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This is why we have inflation. The government won’t let wealth destruction occur. Everything is backstopped, even the poor financial decisions. The taxpayers w

This is why we have inflation. The government won’t let wealth destruction occur. Everything is backstopped, even the poor financial decisions. The taxpayers will pay for this through dollar devaluation and inflation.

throwaway12245 4y ago
Isn't inflation destroying the value of money?
- greatpostman 4y ago
  Over levered risk built on cheap money was a huge driver of inflation. They need to let those bets fail to let the money drain out of the system. But they won’t. This would have been a deflationary event.
  - junofan 4y ago
    The Fed has better tools. Financial instability isn’t really a great way to solve this.
    - greatpostman 4y ago
      There’s no way to solve it without pain. That’s like saying you can go to the gym and get big muscles without getting sore.
    - alxmng 4y ago
      Fractional reserve is inherently financially unstable. Investing deposits while simultaneously promising to pay them on demand is inherently financially unstable. There’s over 100 years repeatedly demonstrating this. Like clockwork, this exact scenario gets repeatedly demonstrated.
  - nerdponx 4y ago
    The bets were allowed to fail. Bank shareholders got nothing.
- cscurmudgeon 4y ago
  Money destruction != Value of money destruction If a thing X goes down in number, the value of X increases.
- simple-thoughts 4y ago
  Yes, because there’s a trade off. Either the growth rate of the money supply has to be reduced, which would impoverish many politically connected actors, or the value of money will fall at a higher rate causing populist unrest. Either way the stock of money’s value is determined by the amount of goods that stock can acquire.
- senectus1 4y ago
  Destruction is different to inflation. inflation weakens it, waters it down. Destruction is when it fails.. inflation can and probably will lead to destruction. but a bank failing not not being propped up like during the GFC is destruction. Arguably, they should have let those banks fail. instead this inflation is a direct result of that propping up (plus a bunch of other money printing actions)
  - nerdponx 4y ago
    The bank did fail. The OP literally is a press release stating that the bank has utterly ceased to exist as a business and that the FDIC has established a temporary one in its place, while they look for another bank to buy the remaining assets. Shareholders are getting precisely jack shit. So many people here are just imposing their incorrect assumptions about what's happening over the facts of what's actually happening. There's plenty of legitimate anti-government arguing about regulatory-capture to be done in other threads.
astrange 4y ago
This action is causing a negative amount of pressure on the FDIC fund because it increases confidence in the banking system. So as a taxpayer I am happy to pay a negative amount of money. If you just want to take a random bank and set all its accounts on fire to reduce the money supply, that seems like a bad way to fight inflation.
- greatpostman 4y ago
  Dude I want to afford a nice home and retire. The FED has destroyed the housing market and effective wages. Get a grip
  - Analemma_ 4y ago
    Voters in your area who block(ed) all new construction destroyed the housing market. Your blame is misplaced.
    - bombcar 4y ago
      House prices are up quite a bit in areas that are rapidly building
      - astrange 4y ago
        That's reverse causation. Proper question is how much they were building the last three decades, and if it's outrunning new household formation* now. There are places with cheap housing in the US, generally not in the good jobs areas but if you're retiring that's not so much a problem. * that's when people move out of their parents' house or decide to not have roommates anymore
    - ummonk 4y ago
      Well it's voters across the US, especially in urban areas with booming economies. Some places are trying to construct housing but can't cope with the influx of new homebuyers. Since there are no internal immigration restrictions, we have a national housing market with only partial local differentiation.
harold_b 4y ago
[dead]
IAmGraydon 4y ago
You're absolutely correct, but the system will be forced to correct itself no matter how much they try to prevent it. It's inevitable. They're just dragging it out.
yieldcrv 4y ago
not reaaaally one of these outcomes. this actually just streamlines the same outcome that was already going to occur. I would say everyone would have gotten 90% of their deposits back, at some unknown time in the future, regardless. this just makes it faster, predictable, and at 100% of the deposits. it really just comes down to the bank's portfolio. the bonds that these exposed banks had were US government bonds and held at a loss. A probably 10% loss. if the Federal Reserve winds up owning those government bonds, it actually is destroying the dollars it receives from the treasury. which is actually the Federal Reserve's entire plan in tackling inflation. also, wiping out shareholders destroys wealth.
EGreg 4y ago
