5 ms·

> The people in the VC community who triggered the bank run did the right thing by their startups. I don't really have a horse in this race, but: while the abo

by davidw 4y ago

> The people in the VC community who triggered the bank run did the right thing by their startups. I don't really have a horse in this race, but: while the above argument makes sense, what about all their future startups? Everyone says nice things about how it was good to have this bank that understood startups and treated them well, and now that is all gone. And no one who had deposits lost their money anyway. It seems to me that everyone is worse off. It was a lose/lose move.

simonh 4y ago
As individuals they couldn’t stop the bank run happening, so pulling out their money was the rational thing to do. If all the depositors could have got together in a room, they could all have agreed to keep their money in. That coordination wasn’t possible though.
- ineedasername 4y ago
  This is incorrect. such coordination was possible and did happen, only in the opposite direction. A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.
  - simonh 4y ago
    Propagating a run simply takes propagating the info that a run is happening. No other communication is necessary. That signal is enough. Coordinating stopping a run would take a huge amount of much more sophisticated and time consuming back and forth communication and negotiation, reassurance and confidence building. You’d have to convince people that together right now in this situation you can stop the run. How would you do that? That coordinated consensus building would have to happen and propagate through the community, all of the community, at least as fast as the news of a run in order to stop the run. If it’s slower it’s too late, the people that heard there’s a run before they heard there was a movement to stop it already pulled out their money. You see the problem?
  - jrumbut 4y ago
    I wonder if anyone involved had a vested interest in an alternative to banks.
    - ineedasername 4y ago
      I'm not quite ready to embrace that line of thinking, but the thought did cross my mind. Regardless, if someone was trying to maneuver things that way it may have backfired, making it more difficult for alternatives: First, the speed of action & (so far) efficacy of containing and stabilizing things while keeping all depositor money safe is both an endorsement of traditional regulated finance as well as a sharp counterpoint to recent crypto collapses that were neither contained nor safeguarded customer money. Second, some of the most crypto friendly finance partners are now gone. Sure, Bitcoin is up, but from the point of view of growing an alternative I think crypto as a whole has taken yet another hit. Whatever struggle the sector would have had regaining momentum after the past year now just got at least a little harder.
  - lolinder 4y ago
    Coordinating action in one direction can be trivial while coordinating in the opposite is nearly impossible. It takes years of engineering and construction to build a dam but only a few critical mistakes to break it down. The same amount of water is involved in either case, but it's a lot harder to hold it back than it is to let it loose. Bank runs are the same way.
- lmm 4y ago
  And yet they were coordinated enough to tip off their mates to pull out. In previous generations the industrial titans had a sense of nobless oblige, or at least pretended to; they knew their lucrative position came with responsibilities, and in times of crisis they would step up to do their share. Whereas when a crisis hits Silicon Valley, apparently you look after number 1 and when you reach out to the government it's not to ask how you can help but to ask them to bail you out.
  - richk449 4y ago
    The coordination difficulty is not symmetric. You are on a boat that hit an iceberg. There are enough lifeboats for half the people. If everyone bails water together, you will just barely be able to keep the boat afloat. What do you think is easier to coordinate - a dash to the lifeboats, or getting everyone to bail water?
kamikaz1k 4y ago
You're right, but it is entirely prisoner's dilemma. The rational decision, when you know you cannot control how others will act, is to minimize the pain. If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday? And it is not a personal decision, continuity of business is a pretty big deal. Nobody in the company would forgive you for missing their payroll, because you thought it was the ethical thing to do.
- viraptor 4y ago
  > it is entirely prisoner's dilemma. It is, but also it's even worse. The usual prisoner's dilemma is explained with 2 parties. In this case, it was thousands of parties with a choice of: a) do what's best for your business, b) bet that almost all the other parties with also choose b. 2-person prisoner's dilemma is a fun game theory exercise. "All the customers" prisoner's dilemma is a social "have you met other business people" exercise.
  - zamnos 4y ago
    It's an iterated prisoners dilemma. The first prison was called SVB, the second is called Signature bank. Is First Republic Bank the third?
- acomjean 4y ago
  FYI: prisoners dilemma is an interesting game theory experiment where you do better if everyone cooperates. You do better than your "opponent" if you don't. The wikipedia explains it well. https://en.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
  - notch898a 4y ago
    Wouldn't this not be prisoner's dilemma then? If I pull my money out, I'm in the same spot as before with my money parked at a different bank. If I don't pull my money out, I'm either in the same spot as before or even worse off. In this case, starting from the perspective I have a choice (and thus the bank is still liquid), I can only do at best the same as I would have done if I pulled out.
deleted 4y ago
[deleted]
nkrisc 4y ago
A startup in the hand is worth two in the bush.
jliptzin 4y ago
What exactly did SVB do for startups that other banks could not?
- iscrewyou 4y ago
  Here’s an article from 2015: https://www.latimes.com/business/la-fi-silicon-valley-bank-20150807-story.html https://www.latimes.com/business/la-fi-silicon-valley-bank-2...
  - jliptzin 4y ago
    Thank you
- Eisenstein 4y ago
  The way I understand it, young people heading startups are often financially and businesswise naive, and SVB would hand-hold them through a lot of things they had to do regarding banking. You could walk in with your documents and they would set everything up for you with enthusiasm. This is difficult to find in classical banking.
flybrand 4y ago
Harder to have future startups if your current portfolio dies.
- davidw 4y ago
  Aren't they sophisticated enough to know that this was unlikely?
Aeolun 4y ago
It is. But if life has taught me anything it is that there’s enough irrational actors that the sane ones have to act exactly the same to get their own.
zaptheimpaler 4y ago
The founders represented by the VCs were looking at a company they spent years building and all its money potentially disappearing overnight. They had to act quickly under a lot of uncertainty and took the decision that minimized risk. I guarantee if SVB hadn't been bailed out people here would be questioning the VCs who didn't pull out instead. I don't blame them. It was irrational if they were omniscient beings with knowledge of what would happen.. they aren't.
- dforrestwilson 4y ago
  That first part is fine. Killing risk is key. But within 24 hours we had VCs from Founder’s Fund and the All In podcast personas who intentionally and knowingly fueled a panic on social media. That panic was designed to benefit them and it worked, to the detriment of everyone reading this who has a deposit at a US bank, and who will now be assessed a fee to cover the cost.
deleted 4y ago
[deleted]

