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I disagree with this non-bailout bailout, but I can somewhat easily generate one such response without even engaging my brain. As a member of this society, you,
by A4ET8a8uTh0 4y ago
I disagree with this non-bailout bailout, but I can somewhat easily generate one such response without even engaging my brain. As a member of this society, you, by default, have skin in the game. If you do not want to see a run on more banks as a result of wide-spread panic that would effectively undermine the entire system and result in unpredictable chaos ( as opposed to predictable anger that can be managed ), then the choice seems relatively simple. Unless, naturally, one does not want to enjoy relative stability.
- eru 4y agoIt's not so simple. More bailouts now, lead to riskier behaviour in the future.
- ok_dad 4y agoThose who took the risks are losing their shirts: the shareholders and debtors of SVB and its executive staff.
- Lionga 4y agoAny accountholder at SVB is a debitor to SVB. They are getting the bailout, while they clearly took the risk for anything above 250K
- sokoloff 4y ago> Any accountholder at SVB is a debitor to SVB. One with deposits in the bank is a creditor. One with a loan from the bank is a debtor/debitor.
- justsayinstuff 4y agoAre the executives really losing their shirts? Their bonuses better be clawed back.
- eru 4y agoIt's a shame that we are trying to shield depositors from all risks. It's better to have more people watching out for danger.
- edanm 4y agoOn the other hand, not trusting banks with your deposits causes less people to use the banking system, which is also (presumably) bad.
- eru 4y agoPeople used Scottish banks just fine during the Scottish free banking era.
- A4ET8a8uTh0 4y agoI guess what I am really saying between Yellen's carefully worded statement and Summer's hand wringing about 'contagion/extinction/whathaveyou' event and is that this action is very easy to defend on merits despite being very unpopular. I would hate to have to make this decision and I remember being pissed off in 2008 ( while technically being an indirect beneficiary of that policy ). But even your counter can be addressed. Future risk is something that can be addressed once SVB is stablized and contagion contained. On the other hand, unrest following multiple startup blowup is a lot less predictable. The question becomes: which risk is worse ( potential risky behavior later vs contagion now ). Immediate risk seems worse to Yellen and her friends. I personally disagree, but I have no power over those decisions so I can relatively easily rely on principle. I wish I could claim I would do differently were I in her shoes.
- eru 4y ago> Future risk is something that can be addressed once SVB is stablized and contagion contained. On the other hand, unrest following multiple startup blowup is a lot less predictable. We had exactly the same arguments during the last bailouts. The future of back then is today.
- A4ET8a8uTh0 4y agoAnd things were addressed. And they worked.. until the restrictions that followed 2008 were lifted.
- eru 4y agoNo, that's a red herring.
- A4ET8a8uTh0 4y agoHm? How so. It is a genuine question as I fail to see how that is even a valid talking point.
- hdhuegau6hfhd 4y ago
- pmontra 4y agoIt seems that the risky behavior was buying low rate bonds when inflation was low. Is the lesson to learn buy bonds only when inflation is high and rates are high?
- tlb 4y agoShort-term bonds have low risk. Long-term bonds are volatile and can go up or down opposite interest rates. SVB made a huge bet on interest rates not going up, and lost. In an alternate world where interest rates went back to zero, they could have made a sweet profit. Banks should have limits on how much they can gamble like this.
- eru 4y agoMaking depositors share more in the risks would hopefully make them more risk averse, causing them to move their money before it's too late.
- pmontra 4y agoI'm not sure about that. As a depositor I put my money in an account and forget about it. We do have to put money in an account, right? I think about that money again when I want to invest it or when I need it to buy something big. Everything else is ATM and credit card, or equivalent stuff. But getting money from a customer or an employer and automatically adding it to a bank account should not become the same thing as investing in the stocks of that bank. Keeping at least a weekly eye on my bank is too much of a burden. The only thing I do is make sure that my balance is well below the limit the state will pay back to account holders is the bank blows up. That's not difficult.
- eru 4y ago> I'm not sure about that. As a depositor I put my money in an account and forget about it. We do have to put money in an account, right? It would be preferable if the regulatory environment would make sure that you as a depositor have an incentive to hold the bank to account. Yes, you shouldn't have to keep a weekly look on your bank's soundness. You should be able to outsource that burden easily. Eg with FDIC gone, private deposit insurance would still be allowed. And of course, journalists would also still be allowed to report on banks. Those stories might have a wider audience than now.
- sebzim4500 4y agoHow does making depositors whole encourage banks to take more risks? The investors in SVB are still getting nothing.
- eru 4y agoIt makes it easier for risky banks to attract cheap deposits in future.