made whole, if that were to happen - since then people would learn the wrong lesson here. But nobody think that’s going to happen. If depositors aren’t protected, then it’s going to have a lot of downstream impacts (people won’t make payroll, and employees who have no responsibility won’t get paid). And again, it’s not like folks who chose were gambling with a shady bank to get high interest rates, in many ways SVB was considered the least risky and most conservative bank to use as a startup. At least that’s why we chose it.

rayiner 4y ago
Why shouldn’t depositors learn a lesson that they should get additional insurance beyond the $250,000?
- ouid 4y ago
  Being at the top of the line in bankruptcy proceedings is the law. So they shouldn't be generally subject to lessons from the government that go beyond that...
  - Denvercoder9 4y ago
    Nobody is saying that depositors shouldn't be at the top of the line. They're saying that if there's not enough money to pay back even them, the goverment shouldn't jump in to make up the shortfall (beyond the $250K it has insured).
    - ouid 4y ago
      parent comment is in response to OC laying out the standard payment schedule for bankruptcy proceedings...

jmull 4y ago

Hang on... The issue here is not about whether the government should seize SVB assets rather than return them to depositors. Hopefully no one is arguing for that. (The issue is about what the government should do -- if anything -- about (1) shortfalls depositors may face; (2) delays depositors may face in accessing the funds that do remain.)

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idopmstuff 4y ago

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you own stock in a company that goes bankrupt. Claw back executive pay if that's something you can do. But kill a bunch of startups because of their choice of financial institution? I just don't get where that comes from.

belter 4y ago
It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.
- kemiller 4y ago
  Many were restricted by covenant with their investors to only use SVB.
  - grugagag 4y ago
    Id like to hear more about that.
    - roflyear 4y ago
      I've heard it was mostly they had credit agreements with svb that required them to bank exclusively with svb
      - eternalban 4y ago
        Is this correct then? : SVP gives easy credit to VC friends. VC friends use that credit as investment in startups who are told they must use SVP. So money moves from magic-money-printer -> SVP -> VC -> Startup -> SVP. Then SVP takes those deposits and invests it elsewhere. Now they are making money from loan to VC and reinvestment of those same monies that are deposited back. So a bank like SVP seems designed to enable VCs with easy credit to de-facto control an important (and balooning) niche of the economy and by their control over the beauty pageant of which startup idea gets money (and PR) they also control what kind of technology becomes dominant. (For example, these VCs share significant credit/blame for creating the surveillance tech. They share blame for creating an engineering culture that must serve full throttle growth business models. etc.) Is there a social graph of SVP and VCs involved? Are these people pals, friends, "effective" ideologues, etc.?

HervalFreire 4y ago

These are start ups and people with connections to VCs who get free money to do all kinds of moonshot businesses. Start ups are basically pet projects of rich billionaires. The majority of people in the world don't have those connections or opportunities, so there's definitely hate.

HervalFreire 4y ago

[dead]

mattkrause 4y ago

Are people seriously arguing for $250k and not a penny more, regardless? I thought the argument some were making is that depositors should be guaranteed up to $250k and then get a proportionate share of whatever’s left (which is not zero!)

chiefalchemist 4y ago

> "This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. From the broader public's perception, you're splitting hairs. The gov - at taxpayer's expense - *are* ______ing* depositors with deposits over $250k. Depositors who are well aware of the limits of what's covered. Depositors with more advisors than most taxpayers have bank accounts. Capable and well educated people made poor decisions. Why is The Nanny State the solution? Again?? * call it what you want, but it's special treatment of the very well to do.

madamelic 4y ago
> The gov - at taxpayer's expense - are ______ing* depositors with deposits over $250k. The FDIC isn't funded by the government. FDIC runs and provides this insurance by premiums paid by banks. No taxpayer money is going into SVB. https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp... > The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding. > When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides. We are still currently at "using premiums" and moving into "liquidating bank assets".
- chiefalchemist 4y ago
  Premiums aren't paid by the banks. The banks aren't printing money. The premiums are paid by those using the bank. The sleight-of-hand wording is great for swaying preception but it an unacceptable deviation from transparency. It's like the saying "...paid for by a grant from the Federal Government..." Nah. It was - one way or another - paid for by taxpayers.

