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The old saying goes: the federal reserve raises rates until something breaks People seem to think the backstop is some sort of moral hazard. But they’re ignori

The old saying goes: the federal reserve raises rates until something breaks People seem to think the backstop is some sort of moral hazard. But they’re ignoring the decision making principals, equity holders, and unsecured bond holders are all being left holding the bag on the bailouts and they’re not faced with a moral hazard. The only ones being protected are the customers of the bank, who had absolutely no say in the management of the bank. So, yeah. Not impressed with the moral hazard and “let them fail” argument.

nerdponx 4y ago
I agree with this, except that just losing your job and investments probably isn't a material punishment for many of the people involved.
- fnordpiglet 4y ago
  “Destroyed my last bank” isn’t great resume fodder. I would imagine they’re doing the jobs they do because they either can’t afford to retire, or do not want to retire. I think no one wants to destroy their careers. I do find it fascinating that bankers are one of the few professions that if you go bankrupt the public opinion is no torture is sufficient for the principals.
  - nerdponx 4y ago
    I think it's any career in which your bad decisions have the potential to harm millions of people, whether you're a bank executive or a rail freight executive hauling huge amounts of poisonous chemicals through residential neighborhoods. The difference is that in banking specifically, the regulations seem to have some amount of teeth, so it's tantalizing to see executives receiving any material consequences at all. Meanwhile I don't see the Norfolk Southern shareholders losing money or their executives losing their jobs. The incident is barely visible in Norfolk Southern stock prices.
    - fnordpiglet 4y ago
      Well don’t forget they didn’t do anything criminal and in a normal turn of events it would have been a note in the quarterly disclosures. The bank run wasn’t a necessity to happen, and I don’t know how culpable they are for it. Certainly they could have done their jobs better and hedged interest rates etc. Also remember in banking a large percent of your annual compensation is in deferred compensation and often with a long clawback period. These folks could have stood to lose something like 5 years or more of their total compensation. They’re not billionaires, and they’re not likely all that rich (just a wee rich). This will hurt them a lot. Maybe not as much as a kick in the balls but this isn’t a no-op as many people seem to think. It’s enough that no one will look at this with “ooo I should do that” intent for sure.
theGnuMe 4y ago
I mean it's like printed everywhere that deposits over $250k may lose value... how do you reconcile that?
- fnordpiglet 4y ago
  By reading the news. The fdic insurance is the absolute minimum you can recoup. It’s not a cap, it’s a floor. The fed, treasury, etc have said no business disruption will occur for depositors or customers.
- gruez 4y ago
  >I mean it's like printed everywhere that deposits over $250k may lose value The fed announcement yesterday said no depositors will lose any money. >Depositors will have access to all of their money starting Monday, March 13. [...] All depositors of this institution will be made whole.

nerdponx 4y ago

I agree with this, except that just losing your job and investments probably isn't a material punishment for many of the people involved.

fnordpiglet 4y ago
“Destroyed my last bank” isn’t great resume fodder. I would imagine they’re doing the jobs they do because they either can’t afford to retire, or do not want to retire. I think no one wants to destroy their careers. I do find it fascinating that bankers are one of the few professions that if you go bankrupt the public opinion is no torture is sufficient for the principals.
- nerdponx 4y ago
  I think it's any career in which your bad decisions have the potential to harm millions of people, whether you're a bank executive or a rail freight executive hauling huge amounts of poisonous chemicals through residential neighborhoods. The difference is that in banking specifically, the regulations seem to have some amount of teeth, so it's tantalizing to see executives receiving any material consequences at all. Meanwhile I don't see the Norfolk Southern shareholders losing money or their executives losing their jobs. The incident is barely visible in Norfolk Southern stock prices.
  - fnordpiglet 4y ago
    Well don’t forget they didn’t do anything criminal and in a normal turn of events it would have been a note in the quarterly disclosures. The bank run wasn’t a necessity to happen, and I don’t know how culpable they are for it. Certainly they could have done their jobs better and hedged interest rates etc. Also remember in banking a large percent of your annual compensation is in deferred compensation and often with a long clawback period. These folks could have stood to lose something like 5 years or more of their total compensation. They’re not billionaires, and they’re not likely all that rich (just a wee rich). This will hurt them a lot. Maybe not as much as a kick in the balls but this isn’t a no-op as many people seem to think. It’s enough that no one will look at this with “ooo I should do that” intent for sure.

theGnuMe 4y ago

I mean it's like printed everywhere that deposits over $250k may lose value... how do you reconcile that?

fnordpiglet 4y ago
By reading the news. The fdic insurance is the absolute minimum you can recoup. It’s not a cap, it’s a floor. The fed, treasury, etc have said no business disruption will occur for depositors or customers.
gruez 4y ago
>I mean it's like printed everywhere that deposits over $250k may lose value The fed announcement yesterday said no depositors will lose any money. >Depositors will have access to all of their money starting Monday, March 13. [...] All depositors of this institution will be made whole.