8 ms·

The stock isn’t being bailed out, but a certain class of society/account-holder is (again), which seems to be just as bad in terms of perpetuating the moral haz

The stock isn’t being bailed out, but a certain class of society/account-holder is (again), which seems to be just as bad in terms of perpetuating the moral hazard.

porknubbins 4y ago
What moral hazard being created though? Most SVB customers, unless they are finance experts, are not in any position to do due diligence on how their bank invests its loans and are pretty blameless in my opinion. They weren’t capturing any real risk premium by banking with this bank.
- vintermann 4y ago
  Wasn't the selling point of this bank its "libertarianism"? It's a fairly new bank, why did they switch to it if not for doing some research on it?
  - notfromhere 4y ago
    SVB is a 40 year old bank that's been doing business in the valley since the VC era started.
    - yawpitch 4y ago
      > SVB is a 40 year old bank that's been doing business in the valley since the VC era started. So it’s a fairly new bank, by the standard or banks, and the point remains, why did they choose to risk keeping money in excess of the $250K insurance backstop in one bank with no real track record? Until this event the whole idea of the FDIC insurance fund was to ensure that people (not corporations) with relatively small nest eggs wouldn’t lose the whole thing and therefore starve if their bank made bad bets… once your nest egg grew beyond the backstop it was your right (and privilege) to assume the risk of losing it, if you wanted to. Now because VCs and CEOs were essentially asleep at the wheels of companies that, for the part that have gotten this absurdly quick action from the government, consider $250K to be a rounding error, the rules have changed. That’s the special class… the kind of people who somehow think 40 years is a substantial track record for a business that’s big enough to underpin an economy.
      - Ozzie_osman 4y ago
        > Until this event the whole idea of the FDIC insurance fund was to ensure that people (not corporations) with relatively small nest eggs wouldn’t lose the whole thing and therefore starve if their bank made bad bets. Nope. "The mission of the Federal Deposit Insurance Corporation (FDIC) is to maintain stability and public confidence in the nation's financial system." https://www.fdic.gov/about/what-we-do/ https://www.fdic.gov/about/what-we-do/
- r_hoods_ghost 4y ago
  But they were by, for smaller but over 250k depositors, not spreading their deposits between multiple banks. Which can be done manually or through a sweeping account very very easily. Or, for larger depositors, having other safety mechanisms in place. Really depositors over 250k do need to take some moral responsibility, even though I think it is better that they be made whole to stave off a 2008 style financial crisis.
  - tempestn 4y ago
    So what is the risk premium they were collecting? The time savings of not managing multiple accounts? Is it really desirable for larger depositors to carry the inefficiency of spreading their deposits across multiple banks, if the net liabilities of the banks end up being the same?
    - 331c8c71 4y ago
      Doesn't matter. The rules are the rules.
      - 331c8c71 4y ago
        There should have been 1) repayment of the insured amounts 2) liquidation of assets 3) repayment of the rest (likely with a haircut). 4) (optionally) a legislative reform (if the current system seems not adequate anymore)
    - dtf 4y ago
      The risk premium was access to a large and very cheap credit facility: https://twitter.com/jonwu_/status/1634250770555219970 https://twitter.com/jonwu_/status/1634250770555219970
    - r_hoods_ghost 4y ago
