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Chris Hayes on Twitter: > These billionaire VC's started a bank run on their own bank and then immediately pivoted to screaming for a government backstop. Incr

Chris Hayes on Twitter: > These billionaire VC's started a bank run on their own bank and then immediately pivoted to screaming for a government backstop. Incredible stuff. > It's really not even clear SVB was in such terrible shape on the merits. Was def squeezed, for sure, but really looks like their little group chat knocked it over! https://twitter.com/chrislhayes/status/1635136751516938240 https://twitter.com/chrislhayes/status/1635136751516938240

Joeboy 4y ago
> These billionaire VC's started a bank run on their own bank Are they talking about short sellers talking up the bank run, or just companies that withdrew funds so they could pay their employees?
- jpgvm 4y ago
  They are talking about VCs that pulled their fund capital + advised portfolio companies to move all their deposits to Big 4 banks. i.e inciting a bank run.
makomk 4y ago
This seems to miss the point by a mile. The reason this backstop is necessary is because without one, pulling your funds is the rational decision as soon as it's "not even clear" whether the bank is in good enough shape to back everyone's deposits - the sooner the better, and anyone who ignores the warning signs and waits until it's definitely clear that the bank is bankrupt is going to get screwed.
- cormacrelf 4y ago
  You are describing the unbridled panic of a hundred extremely frightened VCs and startup CFOs as “rational” behaviour. The bank did not have to collapse on Friday. If it had not collapsed then none of these people would have had their funds locked up in the bankruptcy settlement. I’m not saying it’s all their fault, but they engaged in a big discussion in which they could have agreed on some collective action, and then somehow decided to each act in their own interests and withdraw at full speed, seeing (and I quote Alexander Torrenegra https://twitter.com/torrenegra/status/1634573234187407369 https://twitter.com/torrenegra/status/1634573234187407369), “only upside, no downside” to that approach. If everyone was talking to each other, and they’re so smart and rational, why didn’t they decide to have everyone take out a small amount to cover essentials like payroll? Was it maybe… greed? Lack of ingenuity? To be fair, bank runs do happen, but everyone who caused this one was in a big old group chat and they could have prevented it, and nobody had the idea. If it was so rational, why did they continue to demand a bailout even after it became clear the FDIC would get them nearly 100% back? Was it maybe… greed? God forbid that anyone lose even a few cents of uninsured deposits. What happened to paying for extra insurance? Now they complain about contagion to get a bailout, contagion which they began and continued.
  - Gibbon1 4y ago
    > If it was so rational, why did they continue to demand a bailout even after it became clear the FDIC would get them nearly 100% back? Was it maybe… greed? People hate this when I say it but ideology makes you a dummy. And that's what they were being because of their paranoid libertarian ideology.
  - junofan 4y ago
    It’s a bank account. You just open another one. Why bother coordinating with anyone? How’s that greed?
    - cormacrelf 4y ago
      I don’t know if you noticed, but everyone withdrawing at once is what caused the bank to collapse. Some of them got all their cash out, many of them got locked up and risked not have enough uninsured funds to continue doing business for another week. Agreeing not to withdraw all at once can get to an outcome where nobody has 100% of their funds accessible, but nobody is in that bad position. Since most participants would be happier with that than a risk of not making payroll, the goal was to agree on collective action to find the latter outcome. Lots of financial transaction competitions end up with optimal game-theoretic solutions because the participants are actually rational. Here, they failed, and are now whinging like little babies.
