6 ms·

The venture capitalist's dilemma

131 points by timmytokyo 4y ago

lifeisstillgood 4y ago
> that those controlling massive amounts of capital and power in our society are not the smartest, or most level-headed, or most altruistic among us. This seems to be the telling quote - and is to me the point. We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look like - but we'll figure it out.
- re-thc 4y ago
  And then nothing will get done because everyone has a different opinion? It won't work. We already have enough politics and corporate games at work. Are you advocating for more of that?
  - qikInNdOutReply 4y ago
    Well, yes, but the whole "everyone has a different opinion" is a artifically created circumstance with social media and political manipulation by those who want to elude controls.
    - deleted 4y ago
      [deleted]
  - lifeisstillgood 4y ago
    Yes because at work only a few people take part in the games (those with allocation control over a budget at least 50 times their own salary say). Everyone else is like slaves fighting over who gets to be head slave.
    - re-thc 4y ago
      Maybe you're not aware of it or it's an issue outside of the US but everyone does it to some extent even if it's an act of self defense. And the fight to head slave that you mention is part of the games itself. Do you really get there without politics of some sort?
- DannyBee 4y ago
  Yes, what we need is more hecklers vetos over more spending. Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done. If the control that already existed produced anything other than total dysfunction, things. never would have gotten to a point where half the spend isn't covered - there would be no reason for it to occur. Your answer is to force it to happen anyway. Im sure that will end well
  - kqr 4y ago
    I think the problem is the other way around: the population's lack of experience with actual democracy is what hampers any attempt at it. If we had more democracy people would learn to be responsible with that power out of necessity. But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This is usually not a problem with a company that makes a product or renders a service, but it can be problematic for e.g. nation states. I don't think the solution is for a wealthy few to bludgeon the dissenters into compliance but rather split the democracy up into smaller parts, that interface with negotiations and valuable exchange.
    - DannyBee 4y ago
      I don’t believe your first paragraph for a second. We would go practically extinct before we learned. We don’t get good at things at scale that fast and raising the stakes will not change some fundamental behaviors - heck they took thousands of years to change when we were going extinct I think at best you would end up with a much much smaller population that is an easier problem anyway (ie we can already solve it now), or we kill ourselves off before we learn. I agree with your last sentence entirely, but it's funny to frame it as a wealthy few bludgeoning others. One reason we are in the current situation is because the wealthy pay for the majority of expenses but everyone keeps trying to get them to not have more say in what gets done with their money. Whether it's a good idea to do this or not, human nature doesn't work like this, and they want say commensurate with what they contribute. It's very easy for both "sides" to villify each other and they do. That is at least one thing you have to claim would get fixed in your first paragraph and I don't buy it you could get it to happen. Since the wealth part really triggers people imagine you are just a random small business owner, and one day people come in and are like "hey we know you put in 60% of the effort and work and money in your business but we're going to have these 50 other people who put in less than 1% each also have equal say to you in the business choices" Humans don't really accept that, and if you want direct democracy to work out they would have to be able to. In fact it's the opposite, most people really get off on being able to feel superior to others in various ways, whether money or status or power or whatever. That is great to change but ain't gonna happen fast
- kqr 4y ago
  There are a few employee-owned cooperatives around and they tend to be somewhat democratic, if you want case studies in what that looks like.
  - djbusby 4y ago
    Bob's Red Mill is my favorite example. And their products are very high quality.
- 1vuio0pswjnm7 4y ago
  Agree that is the best line. She is putting it lightly. Many of these people are socially inept. The resulting problem is what I call "misallocation of capital".
dclowd9901 4y ago
Sorry, I don’t like VCs (no specific reason, just don’t like people with tons of money), but a person’s choice of bank shouldn’t be the deciding factor in whether or not they get to keep their money. Do more wealthy VCs and firms have more tooling available to be able to properly vet their capital storage houses before deciding to reside there? Sure. But unless we decide that banks should be public facilities with the aim of strictly housing money, I’m not sure any amount of vetting could actually guarantee a depositor’s safety at a bank. And I just don’t think it should be your fault if your bank’s investment branch are nincompoops. You have no control over that, and certainly no degree of control from a quarter to quarter standpoint where the personnel of your bank might shift and change far past your vetting. So would I have lost sleep if VCs lost their deposits? No. But am I glad they were made whole, even if I think they shouldn’t have that much money in the first place? Yes.
