4 ms·

If you're claiming that startups are so systemically important that they need special protection, then you are also saying that they are so systemically dangero

If you're claiming that startups are so systemically important that they need special protection, then you are also saying that they are so systemically dangerous that they need much more aggressive regulation. Is that really what you want?

x0x0 4y ago
That's a very odd way of stating "here's a sector that will be badly hurt if the contents of their checking accounts disappear with an unknown timeline and percentage recovered." By that rubric, you could perfectly well claim that your accountant, laundromat, and lawn care companies are systematically important, because they'd fire their employees if their checking accounts disappeared.
- wpietri 4y ago
  Sure, so I'm saying those things are not systemically vital such that they should be exempt from the consequences of their market choices. You're the one claiming there will be contagion here. I don't think that's the case. If a bunch of unprofitable companies with bad treasury management go under, I think the rest of the economy will be fine. Companies go out of business every day. If you are claiming that tech is somehow special such that contagion will harm the wider economy, as was the case with mortgage-backed securities in 2008, then any taxpayer-funded bailout should be a one-time deal that goes along with enough regulation so that contagion is no longer a risk in the future.
  - x0x0 4y ago
    > You're the one claiming there will be contagion here. In the sense that I never said that, sure. The only thing I claimed, even implicitly, is firing a bunch of people because their employer's cash disappeared would be bad.
    - wpietri 4y ago
      No, you explicitly used the word contagion: "If people get whatever short term vengeance they're looking for, the contagion will cause a whole lot of collateral damage to people who aren't in tech." That has a technical meaning in finance: https://en.wikipedia.org/wiki/Financial_contagion https://en.wikipedia.org/wiki/Financial_contagion
      - x0x0 4y ago
        idopmstuff != x0x0 https://news.ycombinator.com/item?id=35122581 https://news.ycombinator.com/item?id=35122581 I repeat: "In the sense that I never said that, sure."
        wpietri 4y ago
        My apologies; I did confuse the two. In which case, since you're not claiming contagion risk, I return to my previous point that there is no reason for taxpayers to bail out rich people who took a gamble and lost.
  - closeparen 4y ago
    The issue is whether checking accounts at chartered banks are “market choices” for which there should be “consequences.” The banking system is so regulated because when we lived in that world, it was a bad time, and collective action to make banks reliable was in everyone’s interest. If we are back to “stupid depositors deserve what they get” then what exactly is bank regulation for?
    - wpietri 4y ago
      Bank regulation's job is not to create a magic world of unicorns and rainbows. It's to a) keep regular folks from losing their shirts due to the shenanigans of the rich, and b) to prevent systemic risk that could harm the wider economy. Banks make money through risk. Sometimes those risks work out and people make money. Sometimes those risks don't work out and banks fail. This is capitalism 101, and to the extent banks are capitalist enterprises, there's no way around it. Government's job here is just to limit the damage. If you want banks to be perfectly safe, then you are arguing for government-chartered, not-for-profit, non-capitalist banks. These are things that exist, but we don't have them here in the US. We could, if you really want people with millions in cash to have someplace perfectly safe to park their money, you can certainly argue for their creation.
notfromhere 4y ago
If you're a small or medium sized business and you just saw SVB evaporate and depositors take a substantial haircut, why wouldn't you open up an account at JPM on Monday and never again bank at a regional bank of SVB's size? SVB was undone by a bank run, not because they were doing anything particularly risky. Something like 1/4 or 1/3 of all their deposits tried to exit on Thursday - no bank can survive that given how fractional reserve banking works.
- wpietri 4y ago
  If you are a small business who has way more than $250k but only has time to manage one bank account and lack the need for more sophisticated treasury management, then yes, I would absolutely say you should put it in the least risky bank. Or you could take the wild step of not putting all your eggs in one basket. The bank run was the proximate cause of the failure, but they also made some big bets and lost, making them vulnerable to the bank run in the first place.
  - notfromhere 4y ago
    Yes and now think about the implication of all the SMBs flowing their cash out of their regional banks all at once. And if you have anything more than a few employees, you definitely have an account over $250k because that's still an incredibly small business. There's a serious risk of contagion here.
    - wpietri 4y ago
      I understand you have a fear of contagion risk, but I don't see many signs of it. I think this mainly happened because SVB had a depositor base where a big chunk was tightly knit and prone to herd-like behavior. Most companies just aren't a) in the red, b) letting millions in cash sit around, and c) lacking in treasuring management capacity. But if there are a ton of regional banks who took advantage of laxer regulation and had balance sheets in as poor a shape as SVB, then I am fine with some of them failing too. It won't be anywhere near the problem that 2008 or the S&L crisis was, and we'll end up with tighter regulation for those banks next time around.

