4 ms·

I’m worried about setting a precedent that the right thing to do is head to the exits the moment rumors start to circulate. It’s hard to argue now that that was

by paulgb 4y ago

I’m worried about setting a precedent that the right thing to do is head to the exits the moment rumors start to circulate. It’s hard to argue now that that wasn’t the right move for any individual depositor in retrospect. I can easily imagine this being weaponized by short sellers and foreign actors.

itsoktocry 4y ago
>I can easily imagine this being weaponized by short sellers and foreign actors. Hate to break it to you, bank runs have been a thing for hundreds of years. This isn't new. You put your own money at risk by participating. One of Elon's biggest achievements is normalizing demonizing "the shorts". In this case the Bank took took much risk and was insolvent; the shorts would be right.
- warent 4y ago
  demonizing short sellers is nonsense. They help markets correct and they lessen the damage of a crash by slowing the velocity of the drop
  - toss1 4y ago
    Of course demonizing short sellers is nonsense. But if your venture relies on excessively inflated stock values to harvest the capital you want/need, then you really don't want short sellers exposing that discrepancy. So, yes, anyone in that position demonizing short sellers should be pretty much ignored (or taken as a sign that this is a good short oppo). That said, short sellers trying to manipulate the market or stocks can actually do real damage that would not otherwise occur. I see strong indications that Peter Theil is in this category. It looks very much like he made first significant public "Pull Your Money Out!" calls; if he was short SIVB at the time (or had other positions or situations that would gain from SVB's failure), that's very suspicious.
    - sidibe 4y ago
      >(or had other positions or situations that would gain from SVB's failure) Like for example he and all his startups keeping their money while some of their competitors don't? No need for any other bets for a bank run to benefit him
  - corbulo 4y ago
    Thats a really rosy view of shorts. They are much more oppressive than you're painting them.
- macintux 4y ago
  Bank runs have been around, but social media and easy money transfers are much more recent. The U.S. has two major foreign powers and a noisy subset of its own elite who would like to see economic chaos right now, and it's never been easier to do that.
- paulgb 4y ago
  I worked for a long/short fund and am personally (and vocally[1]) short some names. I have nothing against short selling, it’s an important function of healthy markets. To give you an example of what I'm worried about, our accountant cautioned all of their clients yesterday about keeping funds with another bank that has had rumors circulating about it, saying that regardless the truth of the rumors, the fact that they are circulating could cause a run. This is the right thing for them to do; their fiduciary duty is to us and not to the stability of the market, but in aggregate, it's easy to imagine how everyone's accountant sending the same message at the same time could be exploited by someone who wants to destroy a small bank. [1] https://paulbutler.org/2022/the-problem-with-bitcoin-miners/ https://paulbutler.org/2022/the-problem-with-bitcoin-miners/
  - seanmcdirmid 4y ago
    This comes in contrast of what they do in China: rumors are excised from media (including social media) and at best the government coerces certain players to “show patriotic confidence” in the market, and at worst those certain players are given a heads up so they can exit their positions before the scandal breaks. Western investors in these markets can get very confused. Take short seller Andrew Left in Hong Kong who warned of Evergrande being dangerously illiquid in…2016. He was fined and banned from trading by the HK SAR whose judges claimed he didn’t understand the Chinese market well enough. https://en.m.wikipedia.org/wiki/Andrew_Left https://en.m.wikipedia.org/wiki/Andrew_Left
- yieldcrv 4y ago
  demonizing shorts has been a thing for ages too. just obscure.
  - paulgb 4y ago
    Yep. Patrick Byrne of Overstock has been railing against short sellers since at least 2007.
    - hoofhearted 4y ago
      Have you seen what Patrick Byrne has been railing against in the most recent years? Maria Butina really played him and messed him up lol
      - reducesuffering 4y ago
        'Byrne then emerged as a leading figure in promoting conspiracy theories, including the "Deep State" conspiracy theory. In 2020 and 2021, he repeatedly promoted unevidenced claims that Donald Trump had won the 2020 U.S. presidential election due to voter fraud.' involved with... "Maria Butina worked as an assistant for Aleksandr Torshin, a former member of the Federation Council, a member of Vladimir Putin's United Russia party, and a deputy governor of the Central Bank of Russia. In this role, she worked to infiltrate conservative groups in the US, including the National Rifle Association, as part of an effort to promote Russian interests in the 2016 United States presidential election. The Senate Intelligence Committee later concluded that she attempted to persuade the Trump campaign to establish a secret communications back channel with Russia." Two sides of the same coin these days...
