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There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better.

by taeric 4y ago

There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better. Not just living off of leveraged value forever. To that end, I'm not sure I see good argument for 100% protection. Money sitting in a bank deposit only creates wealth if we have the banks actively lending. And, annoyingly to me, the largest form of this for the "too big to fail" banks seems to be credit card schemes. Which I actively despise, at the moment. It also incentivizes banks to hunt out places to loan money. Which is why we have ridiculously complicated securities to back mortgages. The amount of those that have been made is only "safe" for the banks with a ton of the extra machinery they have put on top. Which has costs. Edit: I should add that I'm not 100% on my stance here. Would love to be challenged on any of the above. Can only help my understanding.

dehrmann 4y ago
> There is a reason we don't want billionaires to feel safe with their assets sitting places... Between inflation and income taxes, you don't need to worry about this. I literally can't remember the last time banks paid enough interest to beat inflation and cover 37% income tax (almost 50% if you're in CA).
- taeric 4y ago
  Billionaires care very little on either of those things? Leveraged income is not taxed. Is why you don't pay taxes as income on the loan to pay for your house. And inflation they have beat with other returns. If anything, this is reason to keep the insurance rate low. After all, they only "lose" the uninsured part that is not recovered in bank seizure. The scare quotes about people losing 100% of their money in SVB was just that, scare quotes. The assets did not disappear 100% and depositors are first in line. If anything, that should incentivise wealthy people to pay attention to how a bank is being run. Full insurance means I don't give a shit.
- Izkata 4y ago
  Income tax is on the gain, not the whole amount, so beating the income tax doesn't even make sense. There's nothing to beat.
  - ummonk 4y ago
    You can't deduct inflation from the interest earning, so yes the interest rate has to be high enough to cover inflation after tax.
    - taeric 4y ago
      But if it is, let's say 7 million dollars, even earning 0 interest, it can be used as collateral for loans that they can then use in places that has something to beat inflation. Notably, this has a finite lifespan on how often you can do it. It is not some magical process that has no downside. But, to pretend the people that will buy yachts care about inflation loss on things is silly. Every single asset they buy will result in worse loss than inflation. Having safe assets that they know won't be taken is a very nice source of collateral. And note that I never envision them putting their billions away, in this manner. Just many millions. Because they have many many millions.
AmericanChopper 4y ago
The problem you’re talking about doesn’t exist. Billionaires are never going to leave much of their money sitting in a bank account, because there’s always going to be better performing assets for them to invest it in. Even if they did, the banks would be putting most of that money to work themselves anyway.
- taeric 4y ago
  I don't see them leaving all of it. I do see them leaving enough to have collateral for a loan that they can live off for a long time. Heck, just the rate that is common for bump CDs right now is not too shabby and makes me regret not setting up a savings ladder sooner. That said, your point about better performing assets is why I don't think they care about inflation, as my response to the other thread said. I also agree that the banks should be putting them to good use. Sadly, we have active evidence that the banks are not too good at that. They seem to think it means either credit cards for the masses (which, yes, pays well for the bank), or convincing everyone to refinance their homes. Neither of which feels that good to me. Tech stocks have screwed this up by fucking up the idea of profit versus non-profit companies. Not paying out dividends to shareholders has made that a near meaningless distinction and made it so that living off changes in the market is all folks can do. That is, you cannot own stock in a company to get residuals while they make the world better for you. So, to that end, how do you think the banks should be putting that money to work?
  - AmericanChopper 4y ago
    This comment describes a moral judgement about consumerism, and maybe that’s perfectly reasonable, but it doesn’t relate to issues around the productive use of capital.
    - taeric 4y ago
      Not what I meant, amusingly. I seriously meant it as a question of what you think they should do? Funding consumers is somewhat fine, as far as money making goes. But our rules are made to drive to outcomes we want. So, what do we want banks doing?
mindslight 4y ago
My argument: Accounts seem to be de facto fully protected anyway, or at least close enough. So making it official allows the FDIC to assess the proper rates for what they're actually insuring (which is necessarily super-linear due to increased variance). Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly.
- dehrmann 4y ago
  > Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly This brings up the interesting question of what the role of banks should be. When savers have access to money market funds investing in short-term government debt (this is basically what SVB bought), why bother with the intermediary? We're also in a world of securitized mortgages where banks are just the originators. There are also mortgage originators that just do mortgages. These days, the only unique services banks provide are retail services and small business loans.
  - ummonk 4y ago
    SVB bought mortgage backed securities as well, not just treasuries.
- taeric 4y ago
  This is mainly from poor coverage of what happened with SVB. The main thing protected there was the value of long term bonds. Last thing that fed wanted was for those to plummet at auction. Not the large deposits that would have gone down with them.
  - mindslight 4y ago
    I don't understand the argument you are making. Regardless of any additional reasons it happened, depositors at SVB were bailed out, right? And it's widely held that depositors at the TBTF megabanks will be bailed out similarly, right? So unless/until a bank fails and the feds actually make large depositors take a haircut, then it seems that large accounts are de facto covered. To me, it would seem the dynamic is not one of "large depositors can do their own diligence and giving them FDIC coverage would be a burden", but rather "banks and their depositors aren't responsible enough to accept the consequences of uninsured accounts".
SilasX 4y ago
>There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better. Okay, but the $250k cap doesn't do that, it just encourages them to do the exact same thing, shuffled across multiple banks.
- taeric 4y ago
  Oddly, it is worth noting that many of the accounts at SVB were completely uninsured business accounts. At any rate, yes. But you can only split billions across so many 250k banks (I haven't checked the numbers, but I'd assume this is limited by number of banks). And presumably, that means that many more locally focused places managing more funds. That is, the spread is part of the point.
  - SilasX 4y ago
    Yes, but it's just as "with their assets sitting places"[1] as it was before -- the shuffling doesn't address the problem you raised in your comment[1] and proposed that as a solution to. [1] https://news.ycombinator.com/item?id=35749378 https://news.ycombinator.com/item?id=35749378
    - taeric 4y ago
      I'm not sure I follow? Use some charity in this, as I am on a phone most of the time. But, sitting many places is better than fewer. And smaller amounts is better than larger. But! This is just like lines of code. No "true" value answer. And pathological is pathological. So, did I propose a solution? I specifically think 100% covered it bad. Not clear what number we want.
      - SilasX 4y ago
        You don't follow... your own argument, that you were advancing? You were bringing up the insurance cap to support this argument: >There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better. That is, you advocated the cap as a means to make billionaires use their assets to make the world better. I replied[1] that the cap doesn't make billionaires do that (that= "make the world better"), but simply makes them do the same thing they were doing before, but shuffled across many banks. (i.e. "feel safe with their assets sitting many places, rather than one"). Then, you forgot what argument you were making, including this core point, and are now asking me to re-explain it to you, having since drifted off to a completely different point about whether there are other benefits, unrelated to this point, to storing a billionaire's stash in many places vs one. Normally, I accept that people might miss key points from earlier in the thread, but here, this is your own argument, and you seem to have forgotten you made it. Come on, show some respect to the people who try to engage with you. [1] https://news.ycombinator.com/item?id=35754102 https://news.ycombinator.com/item?id=35754102