colinprince 4y ago

SVB sought - and received! - reduced scrutiny of the institution, alluding to the “low risk profile of our activities and business model” https://www.theguardian.com/business/2023/mar/11/silicon-valley-bank-weaken-risk-regulations-svb https://www.theguardian.com/business/2023/mar/11/silicon-val... https://archive.is/aSx6E https://archive.is/aSx6E

spaceman_2020 4y ago

Isn’t the entire point of having hundreds of banks the idea that competition will give customers choice, and that they can choose to bank with anyone based on their own risk tolerance?

joseftexas 4y ago

Depositors are consider investors in banks. 250K and below will be insured by Feds. Anything above will be considered like civil forfeiture that will be given to debts with higher seniority. Salary and bonuses of staff will take the highest seniority. Then secured loans. Depositors will likely get a portion of their remaining money just before shareholders. This is very well established principle. You can go checkout how much depositors in Lehman Brothers gotten their money back.

manuelabeledo 4y ago
> Depositors are consider investors in banks. This is nowhere near the truth. If it was, then actual shareholders would recover at least $250,000 from their investment. As it stands, shareholders are poised to recover pretty much nothing.

ttsgeysygd 4y ago

FDIC will unfreeze a non trivial amount of depositors funds by Wed or Thursday. They sold a lot of assets Friday. I’m personally not predicting huge job losses. There are lots of war chest sized balances in SVB that it doesn’t matter if they take longer to get made whole. So if they effectively unfreeze say two million per account or 45% whichever is larger on Wed/Thur and then balance in a couple of months I think Job losses will be minimal.

machina_ex_deus 4y ago

Let's stop pretending this bank was an arbitrary choice. This bank was corrupt, it took overblown risks by design for years including even lobbying for lax regulation. The VCs whose money those startups are built upon, have connections to this bank. This entire back acted like some VC venture, with explicit design of taking the risk of zero return. 0 dollars should be given to depositors. Absolutely zero. These griefters learned how to use the common people as meat shields. It's the CFO of Lehman brothers. Let the VCs who supported this lose their investments and be forced to raise money now. If those businesses are worth something, investors will buy them. Let the VCs who gave bad advice be wiped clean from the investment. Their choices led to this.

mlindner 4y ago

There's a middle ground here that few people seem to have. 1. There should be no bailout. 2. The bank had a ton of assets and those assets still belong to the depositors. 3. The depositors shouldn't necessarily be made whole beyond their $250,000 insured amount, but denying them the bank deposits is also wrong. Getting 80 cents on the dollar for their deposits seems completely fine for example, or whatever that number turns out to be based on remaining assets. 4. Nothing is deserved to the bank owners/shareholders. If there happens to be more assets than there was deposits, then this money can go to owners/shareholders.

theGnuMe 4y ago
That's how it actually works. The FDIC administers the asset sale.

VLM 4y ago

One of the strangest misconceptions I've seen on HN and in general is some variation on the incorrect theme of "all the money is gone except the FDIC insurance". The last I saw from Moody's was they're expecting "eighty-something" percent recovery rate, assuming no bailout or rule flexibility and no last minute forced merger. This isn't like FTX where all the money is gone and ha ha you're not getting a penny of it back, ever. The SVB situation is a hyper regulated industry and the regulators flipped out when the asset ratio dropped below 95% or something like that, and as such, there will be inevitable expenses of a total shutdown, so figure everyone below $250K gets 100% back via insurance and everyone else gets $250K plus whatever was above $250K paid out at probably around eighty five percent when its all said and done (this is a guess although Moody's usually isn't all that wrong). Historically when smaller banks collapsed (my hometown bank for example back in '08) the regulators semi-forcibly merge the small bank into a large bank and there's zero loss, you're just magically now a customer of some out of town megabank. The big bank eats the loss in a wink-and-nod agreement where the big bank gets some future favorable regulatory treatment in exchange, semi-informally. The problem with SVB is it is, or was, huge. So finding a huger bank to merge with will be tricky to impossible. Which was kind of the point of regulation intended to keep competition higher by making lots of small banks instead of few large ones. The worst case outcome according to the last I saw from Moodys was big depositors will take maybe a fifteen percent haircut over $250K. The propaganda claims, of course, that all the money is gone and its 1933 again on Monday morning and the usual workers of the world unite stuff. But its not really THAT bad. Idle speculation I've seen in chats that the solution to SVB being way too f-ing huge to merge with anyone is a forcible separation followed by a forcible multi-merge. So each 1/4 of you will be new customers with 100% rate of return of JP, BoA, Citi, and WF respectively. (off the top of my head those are the four largest banks by assets, I could be wrong) This is just internet chat nonsense I wouldn't plan on it. Although it is an innovative solution to having a "too big to fail" bank failure.

