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I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insol

by naet 4y ago

I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "heroic" in some way? I personally don't think so, that seems more like stupidity if the potential consequence is your company losing all it's money and going bankrupt for outside reasons. SVB as an institution sponsored lobbyists to lobby against regulations meant to keep banks stable, then without those regulations they failed to self-regulate properly and failed massively. That is IMO pretty shameful. But I don't blame any clients of theirs for taking money out when they saw a potential instability. They did not create that instability; that instability created the bank run.

dahdum 4y ago
In a slightly different reality… “Sorry team, our main VC advised us to keep our money in SVB because it’s the right thing to do. We can’t make payroll. Our VC, true to their ideals, kept their cash in SVB too. They can’t help us. Kindly cast your blame on the thousands of startup peers that withdrew and remain unscathed. Their blatant self-interest may have killed us, but we are the true moral victors.”
- deleted 4y ago
  [deleted]
- gmd63 4y ago
  Or in another "How was your weekend?" "Oh nice had a walk with the boys, saw a bald eagle" We don't know that this would have been a crisis without a sudden 42 billion dollar withdrawal over 24 hours
  - 2-718-281-828 4y ago
    I don't get that joke. Please, elaborate.
    - leereeves 4y ago
      I'm pretty sure they mean that if the VCs hadn't advised companies to withdraw all at once, the crisis might never have happened, and March 11th might simply have been a nice day for a walk.
      - dev_tty01 4y ago
        When the Moody's data became known it was going to happen one way or another. Well over 90% of the accounts were uninsured. Someone was going to pull money. Perfect unanimity in inaction was simply not possible. Given that scenario, it is a rational response to try and be first out the door. The fault here is with SVB management making some very bad decisions and with VCs not looking at the publicly available data and moving away from SVB a lot sooner. Of course, hindsight is alway's 20/20. Once the Moody's trigger had happened the choices were simple.
        gmd63 4y ago
        The fault is also with VCs who mandated that portfolio companies concentrate large uninsured deposits in one bank, increasing the risk of a run. The bank to my knowledge didn’t even offer insured cash sweeps, a basic financial product for deposits above 250k. There is a clip I saw on twitter as this was happening of Jason Calacanis bragging insufferably about his special treatment from SVB in obtaining quick and favorable terms for a private mortgage, likely thanks to the amount of business he and other investors brought the bank. So no, I reject your claim that the same people that would design Class A shares to be inferior to Class B shares, then say “no takesy backseys!” when executing a hostile takeover of your company are not at fault here. How can a discipline that prides itself in superior networking ability, information gathering, and prudent decision making not be at fault for pooling a stupid amount of wealth in the first bank to go broke post COVID bubble?
dehrmann 4y ago
VC and startups were facing a prisoner's dilemma, and they picked a viable strategy.
- leereeves 4y ago
  Defecting is only a good strategy in a prisoner's dilemma when you don't need to cooperate in the future and can't be punished outside the scenario of the prisoner's dilemma. If this, say, destroys public trust in Silicon Valley startups, or leads to restrictive government regulation, then it might cost more than it saved in the long run.
threatofrain 4y ago
> when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits Was this unprecedented? I thought the US government has always covered depositors in full beyond the $250k.
- rrrrrrrrrrrryan 4y ago
  Sometimes they've been able to make all the depositors while by wiping out all the investors and selling all the assets (buildings, office chairs, etc.) What was unprecedented this time was the promise that they'd do it regardless of whether or not they could recover enough assets. When Washington Mutual and IndyMac collapsed in 2008, some depositors indeed never got all their money back from their uninsured accounts. One big difference was that those banks were knowingly engaging in hugely risky schemes, while SVB was ultimately burned by making overly conservative investments.
  - fmajid 4y ago
    The government could make that promise because they have the power to tax, i.e. they have the guns. https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Now you may argue it is unfair to other banks to penalize them for the failings of a few. What the SVB fiasco showed is that systemic risk is not just in the too big to fail institutions, but also ones like SVB that are important to specific sectors of the economy, like SVB for Tech or GMAC for cars. As it turns out, SVB had recently gotten TBTF and started the risk management compliance process, including the so-called "living will" to give the Feds a roadmap for an orderly wind-down of the bank, which must have been well-thumbed over the weekend. I expect one of the consequences of this is that more banks will be subject to oversight.
  - hnfong 4y ago
    > while SVB was ultimately burned by making overly conservative investments. This isn't true, interest rates risk of securities of long duration (especially when current fed interest rate is zero) is well known to be risky by anyone who has a cursory understanding of the matter.
pas 4y ago
no need for heroics, just don't "lie" about it by signing statements
- dev_tty01 4y ago
  > no need for heroics, just don't "lie" about it by signing statements Have you read the statement? There is no "lie" in pulling money and signing the statement. Here is the text: "The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them." The statement clearly communicates that they have ended their banking relationship (pulled their money). They are simply stating that if the finances of the bank are straightened out they will start banking there again. I don't see any disconnect or deceit between pulling their money and signing the statement. When the Moody's data came out and it was clear things were headed south, of course they transferred or at least tried to transfer their money out. The failure of all of these financially savvy VCs was not pulling their money weeks or months ago. The data was all there as others have pointed out. They have all been whistling past the graveyard hoping the problem would go away. If there is any shame, it is in that failure to act earlier.
slenk 4y ago
Well if everyone didn't just follow everyone else blindly, there wouldn't have been a run
- HDThoreaun 4y ago
  How is pulling money out of an insolvent bank "blindly following?" Everyone could see their deposits were decreasing for over a year and they didn't have the cash to continue to support it, there's nothing blind about following the incentives and making a good decision.
  - slenk 4y ago
    Weren't they technically ok before the run as long as there wasn't a run?
    - HDThoreaun 4y ago
      If deposits kept increasing they might've been ok, but startups had been withdrawing the cash they had raised during the pandemic, deposits were decreasing rapidly before the solvency issues were thought about. At that point there is a very real scenario where the bank runs out of money and depositors are screwed.
      - slenk 4y ago
        I feel like if it were slower though, then the bank would have been fine. Granted, I can't talk about the board or their investing decisions because I don't feel educated enough to speak on that part.
        hnfong 4y ago
        There's no way to "feel" this, if you can look at items on their balance sheet you can determine whether their assets at fair value covers their outstanding debt of not. IF it doesn't, it's likely the bank would break sooner or later, if there was no bank run, it would have died a slow and painful death anyway (or, more likely, somebody would try to make risky bets in attempt to recover). There hasn't been a buyer yet, which indicates the perhaps the assets aren't that great.
eric_cc 4y ago
Agree completely with your point. Moving their funds from the train wreck was smart. Shaming those that withdrew their funds reminds me of meme stock culture where participants shame sellers and make holding “no matter what” the highest virtue. The suckers that listen to that bullshit are the bag holding losers.

