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As a long-time tech person and someone who has started multiple companies, including one venture-backed one, I'm happy to explain why I think uninsured deposith

As a long-time tech person and someone who has started multiple companies, including one venture-backed one, I'm happy to explain why I think uninsured depositholders should not have their losses subsidized by taxpayers. One, anybody with a bank account has heard about the FDIC and the FDIC insurance limits. Presumably anybody smart enough to raise millions of dollars know that if part of something is insured, the rest is uninsured. There are in fact good systemic reasons both for the FDIC to exist and for the limit to be high for individuals but low for companies. Two, the tech industry, especially the VC-funded end, is forever crowing about the power of the marketplace. How regulation stifles valuable innovation. How government intervention is a problem, not a solution. Three, among startups, market-driven disruption is practically a religion. Startups destroy existing companies all the time. Quite often it's an explicit goal, where startup X lists existing players A and B as companies whose lunches will get eaten because they are making bad choices. Four, there has been endless puffery and chest-thumping among VCs and tech startups how their genius justifies pocketing billions and billions of dollars when times are good. Best and brightest, incredibly hard workers, blah blah blah. Including a special tax exemption for VCs, because they're just such amazing financial wizards. Five, startup go under all the time. Which, having experienced it, definitely sucks. But when a startup goes under due to bad choices or bad luck, that's the game. So when I put this together, I firmly believe that startups with bad treasury management should not be subsidized by taxpayers. If we're so smart and amazing that we get to reshape segments of the economy, we're smart enough to follow basic financial advice like "don't put all your eggs in one basket". If we choose to play the game that might make us rich, we should not suddenly complain about the rules when we lose. In practice, the likely outcome here is that depositors either take no haircut or a modest one. Anybody going out of business because of that was already on the edge. And that will be partly because their investors will not see them as worthy of a bridge loan or an accelerated next round. Which, again, sucks for the people involved. But it's not a problem for taxpayers to solve. If we're going to spend billions of dollars on improving the safety net, I think startups are way, way down the list of priorities.

nullc 4y ago
> Two, the tech industry, especially the VC-funded end, is forever crowing ... there has been endless puffery and chest-thumping among VCs and tech startups When you find yourself cheering for collective punishment you should know that you are absolutely the bad guy.
- wpietri 4y ago
  I am not in fact arguing for collective punishment. I am arguing for people experiencing the consequences of their choices. The paragraph you quote is about their ardent insistence on being allowed to make those choices without interference.
  - bart_spoon 4y ago
    What choices were made by the thousands of employees who work for the startups who can no longer pay them?
    - wpietri 4y ago
      That looks to be an unlikely scenario, but let's indulge it. Can capitalism be pretty harsh on workers? Sure. 1-2 million people get laid off or let go every month, and it's been that way for a long time: https://fred.stlouisfed.org/series/JTSLDL https://fred.stlouisfed.org/series/JTSLDL Does that suck? Speaking from experience, yes. Should the federal government subsidize startups and/or their funders to save a few thousand jobs? Absolutely not. If we want to spend billions on a better social safety net, let's do it for everybody, not some unprofitable companies whose investors don't see them as worth saving.
    - theGnuMe 4y ago
      ummm.. they chose their employer?
      - wpietri 4y ago
        Normally I'd think that an unfair point. We can't generally expect workers to evaluate the financial soundness of their employers. But we are talking about startups here. Everybody going in knows that most startups fail. Hopefully everybody has an exit plan.
nthngtshr 4y ago
So how did you manage your treasury when you were running your businesses? Did you split it 10 ways? Did you buy t bills?
- wpietri 4y ago
  This was back when A rounds were much more modest in size. We put it in one of the largest and therefore most highly regulated banks, the ones that now have to meet Basel III standards. If we'd had more money, we would have put it in 2 banks. A solution that would have been enough for almost everybody here, as the main thing causing a risk of not making payroll is the way the FDIC is locking up a good chunk of the uninsured funds while they sell off SVB's assets.
hackerlight 4y ago
> bad treasury management There are lots of ways for a startup to die. If you have $2m cash do you really want to manage (2/0.25) bank accounts, adopt all that administrative overhead, just to reduce your probability of death by bank failure, when possibly the added overhead may increase your overall probability of death because now you are distracted and unfocused on the things that are far more likely to kill you? > If we're going to spend billions of dollars on improving the safety net, I think startups are way, way down the list of priorities. This is first order thinking which increases systemic risk by undermining trust. The probability of future bank runs goes up. > Three, among startups, market-driven disruption is practically a religion. Startups destroy existing companies all the time. Quite often it's an explicit goal, where startup X lists existing players A and B as companies whose lunches will get eaten because they are making bad choices. > Four, there has been endless puffery and chest-thumping among VCs and tech startups how their genius justifies pocketing billions and billions of dollars when times are good. Best and brightest, incredibly hard workers, blah blah blah. Including a special tax exemption for VCs, because they're just such amazing financial wizards. You're making broad generalizations about a large group of heterogeneous agents. You're also using language that's full of moral judgement (revenge, disgust) instead of focusing on stuff that matters to the economy or to everyday people. > But it's not a problem for taxpayers to solve. Why not? Taxpayers exist to fund things that are thought to be in the public good. And isn't it a lack of imagination to think that taxpayers are the only way to solve this? What about clawback of executive compensation or shareholder dividends?
- wpietri 4y ago
  I just love that all the people who have discovered treasury management this week think that a) the only way to do that is keep $250k in n accounts, and b) that even if that's what people did, it would be so incredibly burdensome. If startups want to take on bank risk, great. If they don't, also great, and there are many ways for them to do that. They are allowed to manage their risks as they see fit. If they can't, that is not a problem for taxpayers to solve. I get why some people here are pitching "socialism, but only for would-be billionaires", but I promise it's not a winning proposition in the wider world.
  - 4y ago

