11 ms·

The fall of SVB and how I tried to save as many straps as I could

31 points by gsibble 4y ago

h2odragon 4y ago
Since the regulations "changed" to enable the bailout, you may have a good case to sue the Fed and the Treasury for some portion of your expected profits, no?
- gsibble 4y ago
  Ha! Now there's an idea.
- deleted 4y ago
  [deleted]
- amanj41 4y ago
  In a real bailout wouldn't SVB continue to exist?
  - anonymouskimmer 4y ago
    My POV too. I was listening to Bloomberg radio yesterday and the people were all talking about if this is a bailout, and if voters would see it as a bailout. I thought the reason people were pissed at the 2008 bailouts because the actual too-big-to-fail corporations (less Lehman and WaMu) were enabled to continue existing, with their shareholders still owning part of the corporations. Here it's only the depositors who are being made whole.
    - whitemary 4y ago
      > I thought the reason people were pissed at the 2008 bailouts because the actual too-big-to-fail corporations (less Lehman and WaMu) were enabled to continue existing, with their shareholders still owning part of the corporations. Struggling to take you in good faith, you're wrong either way. Working people were pissed about the 2008 bailout because they were left empty-handed while Wall Street banks and CEOs got bailed out. Your comparison falls flat because there are no working people involved in the SVB situation.
      - anonymouskimmer 4y ago
        Well sure, of course. I don't understand why you are "struggling" to take me in good faith because I left out the part about struggling people. I don't remember it off the top of my head because my financial situation at the time was such that I was so low I didn't have to worry about losing a home or other assets (all I had was a really cheap car, a low end computer, my bed and couch were inflatable). > Your comparison falls flat because there are no working people involved in the SVB situation. Sure there are plenty of people dependent on SVB deposits for their paychecks. And it sucks to be an SVB employee. But the shareholders are effectively wiped out, unless and until SVB's assets are eventually sold for more than its liabilities.
        whitemary 4y ago
        You can think whatever you want, but regular working American people, in aggregate, do not consider themselves as having anything at all in common with anyone remotely associated with Silicon Valley startups, which are universally despised by the American people at large. The fact that nobody in Silicon Valley has ever appeared to care what they think until now makes it even worse. These sentiments are so entrenched that this will not change for at least a few generations in the best case. It's just way too late.
        anonymouskimmer 4y ago
        Being pissed off or feeling despite takes more effort than just not caring. I'm annoyed at the support for Carnival and other cruise lines during the early days of the COVID pandemic. I even sent an email (which was answered) to the local Fed branch saying that they should backstop consumer credit card debt the way they were backstopping corporate loans.
  - chernevik 4y ago
    A "bailout" is a mitigation of consequences, generally supported by an injection of cash or a guarantee thereof. It can apply to any class of interests in an enterprise. "Shareholders were bailed", "bondholders were bailed out", "depositors were bailed" -- these are all possible sentences. Shareholder bailouts are the worst but there are negative consequences to all cases.
- themitigating 4y ago
  And where does the government get money from?
  - chernevik 4y ago
    In this case, from assessments on other banks insured by the FDIC. It can be reasonably presumed that these costs, like any other business cost, will somehow be passed on to those banks' customers.
    - themitigating 4y ago
      That's what I was implying.
      - chernevik 4y ago
        sorry
- awkward 4y ago
  The man built a plan to buy other people's money at a discount while they're in distress. He can frame it as pro-socially as he wants, but the taxpayer is absolutely not on the hook for that kind of vulture hedge fund shit.
  - gsibble 4y ago
    I'm definitely not saying I need a bailout. And we were offering 90-95 cents on the dollar while banks and hedge funds were offering 60-70.
    - awkward 4y ago
      Good! That'd keep most businesses in one piece.
      - gsibble 4y ago
        That was our goal. Not to make a profit but to save the ecosystem.
- daenney 4y ago
  Regulations didn't change. The fund they tapped to protect all depositors exists since the financial crisis of 2008. To avoid another global meltdown.
  - h2odragon 4y ago
    I've read that what changed was the definition of "systemically important" which allowed access to that fund. I put quotes around "changed" for that reason. However; if FDIC insurance is not now effectively unlimited, if the next bank that folds get the old limits imposed, then there's going to be some real shouting. And this method of raising those limits sucks and will almost certainly see court.
joncrane 4y ago
I kind of feel like "Shame it wasn't needed, it would have been fun!" was kind of misaligned with the "I was acting in good faith unlike the other vultures" vibe he was trying to sell. "Man I wasted a lot of effort but thank goodness it wasn't needed after all!" is the thing that would have rung true to the "good faith" vibe.
- gsibble 4y ago
  I am glad it wasn't needed. I was also offering significantly better terms and not even making much profit at all.
  - jayparth 4y ago
    So what were the terms? Sort of pointless to write an article and say you were the good guy without saying.
    - gsibble 4y ago
      We were negotiating over 90-95c on the dollar while hedge funds and banks were offering 60-70.
  - joncrane 4y ago
    I have no doubt. I was just bringing up your choice of language. You would have been a hero. It's disappointing when an amazing idea, thrillingly fast and good execution, and the dream of being like a more ethical JP Morgan to the startup world falls through. I can imagine what it might have been like, the ideas and feelings you had must have been even stronger.
- chernevik 4y ago
  Had precisely that vibe to me.
- sramam 4y ago