  - cryptonector 4y ago
    Before demonizing short sellers was a thing there was demonizing speculators.
frgtpsswrdlame 4y ago
You don't really need precedent, it's just the logical thing to do to get your money out when collapse seems possible. The prisoner's dilemma isn't a dilemma because of 'precedent' or because of arguments, it's just a structural fact.
JumpCrisscross 4y ago
> worried about setting a precedent that the right thing to do is head to the exits the moment rumors start to circulate I’m surprised this is news so recently after a financial crisis. When the CEO of the bank starts pleading for deposits to stay, you wire out.
seanmcdirmid 4y ago
Since when was that not a precedent? Hanging tough fails 9 times out of 10.
collegeburner 4y ago
nope. nuh uh. wrong. the right thing for any individual to do in a potential bank run is always to withdraw. this is basic game theory. you expect someone to take a junk bond level of risk for 0.5% interest? miss me with that there is one possible way to solve the coordination problem: just stop allowing withdrawals. the chinese figured this out. but you have to limit withdrawals on ALL banks because you bet your ass if one bank gets frozen, everyone will think another one is next and run that one too. the only time we've rushed a serious contagion before was by instituting a bank holiday and basically putting in 100% deposit insurance. and that was when we had someone in charge whom most people trusted (FDR). biden, yellen, powell aren't so loved.
- paulgb 4y ago
  Well yeah, everyone is a genius in retrospect. If you know it’s going to be a bank run, you get out. The problem is that by the time you know a bank run is happening it’s probably too late. The logical conclusion of this thinking is a system where any rumor about any bank can cause a bank run, because people who take the time to figure out if the rumors are true lose out.
  - collegeburner 4y ago
    no, a credible rumor that a bank with an odd deposit structure and a hole in its balance sheet causes a bank run. the horror! also, given that the cost to me is negligible, why wouldn't i just pull my money as soon as there were rumors? i get literally 0 benefit but could lose a third of my money if i don't. as for timing... i guess that's the benefit of being terminally online, you get a chance to get out :D
    - paulgb 4y ago
      > also, given that the cost to me is negligible, why wouldn't i just pull my money as soon as there were rumors Right, that’s my point. It doesn’t make sense to try to figure out if the rumors are true, by the time you do it may be too late. This makes sense for you as the individual, but is dangerous for the overall stability of the system.
SkyPuncher 4y ago
I believe SVB is going to be relatively unique. Their deposits were highly concentrated in startups. Startups receive funding from a highly concentrated number of funds. This ends up with an unusual concentration of influence and group-behavior. A very interesting risk in hind-sight, but unlikely to be a wide-spread issue.
- paulgb 4y ago
  I think you’re right from a rational, look-at-the-balance-sheet point of view, but I think that’s less important than it might seem. If people see other people heading to the exit, they don’t have time to look at the balance sheet, they join the stampede. There’s already rumors going around about other banks, and even though I think SVB is a structural outlier, I would be moving money around if I were with them above the FDIC limit, even if I knew for a fact they were solvent.
JumpinJack_Cash 4y ago
> > I can easily imagine this being weaponized by short sellers and foreign actors. There is nothing to weaponize. If we taught the basics of finance everybody would know that the money you have in the bank is not yours but they are a IOU from the bank. And if you wire them out to another account that you hold with another bank that is going to still be an IOU aelbit from a different bank. The only true and true money guaranteed by the Federal Reserve is the Federal Reserve Note. All the rest is an IOU. We accept to deal in IOUs because physical transportation, storage and protection of physical notes would be a nightmare, but still the nightmare can AND WILL show up for somebody randomly in the sample of participants in the form of insolvency of the banking institution issuing their IOUs. It's all very clear and also the reason why some people refuse to deal with banks and opt for cash transactions and metals. Not to mention the hard assets such as water, gasoline, weapons, animals, vehicles, real estate etc. These people seem loons 364 days out of 365, but there is a reason why evoloution put that seed thought inside their brains.