- paganel 4y ago
  They were not "persons", they were "companies", and, as such, every financial-related action that such a company carries out (like choosing the shady bank instead of a well-established one) might in fact bring it down. That's how business works for companies. And SVB was a shady bank, hence why it had begun to run out of funds before the VCs started losing their minds on Twitter, and also because there are many stories of them (SVB) opening up accounts and giving lines of credit much more freely compared to an established bank or even to a more cautious "mom-and-pop" bank.
roenxi 4y ago
I broadly like the things Molly is bringing attention to, but there are some problems here: 1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationship where they are also major equity holders in the companies banking at the bank - ie, they've benefited hugely from the de-risking even if nominally they are getting wiped out. 2) "No libertarians in a bank run" - what, did libertarians suddenly become self-sacrificing when I wasn't watching? Libertarianism is recognising that people shouldn't be forced to pay taxes to fund these bailouts and that people should be allowed to avoid the dollar while conducting business if they wish. If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. Since these libertarians aren't idiots, they took the bail out. They aren't dignified, sure, but they never pretended they were going to hold themselves up as sacrifices. 3) "the Fed’s not-a-bailout of Silicon Valley Bank and Signature Bank seems ultimately to be the right choice " I mean, if you concede that then ok but is anyone naive enough to believe that the wealthy took everyone else's money hostage by accident? It has been clear for a decade that as long as it is a crisis rich people will get free money. Therefore, the powerful have arranged their affairs so they won't lose money except in a crisis. The easy approach is letting the rules play out to their logical conclusions. People overestimate how important the banking sector is, it makes more sense to plan how to transition through a collapse and rebuild it than it does trying to hold up all the idiots currently in charge of all the important decisions. They aren't competent, that is why the system keeps trying to purge them! Note the remarkable resiliency of the crypto system because it keeps jettisoning all the parts that go bust without rescuing them. Bitcoin's value is more resilient than the banking system right now sans-bailouts.
- surgical_fire 4y ago
  > This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in Only when looking in hindsight. Unless those extremely wealthy people knew that in the eventuality of a bank run the government would offer them shelter, as the government normally does for the ruling class. But that is not in a sense part of her criticism?
cornholio 4y ago
Capital is just another name for power and powerful people fight to maintain and accumulate more power - welcome to the world, summer child. It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market regulation, progressive taxes, they are all forms of limiting the accumulation of capital and power. And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well. It's nothing short of amazing that it works, really, we are privileged to live in a society where the powerful are so limited in what they can do with their power. We can still fine tune & tax more, of course.
- matthewdgreen 4y ago
  We didn’t just “come up with that society”: many aspects of it were deliberately constructed because previous iterations failed badly. Deposit insurance, which is the subject of this post, was a depression-era phenomenon that came into existence because many banks failed catastrophically. Many other aspects of our modern society, from old-age pensions to welfare to our global defense alliances, were also born of similar disasters. The main objection in this post is that certain members of our society seem to view those developments as “old fashioned” and unnecessary, and would like to roll them back. Some go so far as to advocate for and donate considerable wealth to politicians who promise to do so. But of course when those people are themselves exposed to the exact risks those systems were designed to protect against — suddenly they’re enthusiastically in favor of government protection. The lesson here is that you should not look at our society and take it for granted. It took work to get us here, and it takes constant work to keep it in place. There are people who would throw it away for a momentary profit, and those people will tell you their beliefs are founded in principle. But for your own protection, you should pay attention to how seriously they take those principles when their money is on the line, and update your mental model accordingly. In this case the answer is: they do not take those principles very seriously at all.
aleph_minus_one 4y ago
