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Depositors don’t put money in a bank expecting profits!! Yes they might get interest, but the main goal is safe storage of easily accessible money. Where exactl

Depositors don’t put money in a bank expecting profits!! Yes they might get interest, but the main goal is safe storage of easily accessible money. Where exactly do you expect people to put money if not a bank?! And do you really expect, and want to live in a world where there is such an expectation (due to unreliable financial institutions), the average startup founder to spend time hedging bank risk? Not to mention that depositors can get their money back without taxpayer money being used. That’s the whole point of the FDIC stepping in. SVB’s assets have value and can be used to give money back; if another bank buys SVB, odds are depositors will get the vast majority of their money back. It’s not a bailout if the government is not spending money and I don’t know why even a positive, non-bailout outcome seems to be viewed unfavorably.

matheusmoreira 4y ago
> the main goal is safe storage of easily accessible money Absolute bullshit. If that was the goal, banks would be 100% solvent at all times. Every single dollar people ever deposited in the bank would be sitting there in the bank's safe. That's NOT what happens in practice. Banks simply cannot bear to watch a huge pile of money just sitting there safely doing nothing. So they do fractional reserve banking. People deposit 100 dollars at the bank, the bank stores like 10 dollars only and then loans out 90 dollars to anyone in need of cash. Then the bank literally lies to people's faces when they provide a statement saying they have $100 in their "account" when in fact they only have 10 dollars with $90 being tied up in outstanding liabilities and therefore exposing them to risk. Anyone who "deposits" money at a bank without expecting profits in return has been fooled twice. Thrice if they tolerate "administrative fees" for the "service". > And do you really expect, and want to live in a world where there is such an expectation (due to unreliable financial institutions), the average startup founder to spend time hedging bank risk? Looks like we live in such a world already.
- noisenotsignal 4y ago
  I understand the mechanism that occurs in reality, but also in practice the average person puts money in the bank primarily for storage. If you ask someone why they have a bank account, odds are the answer is not “to make money”. They do it because it’s commonly held financial advice that this is better than putting cash in a box under their mattress (not just for returns, but for safety and ease of access). It is not fair to lump these people in with shareholders, in terms of profit expectation, and say they have just as little right to their money back. But perhaps this is a learning opportunity for me. I’m sure you have a stash of money somewhere for paying bills; obviously you need relatively quick access to this stash. You probably also have a larger stash as an emergency fund, which doesn’t need to be as immediately accessible but still needs relatively quick access (so a CD won’t cut it). Where are you putting these stashes? (I guess your personal stashes might be small enough to be FDIC insured, so maybe pretend to be a small startup with a couple millions in cash.) And regarding your point on banks hating to sit on money - they have to make money somehow as they have bills to pay. They can either charge a fee to hold your money or try to make money off deposits. The latter is obviously riskier, but the former is on average worse for consumers (they lose money by having money..?). If you would rather not pay money to have someone hold it for you, fractional reserves are a necessary construct. Edit: > Looks like we live in such a world already Not if the FDIC successfully makes everyone whole without spending taxpayer money! Which, again, seems like a positive outcome no one should be rooting against.
  - matheusmoreira 4y ago
    > in practice the average person puts money in the bank primarily for storage. > If you ask someone why they have a bank account, odds are the answer is not “to make money” > They do it because it’s commonly held financial advice that this is better than putting cash in a box under their mattress (not just for returns, but for safety and ease of access). Well, that's the problem. People actually believe this "your money is safe at the bank" common sense. Tell them otherwise and they treat you like you're one of those tinfoil hat crazies. Maybe they'll believe otherwise when the banks fail and their money is lost. > It is not fair to lump these people in with shareholders, in terms of profit expectation, and say they have just as little right to their money back. Sure it is. They loaned their money to the bank. They exposed themselves to the risk that the loan would not be paid back. That they were ignorant of what they were doing does not somehow excuse them of their culpability. > I’m sure you have a stash of money somewhere for paying bills I have exactly $0 in my personal checking account. All expenses are paid with credit. Then I pay the bank off in full the second money enters my account. Any and all remainders are immediately invested until $0 remains. > You probably also have a larger stash as an emergency fund, which doesn’t need to be as immediately accessible but still needs relatively quick access (so a CD won’t cut it). My emergency fund is about the only thing I keep in a bank account long term. In several liquid investment accounts in different banks. With full knowledge these banks could flop at any moment. > I guess your personal stashes might be small enough to be FDIC insured, so maybe pretend to be a small startup with a couple millions in cash. In my country, bank accounts are insured up to some amount per bank per our social security number equivalent. Therefore, when that amount is exceeded, I spread them over multiple banks. If money accumulates to the point I can buy real property, I immediately do so instead of leaving it at the bank. It's a pretty simple algorithm. > And regarding your point on banks hating to sit on money - they have to make money somehow as they have bills to pay. Or they could charge you for the storage service instead. Maybe if banks were in the storage business it'd actually make sense to pay them a single cent in fees. They're not, so it doesn't. > Not if the FDIC successfully makes everyone whole without spending taxpayer money! Which, again, seems like a positive outcome no one should be rooting against. Yeah, and everyone just keeps on believing in banks. Positive outcome for them, not for society as a whole.

