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Banking is a requirement for businesses to function. Depositors have no choice but to put their money in some bank. It's debatable whether depositors ought to t

Banking is a requirement for businesses to function. Depositors have no choice but to put their money in some bank. It's debatable whether depositors ought to take a haircut or be made whole if their bank suddenly fails. The greater the perceived risk of deposits being held at a bank being worth less than 100 cents on the dollar, the more flighty deposits will be. Even if depositors got back 90% of their money, the concern with SVB was probably more about how long companies' cash would be inaccessible. Perhaps some of the hubbub the weekend SVB failed could have been avoided if the FDIC was able to have some sort of policy to release immediately not only the insured amount, but perhaps also some "safe" percentage that is expected with some confidence to be recovered, like 50%. Meanwhile, over in crypto land, choosing to gamble on the volatile price swings of speculative digital assets (aka "magic beans") in a market driven in no small part by people evading laws—whether it's illicit purchases, money laundering, ignoring securities regulations, wash trades, pump-and-dump schemes, etc.—is a completely different matter. It is still, in a certain light, sad that someone would become unemployed because their crypto startup employer's capital was lost in the collapse of a fraudulent exchange. Or someone lost their life savings. But really, what did you expect would happen? While one could be less sympathetic of small business employees losing their income due to a bank failure or more sympathetic of a crypto user losing their life savings, they're drastically different circumstances. I don't see how one could expect people to either take a blanket "save all depositors and gamblers" nor "all depositors or gamblers should lose everything." Keep in mind also that practically no one has argued in favor of shareholders in SVB getting anything but a 100% loss on their equity. If you view crypto people as "investors" then there should also be the expectation that one of risks they are taking by "investing" in magic beans is that whether or not they turn out to be magical, the place that stored them may unexpectedly blink out of existence.

_heimdall 4y ago
I would have almost certainly lost my job if SVB depositors weren't made whole, so I'm not exactly taking lightly the aftermath on depositors if a bank fails. But the entire system of fractional reserve currency is based on the idea that putting money in a bank is effectively investing in the bank's future. There's already a process for depositors in a bank failure - FDIC insurance pays out up to $250k and the bank is taken over by regulators. The bank is eventually liquidated and depositors get priority on their share of the pie to get back as much as possible. Why do we even bother having FDIC insurance if every deposit should be secured to 100%? How does that work without the guarantee of government bailouts easing the risk of bad bank investments? And how does that work at scale if multiple banks go under, where does the money come from to save depositors? Does every bank depositor bailout risk inflation? There's just so many fundamental questions as to why we even have a fractional system if we don't, at the end of the day, want a fractional system. We can't have our cake and eat it too, either our money is thrown in a vault and always safe or the bank reinvested it and the money is replaced with an IOU.

_heimdall 4y ago

I would have almost certainly lost my job if SVB depositors weren't made whole, so I'm not exactly taking lightly the aftermath on depositors if a bank fails. But the entire system of fractional reserve currency is based on the idea that putting money in a bank is effectively investing in the bank's future. There's already a process for depositors in a bank failure - FDIC insurance pays out up to $250k and the bank is taken over by regulators. The bank is eventually liquidated and depositors get priority on their share of the pie to get back as much as possible. Why do we even bother having FDIC insurance if every deposit should be secured to 100%? How does that work without the guarantee of government bailouts easing the risk of bad bank investments? And how does that work at scale if multiple banks go under, where does the money come from to save depositors? Does every bank depositor bailout risk inflation? There's just so many fundamental questions as to why we even have a fractional system if we don't, at the end of the day, want a fractional system. We can't have our cake and eat it too, either our money is thrown in a vault and always safe or the bank reinvested it and the money is replaced with an IOU.