  I do think that marshaling the self-motivation required to move fast and solve problems is a trait that not many people have. It requires a single-minded focus and probably raises the adrenaline levels for all involved. Unfortunately, many times the effort cannot be put to good use (like here) or worse causes harm to the primary actor(s). In my books, anyone who moves to make or tries to solve problems deserves respect, irrespective of the outcome. There are too few of these people in the world.
jbaczuk 4y ago
"even trigger personal liability of directors and officers for payment" How could this happen?
- AdamJacobMuller 4y ago
  There is a specific california law which pierces the corporate veil specifically for unpaid wages. https://hunterpylelaw.com/2021/02/alter-ego-piercing-the-corporate-veil-in-california-wage-and-hour-cases/ https://hunterpylelaw.com/2021/02/alter-ego-piercing-the-cor...
  - anonymouskimmer 4y ago
    A bank going belly up and temporarily eating deposits of other corporations doesn't strike me as abusive on the part of the depositing corporations. I doubt the corporate veil would be pierced until the business itself goes bust without paying wages. I'm not any kind of lawyer though.
    - gsibble 4y ago
      My attorneys made it 100% clear that missing payroll would make the officers and directors liable immediately in this situation. It was news to a lot of the companies we talked to.
      - deleted 4y ago
        [deleted]
      - jbaczuk 4y ago
        What about the investors, who are also owners, and probably pressured the company to take on debt from SVB?
      - anonymouskimmer 4y ago
        I assume the officers are liable as shareholders? And by the time this liability was pursued in court the SVB replacement should be working well enough to pay everyone. Unless the regulatory agency can demand immediate payment from the accounts of the officers and directors.
amne 4y ago
[flagged]
- kentonv 4y ago
  OK let's extend the analogy. A government agency shows up and, with military-like efficiency, takes everything you have: your cash, your house, your other car, etc. It liquidates it all and uses that to pay back your cousins. You are now bankrupt. The money does't quite fully cover your cousin's loans. They and many other cousins are now threatening to call all their loans made to other family members, which could lead to more bankruptcies. The government makes the special decision to pay them back in full. To do this, it takes money from an insurance fund that all the borrowers in your family have been paying into all along for exactly this purpose. You are left with nothing, but some of your other cousins whine that you got a "bailout".
  - whitemary 4y ago
    > it takes money from an insurance fund that all the borrowers in your family have been paying into all along for exactly this purpose My family has also been paying into that insurance fund and the same thing happened to my family the very next day but all the money in the insurance fund is used up now. I also just learned that the family who received all the funds have been sliding gifts and bribes to the insurance fund managers this whole time.
- gsibble 4y ago
  Solid question.
pcj-github 4y ago
The story would be even more compelling if the author referred to himself in the third person.
- gsibble 4y ago
  Interesting observation. Thanks.
rexreed 4y ago
What is this post? Someone who can casually raise $300M in a weekend? Gets rescued by a government bailout and then said the whole experience is fun? Talks about trading deposits and making loans against them, asking startups to take a haircut while he profits? Is this what the startup universe is now about? Sometimes I feel like I'm in another universe.
- gsibble 4y ago
  It was incredibly fun and a wild experience. We also weren't going to make much profit. We were offering 90-95c on the dollar compared to 60-70 from banks and hedge funds. This was about saving companies and jobs. Thought I'd share.
  - rexreed 4y ago
    How has the startup world devolved to the point that it's primarily about financial movements and shenanigans and not related to technology innovation? I feel we're so far past where technology innovation has come from, and now we simply trade startups as financial products.
    - gsibble 4y ago
      I don't think it has. This was a once in a lifetime kind of thing. My other companies are all innovative technology companies, like you said.
      - capableweb 4y ago
        > Iridium Development - Iridium Development focused on making revolutionary iPhone apps > Distribute- Distribute aimed to be the Alibaba of the US, mostly with wholesale drop shipping. > Materialist - an e-commerce solution, [...] trying to bring wholesale housing products to market. > Dave - personal financial management app > Vizit - Image Analytics > txtsmarter - Communications Surveillance Service We might have different opinions on what counts as "innovative" I guess.
breck 4y ago
This is awesome. Someone stepping up to the plate to solve the problem without asking the public to bail out the richest 1%. Real leadership. Too bad the whiners got rewarded.
- gsibble 4y ago
  Thank you :) That was the idea.
rhapsodic 4y ago
[dead]
chernevik 4y ago
I suspect your customer use cases would have begun in Week 2. Most depositors would be able to cover payroll with the first fraction returned in the early days. Then it's a question of managing cash flow within the tranches doled out by the FDIC as wind-down proceeded. That's when the companies that had cash needs in excess of the wind-down would emerge. At which point I think you'd find that you could no longer buy at 90%. That number applies to the WHOLE deposit balance; but after the FDIC has paid out the initial (say) 30% to 50%, the deposit to asset ratio shrinks considerably. You might loan at that rate, but then you're ultimately secured by the depositor's corporate credit.
JumpinJack_Cash 4y ago
Reading this post makes me realize one thing: The true insurance on funds above 250k for those who were banking with SVB has always been living and working in Silicon Valley. Even if FDIC had decided not to intervene there were at least 2 dozens private players ready to fit the bill. It would have been OP consortium at 95%, or the Hedge Funds at 70%, or JPMorgan at 67% or Wells Fargo at 65%. A regional bank blows up in Mississipi or an Agricultural Bank in Iowa and nobody gives a shit. Public or private , everything above 250k is wiped out. And many millionaires are having a relief because they got 100% via FDIC as opposed to 95% from OP coalition or 70% from the Hedge Funds.