by taeric 4y ago

dehrmann 4y ago

> There is a reason we don't want billionaires to feel safe with their assets sitting places... Between inflation and income taxes, you don't need to worry about this. I literally can't remember the last time banks paid enough interest to beat inflation and cover 37% income tax (almost 50% if you're in CA).

taeric 4y ago
Billionaires care very little on either of those things? Leveraged income is not taxed. Is why you don't pay taxes as income on the loan to pay for your house. And inflation they have beat with other returns. If anything, this is reason to keep the insurance rate low. After all, they only "lose" the uninsured part that is not recovered in bank seizure. The scare quotes about people losing 100% of their money in SVB was just that, scare quotes. The assets did not disappear 100% and depositors are first in line. If anything, that should incentivise wealthy people to pay attention to how a bank is being run. Full insurance means I don't give a shit.
Izkata 4y ago
Income tax is on the gain, not the whole amount, so beating the income tax doesn't even make sense. There's nothing to beat.
- ummonk 4y ago
  You can't deduct inflation from the interest earning, so yes the interest rate has to be high enough to cover inflation after tax.
  - taeric 4y ago
    But if it is, let's say 7 million dollars, even earning 0 interest, it can be used as collateral for loans that they can then use in places that has something to beat inflation. Notably, this has a finite lifespan on how often you can do it. It is not some magical process that has no downside. But, to pretend the people that will buy yachts care about inflation loss on things is silly. Every single asset they buy will result in worse loss than inflation. Having safe assets that they know won't be taken is a very nice source of collateral. And note that I never envision them putting their billions away, in this manner. Just many millions. Because they have many many millions.