nullc 4y ago

> Two, the tech industry, especially the VC-funded end, is forever crowing ... there has been endless puffery and chest-thumping among VCs and tech startups When you find yourself cheering for collective punishment you should know that you are absolutely the bad guy.

wpietri 4y ago
I am not in fact arguing for collective punishment. I am arguing for people experiencing the consequences of their choices. The paragraph you quote is about their ardent insistence on being allowed to make those choices without interference.
- bart_spoon 4y ago
  What choices were made by the thousands of employees who work for the startups who can no longer pay them?
  - wpietri 4y ago
    That looks to be an unlikely scenario, but let's indulge it. Can capitalism be pretty harsh on workers? Sure. 1-2 million people get laid off or let go every month, and it's been that way for a long time: https://fred.stlouisfed.org/series/JTSLDL https://fred.stlouisfed.org/series/JTSLDL Does that suck? Speaking from experience, yes. Should the federal government subsidize startups and/or their funders to save a few thousand jobs? Absolutely not. If we want to spend billions on a better social safety net, let's do it for everybody, not some unprofitable companies whose investors don't see them as worth saving.
  - theGnuMe 4y ago
    ummm.. they chose their employer?
    - wpietri 4y ago
      Normally I'd think that an unfair point. We can't generally expect workers to evaluate the financial soundness of their employers. But we are talking about startups here. Everybody going in knows that most startups fail. Hopefully everybody has an exit plan.

nthngtshr 4y ago

So how did you manage your treasury when you were running your businesses? Did you split it 10 ways? Did you buy t bills?

wpietri 4y ago
This was back when A rounds were much more modest in size. We put it in one of the largest and therefore most highly regulated banks, the ones that now have to meet Basel III standards. If we'd had more money, we would have put it in 2 banks. A solution that would have been enough for almost everybody here, as the main thing causing a risk of not making payroll is the way the FDIC is locking up a good chunk of the uninsured funds while they sell off SVB's assets.

hackerlight 4y ago

> bad treasury management There are lots of ways for a startup to die. If you have $2m cash do you really want to manage (2/0.25) bank accounts, adopt all that administrative overhead, just to reduce your probability of death by bank failure, when possibly the added overhead may increase your overall probability of death because now you are distracted and unfocused on the things that are far more likely to kill you? > If we're going to spend billions of dollars on improving the safety net, I think startups are way, way down the list of priorities. This is first order thinking which increases systemic risk by undermining trust. The probability of future bank runs goes up. > Three, among startups, market-driven disruption is practically a religion. Startups destroy existing companies all the time. Quite often it's an explicit goal, where startup X lists existing players A and B as companies whose lunches will get eaten because they are making bad choices. > Four, there has been endless puffery and chest-thumping among VCs and tech startups how their genius justifies pocketing billions and billions of dollars when times are good. Best and brightest, incredibly hard workers, blah blah blah. Including a special tax exemption for VCs, because they're just such amazing financial wizards. You're making broad generalizations about a large group of heterogeneous agents. You're also using language that's full of moral judgement (revenge, disgust) instead of focusing on stuff that matters to the economy or to everyday people. > But it's not a problem for taxpayers to solve. Why not? Taxpayers exist to fund things that are thought to be in the public good. And isn't it a lack of imagination to think that taxpayers are the only way to solve this? What about clawback of executive compensation or shareholder dividends?

wpietri 4y ago
I just love that all the people who have discovered treasury management this week think that a) the only way to do that is keep $250k in n accounts, and b) that even if that's what people did, it would be so incredibly burdensome. If startups want to take on bank risk, great. If they don't, also great, and there are many ways for them to do that. They are allowed to manage their risks as they see fit. If they can't, that is not a problem for taxpayers to solve. I get why some people here are pitching "socialism, but only for would-be billionaires", but I promise it's not a winning proposition in the wider world.
- 4y ago