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It is not inept. People aren't however pointing out the actual switcheroo here: by the definitions everyone was using just 48 hours ago SVB was not systemically

It is not inept. People aren't however pointing out the actual switcheroo here: by the definitions everyone was using just 48 hours ago SVB was not systemically important nor did it post systemic risk. That designation was meant to be for financial institutions that were directly depended on by other financial institutions. Nobody is saying that's true here. What Yellen has done now is redefine "bank that poses systemic risk" to mean "any bank at all", which in turn shows that the insurance limit was never real, and that in turn the winners of the system are those who don't believe in the rules, but rather those who gamble on duplicity and the socialist leanings of government employees. Those who tried to believe in the honesty of the system got burned, again, and those who bet on it being meaningless won, again. The long term consequences are fearful.

HPMOR 4y ago
You're correct, in that it was not immediately clear whether SVB warranted the systemic risk declaration. However, it should appear clear that fear is very contagious and it has never been easier to move tens of billions of dollars of deposits with just a few button clicks. This poses a sincere risk to banks not already declared Systematically Important Banks (SIBS). The Treasury and Federal Reserve correctly intuit that it would cost far more to the real economy, and to tax payers to cover the cost of SIBs then it would be to signal that uninsured depositors will be made whole. Your claim that "those who believed in the honesty of the system got burned again", is not entirely true. Equity and debt holders have been completely wiped out. Compared to the Trouble Asset Relief Program (TARP), in 2008, this barely constitutes a bailout. Furthermore, if the Frank-Dodd stress test requirements for banks with greater than $50 billion had not been relaxed in 2018 to $250 billion, then SVB and Signature bank would have been seized and sold off well before there was this bank run. It is clear that even smaller regional banks need to face the same rigorous stress tests that SIBs face.
- fidgewidge 4y ago
  it should appear clear that fear is very contagious This can be true, and the Fed's move can be the right one, and it can still be case that the system has been dishonestly socialized by the back door and that this will have terrible long term consequences. It can also be that the Fed's fears were overblown and that in fact letting SVB and a few other similar banks fail would not wreck the entire system. Equity and debt holders have been completely wiped out. Only those who were bag holding at the moment of collapse. There will have been plenty of equity and debt holders who profited from SVB's risk-taking behavior and got out in time to realize that profit. The lesson bank equity holders will learn here is not that banks need to be more careful. It's that you can set up a bank, drive custom and profit with hyper-risky tactics, and as long as you sell your stake before the fraud collapses you'll not only get away scott free but nobody will even care because the large numbers of angry people who might organize politically to get justice will all be bought off by taxes on everyone else.

HPMOR 4y ago

You're correct, in that it was not immediately clear whether SVB warranted the systemic risk declaration. However, it should appear clear that fear is very contagious and it has never been easier to move tens of billions of dollars of deposits with just a few button clicks. This poses a sincere risk to banks not already declared Systematically Important Banks (SIBS). The Treasury and Federal Reserve correctly intuit that it would cost far more to the real economy, and to tax payers to cover the cost of SIBs then it would be to signal that uninsured depositors will be made whole. Your claim that "those who believed in the honesty of the system got burned again", is not entirely true. Equity and debt holders have been completely wiped out. Compared to the Trouble Asset Relief Program (TARP), in 2008, this barely constitutes a bailout. Furthermore, if the Frank-Dodd stress test requirements for banks with greater than $50 billion had not been relaxed in 2018 to $250 billion, then SVB and Signature bank would have been seized and sold off well before there was this bank run. It is clear that even smaller regional banks need to face the same rigorous stress tests that SIBs face.

fidgewidge 4y ago
it should appear clear that fear is very contagious This can be true, and the Fed's move can be the right one, and it can still be case that the system has been dishonestly socialized by the back door and that this will have terrible long term consequences. It can also be that the Fed's fears were overblown and that in fact letting SVB and a few other similar banks fail would not wreck the entire system. Equity and debt holders have been completely wiped out. Only those who were bag holding at the moment of collapse. There will have been plenty of equity and debt holders who profited from SVB's risk-taking behavior and got out in time to realize that profit. The lesson bank equity holders will learn here is not that banks need to be more careful. It's that you can set up a bank, drive custom and profit with hyper-risky tactics, and as long as you sell your stake before the fraud collapses you'll not only get away scott free but nobody will even care because the large numbers of angry people who might organize politically to get justice will all be bought off by taxes on everyone else.