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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 togethe

by 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?

by simonh 4y ago

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?