Inflation at this level is fine. Central planners raising interest rates is the problem. If you want to get money out of the economy, this is the opportunity to tax negative externalities, the very things you want to have less of. But the central planners instead reach for the wrong tool: raising interest rates. They should be flexing their fiscal policy muscle. It should be a tax bonanza on fossil fuels, plastic pollution, overfishing and much much more! You can solve actual environmental issues this way! Well, when people default on their loans and can't refinance them, they'll default and that money will disappear from the economy. That's on the bank underwriters, and that's when their balance sheets deserve to go lopsided. Not because of central planners raising interest rates. I far, far prefer a UBI to the Banking System for putting money in people's hands. An underwriter at a bank guesses whether a business will be able to repay a loan with interest over 10 years. A consumer knows whether they want to buy something today with their UBI money. I'd prefer the money enter the system via consumer choices, not underwriters at banks. People often ask "how can we afford UBI". They don't understand how money is issued and destroyed. The banks currently issue the money with zero reserve requirements, and it's only destroyed when people can't afford to pay the loans. We could equally just ask "how can we afford the banking system?" We can afford either system, it's just a question of who gets the actual money, and I'd rather consumers make that decision. Because then it goes towards things people actually need, as opposed to making fatcats richer.
- somewhereoutth 4y ago
  The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest - except instead of taxing negative externalities, they should have subsidized positive externalities so relying less on rates. Now we need to get rates back to a sensible place (roughly 5%) so that risk/time is correctly priced and we don't have exorbitant asset bubbles.
  - dragonwriter 4y ago
    > The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest The people who make decisions about interest rates have no authority over fiscal policy, and the people that control fiscal policy (who theoretically could cobtrol monetary policy as well) have segregated themselves from interest rate decisions in large part to avoid fears that they will monetize the debt undermining confidence im the currency.
basch 4y ago
How is this not wealth destruction? All shareholders just got reduced to either zero, no? Or at least they only can get something, with whatever remains after the assets are sold off.
- nerdponx 4y ago
  This is my thought as well. The deposits and shareholder value were destroyed, then only the deposits were un-destroyed. Seems like net decrease in money supply, which should be deflationary to some extent. I swear some people see "government" and just assume everything is a big porky wasteful spending bill implemented by clueless populists.
  - ETH_start 4y ago
    The depositors of these banks, me included through my exposure to USDC, should be the ones who pay the price for the bank's risky lending strategies, not the depositors of other banks. Otherwise there is no reason for depositors to do due diligence, and we get a less effectively managed economy as a result. Consumers do much, if not most, of the management of industry, but that's only if consumers are fully exposed to the costs incurred by their choices. It's because consumers bear the costs in cosmetic procedures that such procedures are getting cheaper while healthcare gets more expensive: https://www.ncpathinktank.org/pdfs/st349.pdf https://www.ncpathinktank.org/pdfs/st349.pdf
    - brewdad 4y ago
      99% of customers don’t have the financial knowledge to do due diligence on their bank. Just look at the thousands of comments posted today on these various threads for proof. For the average customer, due diligence should begin and end with “is my bank FDIC insured?”
      - ETH_start 4y ago
        You don't need specialized knowledge. You just need to have the motivation to seek out sources that aggregate and distill knowledge. When people buy TVs, cars, fridges or shop for a laser eye surgery procedure, they seek out credible third party assessors, in the form of Wikipedia articles, Consumer Report magazines, end user ratings, etc to inform their decisions. The collective intelligence of the consumer market will also increase as more people participate as price and quality conscious consumers.
unyttigfjelltol 4y ago
Actually, this particular bank was tied up in "the means of production". A disruption could lead to increased inflation, not a decrease, because after the businesses fired their employees there would be fewer goods chased by dollars. Instead, one must destroy value the right way to achieve lower inflation. A surprise insolvency that wipes deposits that never were really considered investments at risk... nah ... not a good destruction of wealth. But take heart, stockholders were zeroed and bondholders maybe not far behind.
reso 4y ago
The creation and maintenance of moral hazard in our economy is a problem, but it is not a contributor to inflation, the causes of which are fairly clear of you just examine the components of recent increases in inflation.
fbdab103 4y ago
I suppose the only rationale thing I can do now is look for the banking institutions which offer the best above-market rates. If the bank goes under, the government will prop it up. I could hardly have been expected to do my own diligence on a bank.
- xur17 4y ago
  That was already the case for the vast majority of people since FDIC insures anything up to 250k.
- supertrope 4y ago
  That can be fine for personal banking. Regulators audit liquidity coverage ratio, tier 1 capital, etc. Investment products have bolded warning that FDIC insurance does not apply. For commercial banking it can be argued that counter-party risk assessment is on the business.
  - fbdab103 4y ago
    >For commercial banking it can be argued that counter-party risk assessment is on the business. Except in this case where businesses who used SVB get a Mulligan?
- nerdponx 4y ago
  Yes. Blaming bank depositors for this is like blaming people for choosing the wrong airline if a plane crashes.