by paulgb 4y ago

itsoktocry 4y ago

>I can easily imagine this being weaponized by short sellers and foreign actors. Hate to break it to you, bank runs have been a thing for hundreds of years. This isn't new. You put your own money at risk by participating. One of Elon's biggest achievements is normalizing demonizing "the shorts". In this case the Bank took took much risk and was insolvent; the shorts would be right.

warent 4y ago
demonizing short sellers is nonsense. They help markets correct and they lessen the damage of a crash by slowing the velocity of the drop
- toss1 4y ago
  Of course demonizing short sellers is nonsense. But if your venture relies on excessively inflated stock values to harvest the capital you want/need, then you really don't want short sellers exposing that discrepancy. So, yes, anyone in that position demonizing short sellers should be pretty much ignored (or taken as a sign that this is a good short oppo). That said, short sellers trying to manipulate the market or stocks can actually do real damage that would not otherwise occur. I see strong indications that Peter Theil is in this category. It looks very much like he made first significant public "Pull Your Money Out!" calls; if he was short SIVB at the time (or had other positions or situations that would gain from SVB's failure), that's very suspicious.
  - sidibe 4y ago
    >(or had other positions or situations that would gain from SVB's failure) Like for example he and all his startups keeping their money while some of their competitors don't? No need for any other bets for a bank run to benefit him
- corbulo 4y ago
  Thats a really rosy view of shorts. They are much more oppressive than you're painting them.
macintux 4y ago
Bank runs have been around, but social media and easy money transfers are much more recent. The U.S. has two major foreign powers and a noisy subset of its own elite who would like to see economic chaos right now, and it's never been easier to do that.
paulgb 4y ago
I worked for a long/short fund and am personally (and vocally[1]) short some names. I have nothing against short selling, it’s an important function of healthy markets. To give you an example of what I'm worried about, our accountant cautioned all of their clients yesterday about keeping funds with another bank that has had rumors circulating about it, saying that regardless the truth of the rumors, the fact that they are circulating could cause a run. This is the right thing for them to do; their fiduciary duty is to us and not to the stability of the market, but in aggregate, it's easy to imagine how everyone's accountant sending the same message at the same time could be exploited by someone who wants to destroy a small bank. [1] https://paulbutler.org/2022/the-problem-with-bitcoin-miners/ https://paulbutler.org/2022/the-problem-with-bitcoin-miners/
- seanmcdirmid 4y ago
  This comes in contrast of what they do in China: rumors are excised from media (including social media) and at best the government coerces certain players to “show patriotic confidence” in the market, and at worst those certain players are given a heads up so they can exit their positions before the scandal breaks. Western investors in these markets can get very confused. Take short seller Andrew Left in Hong Kong who warned of Evergrande being dangerously illiquid in…2016. He was fined and banned from trading by the HK SAR whose judges claimed he didn’t understand the Chinese market well enough. https://en.m.wikipedia.org/wiki/Andrew_Left https://en.m.wikipedia.org/wiki/Andrew_Left
yieldcrv 4y ago
demonizing shorts has been a thing for ages too. just obscure.
- paulgb 4y ago
  Yep. Patrick Byrne of Overstock has been railing against short sellers since at least 2007.
  - hoofhearted 4y ago
    Have you seen what Patrick Byrne has been railing against in the most recent years? Maria Butina really played him and messed him up lol
    - reducesuffering 4y ago
      'Byrne then emerged as a leading figure in promoting conspiracy theories, including the "Deep State" conspiracy theory. In 2020 and 2021, he repeatedly promoted unevidenced claims that Donald Trump had won the 2020 U.S. presidential election due to voter fraud.' involved with... "Maria Butina worked as an assistant for Aleksandr Torshin, a former member of the Federation Council, a member of Vladimir Putin's United Russia party, and a deputy governor of the Central Bank of Russia. In this role, she worked to infiltrate conservative groups in the US, including the National Rifle Association, as part of an effort to promote Russian interests in the 2016 United States presidential election. The Senate Intelligence Committee later concluded that she attempted to persuade the Trump campaign to establish a secret communications back channel with Russia." Two sides of the same coin these days...
- cryptonector 4y ago
  Before demonizing short sellers was a thing there was demonizing speculators.

frgtpsswrdlame 4y ago

You don't really need precedent, it's just the logical thing to do to get your money out when collapse seems possible. The prisoner's dilemma isn't a dilemma because of 'precedent' or because of arguments, it's just a structural fact.