31 points by gsibble 4y ago

Since the regulations "changed" to enable the bailout, you may have a good case to sue the Fed and the Treasury for some portion of your expected profits, no?

gsibble 4y ago
Ha! Now there's an idea.
deleted 4y ago
[deleted]
amanj41 4y ago
In a real bailout wouldn't SVB continue to exist?
- anonymouskimmer 4y ago
  My POV too. I was listening to Bloomberg radio yesterday and the people were all talking about if this is a bailout, and if voters would see it as a bailout. I thought the reason people were pissed at the 2008 bailouts because the actual too-big-to-fail corporations (less Lehman and WaMu) were enabled to continue existing, with their shareholders still owning part of the corporations. Here it's only the depositors who are being made whole.
  - whitemary 4y ago
    > I thought the reason people were pissed at the 2008 bailouts because the actual too-big-to-fail corporations (less Lehman and WaMu) were enabled to continue existing, with their shareholders still owning part of the corporations. Struggling to take you in good faith, you're wrong either way. Working people were pissed about the 2008 bailout because they were left empty-handed while Wall Street banks and CEOs got bailed out. Your comparison falls flat because there are no working people involved in the SVB situation.
    - anonymouskimmer 4y ago
      Well sure, of course. I don't understand why you are "struggling" to take me in good faith because I left out the part about struggling people. I don't remember it off the top of my head because my financial situation at the time was such that I was so low I didn't have to worry about losing a home or other assets (all I had was a really cheap car, a low end computer, my bed and couch were inflatable). > Your comparison falls flat because there are no working people involved in the SVB situation. Sure there are plenty of people dependent on SVB deposits for their paychecks. And it sucks to be an SVB employee. But the shareholders are effectively wiped out, unless and until SVB's assets are eventually sold for more than its liabilities.
      - whitemary 4y ago
        You can think whatever you want, but regular working American people, in aggregate, do not consider themselves as having anything at all in common with anyone remotely associated with Silicon Valley startups, which are universally despised by the American people at large. The fact that nobody in Silicon Valley has ever appeared to care what they think until now makes it even worse. These sentiments are so entrenched that this will not change for at least a few generations in the best case. It's just way too late.
        anonymouskimmer 4y ago
        Being pissed off or feeling despite takes more effort than just not caring. I'm annoyed at the support for Carnival and other cruise lines during the early days of the COVID pandemic. I even sent an email (which was answered) to the local Fed branch saying that they should backstop consumer credit card debt the way they were backstopping corporate loans.
- chernevik 4y ago
  A "bailout" is a mitigation of consequences, generally supported by an injection of cash or a guarantee thereof. It can apply to any class of interests in an enterprise. "Shareholders were bailed", "bondholders were bailed out", "depositors were bailed" -- these are all possible sentences. Shareholder bailouts are the worst but there are negative consequences to all cases.
themitigating 4y ago
And where does the government get money from?
- chernevik 4y ago
  In this case, from assessments on other banks insured by the FDIC. It can be reasonably presumed that these costs, like any other business cost, will somehow be passed on to those banks' customers.
  - themitigating 4y ago
    That's what I was implying.
    - chernevik 4y ago
      sorry
awkward 4y ago
The man built a plan to buy other people's money at a discount while they're in distress. He can frame it as pro-socially as he wants, but the taxpayer is absolutely not on the hook for that kind of vulture hedge fund shit.