throwaway12245 4y ago

Isn't inflation destroying the value of money?

greatpostman 4y ago
Over levered risk built on cheap money was a huge driver of inflation. They need to let those bets fail to let the money drain out of the system. But they won’t. This would have been a deflationary event.
- junofan 4y ago
  The Fed has better tools. Financial instability isn’t really a great way to solve this.
  - greatpostman 4y ago
    There’s no way to solve it without pain. That’s like saying you can go to the gym and get big muscles without getting sore.
  - alxmng 4y ago
    Fractional reserve is inherently financially unstable. Investing deposits while simultaneously promising to pay them on demand is inherently financially unstable. There’s over 100 years repeatedly demonstrating this. Like clockwork, this exact scenario gets repeatedly demonstrated.
- nerdponx 4y ago
  The bets were allowed to fail. Bank shareholders got nothing.
cscurmudgeon 4y ago
Money destruction != Value of money destruction If a thing X goes down in number, the value of X increases.
simple-thoughts 4y ago
Yes, because there’s a trade off. Either the growth rate of the money supply has to be reduced, which would impoverish many politically connected actors, or the value of money will fall at a higher rate causing populist unrest. Either way the stock of money’s value is determined by the amount of goods that stock can acquire.
senectus1 4y ago
Destruction is different to inflation. inflation weakens it, waters it down. Destruction is when it fails.. inflation can and probably will lead to destruction. but a bank failing not not being propped up like during the GFC is destruction. Arguably, they should have let those banks fail. instead this inflation is a direct result of that propping up (plus a bunch of other money printing actions)
- nerdponx 4y ago
  The bank did fail. The OP literally is a press release stating that the bank has utterly ceased to exist as a business and that the FDIC has established a temporary one in its place, while they look for another bank to buy the remaining assets. Shareholders are getting precisely jack shit. So many people here are just imposing their incorrect assumptions about what's happening over the facts of what's actually happening. There's plenty of legitimate anti-government arguing about regulatory-capture to be done in other threads.

astrange 4y ago

This action is causing a negative amount of pressure on the FDIC fund because it increases confidence in the banking system. So as a taxpayer I am happy to pay a negative amount of money. If you just want to take a random bank and set all its accounts on fire to reduce the money supply, that seems like a bad way to fight inflation.

greatpostman 4y ago
Dude I want to afford a nice home and retire. The FED has destroyed the housing market and effective wages. Get a grip
- Analemma_ 4y ago
  Voters in your area who block(ed) all new construction destroyed the housing market. Your blame is misplaced.
  - bombcar 4y ago
    House prices are up quite a bit in areas that are rapidly building
    - astrange 4y ago
      That's reverse causation. Proper question is how much they were building the last three decades, and if it's outrunning new household formation* now. There are places with cheap housing in the US, generally not in the good jobs areas but if you're retiring that's not so much a problem. * that's when people move out of their parents' house or decide to not have roommates anymore
  - ummonk 4y ago
    Well it's voters across the US, especially in urban areas with booming economies. Some places are trying to construct housing but can't cope with the influx of new homebuyers. Since there are no internal immigration restrictions, we have a national housing market with only partial local differentiation.

harold_b 4y ago

[dead]

IAmGraydon 4y ago

You're absolutely correct, but the system will be forced to correct itself no matter how much they try to prevent it. It's inevitable. They're just dragging it out.

yieldcrv 4y ago

not reaaaally one of these outcomes. this actually just streamlines the same outcome that was already going to occur. I would say everyone would have gotten 90% of their deposits back, at some unknown time in the future, regardless. this just makes it faster, predictable, and at 100% of the deposits. it really just comes down to the bank's portfolio. the bonds that these exposed banks had were US government bonds and held at a loss. A probably 10% loss. if the Federal Reserve winds up owning those government bonds, it actually is destroying the dollars it receives from the treasury. which is actually the Federal Reserve's entire plan in tackling inflation. also, wiping out shareholders destroys wealth.