AmericanChopper 4y ago

The problem you’re talking about doesn’t exist. Billionaires are never going to leave much of their money sitting in a bank account, because there’s always going to be better performing assets for them to invest it in. Even if they did, the banks would be putting most of that money to work themselves anyway.

taeric 4y ago
I don't see them leaving all of it. I do see them leaving enough to have collateral for a loan that they can live off for a long time. Heck, just the rate that is common for bump CDs right now is not too shabby and makes me regret not setting up a savings ladder sooner. That said, your point about better performing assets is why I don't think they care about inflation, as my response to the other thread said. I also agree that the banks should be putting them to good use. Sadly, we have active evidence that the banks are not too good at that. They seem to think it means either credit cards for the masses (which, yes, pays well for the bank), or convincing everyone to refinance their homes. Neither of which feels that good to me. Tech stocks have screwed this up by fucking up the idea of profit versus non-profit companies. Not paying out dividends to shareholders has made that a near meaningless distinction and made it so that living off changes in the market is all folks can do. That is, you cannot own stock in a company to get residuals while they make the world better for you. So, to that end, how do you think the banks should be putting that money to work?
- AmericanChopper 4y ago
  This comment describes a moral judgement about consumerism, and maybe that’s perfectly reasonable, but it doesn’t relate to issues around the productive use of capital.
  - taeric 4y ago
    Not what I meant, amusingly. I seriously meant it as a question of what you think they should do? Funding consumers is somewhat fine, as far as money making goes. But our rules are made to drive to outcomes we want. So, what do we want banks doing?

mindslight 4y ago

My argument: Accounts seem to be de facto fully protected anyway, or at least close enough. So making it official allows the FDIC to assess the proper rates for what they're actually insuring (which is necessarily super-linear due to increased variance). Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly.

dehrmann 4y ago
> Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly This brings up the interesting question of what the role of banks should be. When savers have access to money market funds investing in short-term government debt (this is basically what SVB bought), why bother with the intermediary? We're also in a world of securitized mortgages where banks are just the originators. There are also mortgage originators that just do mortgages. These days, the only unique services banks provide are retail services and small business loans.
- ummonk 4y ago
  SVB bought mortgage backed securities as well, not just treasuries.
taeric 4y ago
This is mainly from poor coverage of what happened with SVB. The main thing protected there was the value of long term bonds. Last thing that fed wanted was for those to plummet at auction. Not the large deposits that would have gone down with them.
- mindslight 4y ago
  I don't understand the argument you are making. Regardless of any additional reasons it happened, depositors at SVB were bailed out, right? And it's widely held that depositors at the TBTF megabanks will be bailed out similarly, right? So unless/until a bank fails and the feds actually make large depositors take a haircut, then it seems that large accounts are de facto covered. To me, it would seem the dynamic is not one of "large depositors can do their own diligence and giving them FDIC coverage would be a burden", but rather "banks and their depositors aren't responsible enough to accept the consequences of uninsured accounts".

SilasX 4y ago

>There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better. Okay, but the $250k cap doesn't do that, it just encourages them to do the exact same thing, shuffled across multiple banks.

taeric 4y ago
Oddly, it is worth noting that many of the accounts at SVB were completely uninsured business accounts. At any rate, yes. But you can only split billions across so many 250k banks (I haven't checked the numbers, but I'd assume this is limited by number of banks). And presumably, that means that many more locally focused places managing more funds. That is, the spread is part of the point.
- SilasX 4y ago
  Yes, but it's just as "with their assets sitting places"[1] as it was before -- the shuffling doesn't address the problem you raised in your comment[1] and proposed that as a solution to. [1] https://news.ycombinator.com/item?id=35749378 https://news.ycombinator.com/item?id=35749378
  - taeric 4y ago
    I'm not sure I follow? Use some charity in this, as I am on a phone most of the time. But, sitting many places is better than fewer. And smaller amounts is better than larger. But! This is just like lines of code. No "true" value answer. And pathological is pathological. So, did I propose a solution? I specifically think 100% covered it bad. Not clear what number we want.
    - SilasX 4y ago
      You don't follow... your own argument, that you were advancing? You were bringing up the insurance cap to support this argument: >There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better. That is, you advocated the cap as a means to make billionaires use their assets to make the world better. I replied[1] that the cap doesn't make billionaires do that (that= "make the world better"), but simply makes them do the same thing they were doing before, but shuffled across many banks. (i.e. "feel safe with their assets sitting many places, rather than one"). Then, you forgot what argument you were making, including this core point, and are now asking me to re-explain it to you, having since drifted off to a completely different point about whether there are other benefits, unrelated to this point, to storing a billionaire's stash in many places vs one. Normally, I accept that people might miss key points from earlier in the thread, but here, this is your own argument, and you seem to have forgotten you made it. Come on, show some respect to the people who try to engage with you. [1] https://news.ycombinator.com/item?id=35754102 https://news.ycombinator.com/item?id=35754102