duxup 4y ago

It also heads off the big risk, additional bank runs. If depositors see strong signs of support they won’t run. They may very well be saving other banks without even having to deal with them with this move. No bank can survive a bank run beyond a certain point.

paulpauper 4y ago

“This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole. Except shareholders suffered massive or total losses in 2008, such as AIG or Washington Mutual, despite it being a bailout. A bailout means all depositors are made whole, not the shareholders.

schrodinger 4y ago
Pretty sure shareholders of bailed-out banks[1] weren't destroyed. For example JPM is up 155% since it's 2007 pre-crash high. That won't be the case for SIVB shareholders. 1: https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#:~:text=Participants,-See%20also%3A%20Supervisory&text=The%20banks%20agreeing%20to%20receive,Mellon%20and%20State%20Street%20Corp https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#....
zerocrates 4y ago
WaMu was not a bailout, it was allowed to fail.

Grustaf 4y ago

Financial literacy is very low, also among tech workers. Even most founders only have very vague ideas about how finance works.

mstachowiak 4y ago

Reminds me of Charlie Munger's belief that the world is driven by envy, not greed. https://www.cnbc.com/2022/12/10/billionaire-charlie-munger-world-is-driven-by-envy-not-greed.html https://www.cnbc.com/2022/12/10/billionaire-charlie-munger-w...

norwalkbear 4y ago

It will hurt silicon valley extremely hard. It already is, paychecks won't be coming, trust is gone. Silicon valley was seen as brilliant but now is a joke. Ironically most small to mid non tech businesses will be just fine.

starkd 4y ago

For anyone interested, the All-In podcast did an excellent job covering this on Friday. Particularly, David Sacks stressed this would not be a bailout, but merely backstopping deposits. SVB did nothing illegal or wrong, so it is not an Enron situation. https://www.youtube.com/watch?v=CEee7dAk25c https://www.youtube.com/watch?v=CEee7dAk25c

refulgentis 4y ago

This is facile and representative of so much of the internet. Our ears our closed to each other, we cherry pick the weakest arguments, or ones that aren’t made at all. No one seriously thinks there’s only $250K/client available. People are saying the same thing you are, just gleefully.

Clubber 4y ago

>“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Did the depositors (we're talking companies here) not know that the FDIC limit was $250K? If they did, why didn't they hedge accordingly by opening accounts at other banks? Was this not an unreasonable expectation of a company to do? If I did the same thing, would I expect the government to cover the difference between the asset sale value and the insured amount?

ec109685 4y ago

The flip side is also true: people claiming that unless the government provides a bailout, depositors above 250k will be wiped out. There’s a procedure to handle this, including dispersing the assets: “The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”

dantheman 4y ago

Any government money beyond FDIC insured amount is a bailout.

unity1001 4y ago

> make customers, not owners, whole Framing bailout with a different word like 'make whole' does not make it not a bailout. The bank played with those people's deposits and screwed it up. Rescuing all the deposits would just exonerate the bank of all its wrongdoing and set a bad precedent. "There are no repercussions for bad business management". Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware". If you dont agree with that principle, it means that you are not subscribing to capitalism, but to social democracy in which capitalist principles are overridden by socialist principles to protect the public. And the moment you go that way, you open the door for questioning a lot of the setup that rules the modern economy.