EGreg 4y ago

Inflation at this level is fine. Central planners raising interest rates is the problem. If you want to get money out of the economy, this is the opportunity to tax negative externalities, the very things you want to have less of. But the central planners instead reach for the wrong tool: raising interest rates. They should be flexing their fiscal policy muscle. It should be a tax bonanza on fossil fuels, plastic pollution, overfishing and much much more! You can solve actual environmental issues this way! Well, when people default on their loans and can't refinance them, they'll default and that money will disappear from the economy. That's on the bank underwriters, and that's when their balance sheets deserve to go lopsided. Not because of central planners raising interest rates. I far, far prefer a UBI to the Banking System for putting money in people's hands. An underwriter at a bank guesses whether a business will be able to repay a loan with interest over 10 years. A consumer knows whether they want to buy something today with their UBI money. I'd prefer the money enter the system via consumer choices, not underwriters at banks. People often ask "how can we afford UBI". They don't understand how money is issued and destroyed. The banks currently issue the money with zero reserve requirements, and it's only destroyed when people can't afford to pay the loans. We could equally just ask "how can we afford the banking system?" We can afford either system, it's just a question of who gets the actual money, and I'd rather consumers make that decision. Because then it goes towards things people actually need, as opposed to making fatcats richer.

somewhereoutth 4y ago
The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest - except instead of taxing negative externalities, they should have subsidized positive externalities so relying less on rates. Now we need to get rates back to a sensible place (roughly 5%) so that risk/time is correctly priced and we don't have exorbitant asset bubbles.
- dragonwriter 4y ago
  > The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest The people who make decisions about interest rates have no authority over fiscal policy, and the people that control fiscal policy (who theoretically could cobtrol monetary policy as well) have segregated themselves from interest rate decisions in large part to avoid fears that they will monetize the debt undermining confidence im the currency.

basch 4y ago

How is this not wealth destruction? All shareholders just got reduced to either zero, no? Or at least they only can get something, with whatever remains after the assets are sold off.

nerdponx 4y ago
This is my thought as well. The deposits and shareholder value were destroyed, then only the deposits were un-destroyed. Seems like net decrease in money supply, which should be deflationary to some extent. I swear some people see "government" and just assume everything is a big porky wasteful spending bill implemented by clueless populists.
- ETH_start 4y ago
  The depositors of these banks, me included through my exposure to USDC, should be the ones who pay the price for the bank's risky lending strategies, not the depositors of other banks. Otherwise there is no reason for depositors to do due diligence, and we get a less effectively managed economy as a result. Consumers do much, if not most, of the management of industry, but that's only if consumers are fully exposed to the costs incurred by their choices. It's because consumers bear the costs in cosmetic procedures that such procedures are getting cheaper while healthcare gets more expensive: https://www.ncpathinktank.org/pdfs/st349.pdf https://www.ncpathinktank.org/pdfs/st349.pdf
  - brewdad 4y ago
    99% of customers don’t have the financial knowledge to do due diligence on their bank. Just look at the thousands of comments posted today on these various threads for proof. For the average customer, due diligence should begin and end with “is my bank FDIC insured?”
    - ETH_start 4y ago
      You don't need specialized knowledge. You just need to have the motivation to seek out sources that aggregate and distill knowledge. When people buy TVs, cars, fridges or shop for a laser eye surgery procedure, they seek out credible third party assessors, in the form of Wikipedia articles, Consumer Report magazines, end user ratings, etc to inform their decisions. The collective intelligence of the consumer market will also increase as more people participate as price and quality conscious consumers.

unyttigfjelltol 4y ago

Actually, this particular bank was tied up in "the means of production". A disruption could lead to increased inflation, not a decrease, because after the businesses fired their employees there would be fewer goods chased by dollars. Instead, one must destroy value the right way to achieve lower inflation. A surprise insolvency that wipes deposits that never were really considered investments at risk... nah ... not a good destruction of wealth. But take heart, stockholders were zeroed and bondholders maybe not far behind.

reso 4y ago

The creation and maintenance of moral hazard in our economy is a problem, but it is not a contributor to inflation, the causes of which are fairly clear of you just examine the components of recent increases in inflation.

fbdab103 4y ago

I suppose the only rationale thing I can do now is look for the banking institutions which offer the best above-market rates. If the bank goes under, the government will prop it up. I could hardly have been expected to do my own diligence on a bank.

xur17 4y ago
That was already the case for the vast majority of people since FDIC insures anything up to 250k.
supertrope 4y ago
That can be fine for personal banking. Regulators audit liquidity coverage ratio, tier 1 capital, etc. Investment products have bolded warning that FDIC insurance does not apply. For commercial banking it can be argued that counter-party risk assessment is on the business.
- fbdab103 4y ago
  >For commercial banking it can be argued that counter-party risk assessment is on the business. Except in this case where businesses who used SVB get a Mulligan?
nerdponx 4y ago
Yes. Blaming bank depositors for this is like blaming people for choosing the wrong airline if a plane crashes.