by davidw 4y ago

simonh 4y ago

As individuals they couldn’t stop the bank run happening, so pulling out their money was the rational thing to do. If all the depositors could have got together in a room, they could all have agreed to keep their money in. That coordination wasn’t possible though.

ineedasername 4y ago
This is incorrect. such coordination was possible and did happen, only in the opposite direction. A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.
- simonh 4y ago
  Propagating a run simply takes propagating the info that a run is happening. No other communication is necessary. That signal is enough. Coordinating stopping a run would take a huge amount of much more sophisticated and time consuming back and forth communication and negotiation, reassurance and confidence building. You’d have to convince people that together right now in this situation you can stop the run. How would you do that? That coordinated consensus building would have to happen and propagate through the community, all of the community, at least as fast as the news of a run in order to stop the run. If it’s slower it’s too late, the people that heard there’s a run before they heard there was a movement to stop it already pulled out their money. You see the problem?
- jrumbut 4y ago
  I wonder if anyone involved had a vested interest in an alternative to banks.
  - ineedasername 4y ago
    I'm not quite ready to embrace that line of thinking, but the thought did cross my mind. Regardless, if someone was trying to maneuver things that way it may have backfired, making it more difficult for alternatives: First, the speed of action & (so far) efficacy of containing and stabilizing things while keeping all depositor money safe is both an endorsement of traditional regulated finance as well as a sharp counterpoint to recent crypto collapses that were neither contained nor safeguarded customer money. Second, some of the most crypto friendly finance partners are now gone. Sure, Bitcoin is up, but from the point of view of growing an alternative I think crypto as a whole has taken yet another hit. Whatever struggle the sector would have had regaining momentum after the past year now just got at least a little harder.
- lolinder 4y ago
  Coordinating action in one direction can be trivial while coordinating in the opposite is nearly impossible. It takes years of engineering and construction to build a dam but only a few critical mistakes to break it down. The same amount of water is involved in either case, but it's a lot harder to hold it back than it is to let it loose. Bank runs are the same way.
lmm 4y ago
And yet they were coordinated enough to tip off their mates to pull out. In previous generations the industrial titans had a sense of nobless oblige, or at least pretended to; they knew their lucrative position came with responsibilities, and in times of crisis they would step up to do their share. Whereas when a crisis hits Silicon Valley, apparently you look after number 1 and when you reach out to the government it's not to ask how you can help but to ask them to bail you out.
- richk449 4y ago
  The coordination difficulty is not symmetric. You are on a boat that hit an iceberg. There are enough lifeboats for half the people. If everyone bails water together, you will just barely be able to keep the boat afloat. What do you think is easier to coordinate - a dash to the lifeboats, or getting everyone to bail water?