gwright 4y ago
> Per capitalist philosophy, the bank should sink, along with whatever deposit was in there - "Buyer beware". Why do you think that? There is no axiom of "capitalist philosophy" that says "when one party screws up all parties must maximally feel the pain". There is a framework for unwinding these sorts of things. Depositor agreements as well as the relevant regulations and laws regarding business agreements and contracts are all part of the "capitalist philosophy".
- unity1001 4y ago
  > Why do you think that? There is no axiom of "capitalist philosophy" that says "when one party screws up all parties must maximally feel the pain". That was a capitalist business in which the depositors were LENDERS of that business with the understanding that the business would use their money for profit making activities and give them an interest rate and other returns in the process. Along with whatever investment scheme the bank was providing for its clients. Those depositors could have chosen any bank in the US, and most of them have the power to choose any bank in the planet. But they chose SVB for what it provided. It was a business decision. They chose the highest yields by choosing this risky bank. And now that the risk taking caused a crash and burn, the rest of the public who did not take those risks cannot pay for the sunken bank or its mega depositors. They all took risks, its their burden to bear. Profits cannot be privatized and risk socialized instead. > There is a framework for unwinding these sorts of things. Depositor agreements as well as the relevant regulations and laws regarding business agreements and contracts are all part of the "capitalist philosophy". Precisely. And the limit is $250,000. The government is responsible with bailing out that amount by law. Not the rest. Doing otherwise not only bails out risk taking depositors who took a risk while keeping all the profits - it also reduces SVB's liabilities and risk and props up its value. Its an indirect bank bailout too. Laws and regulations that protect the players in an economy come from socialism. Not capitalism. In capitalism, 'buyer beware' is the rule and those who take risk and screw it up are left to sink with their bad choice. You live in a social democracy created by imposing socialist practices on capitalism. If the laws said that "Up to $1 billion of each depositor account can be bailed out", yes, it could have been done. But it doesnt say that. And any such bail out of such mega deposits by using public money is a middle finger given to everyone who did not take such risks.

sbaiddn 4y ago

Dont confuse the issue. No one has a problem with creditors getting as much of their money as possible by selling assets. The problem is that SVB's book value of assets is far smaller than the debts. Imagine their value on a firesale. the creditors then take a haircut. It's basic bankruptcy. What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money. Some argue, and they have an excellent point that if SVB's creditors aren't bailed out it could trigger a contagion. Thats a formidable risk. However, we already did mass banking sector bailout less than 15 years ago and it turns out all it did was incentivize irresponsible behavior.

gruez 4y ago
>What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money. But by not bailing them out, you're punishing the depositors, which I wouldn't exactly characterize as "gambling with the house's money".
- sbaiddn 4y ago
  If a bank is giving depositors unparalleled benefits to bank with them [1], alarm bells should ring. Let me be blunt. The last place I'd do my personal banking is the local bank of a region who's mantra includes: "move fast and break things". [1] benefits include interest rates above average or offer to finance your start up.
  - gruez 4y ago
    > If a bank is giving depositors unparalleled benefits to bank with them [1], alarm bells should ring. >[1] benefits include interest rates above average or offer to finance your start up. Can you be specific? Which parts of SVB's offerings were suspiciously generous? You mention interest rates, so I checked their archived page as of feb 23 and found that they were offering 4.5% for their money market account. This seems roughly consistent with market offerings[1]. You also mentioned "offer to finance your start up", but is that really supposed to be suspicious? That's literally one of a bank's primary functions. [1] https://www.economy.com/united-states/money-market-rate https://www.economy.com/united-states/money-market-rate >Let me be blunt. The last place I'd do my personal banking is the local bank of a region who's mantra includes: "move fast and break things". This feels like something that's only obvious because of hindsight. You could easily make an equally compelling case that you shouldn't bank with banks from new york, because that's the financial capital of the US, and it's the evil bankers that caused the 2008 financial crises.

ScoobleDoodle 4y ago

Clarifying the answers to the two misconceptions: 1) “Depositors shouldn’t get anything beyond the insured $250,000” and 2) “This is a bailout” FDIC pays out the $250,000 insurance to SVB depositor accounts. FDIC recoups those costs from the SVB assets, and then pays out depositor account holders as much % as possible from liquidating the remaining SVB assets. It sounds like the latter will be disbursed in several increments as the assets are liquidated. All of that assuming no buyer by Monday. If there is anything left after depositors are made while, then that might go to shareholders.

atomicnumber3 4y ago

It's been awful. Everyone on Reddit is so hopelessly confused about the issue that they can't even complain about it right. "No bailouts!" Nobody has been (seriously) talking about them. Shareholders in SVB are toast 100%. Debtors too probably. "We should nationalize banks that fail!" That's basically what receivership is. We just don't call it nationalizing because the government just wants to make depositors whole and then get their hands out of the pie. "We need more (or less) regulation!" The FDIC stepping in right now - where it appears the bank is solvent but can't satisfy liquidity requirements - is exactly when it should. SVB as a business failed but (it appears) depositors are being made whole by the sale of the banks assets. The system appears to have worked while also not cutting the bank prematurely (nobody seems to be complaining that SVB wasnt in major trouble).