There can always happen the situation that customers of a bank want their money that they deposited there back. In the insurance sector, the situation that a singular event (say, a hurricane) causes damages to a lot of customers at once is a well-known phenomenon, named a "cumulative event". Every insurance company has to model this and thus there exist mathematical tools for this such as copulas: https://en.wikipedia.org/wiki/Copula_(probability_theory) https://en.wikipedia.org/wiki/Copula_(probability_theory) A bank should better the model the event that a lot of customers want their money back, too. If it does not, there is something deeply wrong with the bank's risk management. Thus, in my opinion, the article victim-blames venture capitalists to be "evil" while the true culprit are the bankers who did not factor in the cumulative event that lots of customers want their money back (which was given to the bankers by the customers to be held in safe custody) into their risk management.
- Calavar 4y ago
  > which was given to the bankers by the customers to be held in safe custody That simply not how banking works. Many individuals think of banking that way, and they can because FDIC insures their deposits for up to $250k. (Which for the average person might as well be infinite.) But companies are supposed to understand and manage risk better. A corporate bank account is not and has never been a black box to just dump your funds in without worry.
offtotheraces 4y ago
It’s funny that Molly (a VC) ascribes so much power to VCs that they can literally create bank runs on their own. No. VCs don’t make decisions on where a company keeps its cash; the founder/CEO does. And founders freaked the f-ck out. Let’s make sure to remember that founders had 100% agency in the decisions they made about their cash. Here’s a selection of comments in the Whatsapp founders group Im in - all founders, no VCs: Thursday 3/8 (36 hours before FDIC takeover): “I'd consider moving to one of the too big to fail banks..” “I agree the risk is higher then we thought before, I'm in SVB, with 4% - and looking to understand where to go now.” “It's a numbers game - if a lot of people do what I do at the moment - it will fall.....” “Does someone have a contact at Chase for B2B SaaS customers? I'm thinking it's wise to already have an account open there in case it will seem like we need to move off SVB.” “Let's say we want to open a Chase account and move company funds?” “for those that have their money in SVB and do not have another company bank account - what are the immediate options?” “If there is a risk of a bank run, why not take the money out” “Basically our whatsapp group creates bank runs now... power to the founders?” “we just moved 85% of our money out” “I just pulled ours” It’s not surprising a VC would think she has more power than she actually has, but she also clearly has no idea about the wildfire that was spreading among founders themselves. Founders don’t give a sh-t about what their investors think (generally) - founders make the decisions they think are best because they have the most to lose (or win) from being wrong (or right). And they are much, much, much more likely to trust their fellow founders than their VCs.
- JumpCrisscross 4y ago
  When a bank runs, you run. Trying to pin the blame on depositors is misguided. There are real villains to the SVB story. Regulators. Senior management. Goldman Sachs.
  - AnimalMuppet 4y ago
    Can you explain why Goldman Sachs?
    - JumpCrisscross 4y ago
Nevermark 4y ago
By the time it gets out that a bank is too illiquid to cover its deposits, the situation is already too unstable for any kind of careful coordination of thousands of parties with real concerns about their valuable resources. Imagine the results of an email sent to everyone in Silicon Valley: — “So the local bank screwed up and can’t cover all its deposits. But let’s get together to see if we can all agree to wait this out as a disciplined block of customers. How is Thursday for everyone? (It’s very important that we all cooperate. So if I don’t hear from any of you in the next 20 minutes, I reserve my own right to start withdrawals.)” — That’s not going to work! The bank will be toast before half the recipients get their email. This has absolutely nothing to do with an “investor class”. And everything to do with bad bank risk management and timely contingency planning.
- di4na 4y ago
  You do realise that no bank ever have had enough liquidity to cover its deposits? That is what a bank is for...
  - Nevermark 4y ago
    Ah yes. Not enough assets, as apposed to liquidity. Thanks.
fisherjeff 4y ago
One interesting aspect to me: If you extend the dilemma to N prisoners, and one prisoner starts shouting from the rooftops that he’s starting to rat people out, it does seem rational to immediately start doing the same. Like, once you know the Founders Fund companies are rushing to pull their cash, yeah you should maybe start thinking about getting out too, before you’re the only uninsured depositor left.
blippage 4y ago
[flagged]
- louwrentius 4y ago
  > VCs, and capitalists in general, put money at risk in the hope of generating wealth above their initial capital. They produce goods or services that benefit society, absent the internet-controlled juice-squeezers. VCs hoarding even more capital doesn't contribute anything to society, they are all 100% rent-seeking juice-squeezers. They are a huge example of why capitalism is so broken. > Society has benefited greatly from capitalism. I wouldn't leave it up to the likes Molly White to produce anything meaningful. Society and the world has been - and continues to be - tremendously damaged by capitalism. But of more interest is the ad hominem against Molly White. I know Molly's work and I'm quite confident that she did a lot more for the world - especially in the crypto space and wikipedia space - than you ever did. See how I can play your game too? The behaviour of Facebook and Google, or Microsoft (in the past) of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions, especially while 60% of just people in the USA live paycheck to paycheck. To me it's not Venture Captitalism but Vulture Capitalism.