by naet 4y ago

dahdum 4y ago

In a slightly different reality… “Sorry team, our main VC advised us to keep our money in SVB because it’s the right thing to do. We can’t make payroll. Our VC, true to their ideals, kept their cash in SVB too. They can’t help us. Kindly cast your blame on the thousands of startup peers that withdrew and remain unscathed. Their blatant self-interest may have killed us, but we are the true moral victors.”

deleted 4y ago
[deleted]
gmd63 4y ago
Or in another "How was your weekend?" "Oh nice had a walk with the boys, saw a bald eagle" We don't know that this would have been a crisis without a sudden 42 billion dollar withdrawal over 24 hours
- 2-718-281-828 4y ago
  I don't get that joke. Please, elaborate.
  - leereeves 4y ago
    I'm pretty sure they mean that if the VCs hadn't advised companies to withdraw all at once, the crisis might never have happened, and March 11th might simply have been a nice day for a walk.
    - dev_tty01 4y ago
      When the Moody's data became known it was going to happen one way or another. Well over 90% of the accounts were uninsured. Someone was going to pull money. Perfect unanimity in inaction was simply not possible. Given that scenario, it is a rational response to try and be first out the door. The fault here is with SVB management making some very bad decisions and with VCs not looking at the publicly available data and moving away from SVB a lot sooner. Of course, hindsight is alway's 20/20. Once the Moody's trigger had happened the choices were simple.
      - gmd63 4y ago
        The fault is also with VCs who mandated that portfolio companies concentrate large uninsured deposits in one bank, increasing the risk of a run. The bank to my knowledge didn’t even offer insured cash sweeps, a basic financial product for deposits above 250k. There is a clip I saw on twitter as this was happening of Jason Calacanis bragging insufferably about his special treatment from SVB in obtaining quick and favorable terms for a private mortgage, likely thanks to the amount of business he and other investors brought the bank. So no, I reject your claim that the same people that would design Class A shares to be inferior to Class B shares, then say “no takesy backseys!” when executing a hostile takeover of your company are not at fault here. How can a discipline that prides itself in superior networking ability, information gathering, and prudent decision making not be at fault for pooling a stupid amount of wealth in the first bank to go broke post COVID bubble?