stillbourne 4y ago

Isn't you company responsible to insure its own assets above the FDIC deposit limit? I guess personal responsibility only applies to poor people not corporations.

chernevik 4y ago

Much of the "schadenfreude" is backlash at special pleading, distortion of facts and word games. If the tech community reaction was "wow, this sucks, we're going to have to manage a lot of crap" the general reaction would be very sympathetic. But when the consensus position is "gimme money to cover my mistake", I have to say "no" rather than "geez, that's terrible".

pdntspa 4y ago

> to make customers, not owners, whole The entire business world could use a hard lesson here

elevenoh 4y ago

[dead]

dragonwriter 4y ago

> “This is a bailout”. It would be if shareholders were to get their money back It would be a bailout of SVB shareholders if shareholders got their money back. But its a bailout of someone in any case.

deleted 4y ago

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yibg 4y ago

One thing I don’t get. People are making a few claims: 1) anything beyond 250k is a known risk, you should’ve spread the money around. 2) why should tax payers be on the hook for more than the 250k amount? The companies took the risk and lost. But if everyone spread their money around and kept each account less than 250k. Then in effect isn’t everyone insured for everything anyways? Imagine there is a service that seamlessly took your total amount and spread it between various accounts for you to keep each account balance less than 250k. Now the totality of bank deposits are in effect all 100% insured. How is this now different from insuring all deposits regardless of size besides adding a middleman?

chrisbolt 4y ago
The deposits are spread over a more diversified set of banks and the risk is reduced.
- yibg 4y ago
  Not for FDIC. 10 people each with 1mm in 10 different banks. If FDIC covers the entire amount when 1 bank fails, they pay 10mm. If all 10 people spread 100k across 10 different banks and 1 bank fails, FDIC pays 100k x 10 which is still 1mm.
CJefferson 4y ago
For many people, and companies, there are not enough banks for them to do that.

joe_the_user 4y ago

The financial illiteracy is the most disturbing thing here. Commentator can only rail against "the tech world" in this instance if they've failed to grasp that supporting large depositor here this isn't a tech world issue but a financial system issue. And that goes with a generally decline in how knowledgeable the average HN commentator is. At this point, large bank deposits are implicitly guaranteed and if one pulls that away, the world's financial system would likely fall apart. You can argue this system is terrible and talk about how to change but no one who knows the impact of this stuff want "1929 on steroids" and neither is anyone with power going to implement it.

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braingenious 4y ago

>Depositors shouldn’t get anything beyond the insured $250,000 My understanding of what I’ve seen people mention is that depositors shouldn’t get more than the insured 250k from the FDIC insurance fund, not that bank assets shouldn’t be used to make depositors whole. This sentiment doesn’t come out of nowhere. There have been a few panicked and very angry VCs on social media effectively calling for an immediate and retroactive increase in the limit for FDIC-insured funds. Essentially there are some folks that want the government to step in to make depositors whole will leaving bank assets to be divvied up to make investors whole. Some folks see this crisis and immediately jump to “how can I take maximum personal advantage?” It is those people that are creating confusion and pushback wrt the FDIC’s involvement here.

1vuio0pswjnm7 4y ago

"I get the schaudenfraude, but this will not hurt big tech and VCs and much as tens of thousands of small businesses, and the people employed at them." It's good for those "businesses" if VC and Big Tech are unharmed because were it not for VC investment and Big Tech acquisitions, these "companies" would have no money to pay the people who "work" at them. Legitimate businesses that can pay employees from revenues and generate profits are generally not SVB's customers. They can use normal banks. Arguably a "job" that depends on interest rates being "zero" and investors writing checks cover payroll is not something anyone should be relying on longterm. "Generic screeching against the tech world" is a red herring. Perhaps it is easy for "tech" companies to dish out hype but difficult for them to accept any negative commentary. The question that must be considered is whether the "tech" company's so-called "business model" really is one. Arguably these "companies" never had a successful business model and never found one, if they remain reliant on VC, SVB and Big Tech. Intermediaries, surveillance, data collection, advertising services, all purely parasitic activity. If this is not something the world really needs and is willing to pay for, entities like SVB and their customers will burn out or fade away. Big Tech fans commenting on HN have used the phrase, "The market has spoken" in the past to foreclose any debate on the merits of the so-called "tech" industry. Well, here the market is speaking.

