5 ms·

When you're paid millions of dollars its your job to hedge risks. When you're just a small renter, it's fine for when the handyman doesn't show up the apartmen

When you're paid millions of dollars its your job to hedge risks. When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding. When you're a 200 unit apartment owner, you better have a list of a dozen handymen that you can go down when the first one doesn't show up. These banks are the equivalent of the apartment owner. They are expected to be able to survive any decision the FED makes short of the FED shutting them down and even in that case they should have known ahead of time and been working on an appeal.

no_wizard 3y ago
> When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding Not to overly quibble but it really isn’t. If we let the small renter get away with such egregious behavior the bigger renters will take note and do the same
- ke88y 3y ago
  The analogy is stretched, for sure. I think the analogy works a bit better if you say that one apartment building houses enough people that there aren't enough hotel rooms to house everyone if the building becomes uninhabitable, thus making the apartment building structurally significant to the local housing supply in some sense. But again, it's just an analogy.
  - no_wizard 3y ago
    Still feels like it breaks. Given the new analogy, proper planning would be to set policy to steadily increase housing supply relative to renters based on likelihood of them being able to purchase a home, adjusted quarterly (or maybe yearly) and/or increase the number of available renter units relative to the amount of new renters coming online (IE, graduating college or moving into a new job that requires them to live in the area). Don't be overly dependent on any one local thing in another words. You can't 100% plan for total failure of course, but this would blunt it significantly. In another words, SVB did a bad job at hedging risk, and there's really no excuse for it.
    - ke88y 3y ago
      > Still feels like it breaks I'm not in love with the analogy, but agree with the underlying argument, fwiw. > Given the new analogy, proper planning would be to set policy to steadily increase Ironically, on this count, the analogy actually works!!! Bank runs sort themselves out on the sort of time frames that "steady" policies operate. Just like housing supply sorts itself out in the steady state (well, apparently not, but we need that assumption for your point to work) BUT steadily adding supply is NOT a good solution to "we literally don't have places for people to live because your apartments flooded and there isn't enough temporary housing to keep the city working". > In another words, SVB did a bad job at hedging risk, and there's really no excuse for it. Yeah I think we're violently agreeing. (Additionally -- FDIC/USFG bailed out SVB depositors above and beyond what they should've done.)
bpodgursky 3y ago
OK but the banks were punished. Their shareholders got their equity zero'd out. I'm not sure what more you want. The question was whether to punish the account holders at the bank. By your analogy, that's saying the apartment renters needed to have handymen oncall in case the landlord couldn't manage it!
- ke88y 3y ago
  > I'm not sure what more you want. Cover $250K then stop. You know, the actual contractually obligated about of insurance and not a penny more. I don't know why this is controversial or difficult to understand! > OK but the banks were punished. The banks weren't the only ones who benefited from risk taking, though. The account holders were getting attractive returns on their cash, made possible by the bank's risks. Clients got to enjoy unlimited upside of the bank's risks while having the rest of society bailout their downside.
  - flappyeagle 3y ago
    > unlimited upside Oh man those interest rates must have been amazing! What were they?
    - ke88y 3y ago
      >=400 basis points over the risk-free rate.
  - borski 3y ago
    250k is an extremely small amount for a company of any significant or insignificant size. Furthermore, the returns at SVB were not that spectacular, I assure you. They were just a very startup-friendly bank.
    - bugglebeetle 3y ago
      > They were just a very startup-friendly bank. Americans have a million euphemisms for corruption.
ke88y 3y ago
> These banks are the equivalent of the apartment owner. The issue is that they ARE important enough to the economy to be considered an "large apartment building owner" (see: de facto bailouts) but were NOT regulated as such. Pardon my continued use of a somewhat tortured analogy. You and me and everyone else without >$250K in an SVB account should be angry about this. Why? Because the customers of SVB were getting attractive returns on their deposits. So they got exposure to the upside of the bank's risk, but were bailed out of the downside.
- bluefirebrand 3y ago
  > So they got exposure to the upside of the bank's risk, but were bailed out of the downside. This is a huge flaw in the current way things are operating, but it benefits those people making the decisions and their friends so I don't see it changing. Facing consequences for bad investments is apparently something only poor people have to worry about. Which is insane.
- stickfigure 3y ago
  > customers of SVB were getting attractive returns on their deposits Can you quantify that? If a startup had $1M in a business checking account, what interest rate were they getting paid? I was under the impression that depositors at SVB were getting 0% like everyone else in the 0-interest-rate era.
  - FireBeyond 3y ago
    Around 4.91% interest up to $4M.
    - butlerm 3y ago
      > Around 4.91% interest up to $4M. Anyone being paid interest like that on demand deposits should expect their bank to fail, unfortunately, and consider themselves lucky to get cents on the dollar when it does.
- butlerm 3y ago
roenxi 3y ago
The Fed just spent a decade making fools of anyone who tried to manage risk sensibly; anyone who believes the stock market is currently measuring some sort of value would have to rate COVID as one of the best things to ever happen to the US. It is in fact just measuring the money printing activities. It is a bit rich to tut-tut at the money managers - they are probably idiots, but the reason idiots are managing all that money is ... the Fed incentivised it for more than 10 years. Furthermore, I still think it is unclear that SVB was a true failure for the decision makers - in the sense that it seems possible that the people making active decisions might have made money. There has been a lack of clarity around who is losing out in this crisis and why ("shareholders" doesn't count - who are they? how much a head?). It seems possible the SVB owners who lost money were either index funds who pass the costs back to small players who were forced out of bonds by the fed, or entities caught up in some web that meant they simultaneously benefited from the bail outs. The people getting bailed out aren't normal depositors.
epistasis 3y ago
There is absolutely no hedge that can stop a bank run, there is literally not a single financial invention that allows both banking and enough liquidity to stop the run. Except for insurance on that sort of bank run. Really it comes down to irrational VCs starting this bank run, which inevitably led to the destruction of the only bank that really understands tech startups. And now the same folks are making fools of themselves doubting all economic data (public or private, they all agree) that shows that most sectors are doing fantastically, just not tech. They are also backing a presidential candidate that thinks WiFi causes cancer, and has some of the worst anti-science views out there; in addition these same VCs are pretty much solely responsible for the community backlash against tech, the change from appreciation of tech to hate of tech, as they are outliers with their weird political obsessions that don't even match the rest of the industry. The result of the interest rate hikes was that there were going to be some bank failures, that's the whole point of trying to cool things off. That it happened in tech and not elsewhere is due to a few bad actors that have more economic power than wisdom to wield it well.
- deleted 3y ago
  [deleted]
- lesuorac 3y ago
  1) What's irrational about taking your money out of an insolvent bank? Sure SVB collapsed immediately from the bank run; but whose to say it wouldn't've gone bankrupt 5 months from now (it's not like 2% mortgages are worth any more now than then!)? 2) It's not like the Fed didn't warn them quarters ahead of time that SVB wasn't hedged against rising interest rates. The Fed does not need to give banks advanced notice of what they're doing; the bank should be hedged for w/e the Fed does so that they don't become insolvent triggering a bank run. Sure it would be much better if the VCs had gotten together and agreed to either loan SVB money or etc so it would be paper solvent. But my original point is, don't be blaming the Fed for SVB's collapse. SVB had a duty to manage their risks and they did not.
  - epistasis 3y ago
    If it were not for the bank run, the bank wouldn't have gone under. There was no need to loan SVB any money! The only thing that causes this run was a coordinated withdrawal of lots of accounts all at once, and without that, with norma behavior everything would have been fine with SVB. The biggest critique of SVB isn't that they needed money (they didn't) or that they didn't hedge properly (it was pretty standard stuff) it was that they had correlated clients that were far less diverse than one would guess by looking at the number of accounts. That was the risk that SVB "did not manage" in that a lot of the money was actually controlled by a very tiny number of people, even if it was in the account of a startup, that startup was going to follow the advice of they major financial backers.