  - foverzar 4y ago
    > of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions Does it really? Honestly, it's hard to take such sentiments seriously when you start mentioning these particular "hype" billionaires. For one, it seems like most spite comes of expecting them to act like some godly idols, instead of like some dudes. But largely, it's just that there are so much worse examples, dealing in so much worse things. You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior.
    - louwrentius 4y ago
      > You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior. It's not about them as personalities, but what they represent. And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
draw_down 4y ago
[dead]
asah 4y ago
VCs are like bankers, lawyers, agents and unions - maybe in some carefree competition-free utopia they're unnecessary, but they're absolutely crucial in the real one where companies compete for capital and resources, and custom inside deals are the normalized way to win.
RamblingCTO 4y ago
> I would probably argue that venture capitalists are not good for society regardless of what they’re investing in That's kind of a stupid and black and white argument. It can be good, might not be. Overall customers decide. If society deems slavery ok, then some VCs can and will make money with it. Shitting on VCs from someone that advocates for crypto and "aLtErNaTiVe MoDeLs". This bullshit can only come from someone who never dealt with funding in a startup. I'd rather have a bunch of VCs getting me and my idea instead of having to manage investor relations for thousands of crypto bros. Also: crowdfunding fails if you have complex special solutions which no one understands. The probability that there's a low number of VCs even getting your idea is way higher than getting a critical number of crowdfunders to get your idea so you can even try.
- Jochim 4y ago
  Legality and morality are not the same thing. There are many activities that may be technically legal but still make you someone society would be better off without.
mikekoscinski 4y ago
> “I mean, I would probably argue that venture capitalists are not good for society regardless of what they’re investing in.” Definitely. Personally, I have __never__ purchased anything from Amazon, looked anything up with Google, shipped anything with FedEx, gotten somewhere with Uber, received a COVID vaccine from Moderna, used an iPhone or Android cell phone, played an Atari or EA video game, used a Mac or Windows computer, used any program that relies on NVIDIA GPUs, sent money via Paypal/Venmo/CashApp, contacted someone using a Cisco phone or router, found a job or closed a sale via Linkedin, watched a video with YouTube, shared a file with Dropbox/Google Drive/OneDrive, stayed in an Airbnb, booked travel with Kayak/Expedia, bought a home that I found on Zillow, bought anything online via Stripe/Shopify, bought anything in-person via Square terminal, looked a Facebook/Instagram/Snapchat/Twitter post, bought groceries with Instacart, ordered food with Doordash, hosted code on Github, made a video call with Zoom, looked at a Figma/Sketch design for work. It was, in any case, of course certain that all of these things would exist. > For all the talk of unbridled innovation, venture capital services only very specific types of innovation: those that stand to produce large exits for investors, and with relatively low risk, regardless of whether the business itself holds much promise or provides any societal benefit. Yes. Anyone who has ever worked for or invested in a startup can attest to how low-risk and predictable they are. If only they were more volatile: then my life would be more interesting. 3% of seed-stage startups eventually exit? If only I could count on success like that each time I drive my car, take a flight, or cross the street.
pc_edwin 4y ago
Its fascinating how narratives can have such a outsized impact on our worldview, often distorting reality. In this context, we see the "evil bankers" vs "free market" trope but in reality, neither sides couldn't be further from the truth. You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it. Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability. These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply. The progressive and libertarian narratives were both fighting against their own interests, which is why I find them both amusing. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.
mark_l_watson 4y ago
I used to really enjoy the All In Podcast. However their recent "all in for their best interests" was too much for me. The topic of interest rates vs. not having a recession is really complicated. I believe that long term extremely high inflation would be much more crushing for middle and lower income segments of the population since they don't have the kinds of real assets that float as the dollar floats. This is why I personally believe that raising rates is required. I believe that the character and soul of a society is how well they give less privileged people at least a chance to earn shelter and food. I was less extreme in my views before I started volunteering at a local food bank and got to know people whose lives collapsed because of one bad family illness, etc.

