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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 Frid

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.
- cormacrelf 4y ago
  If the bank is being mismanaged, it should still collapse. The FDIC steps in, bankruptcy courts are really good at distributing funds or someone buys the assets and the debt & underwrites it & boots it all up again, the original bank dies and it’s operators suffer reputational damage, and everyone learns a bit about banks, insurance premiums get adjusted and life goes on. If the bank was so bad at its job, then this should happen. It could even have happened on Friday, if people came to an agreement and got enough money to survive out before accelerating withdrawals. I am talking about the period just prior to when the bank ceases normal operation, when everyone is panicking and deciding whether to withdraw everything. People in bank runs are judging the behaviour of other participants. If you think everyone else is going to do that, then yes, it’s rational to do that ASAP. If you have all day to talk about it, and everyone relevant is in the room, then if possible you don’t do that. Because bank runs are bad! You might try to soften the blow, even out the damage, ensure nobody’s left behind, and then get the bank to go down gracefully. The people here acted as if they thought the bank run would go on until all the money was drained, or worse, as if bankruptcy meant getting pennies on the dollar. Of course that wasn’t going to happen. Maybe 20% got out, which amplified losses slightly for the slower reactors. Was the risk of a few percent worth causing a panic and threatening a larger one? No! But no, it had to be run run run, full speed, and then threaten the government with more panic if they didn’t bail it out. This path is greedy and needy, and it will not make big tech any less of a pariah in the American psyche. PS, I think much of this irrational behaviour may be attributable to the 250k insurance cap. Everyone sees that figure and sees the absolute worst case scenario, blinded to the actual likely amount they’ll get back from someone selling off the assets. When you have $10 million in there it looks really bad even if it’s really fine. If you have to force people to pay for 100% insurance coverage just so they don’t all act like idiots in the face of a run, then maybe that is worth it.
cormacrelf 4y ago
Oh, something I missed… Torrenegra claims in that post that not only did he and his friends start the run, he bought SVB shares on Friday hoping to profit from the run. Sounds totally rational. He apparently thought assets were less than liabilities so needed to get his funds out lest he be left with nothing, but also thought assets so far exceeded liabilities that the shares were undervalued. Very smart man! Few are familiar with this branch of financial quantum physics.

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.

cormacrelf 4y ago
If the bank is being mismanaged, it should still collapse. The FDIC steps in, bankruptcy courts are really good at distributing funds or someone buys the assets and the debt & underwrites it & boots it all up again, the original bank dies and it’s operators suffer reputational damage, and everyone learns a bit about banks, insurance premiums get adjusted and life goes on. If the bank was so bad at its job, then this should happen. It could even have happened on Friday, if people came to an agreement and got enough money to survive out before accelerating withdrawals. I am talking about the period just prior to when the bank ceases normal operation, when everyone is panicking and deciding whether to withdraw everything. People in bank runs are judging the behaviour of other participants. If you think everyone else is going to do that, then yes, it’s rational to do that ASAP. If you have all day to talk about it, and everyone relevant is in the room, then if possible you don’t do that. Because bank runs are bad! You might try to soften the blow, even out the damage, ensure nobody’s left behind, and then get the bank to go down gracefully. The people here acted as if they thought the bank run would go on until all the money was drained, or worse, as if bankruptcy meant getting pennies on the dollar. Of course that wasn’t going to happen. Maybe 20% got out, which amplified losses slightly for the slower reactors. Was the risk of a few percent worth causing a panic and threatening a larger one? No! But no, it had to be run run run, full speed, and then threaten the government with more panic if they didn’t bail it out. This path is greedy and needy, and it will not make big tech any less of a pariah in the American psyche. PS, I think much of this irrational behaviour may be attributable to the 250k insurance cap. Everyone sees that figure and sees the absolute worst case scenario, blinded to the actual likely amount they’ll get back from someone selling off the assets. When you have $10 million in there it looks really bad even if it’s really fine. If you have to force people to pay for 100% insurance coverage just so they don’t all act like idiots in the face of a run, then maybe that is worth it.

cormacrelf 4y ago

Oh, something I missed… Torrenegra claims in that post that not only did he and his friends start the run, he bought SVB shares on Friday hoping to profit from the run. Sounds totally rational. He apparently thought assets were less than liabilities so needed to get his funds out lest he be left with nothing, but also thought assets so far exceeded liabilities that the shares were undervalued. Very smart man! Few are familiar with this branch of financial quantum physics.