stcredzero 4y ago

"Generic screeching against the tech world." This is why direct democracy can't work for long. The average voter has a hazy and sometimes downright broken model of reality. I don't know how else to describe someone who wants to get back at Facebook by ganking the paycheck of some engineer at a 10 person startup.

lazyeye 4y ago

Think of in terms of the same sneering contempt we've seen from Silicon Valley towards middle America. Except the idea that Silicon Valley taxpayers should contribute to bailing out anyone else would have been seen as laughable, middle America hasn't been earning multiples of Silicon Valley, and middle America hasn't been censoring everybody else, or monetising privacy abuse/destruction of youth mental health on a scale never before seen in human history.

Apocryphon 4y ago
“Learn to weld”, is a refrain I’ve heard.
- lazyeye 4y ago
  Perfect.

rkhacker 4y ago

>“Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? To me such statements feel like - either you are with me or against the humanity. Of course, the government should not gobble the money that belongs to the depositors and the fund should be distributed fairly to the depositors post liquidation. But making whole the deposits through the tax payers money will not be right. This is a business failure and what is insured is only what is guaranteed to be paid back. That is the risk business take when they engage in such transactions. Individuals who had more than $250k sitting in bank account must be well-off and prudent enough to decipher the FDIC insurance limit.

deltree7 4y ago

HN has been brainwashed by Progressive Universities and reddit. Period.

analog31 4y ago

Maybe the solution is to explain in plain terms what's going to happen. In other words, how much money there is, where it's coming from, and where it's going. What are these assets? I'm assuming they include the loans that will be called in. When a bank calls in its loans, do they have immediate access to the money, or do the customers in turn have to sell their own assets to pay back the loans? On the other hand, if the bank had sufficient assets to make their depositors whole, how did they fail in the first place?

twblalock 4y ago

Seriously, it’s like a lot of people think the depositors should only get back $250k, and giving them back what remains of the rest of their money is a bailout. It’s not, it’s what the FDIC always does.

gnulinux 4y ago

> Appropriate them, and leave small and mid businesses hanged to dry? Yes this is exactly what I support should happen. The remaining assets can of course be used towards depositors (even beyond $250k FDIC insure). But beyond that, tough luck. In our American systems thousands, millions of people and small businesses fail and the answer is "tough luck". Their failure is too small for anyone to care. But when big banks fail government helps them, which is how this is seen as. If you have more than $250k in a bank account sitting somewhere, you're objective not destitute and you objectively do not need tax money to help you out any further. So, yes "tough luck". This is not depositors fault, but it's also not tax payers fault. A bailout is a bailout. If depositors are bailed out, it is still a bailout.

boh 4y ago

Uninsured assets are what they sound like: uninsured. That's why companies typically hold a minimum amount of their assets as cash, and the cash they do hold isn't typically concentrated in one place. Credit risk is a huge aspect of financial management. If you don't manage risk you get losses. The "small business" sympathy campaign is typical of situations like these (pretty much touted in every bank failure) to justify public spending for private losses. The public doesn't get profit from company risk (particularly for tax dodging/low employment tech companies), it should not be expected to take the losses.

3np 4y ago

The word "bailout" is a distraction and red herring. For example, FT and Yellen use it as a weasel word here. I notice several articles and threads derailing into conflations of semantic arguments around what a bailout is with specifics of the topic. This is a trend (and, I suspect, tactic) on other topics and it only serves polarization. Try to not fall into this trap. It can be possible to call it out in a way which does not further derail the conversation. (Saying it's a trend does not mean it's merely a recent thing BTW) https://en.wikipedia.org/wiki/Weasel_word https://en.wikipedia.org/wiki/Weasel_word https://en.wikipedia.org/wiki/Equivocation https://en.wikipedia.org/wiki/Equivocation https://en.wikipedia.org/wiki/Essentially_contested_concept https://en.wikipedia.org/wiki/Essentially_contested_concept https://en.wikipedia.org/wiki/Persuasive_definition https://en.wikipedia.org/wiki/Persuasive_definition Whether the statement "this is a bailout" is true or not is actually irrelevant.

NDizzle 4y ago

Please explain why Roku had half a billion dollars sitting in a checking account and how we rectify that, and 119.5 billion other problems, without yet more money printing that affects everyone. Move fast and break things, banking edition. Can I sign something somewhere to opt out of responsibility for these kind of things?