JumpCrisscross 4y ago

> worried about setting a precedent that the right thing to do is head to the exits the moment rumors start to circulate I’m surprised this is news so recently after a financial crisis. When the CEO of the bank starts pleading for deposits to stay, you wire out.

seanmcdirmid 4y ago

Since when was that not a precedent? Hanging tough fails 9 times out of 10.

collegeburner 4y ago

nope. nuh uh. wrong. the right thing for any individual to do in a potential bank run is always to withdraw. this is basic game theory. you expect someone to take a junk bond level of risk for 0.5% interest? miss me with that there is one possible way to solve the coordination problem: just stop allowing withdrawals. the chinese figured this out. but you have to limit withdrawals on ALL banks because you bet your ass if one bank gets frozen, everyone will think another one is next and run that one too. the only time we've rushed a serious contagion before was by instituting a bank holiday and basically putting in 100% deposit insurance. and that was when we had someone in charge whom most people trusted (FDR). biden, yellen, powell aren't so loved.

paulgb 4y ago
Well yeah, everyone is a genius in retrospect. If you know it’s going to be a bank run, you get out. The problem is that by the time you know a bank run is happening it’s probably too late. The logical conclusion of this thinking is a system where any rumor about any bank can cause a bank run, because people who take the time to figure out if the rumors are true lose out.
- collegeburner 4y ago
  no, a credible rumor that a bank with an odd deposit structure and a hole in its balance sheet causes a bank run. the horror! also, given that the cost to me is negligible, why wouldn't i just pull my money as soon as there were rumors? i get literally 0 benefit but could lose a third of my money if i don't. as for timing... i guess that's the benefit of being terminally online, you get a chance to get out :D
  - paulgb 4y ago
    > also, given that the cost to me is negligible, why wouldn't i just pull my money as soon as there were rumors Right, that’s my point. It doesn’t make sense to try to figure out if the rumors are true, by the time you do it may be too late. This makes sense for you as the individual, but is dangerous for the overall stability of the system.

SkyPuncher 4y ago

I believe SVB is going to be relatively unique. Their deposits were highly concentrated in startups. Startups receive funding from a highly concentrated number of funds. This ends up with an unusual concentration of influence and group-behavior. A very interesting risk in hind-sight, but unlikely to be a wide-spread issue.

paulgb 4y ago
I think you’re right from a rational, look-at-the-balance-sheet point of view, but I think that’s less important than it might seem. If people see other people heading to the exit, they don’t have time to look at the balance sheet, they join the stampede. There’s already rumors going around about other banks, and even though I think SVB is a structural outlier, I would be moving money around if I were with them above the FDIC limit, even if I knew for a fact they were solvent.

JumpinJack_Cash 4y ago

> > I can easily imagine this being weaponized by short sellers and foreign actors. There is nothing to weaponize. If we taught the basics of finance everybody would know that the money you have in the bank is not yours but they are a IOU from the bank. And if you wire them out to another account that you hold with another bank that is going to still be an IOU aelbit from a different bank. The only true and true money guaranteed by the Federal Reserve is the Federal Reserve Note. All the rest is an IOU. We accept to deal in IOUs because physical transportation, storage and protection of physical notes would be a nightmare, but still the nightmare can AND WILL show up for somebody randomly in the sample of participants in the form of insolvency of the banking institution issuing their IOUs. It's all very clear and also the reason why some people refuse to deal with banks and opt for cash transactions and metals. Not to mention the hard assets such as water, gasoline, weapons, animals, vehicles, real estate etc. These people seem loons 364 days out of 365, but there is a reason why evoloution put that seed thought inside their brains.