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This isn’t nuanced. It’s confused. If startups were going under because it turns out that they were pointless and there was no market, and they ran out of runw

This isn’t nuanced. It’s confused. If startups were going under because it turns out that they were pointless and there was no market, and they ran out of runway… then sure. But this is their house catching on fire and all of their money just vanishing through no fault of their own. It doesn’t distinguish between good startups and dumb ones, real businesses and nonsense — how could you root for this beyond pettiness?

mlyle 4y ago
> But this is their house catching on fire and all of their money just vanishing through no fault of their own. You can choose to hold money in multiple banks. There are services that will happily set up laddered CDs across many institutions for you to diversify exposure and maximize insurance. To use your tortured analogy: if my neighbor's house burned down, and he didn't buy fire insurance... I would be sad, but I don't exactly think it's my problem (or the government's) to pay to make him whole. > If startups were going under because it turns out that they were pointless and there was no market, and they ran out of runway… then sure. I know we all like to believe we control our own destiny. Tiny little inconsequential-seeming choices wobble startups between success and failure every single day. Having a good product is such a tiny piece of it all.
- jagraff 4y ago
  But if your neighbor’s house is currently burning down, you probably want the fire department to put it out before it spreads to your house…
  - Jtsummers 4y ago
    Which is what's being done. Insured amount going out on Monday, dividends based on liquidation of assets going out over time. The fire is being managed, it's not like nothing is happening here. People are just pissed that the government and FDIC are doing what they've said they would do instead of something more, which was never promised.
    - flappyeagle 4y ago
      People are worried about what this means for confidence in regional banks. The prudent thing to do right now is to pull your money out of your regional bank and move it to a GSIB and call it a day. This endangers regional banks and concentrates deposits into the large players. You can stand your moral ground here or you can risk a string of bank runs and systemic collapse. It might not even make a difference anyways with how slow we’ve been to act.
      - mlyle 4y ago
        On the flipside, moral hazard is a real problem too. Setting the precedent that your regional bank can do whatever and you'll be just fine isn't great, either.
  - mlyle 4y ago
    Yup. The federal government should get a dividend out beyond insurance ASAP if the bank is not acquired. They say "next week", but it should really be Monday or Tuesday. And it's OK even to incur a little bit of risk/uncertainty when doing so. But this is different from bailing out all the depositors 100%.
- wrs 4y ago
  I keep seeing this and I’m sorry, it’s just silly. My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. Edit: And the people saying the “CFO” should have done better…at that point, one person is probably still founder, CTO, CHRO, CFO, snack buyer, and janitor combined (been there).
  - MrMan 4y ago
    yes startups are a rickety vessel and they usually fail, we shouldn't pay for that
  - mlyle 4y ago
    > My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. You just ask your bank to place the money using IntraFi. You can get a little more interest by locking up some of the money on a 9-12mo ladder, which makes sense if you have 18 mos of runway. If you have an unanticipated expense or opportunity and need to spend some early, it's a small penalty to get the money out-- usually 6 months of interest, so as long as the probability of having to spend a bunch more is low you're ahead.
    - ithkuil 4y ago
      Sorry, dumb question, I'm just a software engineer: If it's so easy to get it right, why so many companies got it wrong? Could it be because startups don't usually start by hiring people with a lot of expertise in finance?