      Net doesn't matter to the individual firm. And who should carry it? Everyone else who had the gumption to spend, what, a few man hours, to guarantee that they won't end up not being g able to make pay roll?
- jimnotgym 4y ago
  Hang on, companies with over 250k on deposit should be, or be engaging finance experts. YC should have finance experts.
  - thesimon 4y ago
    If lots of millionaires were losing money, everyone would say that the should have known better and had finance experts help them manage their money. But somehow the same doesn't hold true for companies.
    - hellojesus 4y ago
      Especially considering the government disallows people that aren't "qualified investors" from investing in specific asset classes entirely because people that don't meet that threshold are just too stupid to participate.
- watwut 4y ago
  No, VCs who literally demanded they put their money there did. Guess who cries the most about bail out - VCs. The same people who wanted regulations to ease up, the same people that actually indirectly profited from bank taking higher risk. It is ridiculous that the supposedly smartest groups whose literally did this to themselves gets bailed out.
  - headsoup 4y ago
    By design I would guess
- eshnil 4y ago
  They don't need to do extra due diligence. Just buy insurance for the excess amount above the FDIC limit. After all, they do benefit from the upside like cheaper mortgages for execs.
- subsistence234 4y ago
  >most SVB customers I'm just a little smol bean startup with a 9 figure valuation not a finance expert, how could I have any idea about financial markets or risk?
- RandomLensman 4y ago
  One way this could create moral hazard is that large depositors are happy to lend to quite risky banks at high rates because they know they will be made whole in case of a bank failure. Btw., this could also make deposits less sticky as moving for opportunity has no downside in such a scenario.
- ClumsyPilot 4y ago
  > Most SVB customers, unless they are finance experts, are not in any position to do due diligence Someone wants to have it both ways - they are sophisticated investors and entreneurs when it suits them. Leaders of our time, telling the rest of us how to live. Other times, they can't be expected to have basic financial literacy or consult a financial adviusor accessible to a regullar joe
op00to 4y ago
You don't know that a "certain class of society/account-holder is" being bailed out. Maybe you think it's likely, but the only people who really know the deal is the FDIC, and they seem confident that everything will wrap up cleanly.
- alistairSH 4y ago
  FDIC typically insures up to $250k. The government is now doing a one-off (well, two-off) to make ALL depositors whole. "People with in excess of $250k cash" is most assuredly a "certain class of society". Or, maybe a few classes - rich individuals AND small companies. In either case, both groups should be better diversified OR have insurance against banking losses. The FDIC limit isn't unpublished - it's well known among people with even moderate amounts of cash.
  - op00to 4y ago
    The FDIC limit comes into play when there are no underlying assets to distribute to depositors. If the bank has no assets, it's likely all you'll see is $250k. If there are assets, they can be disposed of, and the depositors with over $250k can receive dividends. The fact that the FDIC is confident that the deposits will be available says to me they were able to successfully sell enough assets to ensure liquidity for whoever took over the deposits. This isn't a "government two-off to make ALL depositors whole". This is how these bank failures happen.
- ClumsyPilot 4y ago
  The class is quite clear -weathly and risk taking and/or stupid/doesnt read the fine print.
- miguelazo 4y ago
  Umm, yes I do. I read the joint press release which stated exactly that.