no_wizard 3y ago

> When you're just a small renter, it's fine for when the handyman doesn't show up the apartment keeps flooding Not to overly quibble but it really isn’t. If we let the small renter get away with such egregious behavior the bigger renters will take note and do the same

ke88y 3y ago
The analogy is stretched, for sure. I think the analogy works a bit better if you say that one apartment building houses enough people that there aren't enough hotel rooms to house everyone if the building becomes uninhabitable, thus making the apartment building structurally significant to the local housing supply in some sense. But again, it's just an analogy.
- no_wizard 3y ago
  Still feels like it breaks. Given the new analogy, proper planning would be to set policy to steadily increase housing supply relative to renters based on likelihood of them being able to purchase a home, adjusted quarterly (or maybe yearly) and/or increase the number of available renter units relative to the amount of new renters coming online (IE, graduating college or moving into a new job that requires them to live in the area). Don't be overly dependent on any one local thing in another words. You can't 100% plan for total failure of course, but this would blunt it significantly. In another words, SVB did a bad job at hedging risk, and there's really no excuse for it.
  - ke88y 3y ago
    > Still feels like it breaks I'm not in love with the analogy, but agree with the underlying argument, fwiw. > Given the new analogy, proper planning would be to set policy to steadily increase Ironically, on this count, the analogy actually works!!! Bank runs sort themselves out on the sort of time frames that "steady" policies operate. Just like housing supply sorts itself out in the steady state (well, apparently not, but we need that assumption for your point to work) BUT steadily adding supply is NOT a good solution to "we literally don't have places for people to live because your apartments flooded and there isn't enough temporary housing to keep the city working". > In another words, SVB did a bad job at hedging risk, and there's really no excuse for it. Yeah I think we're violently agreeing. (Additionally -- FDIC/USFG bailed out SVB depositors above and beyond what they should've done.)