131 points by timmytokyo 4y ago

> that those controlling massive amounts of capital and power in our society are not the smartest, or most level-headed, or most altruistic among us. This seems to be the telling quote - and is to me the point. We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look like - but we'll figure it out.

re-thc 4y ago
And then nothing will get done because everyone has a different opinion? It won't work. We already have enough politics and corporate games at work. Are you advocating for more of that?
- qikInNdOutReply 4y ago
  Well, yes, but the whole "everyone has a different opinion" is a artifically created circumstance with social media and political manipulation by those who want to elude controls.
  - deleted 4y ago
    [deleted]
- lifeisstillgood 4y ago
  Yes because at work only a few people take part in the games (those with allocation control over a budget at least 50 times their own salary say). Everyone else is like slaves fighting over who gets to be head slave.
  - re-thc 4y ago
    Maybe you're not aware of it or it's an issue outside of the US but everyone does it to some extent even if it's an act of self defense. And the fight to head slave that you mention is part of the games itself. Do you really get there without politics of some sort?
DannyBee 4y ago
Yes, what we need is more hecklers vetos over more spending. Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done. If the control that already existed produced anything other than total dysfunction, things. never would have gotten to a point where half the spend isn't covered - there would be no reason for it to occur. Your answer is to force it to happen anyway. Im sure that will end well
- kqr 4y ago
  I think the problem is the other way around: the population's lack of experience with actual democracy is what hampers any attempt at it. If we had more democracy people would learn to be responsible with that power out of necessity. But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This is usually not a problem with a company that makes a product or renders a service, but it can be problematic for e.g. nation states. I don't think the solution is for a wealthy few to bludgeon the dissenters into compliance but rather split the democracy up into smaller parts, that interface with negotiations and valuable exchange.
  - DannyBee 4y ago
    I don’t believe your first paragraph for a second. We would go practically extinct before we learned. We don’t get good at things at scale that fast and raising the stakes will not change some fundamental behaviors - heck they took thousands of years to change when we were going extinct I think at best you would end up with a much much smaller population that is an easier problem anyway (ie we can already solve it now), or we kill ourselves off before we learn. I agree with your last sentence entirely, but it's funny to frame it as a wealthy few bludgeoning others. One reason we are in the current situation is because the wealthy pay for the majority of expenses but everyone keeps trying to get them to not have more say in what gets done with their money. Whether it's a good idea to do this or not, human nature doesn't work like this, and they want say commensurate with what they contribute. It's very easy for both "sides" to villify each other and they do. That is at least one thing you have to claim would get fixed in your first paragraph and I don't buy it you could get it to happen. Since the wealth part really triggers people imagine you are just a random small business owner, and one day people come in and are like "hey we know you put in 60% of the effort and work and money in your business but we're going to have these 50 other people who put in less than 1% each also have equal say to you in the business choices" Humans don't really accept that, and if you want direct democracy to work out they would have to be able to. In fact it's the opposite, most people really get off on being able to feel superior to others in various ways, whether money or status or power or whatever. That is great to change but ain't gonna happen fast
kqr 4y ago
There are a few employee-owned cooperatives around and they tend to be somewhat democratic, if you want case studies in what that looks like.
- djbusby 4y ago
  Bob's Red Mill is my favorite example. And their products are very high quality.
1vuio0pswjnm7 4y ago
Agree that is the best line. She is putting it lightly. Many of these people are socially inept. The resulting problem is what I call "misallocation of capital".

dclowd9901 4y ago

Sorry, I don’t like VCs (no specific reason, just don’t like people with tons of money), but a person’s choice of bank shouldn’t be the deciding factor in whether or not they get to keep their money. Do more wealthy VCs and firms have more tooling available to be able to properly vet their capital storage houses before deciding to reside there? Sure. But unless we decide that banks should be public facilities with the aim of strictly housing money, I’m not sure any amount of vetting could actually guarantee a depositor’s safety at a bank. And I just don’t think it should be your fault if your bank’s investment branch are nincompoops. You have no control over that, and certainly no degree of control from a quarter to quarter standpoint where the personnel of your bank might shift and change far past your vetting. So would I have lost sleep if VCs lost their deposits? No. But am I glad they were made whole, even if I think they shouldn’t have that much money in the first place? Yes.

