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> An industry built on risk-taking, which made mountains of money when those risks paid off, has just been reminded of what happens when they don’t. And the ans
by cs702 4y ago
> An industry built on risk-taking, which made mountains of money when those risks paid off, has just been reminded of what happens when they don’t. And the answer, once again, is: Someone else pays the price.
Ouch. That's a bit painful to read, because... it rings true, based on conversations I've had over the past few days. My understanding is that a majority of venture-backed startups in the US as well as a majority of venture capital firms all their had their cash balance deposited at SVB. In other words, the federal government just saved the entire US venture capital ecosystem from failure.
- tarotuser 4y agoIt's the Silicon Valley corporate playbook: Privatize the gains, Socialize the losses. The corollary is: socialism for the rich, unabashed cutthroat capitalism for the rest of us.
- johndunne 4y agoI’m engraving this on a plaque and throwing it on the lawn of the super rich.
- luckylion 4y agoIf you can turn that into a service where I can engrave things on a plaque and have someone throw it into a garden of my choosing, I'm sure you can build a successful startup out of it. VaaS, Vandalism as a Service.
- dfxm12 4y agoIt should be noted, this isn't really unique to Silicon Valley. It's more like the "capitalist" playbook.
- notch898a 4y agoWhat is "capitalist" about requiring FDIC for a retail banking charter, then the same government creating the requirement (at gunpoint of licensing scheme) takes the money for that requirement, and creates a "insurance scheme." Only it turns out that "insurance" is a fraud, as it is misrepresented. The premiums are advertised as being for backstopping up to 250k in the account, but it turns out this was a fraud and actually it's whatever arbitrary amount they choose all the way up to the biggest holder in the bank. And when they're finished, they'll assess a "special assessment" which totally isn't a tax, nevermind the licensees have no choice but to pay it.
- dyno12345 4y agothe "gain" startups were getting was a deposit account that doesn't disappear over the weekend. these were not supposed to be high risk/reward investments.
- jonhohle 4y agoThe risk was not having insured themselves beyond what FDIC was providing. I can’t wait until my insurer covers hundreds of multiples above the coverage I have!
- dyno12345 4y agothe FDIC limit was a minimum. for decades the FDIC has covered the full amount in practice. if the current level of fees aren't enough to cover that, they will raise them. and that is exactly what is happening now.
- jonhohle 4y agoThat is not what is happening now. They are assessing additional fees under systemic risk protection rules. FDIC rates are changed on a regular, periodic basis with forewarning time for markets to adjust, not over a weekend. When has FDIC reimbursed more than the “up to” limit? Everything I’ve read regarding this suggests that this may be moral hazard, at least in the short term. The remaining amount should come from liquidation of the failed bank’s assets or by the acquiring bank, not the FDIC.
- rglover 4y agoAt the expense of anyone holding dollars worldwide.
- dyno12345 4y agoit's paid for by auctioning off SVB's assets and raising FDIC fees on other banks
- LanceH 4y agoI'm worried that "other banks" constitute a large enough body that they could just let SVB fail. Instead they're looking around nervously and acquiesce to a bailout because they might be just as vulnerable.
- dyno12345 4y agothe fees are not voluntary and other banks have no reason to want their customers to see examples of people getting wiped out by bank failures
- jonhohle 4y agoYour neighbor sets off fireworks in his living room and burns his house down. Everybody in your neighborhood with the same insurance policy immediately gets hit by a new fee that was not previously contracted, the neighbor walks away without a house, but also with his mortgage payed off. In what world do we live in that a government agency can demand a new mandatory fee over the course of a weekend. This whole thing is bonkers. “The ultimate result of shielding men from the effects of folly, is to fill the world with fools.”
- dyno12345 4y agopeople seeing a bank fail will worry that their own bank could fail, which could lead them to withdraw en masse which will cause their own banks to fail, and so forth. this scenario is bad for everyone.
- bsuvc 4y agoThe federal government caused the problem first though. The federal reserve denied inflation was real for so long, signaling to everyone that it was safe to buy US Treasuries, then suddenly and aggressively started raising rates. And wasn't it the federal government regulators who are responsible for ensuring that banks are not taking on excessive risk? Are they not to be trusted, and must every depositor perform a deep-dive due diligence on their bank and continuously do so in order to make sure their money is safe while deposited in a bank of all places? No, the Federal government is more like an arsonist who set fire to a building, then showed up to rescue the people inside, taking all the credit, and then shaming those who noticed the smoke and escaped on their own before they arrived.
- mistrial9 4y agomoronic one-sided grudge content aside - isn't "market valuation" by private capital on assets they have an interest in, also a snake in the grass here?
- SketchySeaBeast 4y agoIt kind of feels like the argument here is "why didn't someone stop us from making mistakes"? If it's the case that the federal reserve sent deliberately misleading messages that no one could have doubted why isn't there a giant line of banks currently going under?
- deleted 4y ago[deleted]
- kasey_junk 4y agoIt doesn’t take every depositor doing a deep dive, but if you hold half a billion dollars in cash at a bank, you bloody well better understand their balance sheet. I assure you that mainline company and governmental treasurers do this due diligence as a matter of course along with all the other counterparty risk mitigations that are SOP for well run companies. And if you are going to encourage (and sometimes insist) that your portfolio companies work with a bank, understanding concentration risk is the minimum professional standard you should be held to. Every other industry understands what fdic insurance is and is not. Competent CFO and corporate treasurers manage their counterparty risk as part of their job. It’s either immaturity, incompetence or entitlement that makes SV think this isn’t their problem.
- Frost1x 4y agoIt's worth noting that the concept of risk justifying disproportionate gains in most incarnations of capitalism isn't any sort of foundational principle. Instead, it was largely just a narrative people thought held true (and there's some truth still). These days it's largely the mantra that if you can't find a way to pass risk and costs off, you're incompetent at your role. We've learned to optimize risk away from the reward system and made it socially and culturally acceptable. Before, it was less accepted, hence the narrative. Anymore, people don't even paint the facade.
- breck 4y ago> My understanding is that a majority of venture-backed startups in the US as well as a majority of venture capital firms all their had their cash balance deposited at SVB Dataset needed.