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> 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

> 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.
- hackerlight 4y ago
  > If they can't, that is not a problem for taxpayers to solve. You haven't made the case that the cost doesn't justify the reduction in systemic risk, let alone the immediate economic fallout of otherwise good businesses going bust. To make that case you would first have to outline what the cost would be, then you would have to explain why that cost is too high relative to the benefit. Both of those steps are missing in your argument. No attempt has been made to quantify the cost or the benefit. So far it sounds like a moral judgment. They made a mistake (in your opinion), they as a group have tended to be be arrogant, therefore they deserve to suffer the consequences. I don't care for moral judgments, they are uninteresting. Explain it in terms of costs and benefits to the economy and to people.
  - wpietri 4y ago
    I don't have to make the case. The status quo, developed over literal centuries of bank regulation, is generally to let depositors take a haircut. Because depositors having skin in the game is an important check on the risk levels at for-profit banks. If people want to argue for infinite free deposit insurance for the rich, they're the ones who need to make the case that the increase in moral hazard and increased taxpayer burden is worth if for the public to take on. But if there's some sort of support-the-businesses goal in here, I think it's better to just argue for a government corporation that's a non-profit deposit-only bank that takes no risk and pays no interest. Then, if you're correct that there are a large number of safety-seeking people with millions in cash who just want to focus on entrepreneuring, they'll have an option that has zero failure risk. I expect if we created that, though, it would see very little use, because people are happy to take risks when they think they can get away with them. And quite a large number of people are apparently also willing to ask Uncle Sugar for a bailout when their gamble doesn't come up like they wanted.
    - hackerlight 4y ago
      > The status quo, developed over literal centuries of bank regulation, is generally to let depositors take a haircut Only if you go by common wisdom pre-Great Depression, which helped cause the Great Depression. But the opposite lessons have been learned since. That's why the FDIC was created in the aftermath of the Great Depression. It's the basis of the Nobel Prize winning Diamond–Dybvig model which inspired the TARP in the GFC which actually returned a profit to taxpayers. If depositors have too much skin in the game, it creates the potential for a bank run, which benefits nobody and harms everybody. > increase in moral hazard Which is where regulations need to come in. That's the bargain. You get FDIC guarantees, and I get to regulate you. It's a better bargain than the old wild west of bank runs and financial collapse. Anyway, depositors as agents aren't good mediators of a bank's risk. There are too many informational asymmetries for that to be a good mechanism to rely on.

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.

hackerlight 4y ago
> If they can't, that is not a problem for taxpayers to solve. You haven't made the case that the cost doesn't justify the reduction in systemic risk, let alone the immediate economic fallout of otherwise good businesses going bust. To make that case you would first have to outline what the cost would be, then you would have to explain why that cost is too high relative to the benefit. Both of those steps are missing in your argument. No attempt has been made to quantify the cost or the benefit. So far it sounds like a moral judgment. They made a mistake (in your opinion), they as a group have tended to be be arrogant, therefore they deserve to suffer the consequences. I don't care for moral judgments, they are uninteresting. Explain it in terms of costs and benefits to the economy and to people.
- wpietri 4y ago
  I don't have to make the case. The status quo, developed over literal centuries of bank regulation, is generally to let depositors take a haircut. Because depositors having skin in the game is an important check on the risk levels at for-profit banks. If people want to argue for infinite free deposit insurance for the rich, they're the ones who need to make the case that the increase in moral hazard and increased taxpayer burden is worth if for the public to take on. But if there's some sort of support-the-businesses goal in here, I think it's better to just argue for a government corporation that's a non-profit deposit-only bank that takes no risk and pays no interest. Then, if you're correct that there are a large number of safety-seeking people with millions in cash who just want to focus on entrepreneuring, they'll have an option that has zero failure risk. I expect if we created that, though, it would see very little use, because people are happy to take risks when they think they can get away with them. And quite a large number of people are apparently also willing to ask Uncle Sugar for a bailout when their gamble doesn't come up like they wanted.
  - hackerlight 4y ago
    > The status quo, developed over literal centuries of bank regulation, is generally to let depositors take a haircut Only if you go by common wisdom pre-Great Depression, which helped cause the Great Depression. But the opposite lessons have been learned since. That's why the FDIC was created in the aftermath of the Great Depression. It's the basis of the Nobel Prize winning Diamond–Dybvig model which inspired the TARP in the GFC which actually returned a profit to taxpayers. If depositors have too much skin in the game, it creates the potential for a bank run, which benefits nobody and harms everybody. > increase in moral hazard Which is where regulations need to come in. That's the bargain. You get FDIC guarantees, and I get to regulate you. It's a better bargain than the old wild west of bank runs and financial collapse. Anyway, depositors as agents aren't good mediators of a bank's risk. There are too many informational asymmetries for that to be a good mechanism to rely on.