paganel 4y ago
They were not "persons", they were "companies", and, as such, every financial-related action that such a company carries out (like choosing the shady bank instead of a well-established one) might in fact bring it down. That's how business works for companies. And SVB was a shady bank, hence why it had begun to run out of funds before the VCs started losing their minds on Twitter, and also because there are many stories of them (SVB) opening up accounts and giving lines of credit much more freely compared to an established bank or even to a more cautious "mom-and-pop" bank.

roenxi 4y ago

I broadly like the things Molly is bringing attention to, but there are some problems here: 1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationship where they are also major equity holders in the companies banking at the bank - ie, they've benefited hugely from the de-risking even if nominally they are getting wiped out. 2) "No libertarians in a bank run" - what, did libertarians suddenly become self-sacrificing when I wasn't watching? Libertarianism is recognising that people shouldn't be forced to pay taxes to fund these bailouts and that people should be allowed to avoid the dollar while conducting business if they wish. If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. Since these libertarians aren't idiots, they took the bail out. They aren't dignified, sure, but they never pretended they were going to hold themselves up as sacrifices. 3) "the Fed’s not-a-bailout of Silicon Valley Bank and Signature Bank seems ultimately to be the right choice " I mean, if you concede that then ok but is anyone naive enough to believe that the wealthy took everyone else's money hostage by accident? It has been clear for a decade that as long as it is a crisis rich people will get free money. Therefore, the powerful have arranged their affairs so they won't lose money except in a crisis. The easy approach is letting the rules play out to their logical conclusions. People overestimate how important the banking sector is, it makes more sense to plan how to transition through a collapse and rebuild it than it does trying to hold up all the idiots currently in charge of all the important decisions. They aren't competent, that is why the system keeps trying to purge them! Note the remarkable resiliency of the crypto system because it keeps jettisoning all the parts that go bust without rescuing them. Bitcoin's value is more resilient than the banking system right now sans-bailouts.

surgical_fire 4y ago
> This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in Only when looking in hindsight. Unless those extremely wealthy people knew that in the eventuality of a bank run the government would offer them shelter, as the government normally does for the ruling class. But that is not in a sense part of her criticism?

cornholio 4y ago

Capital is just another name for power and powerful people fight to maintain and accumulate more power - welcome to the world, summer child. It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market regulation, progressive taxes, they are all forms of limiting the accumulation of capital and power. And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well. It's nothing short of amazing that it works, really, we are privileged to live in a society where the powerful are so limited in what they can do with their power. We can still fine tune & tax more, of course.

matthewdgreen 4y ago
We didn’t just “come up with that society”: many aspects of it were deliberately constructed because previous iterations failed badly. Deposit insurance, which is the subject of this post, was a depression-era phenomenon that came into existence because many banks failed catastrophically. Many other aspects of our modern society, from old-age pensions to welfare to our global defense alliances, were also born of similar disasters. The main objection in this post is that certain members of our society seem to view those developments as “old fashioned” and unnecessary, and would like to roll them back. Some go so far as to advocate for and donate considerable wealth to politicians who promise to do so. But of course when those people are themselves exposed to the exact risks those systems were designed to protect against — suddenly they’re enthusiastically in favor of government protection. The lesson here is that you should not look at our society and take it for granted. It took work to get us here, and it takes constant work to keep it in place. There are people who would throw it away for a momentary profit, and those people will tell you their beliefs are founded in principle. But for your own protection, you should pay attention to how seriously they take those principles when their money is on the line, and update your mental model accordingly. In this case the answer is: they do not take those principles very seriously at all.

aleph_minus_one 4y ago

There can always happen the situation that customers of a bank want their money that they deposited there back. In the insurance sector, the situation that a singular event (say, a hurricane) causes damages to a lot of customers at once is a well-known phenomenon, named a "cumulative event". Every insurance company has to model this and thus there exist mathematical tools for this such as copulas: https://en.wikipedia.org/wiki/Copula_(probability_theory) https://en.wikipedia.org/wiki/Copula_(probability_theory) A bank should better the model the event that a lot of customers want their money back, too. If it does not, there is something deeply wrong with the bank's risk management. Thus, in my opinion, the article victim-blames venture capitalists to be "evil" while the true culprit are the bankers who did not factor in the cumulative event that lots of customers want their money back (which was given to the bankers by the customers to be held in safe custody) into their risk management.

