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> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy. I think everyone knew th

> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy. I think everyone knew that already. Since 2008 at least. It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. A domino effect is very hard to prevent when it's based entirely on consumer confidence and those consumers can very easily create a bank run on literally anything if they freak out.

H8crilA 4y ago
And perhaps there's no other way? The Japanese did the same with their overpriced real estate provlem, Europe did the same with their almost defaulting countries.
- twblalock 4y ago
  Think about who gets hurt if the banking system collapses. It ripples out into the rest of the economy, because in fact the economy runs on debt. It would be harder to maintain existing businesses and start new ones if there was a credit crunch -- we lived through a credit crunch after 2008 and it was very bad for everyone. Even if you want certain people to get hurt by this (and there is definitely a baying mob that seems to want to cause as much suffering as possible because they just don't like certain classes of people), keep in mind that this could cause a 2008-style recession that hurts everyone. Who do you think gets hurt more by an economic downturn? The billionaires who lose millions and end up still being rich, or the working people who lose their jobs and can't afford housing? This isn't a theoretical question, we know the answer because it happened before.
  - xeromal 4y ago
    Sounds similar to when people were rooting for airlines and auto manufactures to just die in 2008 to say "fuck the rich". I'm glad they were all saved.
    - deleted 4y ago
      [deleted]
    - bumby 4y ago
      In human psychology, fairness is a big driving force in society. I think studies have regularly shown that people will tolerate outcomes that are objectively worse for themselves if the alternative seems unfair but objectively better. People are not rational. Homo economicus is a myth.
      - xeromal 4y ago
        Spite is a strong motivator.
        harimau777 4y ago
        I think it's less about spite and more about a desire for justice.
        xeromal 4y ago
        Isn't spite just wanting that version of karma or justice but hurting yourself in the process. If we let these banks collapse it's definitely going to hurt lower income people more than wealthy people so to me that is 100% spite
        HWR_14 4y ago
        No. Spite is hurting yourself to hurt someone else. A desire for karma is willing to hurt yourself for justice. They look very similar, but are different.
        Godel_unicode 4y ago
        > Spite is hurting yourself to hurt someone else. That is incorrect, spite is seeking the deliberate harm of another. It’s possible for spite to include hurting yourself to inflict it, but that’s not in any way necessary.
  - katzgrau 4y ago
    I have some off-the-grid and expat friends who I suspect are rooting for a collapse primarily to justify all the shit they did and said. These types seem to thrive on doom and I have no doubt they've always existed throughout history. Eventually I suppose they'll be right, but primarily as a result of one of those broken clock coincidences ...
  - steve76 4y ago
    [dead]
  - hellojesus 4y ago
    The desire to let it all burn comes from those who played by the rules. The government's intervention creates moral hazard: those that played with fire got burnt, and those who didn't didn't, but those who didn't get burnt were positioning themselves to take advantage of the opportunities that the crispy bodies would have generated. But the government swooped in and saved the crispies, without penalty to them, at the cost of those who had proper risk-adjusted positioning. We see this time and time again. The government is changing the rules after the game is over to change the losers to winners. It's nonsense.
dumbfounder 4y ago
Not sure I follow the logic. SVB is done right? Saving the companies that banked there is very different than saving the bank. Yes, it might invite more risk by big banks if they know there is a parachute for their clients, but if we close the bank anyways or clear out all parties involved and they have large black marks then there are deterrents (theoretically at least). I like that the gov is acting more like a scrappy company here and getting some shit done when the stakes are high. I dunno, just spitballing here, curious about the counterpoint.
- joe_the_user 4y ago
  "Yes, it might invite more risk by big banks if they know there is a parachute for their clients, but if we close the bank anyways or clear out all parties involved and they have large black marks then there are deterrents (theoretically at least)." * As the gp said, it's done. The guarantee isn't new, it's how thing are done now. The Fed is not changing things by doing this, the Fed is doing things as they are expected to be done. Anything else would be changing things, anything else would panic people. Is the Fed "scrappy"? IDK, the "scrappy" efforts to stop crises began with the "plunge prevention team" in the 1990s and have continued more systematically since then, if you want to call that scrappy. * As to whether there are black marks on people - only the companies who can whether to hire these people later can decide that. Financial companies hire people who've done time for financial fraud so it's questionable what sort of "black marks" the Fed could give if it wanted to (People mention the Lehman guy but was Lehman really worse than the others in 2008 or just a scapegoat - like fricken Martha Stewart. Was that guy involved in excess or just a random manager? I recall he was now managing a stock subsidiary that's being spun-off whole. But still).