dehrmann 4y ago

VC and startups were facing a prisoner's dilemma, and they picked a viable strategy.

leereeves 4y ago
Defecting is only a good strategy in a prisoner's dilemma when you don't need to cooperate in the future and can't be punished outside the scenario of the prisoner's dilemma. If this, say, destroys public trust in Silicon Valley startups, or leads to restrictive government regulation, then it might cost more than it saved in the long run.

threatofrain 4y ago

> when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits Was this unprecedented? I thought the US government has always covered depositors in full beyond the $250k.

rrrrrrrrrrrryan 4y ago
Sometimes they've been able to make all the depositors while by wiping out all the investors and selling all the assets (buildings, office chairs, etc.) What was unprecedented this time was the promise that they'd do it regardless of whether or not they could recover enough assets. When Washington Mutual and IndyMac collapsed in 2008, some depositors indeed never got all their money back from their uninsured accounts. One big difference was that those banks were knowingly engaging in hugely risky schemes, while SVB was ultimately burned by making overly conservative investments.
- fmajid 4y ago
  The government could make that promise because they have the power to tax, i.e. they have the guns. https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Now you may argue it is unfair to other banks to penalize them for the failings of a few. What the SVB fiasco showed is that systemic risk is not just in the too big to fail institutions, but also ones like SVB that are important to specific sectors of the economy, like SVB for Tech or GMAC for cars. As it turns out, SVB had recently gotten TBTF and started the risk management compliance process, including the so-called "living will" to give the Feds a roadmap for an orderly wind-down of the bank, which must have been well-thumbed over the weekend. I expect one of the consequences of this is that more banks will be subject to oversight.
- hnfong 4y ago
  > while SVB was ultimately burned by making overly conservative investments. This isn't true, interest rates risk of securities of long duration (especially when current fed interest rate is zero) is well known to be risky by anyone who has a cursory understanding of the matter.

pas 4y ago

no need for heroics, just don't "lie" about it by signing statements

dev_tty01 4y ago
> no need for heroics, just don't "lie" about it by signing statements Have you read the statement? There is no "lie" in pulling money and signing the statement. Here is the text: "The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them." The statement clearly communicates that they have ended their banking relationship (pulled their money). They are simply stating that if the finances of the bank are straightened out they will start banking there again. I don't see any disconnect or deceit between pulling their money and signing the statement. When the Moody's data came out and it was clear things were headed south, of course they transferred or at least tried to transfer their money out. The failure of all of these financially savvy VCs was not pulling their money weeks or months ago. The data was all there as others have pointed out. They have all been whistling past the graveyard hoping the problem would go away. If there is any shame, it is in that failure to act earlier.

slenk 4y ago

Well if everyone didn't just follow everyone else blindly, there wouldn't have been a run

HDThoreaun 4y ago
How is pulling money out of an insolvent bank "blindly following?" Everyone could see their deposits were decreasing for over a year and they didn't have the cash to continue to support it, there's nothing blind about following the incentives and making a good decision.
- slenk 4y ago
  Weren't they technically ok before the run as long as there wasn't a run?
  - HDThoreaun 4y ago
    If deposits kept increasing they might've been ok, but startups had been withdrawing the cash they had raised during the pandemic, deposits were decreasing rapidly before the solvency issues were thought about. At that point there is a very real scenario where the bank runs out of money and depositors are screwed.
    - slenk 4y ago
      I feel like if it were slower though, then the bank would have been fine. Granted, I can't talk about the board or their investing decisions because I don't feel educated enough to speak on that part.
      - hnfong 4y ago
        There's no way to "feel" this, if you can look at items on their balance sheet you can determine whether their assets at fair value covers their outstanding debt of not. IF it doesn't, it's likely the bank would break sooner or later, if there was no bank run, it would have died a slow and painful death anyway (or, more likely, somebody would try to make risky bets in attempt to recover). There hasn't been a buyer yet, which indicates the perhaps the assets aren't that great.

eric_cc 4y ago

Agree completely with your point. Moving their funds from the train wreck was smart. Shaming those that withdrew their funds reminds me of meme stock culture where participants shame sellers and make holding “no matter what” the highest virtue. The suckers that listen to that bullshit are the bag holding losers.