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Companies making payroll or not is where the general public's skin in the game comes from. We can let them fail by crossing our arms, but this would lead to mas
by epups 4y ago
Companies making payroll or not is where the general public's skin in the game comes from. We can let them fail by crossing our arms, but this would lead to mass layoffs and financial turmoil as otherwise healthy companies have to shut doors due to this bank's mistakes. This would then also likely lead to a huge bank run, as most other companies realize they have to diversify their accounts and start scrambling to divert money at the same time.
I would also like to add that the vast majority of people losing their money were not betting on a risky asset. They merely had bank accounts with an institution that was mismanaged. We are not bailing out risk-takers like we did in 2008.
- thesimon 4y ago> I would also like to add that the vast majority of people losing their money were not betting on a risky asset But keeping all your money in one bank is surely a huge, obvious risk?
- epups 4y agoI think you are referring to the $250k limit. It's not very practical for companies to diversify according to that limit. Apple has 50 billion in reserves, do you think they can find 200 thousand banks to spread that around?
- tetrahedr0n 4y ago> Apple has 50 billion in reserves, do you think they can find 200 thousand banks to spread that around? Good question and of course, that's not likely. But then 50B in reserves isn't something you keep in a bank account, it's something you have rolled into several different financial instruments with varying levels of available liquidity.
- creato 4y ago> it's something you have rolled into several different financial instruments with varying levels of available liquidity. Like… SVB
- epups 4y agoCertainly, but what should be clear here is that we are not rescuing a failed investment. We are not giving out money to those who lost on crypto or whatever other risky asset. People are getting furious because they think something analogous to that is actually happening, when in fact all those companies are not at fault and did not benefit from SVB's suboptimal resource allocation.
- deleted 4y ago[deleted]
- JamesDough 4y agoIf you have 50 billion in reserves, isn't it easier (and possibly cheaper) to have your own bank? Maybe someone can chime in why that isn't feasible.
- logifail 4y ago> mass layoffs and financial turmoil as otherwise healthy companies have to shut doors due to this bank's mistakes Perhaps I'm missing something, but I would suggest that one key aspect of a company being able to call itself healthy is that its finances are diversified.
- jonhohle 4y agoIs it feasible to keep active cash flow spread across multiple financial institutions? (Honest question) Being insured for $250k is payroll for about 10 people for a month. If your other funds were in a line of credit that abruptly closed or in equities that may not be worth as much when everyone shows up on Monday, what options are there?
- bruce343434 4y ago25k a month for salary? I'd love to work at your place!
- jonhohle 4y agoThese are SV companies plus payroll costs 1.25-1.5x employee salary (benefits, taxes, and insurance don’t appear out of thin air).
- bruce343434 4y ago"Worst case" that's still 16.66K per month. Sign me up!
- jonhohle 4y agoI’d say, go look for a job in the Bat Area, except, that might not be such a good idea right now ;-) that’s not out of line for an engineering salary there. (The trick is, get one of those companies to pay you Bay Area rates while you live in a much lower cost of living area working remotely!)
- 4y ago