- moose_is_loose 4y ago
  https://twitter.com/petercontibrown/status/1635076092339052545 https://twitter.com/petercontibrown/status/16350760923390525...
- QuarterReptile 4y ago
  From the perspective of just the people working at SVB, I guess so? But from the perspective of people putting lots of money in one place, it's a reinforcing signal that the most important part of picking a bank is that it be big enough to get bailed out in case of poor planning.
bko 4y ago
> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. I don't get it. Doesn't the unlimited FDIC insurance encourage mega-banks? If funds were only insured up to 250k, wouldn't that just mean we would have to spread money across multiple banks. And sure some banks would be wiped out but new better banks would take their place. It's not a closed system Banks used to fail and be smaller failures. Now we removed almost all failures except when we have a failure its huge: Total number of bank failures: 512 2023 1 2022 0 2021 0 2020 4 2019 4 2018 0 2017 8 2016 5 2015 8 2014 18 2013 24 2012 51 2011 92 2010 157 2009 140 https://www.bankrate.com/banking/list-of-failed-banks/ https://www.bankrate.com/banking/list-of-failed-banks/
- phil21 4y ago
  Number of banks failed is less useful info than total size of the banks that failed. So far this year we are looking a lot closer to 2009 than 2020[0]. [0] https://static01.nyt.com/images/2023/03/10/business/bank-failures-silicon-valley-collapse-promo/bank-failures-silicon-valley-collapse-promo-videoSixteenByNine3000.png https://static01.nyt.com/images/2023/03/10/business/bank-fai... Edit: wrong image linked
  - bko 4y ago
    Here's an infographic and wiki. It's like forest fires, we shouldn't build fragility into the system by removing all risk and then rely on regulations to mitigate it. Hasn't worked in the past and will lead to more consolidation and bigger fires in the future. Remember in 08 the answer was to combine a bunch of banks and since then we've had no new banks created (besides Ally which was a spin off of an auto workers pension fund if i remember) https://en.m.wikipedia.org/wiki/List_of_largest_U.S._bank_failures https://en.m.wikipedia.org/wiki/List_of_largest_U.S._bank_fa... https://old.reddit.com/r/dataisbeautiful/comments/11p3555/oc_size_of_bank_failures_since_2000/ https://old.reddit.com/r/dataisbeautiful/comments/11p3555/oc...
    - phil21 4y ago
      I certainly don't agree with it. I totally agree all this sort of can-kicking does is make the explosion an order of magnitude larger down the line.
Thorrez 4y ago
>it's based entirely on consumer confidence Not typical consumers, right? Typical bank consumers have < $250k in their account, and thus there's no reason for them to cause a run.
- QuarterReptile 4y ago
  I guess maybe if all the small customers pull out of index funds to flee to bitcoin? Not sure.
  - gmane 4y ago
    How would they even do that? Bitcoin handles ~350k transactions per day. VTI (Vanguard's Total Stock Index), a large size fund is on average traded 3,670k per day. That's one fund. There is no reasonable way for small customers to pull out of index funds to bitcoin unless there is a fundamental change to how bitcoin operates.
    - sowbug 4y ago
      VTI (Vanguard's Total Stock Index), a large size fund is on average traded 3,670k per day. I doubt those VTI transactions are each of a single share, which is the only way the 3.67M number you cite would match VTI's trading history. But nobody's mind was ever changed about Bitcoin on an HN comment thread, so let's just leave it at that.
    - landemva 4y ago
      Small customers get BTC from an exchange, which keeps their accounting internally. No transaction volume limits. Later the small customer may move that BTC to self-custody, which could be an on-chain transaction or LN or other side chain with more transaction capacity.
- twblalock 4y ago
  That didn't prevent multiple runs against Washington Mutual in 2008, and it won't prevent runs now. People are worried that they won't be able to get to their money even if it is insured. Plus, even if the "typical" consumers don't freak out, businesses might. There are a lot of businesses with accounts over the FDIC limit. Only about 60% of bank deposits in the US are insured.
walrus01 4y ago
> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones It'll look not very much unlike Canadian domestic banking which has the "big 5" of banks: TD, CIBC, RBC, BMO, Scotiabank. But instead, with Wells Fargo, Citibank, BOA, etc. And everything else is really quite tiny in comparison.
- __turbobrew__ 4y ago
  Less competition and less risk — the Canadian way.
BeFlatXIII 4y ago
Let's try spreading cynicism and enjoy the fireworks when the hollow reassurances don't work.