      - mlyle 4y ago
        I think people mostly just ignored the risk. Venture capitalists provide banking advice to the companies they fund, and this isn't on the list of things most mention. Now we're reminded why it's a best practice. I think it's hubris to think that you can have tens of millions of dollars and can ignore vital things with it (account security, systemic risk from counterparties, etc).
- omginternets 4y ago
  Many did use multiple banks.
  - mlyle 4y ago
    Yup, and presumably they're a lot less worried. :) If you use multiple banks, you have a higher risk of experiencing a bank failure, but it has less of a consequence on your operations, liquidity, and viability if it should happen.
    - closeparen 4y ago
      Even if you have 10 banks, losing 10% of your working capital is a huge deal, no?
      - mlyle 4y ago
        Here, it's more like losing access to the amount of that is above $250k for some time, and maybe losing 5-40% of that amount forever. So, (0.1 * x - 250000) * 0.4. So if you use IntraFi to place across 10 banks, and you have $10M, maybe you lose $300k. It is a risk... but there's plenty of ways to lose a few percent of your working capital that are out of your control. If you want to further reduce the risk, you could do additional things (e.g. buy some T-bills).
    - omginternets 4y ago
      Well, no. My employer for example was banking at SVB and FRB, in no small part because it was difficult for them do bank elsewhere. And there are many others in the same boat.
wpietri 4y ago
> no fault of their own Making bad treasury management decisions is not "no fault of their own". If people want to make the case for a taxpayer bailout, they should start with something like, "Look, we know we fucked up by [not paying attention to something important|taking a risk we thought we could get away with|getting high on our own supply], but we're humbly asking for help." If somebody's house catches fire because they cheaped out on the furnace and the didn't get homeowner's insurance, I'm going to feel bad for them. They have some Kubler-Ross time ahead for sure. But unless they're family, I'm not taking them in.
shadowgovt 4y ago
It's more a demonstration that their house was always built on other people's largesse, and at the whim of those who hold the real power in the system (the money to invest) their opportunities can evaporate. A bank run doesn't happen without individuals deciding to go bearish and concluding that their own big-money dreams are really worth more than whether strangers they haven't met get a paycheck tomorrow. Something we've seen a lot of as of late it seems. Maybe building an entire society on a drastically slanted gap between the wealthiest and the least wealthy is actually super unstable and prone to failure?
dragonwriter 4y ago
> But this is their house catching on fire and all of their money just vanishing through no fault of their own. Inquiry into bank finances, diversification across banks, etc., are all available options. Maintaining large uninsured balances at a single bank without doing those things (or doing the first, but not taking appropriate actions thereafter) is a choice. I am not opposed to reasonable government action to mitigate ripple-effect harms given the externalities, but the idea that the startups involved have no responsibility here is misguided.
- closeparen 4y ago
  >Inquiry into bank finances If only we could centralize the investigation of bank finances and judgement of whether they are healthy enough to use into some sort of agency, staffed by domain experts, with the power to demand relevant documents and shut down unhealthy banks. Nah, that would never work, let's just make it the depositors' responsibility.
  - dragonwriter 4y ago
    “Healthy enough for general use” and “healthy enough for your particular use” are…not necessarily the same.
    - closeparen 4y ago
      Which uses are appropriate at a bank that is about to fail?