- gsibble 4y ago
  I'm definitely not saying I need a bailout. And we were offering 90-95 cents on the dollar while banks and hedge funds were offering 60-70.
  - awkward 4y ago
    Good! That'd keep most businesses in one piece.
    - gsibble 4y ago
      That was our goal. Not to make a profit but to save the ecosystem.
daenney 4y ago
Regulations didn't change. The fund they tapped to protect all depositors exists since the financial crisis of 2008. To avoid another global meltdown.
- h2odragon 4y ago
  I've read that what changed was the definition of "systemically important" which allowed access to that fund. I put quotes around "changed" for that reason. However; if FDIC insurance is not now effectively unlimited, if the next bank that folds get the old limits imposed, then there's going to be some real shouting. And this method of raising those limits sucks and will almost certainly see court.

joncrane 4y ago

I kind of feel like "Shame it wasn't needed, it would have been fun!" was kind of misaligned with the "I was acting in good faith unlike the other vultures" vibe he was trying to sell. "Man I wasted a lot of effort but thank goodness it wasn't needed after all!" is the thing that would have rung true to the "good faith" vibe.

gsibble 4y ago
I am glad it wasn't needed. I was also offering significantly better terms and not even making much profit at all.
- jayparth 4y ago
  So what were the terms? Sort of pointless to write an article and say you were the good guy without saying.
  - gsibble 4y ago
    We were negotiating over 90-95c on the dollar while hedge funds and banks were offering 60-70.
- joncrane 4y ago
  I have no doubt. I was just bringing up your choice of language. You would have been a hero. It's disappointing when an amazing idea, thrillingly fast and good execution, and the dream of being like a more ethical JP Morgan to the startup world falls through. I can imagine what it might have been like, the ideas and feelings you had must have been even stronger.
chernevik 4y ago
Had precisely that vibe to me.
sramam 4y ago
I do think that marshaling the self-motivation required to move fast and solve problems is a trait that not many people have. It requires a single-minded focus and probably raises the adrenaline levels for all involved. Unfortunately, many times the effort cannot be put to good use (like here) or worse causes harm to the primary actor(s). In my books, anyone who moves to make or tries to solve problems deserves respect, irrespective of the outcome. There are too few of these people in the world.

jbaczuk 4y ago

"even trigger personal liability of directors and officers for payment" How could this happen?

AdamJacobMuller 4y ago
There is a specific california law which pierces the corporate veil specifically for unpaid wages. https://hunterpylelaw.com/2021/02/alter-ego-piercing-the-corporate-veil-in-california-wage-and-hour-cases/ https://hunterpylelaw.com/2021/02/alter-ego-piercing-the-cor...
- anonymouskimmer 4y ago
  A bank going belly up and temporarily eating deposits of other corporations doesn't strike me as abusive on the part of the depositing corporations. I doubt the corporate veil would be pierced until the business itself goes bust without paying wages. I'm not any kind of lawyer though.
  - gsibble 4y ago
    My attorneys made it 100% clear that missing payroll would make the officers and directors liable immediately in this situation. It was news to a lot of the companies we talked to.
    - deleted 4y ago
      [deleted]
    - jbaczuk 4y ago
      What about the investors, who are also owners, and probably pressured the company to take on debt from SVB?
    - anonymouskimmer 4y ago
      I assume the officers are liable as shareholders? And by the time this liability was pursued in court the SVB replacement should be working well enough to pay everyone. Unless the regulatory agency can demand immediate payment from the accounts of the officers and directors.