  - makomk 4y ago
    You're right that without the bank run SVB probably wouldn't have collapsed on Friday and might well have held on for a few more weeks or months. That's not really enough though; in order for pulling your money early and parking it safer not to be the sensible choice everyone would need to know that it wouldn't collapse at all, and the best anyone's been able to offer is that it might have survived. There's this weird sentiment that it's all the fault of stupid Silicon Valley startup bros for not keeping their money in a bank that was flashing warning signs, and also that keeping large amount of money in a bank that's showing signs of failure is such a bad decision that making people and companies who do it whole causes moral hazard. You really cannot have both those things at once.
- MomoXenosaga 4y ago
  You don't solve a bankrun you prevent it from happening. It's like nuclear war- the only winning move is not to play.
- Radim 4y ago
  > The reason this backstop is necessary is because without one, pulling your funds is the rational decision Have you considered that rational decision may actually be a rational decision? As in, something is actually wrong there, with the way banking is done? It seems your thinking stops at "Rational actors would expose a problem with the current style of banking. Therefore, stop rational actors from acting, in order to PROP UP that same style of banking." The moral hazard is real. People who point to it are simply one step ahead of you in how such actions necessarily pan out over time, not "missing the point by a mile".
acjacobson 4y ago
This is the most problematic part to me because not only did the VCs exacerbate the run on SVB, they threatened to start runs on other regional banks. Several said that if SVB didn't get 100% depositor coverage that they would assume any regional bank could fail, and thus everyone should move to something safe like JP Morgan. By the time they started to say this publicly they already instructed portfolio companies move out of regional banks. Many were in the process of doing so. The Fed / FDIC can see this happening and now are over a barrel. So the VCs managed to start one run, then jump up and down yelling to be saved OR ELSE we are going to actively start a series of runs by undermining trust. It's super cynical, and basically allowed the banking system to be held hostage. Now I am not someone who thinks there shouldn't be some kind of action to help out depositors. For me the biggest issue is cash flow, and if uninsured depositors can be helped very quickly to make sure their businesses don't fail (because they can, SVB has the assets) then the government should make that happen. But somehow that wasn't good enough for the VCs. They yelled that its 100% secured deposits or nothing. And it's really uncomfortable that we allow them to have that kind of leverage.
- Ekaros 4y ago
  I think this is the place where legislation proposed in some countries against bank runs would be good thing. Essentially when you are one manufacturing whole scenario, you should risk some blame...
- pydry 4y ago
  >The Fed / FDIC can see this happening and now are over a barrel. So the VCs managed to start one run, then jump up and down yelling to be saved OR ELSE we are going to actively start a series of runs by undermining trust. It's super cynical, and basically allowed the banking system to be held hostage. That's the risk you run investing in a bank. Better this than the 2008 bailouts when the banks ran themselves into the ground for profit and were still made whole. And, better this than spooking the entire financial system by not protecting deposits.
- Raptor22 4y ago
  You and I both know that as messed up as this was, nothing will be done to reign in the power of these VC's. I always vaguely knew that the billionaire class has the government over a barrel, but now they know, concretely, with real world evidence, that this is the case.