matheusmoreira 4y ago

> the main goal is safe storage of easily accessible money Absolute bullshit. If that was the goal, banks would be 100% solvent at all times. Every single dollar people ever deposited in the bank would be sitting there in the bank's safe. That's NOT what happens in practice. Banks simply cannot bear to watch a huge pile of money just sitting there safely doing nothing. So they do fractional reserve banking. People deposit 100 dollars at the bank, the bank stores like 10 dollars only and then loans out 90 dollars to anyone in need of cash. Then the bank literally lies to people's faces when they provide a statement saying they have $100 in their "account" when in fact they only have 10 dollars with $90 being tied up in outstanding liabilities and therefore exposing them to risk. Anyone who "deposits" money at a bank without expecting profits in return has been fooled twice. Thrice if they tolerate "administrative fees" for the "service". > And do you really expect, and want to live in a world where there is such an expectation (due to unreliable financial institutions), the average startup founder to spend time hedging bank risk? Looks like we live in such a world already.

noisenotsignal 4y ago
I understand the mechanism that occurs in reality, but also in practice the average person puts money in the bank primarily for storage. If you ask someone why they have a bank account, odds are the answer is not “to make money”. They do it because it’s commonly held financial advice that this is better than putting cash in a box under their mattress (not just for returns, but for safety and ease of access). It is not fair to lump these people in with shareholders, in terms of profit expectation, and say they have just as little right to their money back. But perhaps this is a learning opportunity for me. I’m sure you have a stash of money somewhere for paying bills; obviously you need relatively quick access to this stash. You probably also have a larger stash as an emergency fund, which doesn’t need to be as immediately accessible but still needs relatively quick access (so a CD won’t cut it). Where are you putting these stashes? (I guess your personal stashes might be small enough to be FDIC insured, so maybe pretend to be a small startup with a couple millions in cash.) And regarding your point on banks hating to sit on money - they have to make money somehow as they have bills to pay. They can either charge a fee to hold your money or try to make money off deposits. The latter is obviously riskier, but the former is on average worse for consumers (they lose money by having money..?). If you would rather not pay money to have someone hold it for you, fractional reserves are a necessary construct. Edit: > Looks like we live in such a world already Not if the FDIC successfully makes everyone whole without spending taxpayer money! Which, again, seems like a positive outcome no one should be rooting against.
- matheusmoreira 4y ago
  > in practice the average person puts money in the bank primarily for storage. > If you ask someone why they have a bank account, odds are the answer is not “to make money” > They do it because it’s commonly held financial advice that this is better than putting cash in a box under their mattress (not just for returns, but for safety and ease of access). Well, that's the problem. People actually believe this "your money is safe at the bank" common sense. Tell them otherwise and they treat you like you're one of those tinfoil hat crazies. Maybe they'll believe otherwise when the banks fail and their money is lost. > It is not fair to lump these people in with shareholders, in terms of profit expectation, and say they have just as little right to their money back. Sure it is. They loaned their money to the bank. They exposed themselves to the risk that the loan would not be paid back. That they were ignorant of what they were doing does not somehow excuse them of their culpability. > I’m sure you have a stash of money somewhere for paying bills I have exactly $0 in my personal checking account. All expenses are paid with credit. Then I pay the bank off in full the second money enters my account. Any and all remainders are immediately invested until $0 remains. > You probably also have a larger stash as an emergency fund, which doesn’t need to be as immediately accessible but still needs relatively quick access (so a CD won’t cut it). My emergency fund is about the only thing I keep in a bank account long term. In several liquid investment accounts in different banks. With full knowledge these banks could flop at any moment. > I guess your personal stashes might be small enough to be FDIC insured, so maybe pretend to be a small startup with a couple millions in cash. In my country, bank accounts are insured up to some amount per bank per our social security number equivalent. Therefore, when that amount is exceeded, I spread them over multiple banks. If money accumulates to the point I can buy real property, I immediately do so instead of leaving it at the bank. It's a pretty simple algorithm. > And regarding your point on banks hating to sit on money - they have to make money somehow as they have bills to pay. Or they could charge you for the storage service instead. Maybe if banks were in the storage business it'd actually make sense to pay them a single cent in fees. They're not, so it doesn't. > Not if the FDIC successfully makes everyone whole without spending taxpayer money! Which, again, seems like a positive outcome no one should be rooting against. Yeah, and everyone just keeps on believing in banks. Positive outcome for them, not for society as a whole.