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> Most businesses with a lot of money understand that bank failure risk is just one of the many financial risks to manage. This is a poorer world than the one

> Most businesses with a lot of money understand that bank failure risk is just one of the many financial risks to manage. This is a poorer world than the one where it’s not, is my point. What are you even supposed to do here, open accounts at 40 different banks when you get a $10 million check? That’s pointless silliness. Is this really what we want entrepreneurs to be spending their time on?

wpietri 4y ago
Oh no! A person with $10m in cash might have to put forth a little effort to take care of a vast amount of money! Such horrors have rarely been contemplated. I understand that some see startup founders as delicate smol beans who are too uwu soft to have to actually do some work. But I have been told repeatedly that these people are genius future titans of industry, backed by the most financially savvy people on the planet. So I think maybe they can handle it? If somebody is in the incredibly privileged position of being handed $10m in one go, but is also uninterested in managing the money, then I would expect them to hire a part-time CFO. Or at the very least to split the money up and put it into two different banks, which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money.
- closeparen 4y ago
  It is totally possible to have an economy and public policy based on seething contempt for entrepreneurs. It's probably the case that a majority of voters would prefer to be a little worse off as long as the tech-bros they hate are a lot worse off. I just think this is an ugly, self-defeating basis on which to run a society. >which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money. Why would it have resulted in that? We've already established that any amount above $250k in one bank may as as well be vaporized already, you just don't know it yet.
  - wpietri 4y ago
    I am an entrepreneur from a family of entrepreneurs. I have started multiple companies, one of which was venture backed. I like entrepreneurs just fine, so peddle that nonsense elsewhere. > Why would it have resulted in that? Because our modern regulatory regime is pretty good. If you have your money in two bank accounts and have reasonable capital reserves, you'll be able to make payroll from one of them. So the short-term problem is solved. In your example, you've got $5m to work with. For the failed bank, the FDIC will give you $250k right away, and in short order a large percentage gets paid out as they liquidate assets. For SVB, that starts within a week: https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai... The expectations I'm seeing for that are on the order of 50%. So a week later, you're back up to $7.75 million to work with, with more to come in as assets are sold. Maybe you get everything back, maybe you take a haircut. The estimates I'm seeing are in the 0-20% range, so you end up with $9-10 million back over time. And that's just the FDIC. Functioning businesses have income that they can use to pay salaries or as justification for loans or selling equity. They can also pursue acquisition by somebody who was lucky or smart enough not to have high egg/basket ratios. So in the end, maybe we end up with a few failed companies, but it's not a systemic risk, and it's the sort of object lesson that helps people understand why they need to take cash management seriously beyond a certain level. That surely will suck for some people, but that's how capitalism works.
    - sleepybrett 4y ago
      > Because our modern regulatory regime is pretty good. It really isn't. The republican party has spent the last 50 years dismantling regulation. Thats why shit like this happens.
- sanderjd 4y ago
  I feel like you're conflating "a person" with businesses, who have a number of people downstream of their bank accounts. They really aren't very similar to wealthy individuals with large bank accounts. Having said that, as I've been reading about this for the first time over the past couple days, I have become a bit less sympathetic to companies with very large deposits at a single bank. It does seem that there are mechanisms, like "insured cash sweep", that good financial officers should have been taking advantage of. But I still have uncertainty about this and want to read more about it. But I think the general point of the other commenter in this thread is a good one: a company with, say $2M to $10M in cash deposits should ideally be able to access banking services easily and with negligible risk. This is not an enormous business size! It's better for society for it to be possible to run businesses like that without having to fear big surprises in the financial system killing you on a random Friday.
  - wpietri 4y ago
    The "person" here is the founding CEO with a $10m check I was being asked to have empathy for. To the extent that we are instead talking about proper businesses, you have a point, but I have a different response. A real business that just keeps $10m in cash sitting around in one spot like some teen's first checking account is grossly lacking in treasury management. > should ideally Sure. Ideally, we should all live in the Big Rock Candy Mountains. [1] But back here in reality, companies have to manage all sorts of risks. If they don't want to hire a professional finance person and don't want to avail themselves of services that solve their problems, then that is a choice they can make. It's just not the taxpayer's job to kiss their boo-boos and make it all better when their gamble doesn't turn out so well. [1] https://en.wikipedia.org/wiki/The_Big_Rock_Candy_Mountains https://en.wikipedia.org/wiki/The_Big_Rock_Candy_Mountains
- deleted 4y ago
  [deleted]