The stock isn’t being bailed out, but a certain class of society/account-holder is (again), which seems to be just as bad in terms of perpetuating the moral hazard.

porknubbins 4y ago

What moral hazard being created though? Most SVB customers, unless they are finance experts, are not in any position to do due diligence on how their bank invests its loans and are pretty blameless in my opinion. They weren’t capturing any real risk premium by banking with this bank.

vintermann 4y ago
Wasn't the selling point of this bank its "libertarianism"? It's a fairly new bank, why did they switch to it if not for doing some research on it?
- notfromhere 4y ago
  SVB is a 40 year old bank that's been doing business in the valley since the VC era started.
  - yawpitch 4y ago
    > SVB is a 40 year old bank that's been doing business in the valley since the VC era started. So it’s a fairly new bank, by the standard or banks, and the point remains, why did they choose to risk keeping money in excess of the $250K insurance backstop in one bank with no real track record? Until this event the whole idea of the FDIC insurance fund was to ensure that people (not corporations) with relatively small nest eggs wouldn’t lose the whole thing and therefore starve if their bank made bad bets… once your nest egg grew beyond the backstop it was your right (and privilege) to assume the risk of losing it, if you wanted to. Now because VCs and CEOs were essentially asleep at the wheels of companies that, for the part that have gotten this absurdly quick action from the government, consider $250K to be a rounding error, the rules have changed. That’s the special class… the kind of people who somehow think 40 years is a substantial track record for a business that’s big enough to underpin an economy.
    - Ozzie_osman 4y ago
      > Until this event the whole idea of the FDIC insurance fund was to ensure that people (not corporations) with relatively small nest eggs wouldn’t lose the whole thing and therefore starve if their bank made bad bets. Nope. "The mission of the Federal Deposit Insurance Corporation (FDIC) is to maintain stability and public confidence in the nation's financial system." https://www.fdic.gov/about/what-we-do/ https://www.fdic.gov/about/what-we-do/
r_hoods_ghost 4y ago
But they were by, for smaller but over 250k depositors, not spreading their deposits between multiple banks. Which can be done manually or through a sweeping account very very easily. Or, for larger depositors, having other safety mechanisms in place. Really depositors over 250k do need to take some moral responsibility, even though I think it is better that they be made whole to stave off a 2008 style financial crisis.
- tempestn 4y ago
  So what is the risk premium they were collecting? The time savings of not managing multiple accounts? Is it really desirable for larger depositors to carry the inefficiency of spreading their deposits across multiple banks, if the net liabilities of the banks end up being the same?
  - 331c8c71 4y ago
    Doesn't matter. The rules are the rules.
    - 331c8c71 4y ago
      There should have been 1) repayment of the insured amounts 2) liquidation of assets 3) repayment of the rest (likely with a haircut). 4) (optionally) a legislative reform (if the current system seems not adequate anymore)
  - dtf 4y ago
    The risk premium was access to a large and very cheap credit facility: https://twitter.com/jonwu_/status/1634250770555219970 https://twitter.com/jonwu_/status/1634250770555219970
  - r_hoods_ghost 4y ago
    Net doesn't matter to the individual firm. And who should carry it? Everyone else who had the gumption to spend, what, a few man hours, to guarantee that they won't end up not being g able to make pay roll?
jimnotgym 4y ago
Hang on, companies with over 250k on deposit should be, or be engaging finance experts. YC should have finance experts.
- thesimon 4y ago
  If lots of millionaires were losing money, everyone would say that the should have known better and had finance experts help them manage their money. But somehow the same doesn't hold true for companies.
  - hellojesus 4y ago
    Especially considering the government disallows people that aren't "qualified investors" from investing in specific asset classes entirely because people that don't meet that threshold are just too stupid to participate.
watwut 4y ago
No, VCs who literally demanded they put their money there did. Guess who cries the most about bail out - VCs. The same people who wanted regulations to ease up, the same people that actually indirectly profited from bank taking higher risk. It is ridiculous that the supposedly smartest groups whose literally did this to themselves gets bailed out.
- headsoup 4y ago
  By design I would guess
eshnil 4y ago
They don't need to do extra due diligence. Just buy insurance for the excess amount above the FDIC limit. After all, they do benefit from the upside like cheaper mortgages for execs.
subsistence234 4y ago
>most SVB customers I'm just a little smol bean startup with a 9 figure valuation not a finance expert, how could I have any idea about financial markets or risk?
RandomLensman 4y ago
One way this could create moral hazard is that large depositors are happy to lend to quite risky banks at high rates because they know they will be made whole in case of a bank failure. Btw., this could also make deposits less sticky as moving for opportunity has no downside in such a scenario.
ClumsyPilot 4y ago
> Most SVB customers, unless they are finance experts, are not in any position to do due diligence Someone wants to have it both ways - they are sophisticated investors and entreneurs when it suits them. Leaders of our time, telling the rest of us how to live. Other times, they can't be expected to have basic financial literacy or consult a financial adviusor accessible to a regullar joe

op00to 4y ago

You don't know that a "certain class of society/account-holder is" being bailed out. Maybe you think it's likely, but the only people who really know the deal is the FDIC, and they seem confident that everything will wrap up cleanly.

alistairSH 4y ago
FDIC typically insures up to $250k. The government is now doing a one-off (well, two-off) to make ALL depositors whole. "People with in excess of $250k cash" is most assuredly a "certain class of society". Or, maybe a few classes - rich individuals AND small companies. In either case, both groups should be better diversified OR have insurance against banking losses. The FDIC limit isn't unpublished - it's well known among people with even moderate amounts of cash.
- op00to 4y ago
  The FDIC limit comes into play when there are no underlying assets to distribute to depositors. If the bank has no assets, it's likely all you'll see is $250k. If there are assets, they can be disposed of, and the depositors with over $250k can receive dividends. The fact that the FDIC is confident that the deposits will be available says to me they were able to successfully sell enough assets to ensure liquidity for whoever took over the deposits. This isn't a "government two-off to make ALL depositors whole". This is how these bank failures happen.
ClumsyPilot 4y ago
The class is quite clear -weathly and risk taking and/or stupid/doesnt read the fine print.
miguelazo 4y ago
Umm, yes I do. I read the joint press release which stated exactly that.