H8crilA 4y ago

And perhaps there's no other way? The Japanese did the same with their overpriced real estate provlem, Europe did the same with their almost defaulting countries.

twblalock 4y ago
Think about who gets hurt if the banking system collapses. It ripples out into the rest of the economy, because in fact the economy runs on debt. It would be harder to maintain existing businesses and start new ones if there was a credit crunch -- we lived through a credit crunch after 2008 and it was very bad for everyone. Even if you want certain people to get hurt by this (and there is definitely a baying mob that seems to want to cause as much suffering as possible because they just don't like certain classes of people), keep in mind that this could cause a 2008-style recession that hurts everyone. Who do you think gets hurt more by an economic downturn? The billionaires who lose millions and end up still being rich, or the working people who lose their jobs and can't afford housing? This isn't a theoretical question, we know the answer because it happened before.
- xeromal 4y ago
  Sounds similar to when people were rooting for airlines and auto manufactures to just die in 2008 to say "fuck the rich". I'm glad they were all saved.
  - deleted 4y ago
    [deleted]
  - bumby 4y ago
    In human psychology, fairness is a big driving force in society. I think studies have regularly shown that people will tolerate outcomes that are objectively worse for themselves if the alternative seems unfair but objectively better. People are not rational. Homo economicus is a myth.
    - xeromal 4y ago
      Spite is a strong motivator.
      - harimau777 4y ago
        I think it's less about spite and more about a desire for justice.
        xeromal 4y ago
        Isn't spite just wanting that version of karma or justice but hurting yourself in the process. If we let these banks collapse it's definitely going to hurt lower income people more than wealthy people so to me that is 100% spite
        HWR_14 4y ago
        No. Spite is hurting yourself to hurt someone else. A desire for karma is willing to hurt yourself for justice. They look very similar, but are different.
        Godel_unicode 4y ago
        > Spite is hurting yourself to hurt someone else. That is incorrect, spite is seeking the deliberate harm of another. It’s possible for spite to include hurting yourself to inflict it, but that’s not in any way necessary.
- katzgrau 4y ago
  I have some off-the-grid and expat friends who I suspect are rooting for a collapse primarily to justify all the shit they did and said. These types seem to thrive on doom and I have no doubt they've always existed throughout history. Eventually I suppose they'll be right, but primarily as a result of one of those broken clock coincidences ...
- steve76 4y ago
  [dead]
- hellojesus 4y ago
  The desire to let it all burn comes from those who played by the rules. The government's intervention creates moral hazard: those that played with fire got burnt, and those who didn't didn't, but those who didn't get burnt were positioning themselves to take advantage of the opportunities that the crispy bodies would have generated. But the government swooped in and saved the crispies, without penalty to them, at the cost of those who had proper risk-adjusted positioning. We see this time and time again. The government is changing the rules after the game is over to change the losers to winners. It's nonsense.

dumbfounder 4y ago

Not sure I follow the logic. SVB is done right? Saving the companies that banked there is very different than saving the bank. Yes, it might invite more risk by big banks if they know there is a parachute for their clients, but if we close the bank anyways or clear out all parties involved and they have large black marks then there are deterrents (theoretically at least). I like that the gov is acting more like a scrappy company here and getting some shit done when the stakes are high. I dunno, just spitballing here, curious about the counterpoint.

joe_the_user 4y ago
"Yes, it might invite more risk by big banks if they know there is a parachute for their clients, but if we close the bank anyways or clear out all parties involved and they have large black marks then there are deterrents (theoretically at least)." * As the gp said, it's done. The guarantee isn't new, it's how thing are done now. The Fed is not changing things by doing this, the Fed is doing things as they are expected to be done. Anything else would be changing things, anything else would panic people. Is the Fed "scrappy"? IDK, the "scrappy" efforts to stop crises began with the "plunge prevention team" in the 1990s and have continued more systematically since then, if you want to call that scrappy. * As to whether there are black marks on people - only the companies who can whether to hire these people later can decide that. Financial companies hire people who've done time for financial fraud so it's questionable what sort of "black marks" the Fed could give if it wanted to (People mention the Lehman guy but was Lehman really worse than the others in 2008 or just a scapegoat - like fricken Martha Stewart. Was that guy involved in excess or just a random manager? I recall he was now managing a stock subsidiary that's being spun-off whole. But still).
moose_is_loose 4y ago
https://twitter.com/petercontibrown/status/1635076092339052545 https://twitter.com/petercontibrown/status/16350760923390525...
QuarterReptile 4y ago
From the perspective of just the people working at SVB, I guess so? But from the perspective of people putting lots of money in one place, it's a reinforcing signal that the most important part of picking a bank is that it be big enough to get bailed out in case of poor planning.