wpietri 4y ago

Oh no! A person with $10m in cash might have to put forth a little effort to take care of a vast amount of money! Such horrors have rarely been contemplated. I understand that some see startup founders as delicate smol beans who are too uwu soft to have to actually do some work. But I have been told repeatedly that these people are genius future titans of industry, backed by the most financially savvy people on the planet. So I think maybe they can handle it? If somebody is in the incredibly privileged position of being handed $10m in one go, but is also uninterested in managing the money, then I would expect them to hire a part-time CFO. Or at the very least to split the money up and put it into two different banks, which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money.

closeparen 4y ago
It is totally possible to have an economy and public policy based on seething contempt for entrepreneurs. It's probably the case that a majority of voters would prefer to be a little worse off as long as the tech-bros they hate are a lot worse off. I just think this is an ugly, self-defeating basis on which to run a society. >which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money. Why would it have resulted in that? We've already established that any amount above $250k in one bank may as as well be vaporized already, you just don't know it yet.
- wpietri 4y ago
  I am an entrepreneur from a family of entrepreneurs. I have started multiple companies, one of which was venture backed. I like entrepreneurs just fine, so peddle that nonsense elsewhere. > Why would it have resulted in that? Because our modern regulatory regime is pretty good. If you have your money in two bank accounts and have reasonable capital reserves, you'll be able to make payroll from one of them. So the short-term problem is solved. In your example, you've got $5m to work with. For the failed bank, the FDIC will give you $250k right away, and in short order a large percentage gets paid out as they liquidate assets. For SVB, that starts within a week: https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai... The expectations I'm seeing for that are on the order of 50%. So a week later, you're back up to $7.75 million to work with, with more to come in as assets are sold. Maybe you get everything back, maybe you take a haircut. The estimates I'm seeing are in the 0-20% range, so you end up with $9-10 million back over time. And that's just the FDIC. Functioning businesses have income that they can use to pay salaries or as justification for loans or selling equity. They can also pursue acquisition by somebody who was lucky or smart enough not to have high egg/basket ratios. So in the end, maybe we end up with a few failed companies, but it's not a systemic risk, and it's the sort of object lesson that helps people understand why they need to take cash management seriously beyond a certain level. That surely will suck for some people, but that's how capitalism works.
  - sleepybrett 4y ago
    > Because our modern regulatory regime is pretty good. It really isn't. The republican party has spent the last 50 years dismantling regulation. Thats why shit like this happens.
sanderjd 4y ago
I feel like you're conflating "a person" with businesses, who have a number of people downstream of their bank accounts. They really aren't very similar to wealthy individuals with large bank accounts. Having said that, as I've been reading about this for the first time over the past couple days, I have become a bit less sympathetic to companies with very large deposits at a single bank. It does seem that there are mechanisms, like "insured cash sweep", that good financial officers should have been taking advantage of. But I still have uncertainty about this and want to read more about it. But I think the general point of the other commenter in this thread is a good one: a company with, say $2M to $10M in cash deposits should ideally be able to access banking services easily and with negligible risk. This is not an enormous business size! It's better for society for it to be possible to run businesses like that without having to fear big surprises in the financial system killing you on a random Friday.
- wpietri 4y ago
  The "person" here is the founding CEO with a $10m check I was being asked to have empathy for. To the extent that we are instead talking about proper businesses, you have a point, but I have a different response. A real business that just keeps $10m in cash sitting around in one spot like some teen's first checking account is grossly lacking in treasury management. > should ideally Sure. Ideally, we should all live in the Big Rock Candy Mountains. [1] But back here in reality, companies have to manage all sorts of risks. If they don't want to hire a professional finance person and don't want to avail themselves of services that solve their problems, then that is a choice they can make. It's just not the taxpayer's job to kiss their boo-boos and make it all better when their gamble doesn't turn out so well. [1] https://en.wikipedia.org/wiki/The_Big_Rock_Candy_Mountains https://en.wikipedia.org/wiki/The_Big_Rock_Candy_Mountains
deleted 4y ago
[deleted]