Calavar 4y ago
> which was given to the bankers by the customers to be held in safe custody That simply not how banking works. Many individuals think of banking that way, and they can because FDIC insures their deposits for up to $250k. (Which for the average person might as well be infinite.) But companies are supposed to understand and manage risk better. A corporate bank account is not and has never been a black box to just dump your funds in without worry.

offtotheraces 4y ago

It’s funny that Molly (a VC) ascribes so much power to VCs that they can literally create bank runs on their own. No. VCs don’t make decisions on where a company keeps its cash; the founder/CEO does. And founders freaked the f-ck out. Let’s make sure to remember that founders had 100% agency in the decisions they made about their cash. Here’s a selection of comments in the Whatsapp founders group Im in - all founders, no VCs: Thursday 3/8 (36 hours before FDIC takeover): “I'd consider moving to one of the too big to fail banks..” “I agree the risk is higher then we thought before, I'm in SVB, with 4% - and looking to understand where to go now.” “It's a numbers game - if a lot of people do what I do at the moment - it will fall.....” “Does someone have a contact at Chase for B2B SaaS customers? I'm thinking it's wise to already have an account open there in case it will seem like we need to move off SVB.” “Let's say we want to open a Chase account and move company funds?” “for those that have their money in SVB and do not have another company bank account - what are the immediate options?” “If there is a risk of a bank run, why not take the money out” “Basically our whatsapp group creates bank runs now... power to the founders?” “we just moved 85% of our money out” “I just pulled ours” It’s not surprising a VC would think she has more power than she actually has, but she also clearly has no idea about the wildfire that was spreading among founders themselves. Founders don’t give a sh-t about what their investors think (generally) - founders make the decisions they think are best because they have the most to lose (or win) from being wrong (or right). And they are much, much, much more likely to trust their fellow founders than their VCs.

JumpCrisscross 4y ago
When a bank runs, you run. Trying to pin the blame on depositors is misguided. There are real villains to the SVB story. Regulators. Senior management. Goldman Sachs.
- AnimalMuppet 4y ago
  Can you explain why Goldman Sachs?
  - JumpCrisscross 4y ago

Nevermark 4y ago

By the time it gets out that a bank is too illiquid to cover its deposits, the situation is already too unstable for any kind of careful coordination of thousands of parties with real concerns about their valuable resources. Imagine the results of an email sent to everyone in Silicon Valley: — “So the local bank screwed up and can’t cover all its deposits. But let’s get together to see if we can all agree to wait this out as a disciplined block of customers. How is Thursday for everyone? (It’s very important that we all cooperate. So if I don’t hear from any of you in the next 20 minutes, I reserve my own right to start withdrawals.)” — That’s not going to work! The bank will be toast before half the recipients get their email. This has absolutely nothing to do with an “investor class”. And everything to do with bad bank risk management and timely contingency planning.

di4na 4y ago
You do realise that no bank ever have had enough liquidity to cover its deposits? That is what a bank is for...
- Nevermark 4y ago
  Ah yes. Not enough assets, as apposed to liquidity. Thanks.

fisherjeff 4y ago

One interesting aspect to me: If you extend the dilemma to N prisoners, and one prisoner starts shouting from the rooftops that he’s starting to rat people out, it does seem rational to immediately start doing the same. Like, once you know the Founders Fund companies are rushing to pull their cash, yeah you should maybe start thinking about getting out too, before you’re the only uninsured depositor left.

blippage 4y ago

[flagged]