Joeboy 4y ago

> These billionaire VC's started a bank run on their own bank Are they talking about short sellers talking up the bank run, or just companies that withdrew funds so they could pay their employees?

jpgvm 4y ago
They are talking about VCs that pulled their fund capital + advised portfolio companies to move all their deposits to Big 4 banks. i.e inciting a bank run.

makomk 4y ago

This seems to miss the point by a mile. The reason this backstop is necessary is because without one, pulling your funds is the rational decision as soon as it's "not even clear" whether the bank is in good enough shape to back everyone's deposits - the sooner the better, and anyone who ignores the warning signs and waits until it's definitely clear that the bank is bankrupt is going to get screwed.

cormacrelf 4y ago
You are describing the unbridled panic of a hundred extremely frightened VCs and startup CFOs as “rational” behaviour. The bank did not have to collapse on Friday. If it had not collapsed then none of these people would have had their funds locked up in the bankruptcy settlement. I’m not saying it’s all their fault, but they engaged in a big discussion in which they could have agreed on some collective action, and then somehow decided to each act in their own interests and withdraw at full speed, seeing (and I quote Alexander Torrenegra https://twitter.com/torrenegra/status/1634573234187407369 https://twitter.com/torrenegra/status/1634573234187407369), “only upside, no downside” to that approach. If everyone was talking to each other, and they’re so smart and rational, why didn’t they decide to have everyone take out a small amount to cover essentials like payroll? Was it maybe… greed? Lack of ingenuity? To be fair, bank runs do happen, but everyone who caused this one was in a big old group chat and they could have prevented it, and nobody had the idea. If it was so rational, why did they continue to demand a bailout even after it became clear the FDIC would get them nearly 100% back? Was it maybe… greed? God forbid that anyone lose even a few cents of uninsured deposits. What happened to paying for extra insurance? Now they complain about contagion to get a bailout, contagion which they began and continued.
- Gibbon1 4y ago
  > If it was so rational, why did they continue to demand a bailout even after it became clear the FDIC would get them nearly 100% back? Was it maybe… greed? People hate this when I say it but ideology makes you a dummy. And that's what they were being because of their paranoid libertarian ideology.
- junofan 4y ago
  It’s a bank account. You just open another one. Why bother coordinating with anyone? How’s that greed?
  - cormacrelf 4y ago
    I don’t know if you noticed, but everyone withdrawing at once is what caused the bank to collapse. Some of them got all their cash out, many of them got locked up and risked not have enough uninsured funds to continue doing business for another week. Agreeing not to withdraw all at once can get to an outcome where nobody has 100% of their funds accessible, but nobody is in that bad position. Since most participants would be happier with that than a risk of not making payroll, the goal was to agree on collective action to find the latter outcome. Lots of financial transaction competitions end up with optimal game-theoretic solutions because the participants are actually rational. Here, they failed, and are now whinging like little babies.
- makomk 4y ago
  You're right that without the bank run SVB probably wouldn't have collapsed on Friday and might well have held on for a few more weeks or months. That's not really enough though; in order for pulling your money early and parking it safer not to be the sensible choice everyone would need to know that it wouldn't collapse at all, and the best anyone's been able to offer is that it might have survived. There's this weird sentiment that it's all the fault of stupid Silicon Valley startup bros for not keeping their money in a bank that was flashing warning signs, and also that keeping large amount of money in a bank that's showing signs of failure is such a bad decision that making people and companies who do it whole causes moral hazard. You really cannot have both those things at once.
MomoXenosaga 4y ago
You don't solve a bankrun you prevent it from happening. It's like nuclear war- the only winning move is not to play.
Radim 4y ago
> The reason this backstop is necessary is because without one, pulling your funds is the rational decision Have you considered that rational decision may actually be a rational decision? As in, something is actually wrong there, with the way banking is done? It seems your thinking stops at "Rational actors would expose a problem with the current style of banking. Therefore, stop rational actors from acting, in order to PROP UP that same style of banking." The moral hazard is real. People who point to it are simply one step ahead of you in how such actions necessarily pan out over time, not "missing the point by a mile".

acjacobson 4y ago

This is the most problematic part to me because not only did the VCs exacerbate the run on SVB, they threatened to start runs on other regional banks. Several said that if SVB didn't get 100% depositor coverage that they would assume any regional bank could fail, and thus everyone should move to something safe like JP Morgan. By the time they started to say this publicly they already instructed portfolio companies move out of regional banks. Many were in the process of doing so. The Fed / FDIC can see this happening and now are over a barrel. So the VCs managed to start one run, then jump up and down yelling to be saved OR ELSE we are going to actively start a series of runs by undermining trust. It's super cynical, and basically allowed the banking system to be held hostage. Now I am not someone who thinks there shouldn't be some kind of action to help out depositors. For me the biggest issue is cash flow, and if uninsured depositors can be helped very quickly to make sure their businesses don't fail (because they can, SVB has the assets) then the government should make that happen. But somehow that wasn't good enough for the VCs. They yelled that its 100% secured deposits or nothing. And it's really uncomfortable that we allow them to have that kind of leverage.

Ekaros 4y ago
I think this is the place where legislation proposed in some countries against bank runs would be good thing. Essentially when you are one manufacturing whole scenario, you should risk some blame...
pydry 4y ago
>The Fed / FDIC can see this happening and now are over a barrel. So the VCs managed to start one run, then jump up and down yelling to be saved OR ELSE we are going to actively start a series of runs by undermining trust. It's super cynical, and basically allowed the banking system to be held hostage. That's the risk you run investing in a bank. Better this than the 2008 bailouts when the banks ran themselves into the ground for profit and were still made whole. And, better this than spooking the entire financial system by not protecting deposits.
Raptor22 4y ago
You and I both know that as messed up as this was, nothing will be done to reign in the power of these VC's. I always vaguely knew that the billionaire class has the government over a barrel, but now they know, concretely, with real world evidence, that this is the case.