x0x0 4y ago

That's a very odd way of stating "here's a sector that will be badly hurt if the contents of their checking accounts disappear with an unknown timeline and percentage recovered." By that rubric, you could perfectly well claim that your accountant, laundromat, and lawn care companies are systematically important, because they'd fire their employees if their checking accounts disappeared.

wpietri 4y ago
Sure, so I'm saying those things are not systemically vital such that they should be exempt from the consequences of their market choices. You're the one claiming there will be contagion here. I don't think that's the case. If a bunch of unprofitable companies with bad treasury management go under, I think the rest of the economy will be fine. Companies go out of business every day. If you are claiming that tech is somehow special such that contagion will harm the wider economy, as was the case with mortgage-backed securities in 2008, then any taxpayer-funded bailout should be a one-time deal that goes along with enough regulation so that contagion is no longer a risk in the future.
- x0x0 4y ago
  > You're the one claiming there will be contagion here. In the sense that I never said that, sure. The only thing I claimed, even implicitly, is firing a bunch of people because their employer's cash disappeared would be bad.
  - wpietri 4y ago
    No, you explicitly used the word contagion: "If people get whatever short term vengeance they're looking for, the contagion will cause a whole lot of collateral damage to people who aren't in tech." That has a technical meaning in finance: https://en.wikipedia.org/wiki/Financial_contagion https://en.wikipedia.org/wiki/Financial_contagion
    - x0x0 4y ago
      idopmstuff != x0x0 https://news.ycombinator.com/item?id=35122581 https://news.ycombinator.com/item?id=35122581 I repeat: "In the sense that I never said that, sure."
      - wpietri 4y ago
        My apologies; I did confuse the two. In which case, since you're not claiming contagion risk, I return to my previous point that there is no reason for taxpayers to bail out rich people who took a gamble and lost.
- closeparen 4y ago
  The issue is whether checking accounts at chartered banks are “market choices” for which there should be “consequences.” The banking system is so regulated because when we lived in that world, it was a bad time, and collective action to make banks reliable was in everyone’s interest. If we are back to “stupid depositors deserve what they get” then what exactly is bank regulation for?
  - wpietri 4y ago
    Bank regulation's job is not to create a magic world of unicorns and rainbows. It's to a) keep regular folks from losing their shirts due to the shenanigans of the rich, and b) to prevent systemic risk that could harm the wider economy. Banks make money through risk. Sometimes those risks work out and people make money. Sometimes those risks don't work out and banks fail. This is capitalism 101, and to the extent banks are capitalist enterprises, there's no way around it. Government's job here is just to limit the damage. If you want banks to be perfectly safe, then you are arguing for government-chartered, not-for-profit, non-capitalist banks. These are things that exist, but we don't have them here in the US. We could, if you really want people with millions in cash to have someplace perfectly safe to park their money, you can certainly argue for their creation.

notfromhere 4y ago

If you're a small or medium sized business and you just saw SVB evaporate and depositors take a substantial haircut, why wouldn't you open up an account at JPM on Monday and never again bank at a regional bank of SVB's size? SVB was undone by a bank run, not because they were doing anything particularly risky. Something like 1/4 or 1/3 of all their deposits tried to exit on Thursday - no bank can survive that given how fractional reserve banking works.

wpietri 4y ago
If you are a small business who has way more than $250k but only has time to manage one bank account and lack the need for more sophisticated treasury management, then yes, I would absolutely say you should put it in the least risky bank. Or you could take the wild step of not putting all your eggs in one basket. The bank run was the proximate cause of the failure, but they also made some big bets and lost, making them vulnerable to the bank run in the first place.
- notfromhere 4y ago
  Yes and now think about the implication of all the SMBs flowing their cash out of their regional banks all at once. And if you have anything more than a few employees, you definitely have an account over $250k because that's still an incredibly small business. There's a serious risk of contagion here.
  - wpietri 4y ago
    I understand you have a fear of contagion risk, but I don't see many signs of it. I think this mainly happened because SVB had a depositor base where a big chunk was tightly knit and prone to herd-like behavior. Most companies just aren't a) in the red, b) letting millions in cash sit around, and c) lacking in treasuring management capacity. But if there are a ton of regional banks who took advantage of laxer regulation and had balance sheets in as poor a shape as SVB, then I am fine with some of them failing too. It won't be anywhere near the problem that 2008 or the S&L crisis was, and we'll end up with tighter regulation for those banks next time around.