louwrentius 4y ago
> VCs, and capitalists in general, put money at risk in the hope of generating wealth above their initial capital. They produce goods or services that benefit society, absent the internet-controlled juice-squeezers. VCs hoarding even more capital doesn't contribute anything to society, they are all 100% rent-seeking juice-squeezers. They are a huge example of why capitalism is so broken. > Society has benefited greatly from capitalism. I wouldn't leave it up to the likes Molly White to produce anything meaningful. Society and the world has been - and continues to be - tremendously damaged by capitalism. But of more interest is the ad hominem against Molly White. I know Molly's work and I'm quite confident that she did a lot more for the world - especially in the crypto space and wikipedia space - than you ever did. See how I can play your game too? The behaviour of Facebook and Google, or Microsoft (in the past) of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions, especially while 60% of just people in the USA live paycheck to paycheck. To me it's not Venture Captitalism but Vulture Capitalism.
- foverzar 4y ago
  > of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions Does it really? Honestly, it's hard to take such sentiments seriously when you start mentioning these particular "hype" billionaires. For one, it seems like most spite comes of expecting them to act like some godly idols, instead of like some dudes. But largely, it's just that there are so much worse examples, dealing in so much worse things. You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior.
  - louwrentius 4y ago
    > You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior. It's not about them as personalities, but what they represent. And their flaws only prove why billionaires should not exist and why they should not have that kind of power.

draw_down 4y ago

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asah 4y ago

VCs are like bankers, lawyers, agents and unions - maybe in some carefree competition-free utopia they're unnecessary, but they're absolutely crucial in the real one where companies compete for capital and resources, and custom inside deals are the normalized way to win.

RamblingCTO 4y ago

> I would probably argue that venture capitalists are not good for society regardless of what they’re investing in That's kind of a stupid and black and white argument. It can be good, might not be. Overall customers decide. If society deems slavery ok, then some VCs can and will make money with it. Shitting on VCs from someone that advocates for crypto and "aLtErNaTiVe MoDeLs". This bullshit can only come from someone who never dealt with funding in a startup. I'd rather have a bunch of VCs getting me and my idea instead of having to manage investor relations for thousands of crypto bros. Also: crowdfunding fails if you have complex special solutions which no one understands. The probability that there's a low number of VCs even getting your idea is way higher than getting a critical number of crowdfunders to get your idea so you can even try.

Jochim 4y ago
Legality and morality are not the same thing. There are many activities that may be technically legal but still make you someone society would be better off without.

mikekoscinski 4y ago

> “I mean, I would probably argue that venture capitalists are not good for society regardless of what they’re investing in.” Definitely. Personally, I have __never__ purchased anything from Amazon, looked anything up with Google, shipped anything with FedEx, gotten somewhere with Uber, received a COVID vaccine from Moderna, used an iPhone or Android cell phone, played an Atari or EA video game, used a Mac or Windows computer, used any program that relies on NVIDIA GPUs, sent money via Paypal/Venmo/CashApp, contacted someone using a Cisco phone or router, found a job or closed a sale via Linkedin, watched a video with YouTube, shared a file with Dropbox/Google Drive/OneDrive, stayed in an Airbnb, booked travel with Kayak/Expedia, bought a home that I found on Zillow, bought anything online via Stripe/Shopify, bought anything in-person via Square terminal, looked a Facebook/Instagram/Snapchat/Twitter post, bought groceries with Instacart, ordered food with Doordash, hosted code on Github, made a video call with Zoom, looked at a Figma/Sketch design for work. It was, in any case, of course certain that all of these things would exist. > For all the talk of unbridled innovation, venture capital services only very specific types of innovation: those that stand to produce large exits for investors, and with relatively low risk, regardless of whether the business itself holds much promise or provides any societal benefit. Yes. Anyone who has ever worked for or invested in a startup can attest to how low-risk and predictable they are. If only they were more volatile: then my life would be more interesting. 3% of seed-stage startups eventually exit? If only I could count on success like that each time I drive my car, take a flight, or cross the street.

pc_edwin 4y ago

Its fascinating how narratives can have such a outsized impact on our worldview, often distorting reality. In this context, we see the "evil bankers" vs "free market" trope but in reality, neither sides couldn't be further from the truth. You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it. Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability. These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply. The progressive and libertarian narratives were both fighting against their own interests, which is why I find them both amusing. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.

mark_l_watson 4y ago

I used to really enjoy the All In Podcast. However their recent "all in for their best interests" was too much for me. The topic of interest rates vs. not having a recession is really complicated. I believe that long term extremely high inflation would be much more crushing for middle and lower income segments of the population since they don't have the kinds of real assets that float as the dollar floats. This is why I personally believe that raising rates is required. I believe that the character and soul of a society is how well they give less privileged people at least a chance to earn shelter and food. I was less extreme in my views before I started volunteering at a local food bank and got to know people whose lives collapsed because of one bad family illness, etc.