amne 4y ago

[flagged]

kentonv 4y ago
OK let's extend the analogy. A government agency shows up and, with military-like efficiency, takes everything you have: your cash, your house, your other car, etc. It liquidates it all and uses that to pay back your cousins. You are now bankrupt. The money does't quite fully cover your cousin's loans. They and many other cousins are now threatening to call all their loans made to other family members, which could lead to more bankruptcies. The government makes the special decision to pay them back in full. To do this, it takes money from an insurance fund that all the borrowers in your family have been paying into all along for exactly this purpose. You are left with nothing, but some of your other cousins whine that you got a "bailout".
- whitemary 4y ago
  > it takes money from an insurance fund that all the borrowers in your family have been paying into all along for exactly this purpose My family has also been paying into that insurance fund and the same thing happened to my family the very next day but all the money in the insurance fund is used up now. I also just learned that the family who received all the funds have been sliding gifts and bribes to the insurance fund managers this whole time.
gsibble 4y ago
Solid question.

pcj-github 4y ago

The story would be even more compelling if the author referred to himself in the third person.

gsibble 4y ago
Interesting observation. Thanks.

rexreed 4y ago

What is this post? Someone who can casually raise $300M in a weekend? Gets rescued by a government bailout and then said the whole experience is fun? Talks about trading deposits and making loans against them, asking startups to take a haircut while he profits? Is this what the startup universe is now about? Sometimes I feel like I'm in another universe.

gsibble 4y ago
It was incredibly fun and a wild experience. We also weren't going to make much profit. We were offering 90-95c on the dollar compared to 60-70 from banks and hedge funds. This was about saving companies and jobs. Thought I'd share.
- rexreed 4y ago
  How has the startup world devolved to the point that it's primarily about financial movements and shenanigans and not related to technology innovation? I feel we're so far past where technology innovation has come from, and now we simply trade startups as financial products.
  - gsibble 4y ago
    I don't think it has. This was a once in a lifetime kind of thing. My other companies are all innovative technology companies, like you said.
    - capableweb 4y ago
      > Iridium Development - Iridium Development focused on making revolutionary iPhone apps > Distribute- Distribute aimed to be the Alibaba of the US, mostly with wholesale drop shipping. > Materialist - an e-commerce solution, [...] trying to bring wholesale housing products to market. > Dave - personal financial management app > Vizit - Image Analytics > txtsmarter - Communications Surveillance Service We might have different opinions on what counts as "innovative" I guess.

breck 4y ago

This is awesome. Someone stepping up to the plate to solve the problem without asking the public to bail out the richest 1%. Real leadership. Too bad the whiners got rewarded.

gsibble 4y ago
Thank you :) That was the idea.

rhapsodic 4y ago

[dead]

chernevik 4y ago

I suspect your customer use cases would have begun in Week 2. Most depositors would be able to cover payroll with the first fraction returned in the early days. Then it's a question of managing cash flow within the tranches doled out by the FDIC as wind-down proceeded. That's when the companies that had cash needs in excess of the wind-down would emerge. At which point I think you'd find that you could no longer buy at 90%. That number applies to the WHOLE deposit balance; but after the FDIC has paid out the initial (say) 30% to 50%, the deposit to asset ratio shrinks considerably. You might loan at that rate, but then you're ultimately secured by the depositor's corporate credit.

JumpinJack_Cash 4y ago

Reading this post makes me realize one thing: The true insurance on funds above 250k for those who were banking with SVB has always been living and working in Silicon Valley. Even if FDIC had decided not to intervene there were at least 2 dozens private players ready to fit the bill. It would have been OP consortium at 95%, or the Hedge Funds at 70%, or JPMorgan at 67% or Wells Fargo at 65%. A regional bank blows up in Mississipi or an Agricultural Bank in Iowa and nobody gives a shit. Public or private , everything above 250k is wiped out. And many millionaires are having a relief because they got 100% via FDIC as opposed to 95% from OP coalition or 70% from the Hedge Funds.