mlyle 4y ago

> But this is their house catching on fire and all of their money just vanishing through no fault of their own. You can choose to hold money in multiple banks. There are services that will happily set up laddered CDs across many institutions for you to diversify exposure and maximize insurance. To use your tortured analogy: if my neighbor's house burned down, and he didn't buy fire insurance... I would be sad, but I don't exactly think it's my problem (or the government's) to pay to make him whole. > If startups were going under because it turns out that they were pointless and there was no market, and they ran out of runway… then sure. I know we all like to believe we control our own destiny. Tiny little inconsequential-seeming choices wobble startups between success and failure every single day. Having a good product is such a tiny piece of it all.

jagraff 4y ago
But if your neighbor’s house is currently burning down, you probably want the fire department to put it out before it spreads to your house…
- Jtsummers 4y ago
  Which is what's being done. Insured amount going out on Monday, dividends based on liquidation of assets going out over time. The fire is being managed, it's not like nothing is happening here. People are just pissed that the government and FDIC are doing what they've said they would do instead of something more, which was never promised.
  - flappyeagle 4y ago
    People are worried about what this means for confidence in regional banks. The prudent thing to do right now is to pull your money out of your regional bank and move it to a GSIB and call it a day. This endangers regional banks and concentrates deposits into the large players. You can stand your moral ground here or you can risk a string of bank runs and systemic collapse. It might not even make a difference anyways with how slow we’ve been to act.
    - mlyle 4y ago
      On the flipside, moral hazard is a real problem too. Setting the precedent that your regional bank can do whatever and you'll be just fine isn't great, either.
- mlyle 4y ago
  Yup. The federal government should get a dividend out beyond insurance ASAP if the bank is not acquired. They say "next week", but it should really be Monday or Tuesday. And it's OK even to incur a little bit of risk/uncertainty when doing so. But this is different from bailing out all the depositors 100%.
wrs 4y ago
I keep seeing this and I’m sorry, it’s just silly. My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. Edit: And the people saying the “CFO” should have done better…at that point, one person is probably still founder, CTO, CHRO, CFO, snack buyer, and janitor combined (been there).
- MrMan 4y ago
  yes startups are a rickety vessel and they usually fail, we shouldn't pay for that
- mlyle 4y ago
  > My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. You just ask your bank to place the money using IntraFi. You can get a little more interest by locking up some of the money on a 9-12mo ladder, which makes sense if you have 18 mos of runway. If you have an unanticipated expense or opportunity and need to spend some early, it's a small penalty to get the money out-- usually 6 months of interest, so as long as the probability of having to spend a bunch more is low you're ahead.
  - ithkuil 4y ago
    Sorry, dumb question, I'm just a software engineer: If it's so easy to get it right, why so many companies got it wrong? Could it be because startups don't usually start by hiring people with a lot of expertise in finance?
    - mlyle 4y ago
      I think people mostly just ignored the risk. Venture capitalists provide banking advice to the companies they fund, and this isn't on the list of things most mention. Now we're reminded why it's a best practice. I think it's hubris to think that you can have tens of millions of dollars and can ignore vital things with it (account security, systemic risk from counterparties, etc).
omginternets 4y ago
Many did use multiple banks.
- mlyle 4y ago
  Yup, and presumably they're a lot less worried. :) If you use multiple banks, you have a higher risk of experiencing a bank failure, but it has less of a consequence on your operations, liquidity, and viability if it should happen.
  - closeparen 4y ago
    Even if you have 10 banks, losing 10% of your working capital is a huge deal, no?
    - mlyle 4y ago
      Here, it's more like losing access to the amount of that is above $250k for some time, and maybe losing 5-40% of that amount forever. So, (0.1 * x - 250000) * 0.4. So if you use IntraFi to place across 10 banks, and you have $10M, maybe you lose $300k. It is a risk... but there's plenty of ways to lose a few percent of your working capital that are out of your control. If you want to further reduce the risk, you could do additional things (e.g. buy some T-bills).
  - omginternets 4y ago
    Well, no. My employer for example was banking at SVB and FRB, in no small part because it was difficult for them do bank elsewhere. And there are many others in the same boat.

wpietri 4y ago

> no fault of their own Making bad treasury management decisions is not "no fault of their own". If people want to make the case for a taxpayer bailout, they should start with something like, "Look, we know we fucked up by [not paying attention to something important|taking a risk we thought we could get away with|getting high on our own supply], but we're humbly asking for help." If somebody's house catches fire because they cheaped out on the furnace and the didn't get homeowner's insurance, I'm going to feel bad for them. They have some Kubler-Ross time ahead for sure. But unless they're family, I'm not taking them in.

shadowgovt 4y ago

It's more a demonstration that their house was always built on other people's largesse, and at the whim of those who hold the real power in the system (the money to invest) their opportunities can evaporate. A bank run doesn't happen without individuals deciding to go bearish and concluding that their own big-money dreams are really worth more than whether strangers they haven't met get a paycheck tomorrow. Something we've seen a lot of as of late it seems. Maybe building an entire society on a drastically slanted gap between the wealthiest and the least wealthy is actually super unstable and prone to failure?

dragonwriter 4y ago

> But this is their house catching on fire and all of their money just vanishing through no fault of their own. Inquiry into bank finances, diversification across banks, etc., are all available options. Maintaining large uninsured balances at a single bank without doing those things (or doing the first, but not taking appropriate actions thereafter) is a choice. I am not opposed to reasonable government action to mitigate ripple-effect harms given the externalities, but the idea that the startups involved have no responsibility here is misguided.

closeparen 4y ago
>Inquiry into bank finances If only we could centralize the investigation of bank finances and judgement of whether they are healthy enough to use into some sort of agency, staffed by domain experts, with the power to demand relevant documents and shut down unhealthy banks. Nah, that would never work, let's just make it the depositors' responsibility.
- dragonwriter 4y ago
  “Healthy enough for general use” and “healthy enough for your particular use” are…not necessarily the same.
  - closeparen 4y ago
    Which uses are appropriate at a bank that is about to fail?