kamikaz1k 4y ago

You're right, but it is entirely prisoner's dilemma. The rational decision, when you know you cannot control how others will act, is to minimize the pain. If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday? And it is not a personal decision, continuity of business is a pretty big deal. Nobody in the company would forgive you for missing their payroll, because you thought it was the ethical thing to do.

viraptor 4y ago
> it is entirely prisoner's dilemma. It is, but also it's even worse. The usual prisoner's dilemma is explained with 2 parties. In this case, it was thousands of parties with a choice of: a) do what's best for your business, b) bet that almost all the other parties with also choose b. 2-person prisoner's dilemma is a fun game theory exercise. "All the customers" prisoner's dilemma is a social "have you met other business people" exercise.
- zamnos 4y ago
  It's an iterated prisoners dilemma. The first prison was called SVB, the second is called Signature bank. Is First Republic Bank the third?
acomjean 4y ago
FYI: prisoners dilemma is an interesting game theory experiment where you do better if everyone cooperates. You do better than your "opponent" if you don't. The wikipedia explains it well. https://en.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
- notch898a 4y ago
  Wouldn't this not be prisoner's dilemma then? If I pull my money out, I'm in the same spot as before with my money parked at a different bank. If I don't pull my money out, I'm either in the same spot as before or even worse off. In this case, starting from the perspective I have a choice (and thus the bank is still liquid), I can only do at best the same as I would have done if I pulled out.

deleted 4y ago

[deleted]

nkrisc 4y ago

A startup in the hand is worth two in the bush.

jliptzin 4y ago

What exactly did SVB do for startups that other banks could not?

iscrewyou 4y ago
Here’s an article from 2015: https://www.latimes.com/business/la-fi-silicon-valley-bank-20150807-story.html https://www.latimes.com/business/la-fi-silicon-valley-bank-2...
- jliptzin 4y ago
  Thank you
Eisenstein 4y ago
The way I understand it, young people heading startups are often financially and businesswise naive, and SVB would hand-hold them through a lot of things they had to do regarding banking. You could walk in with your documents and they would set everything up for you with enthusiasm. This is difficult to find in classical banking.

flybrand 4y ago

Harder to have future startups if your current portfolio dies.

davidw 4y ago
Aren't they sophisticated enough to know that this was unlikely?

Aeolun 4y ago

It is. But if life has taught me anything it is that there’s enough irrational actors that the sane ones have to act exactly the same to get their own.

zaptheimpaler 4y ago

The founders represented by the VCs were looking at a company they spent years building and all its money potentially disappearing overnight. They had to act quickly under a lot of uncertainty and took the decision that minimized risk. I guarantee if SVB hadn't been bailed out people here would be questioning the VCs who didn't pull out instead. I don't blame them. It was irrational if they were omniscient beings with knowledge of what would happen.. they aren't.

dforrestwilson 4y ago
That first part is fine. Killing risk is key. But within 24 hours we had VCs from Founder’s Fund and the All In podcast personas who intentionally and knowingly fueled a panic on social media. That panic was designed to benefit them and it worked, to the detriment of everyone reading this who has a deposit at a US bank, and who will now be assessed a fee to cover the cost.

deleted 4y ago

[deleted]