bko 4y ago

> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. I don't get it. Doesn't the unlimited FDIC insurance encourage mega-banks? If funds were only insured up to 250k, wouldn't that just mean we would have to spread money across multiple banks. And sure some banks would be wiped out but new better banks would take their place. It's not a closed system Banks used to fail and be smaller failures. Now we removed almost all failures except when we have a failure its huge: Total number of bank failures: 512 2023 1 2022 0 2021 0 2020 4 2019 4 2018 0 2017 8 2016 5 2015 8 2014 18 2013 24 2012 51 2011 92 2010 157 2009 140 https://www.bankrate.com/banking/list-of-failed-banks/ https://www.bankrate.com/banking/list-of-failed-banks/

phil21 4y ago
Number of banks failed is less useful info than total size of the banks that failed. So far this year we are looking a lot closer to 2009 than 2020[0]. [0] https://static01.nyt.com/images/2023/03/10/business/bank-failures-silicon-valley-collapse-promo/bank-failures-silicon-valley-collapse-promo-videoSixteenByNine3000.png https://static01.nyt.com/images/2023/03/10/business/bank-fai... Edit: wrong image linked
- bko 4y ago
  Here's an infographic and wiki. It's like forest fires, we shouldn't build fragility into the system by removing all risk and then rely on regulations to mitigate it. Hasn't worked in the past and will lead to more consolidation and bigger fires in the future. Remember in 08 the answer was to combine a bunch of banks and since then we've had no new banks created (besides Ally which was a spin off of an auto workers pension fund if i remember) https://en.m.wikipedia.org/wiki/List_of_largest_U.S._bank_failures https://en.m.wikipedia.org/wiki/List_of_largest_U.S._bank_fa... https://old.reddit.com/r/dataisbeautiful/comments/11p3555/oc_size_of_bank_failures_since_2000/ https://old.reddit.com/r/dataisbeautiful/comments/11p3555/oc...
  - phil21 4y ago
    I certainly don't agree with it. I totally agree all this sort of can-kicking does is make the explosion an order of magnitude larger down the line.

Thorrez 4y ago

>it's based entirely on consumer confidence Not typical consumers, right? Typical bank consumers have < $250k in their account, and thus there's no reason for them to cause a run.

QuarterReptile 4y ago
I guess maybe if all the small customers pull out of index funds to flee to bitcoin? Not sure.
- gmane 4y ago
  How would they even do that? Bitcoin handles ~350k transactions per day. VTI (Vanguard's Total Stock Index), a large size fund is on average traded 3,670k per day. That's one fund. There is no reasonable way for small customers to pull out of index funds to bitcoin unless there is a fundamental change to how bitcoin operates.
  - sowbug 4y ago
    VTI (Vanguard's Total Stock Index), a large size fund is on average traded 3,670k per day. I doubt those VTI transactions are each of a single share, which is the only way the 3.67M number you cite would match VTI's trading history. But nobody's mind was ever changed about Bitcoin on an HN comment thread, so let's just leave it at that.
  - landemva 4y ago
    Small customers get BTC from an exchange, which keeps their accounting internally. No transaction volume limits. Later the small customer may move that BTC to self-custody, which could be an on-chain transaction or LN or other side chain with more transaction capacity.
twblalock 4y ago
That didn't prevent multiple runs against Washington Mutual in 2008, and it won't prevent runs now. People are worried that they won't be able to get to their money even if it is insured. Plus, even if the "typical" consumers don't freak out, businesses might. There are a lot of businesses with accounts over the FDIC limit. Only about 60% of bank deposits in the US are insured.

walrus01 4y ago

> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones It'll look not very much unlike Canadian domestic banking which has the "big 5" of banks: TD, CIBC, RBC, BMO, Scotiabank. But instead, with Wells Fargo, Citibank, BOA, etc. And everything else is really quite tiny in comparison.

__turbobrew__ 4y ago
Less competition and less risk — the Canadian way.

BeFlatXIII 4y ago

Let's try spreading cynicism and enjoy the fireworks when the hollow reassurances don't work.