bpodgursky 3y ago

OK but the banks were punished. Their shareholders got their equity zero'd out. I'm not sure what more you want. The question was whether to punish the account holders at the bank. By your analogy, that's saying the apartment renters needed to have handymen oncall in case the landlord couldn't manage it!

ke88y 3y ago
> I'm not sure what more you want. Cover $250K then stop. You know, the actual contractually obligated about of insurance and not a penny more. I don't know why this is controversial or difficult to understand! > OK but the banks were punished. The banks weren't the only ones who benefited from risk taking, though. The account holders were getting attractive returns on their cash, made possible by the bank's risks. Clients got to enjoy unlimited upside of the bank's risks while having the rest of society bailout their downside.
- flappyeagle 3y ago
  > unlimited upside Oh man those interest rates must have been amazing! What were they?
  - ke88y 3y ago
    >=400 basis points over the risk-free rate.
- borski 3y ago
  250k is an extremely small amount for a company of any significant or insignificant size. Furthermore, the returns at SVB were not that spectacular, I assure you. They were just a very startup-friendly bank.
  - bugglebeetle 3y ago
    > They were just a very startup-friendly bank. Americans have a million euphemisms for corruption.

ke88y 3y ago

> These banks are the equivalent of the apartment owner. The issue is that they ARE important enough to the economy to be considered an "large apartment building owner" (see: de facto bailouts) but were NOT regulated as such. Pardon my continued use of a somewhat tortured analogy. You and me and everyone else without >$250K in an SVB account should be angry about this. Why? Because the customers of SVB were getting attractive returns on their deposits. So they got exposure to the upside of the bank's risk, but were bailed out of the downside.

bluefirebrand 3y ago
> So they got exposure to the upside of the bank's risk, but were bailed out of the downside. This is a huge flaw in the current way things are operating, but it benefits those people making the decisions and their friends so I don't see it changing. Facing consequences for bad investments is apparently something only poor people have to worry about. Which is insane.
stickfigure 3y ago
> customers of SVB were getting attractive returns on their deposits Can you quantify that? If a startup had $1M in a business checking account, what interest rate were they getting paid? I was under the impression that depositors at SVB were getting 0% like everyone else in the 0-interest-rate era.
- FireBeyond 3y ago
  Around 4.91% interest up to $4M.
  - butlerm 3y ago
    > Around 4.91% interest up to $4M. Anyone being paid interest like that on demand deposits should expect their bank to fail, unfortunately, and consider themselves lucky to get cents on the dollar when it does.
butlerm 3y ago

roenxi 3y ago

The Fed just spent a decade making fools of anyone who tried to manage risk sensibly; anyone who believes the stock market is currently measuring some sort of value would have to rate COVID as one of the best things to ever happen to the US. It is in fact just measuring the money printing activities. It is a bit rich to tut-tut at the money managers - they are probably idiots, but the reason idiots are managing all that money is ... the Fed incentivised it for more than 10 years. Furthermore, I still think it is unclear that SVB was a true failure for the decision makers - in the sense that it seems possible that the people making active decisions might have made money. There has been a lack of clarity around who is losing out in this crisis and why ("shareholders" doesn't count - who are they? how much a head?). It seems possible the SVB owners who lost money were either index funds who pass the costs back to small players who were forced out of bonds by the fed, or entities caught up in some web that meant they simultaneously benefited from the bail outs. The people getting bailed out aren't normal depositors.

epistasis 3y ago

There is absolutely no hedge that can stop a bank run, there is literally not a single financial invention that allows both banking and enough liquidity to stop the run. Except for insurance on that sort of bank run. Really it comes down to irrational VCs starting this bank run, which inevitably led to the destruction of the only bank that really understands tech startups. And now the same folks are making fools of themselves doubting all economic data (public or private, they all agree) that shows that most sectors are doing fantastically, just not tech. They are also backing a presidential candidate that thinks WiFi causes cancer, and has some of the worst anti-science views out there; in addition these same VCs are pretty much solely responsible for the community backlash against tech, the change from appreciation of tech to hate of tech, as they are outliers with their weird political obsessions that don't even match the rest of the industry. The result of the interest rate hikes was that there were going to be some bank failures, that's the whole point of trying to cool things off. That it happened in tech and not elsewhere is due to a few bad actors that have more economic power than wisdom to wield it well.

deleted 3y ago
[deleted]
lesuorac 3y ago
1) What's irrational about taking your money out of an insolvent bank? Sure SVB collapsed immediately from the bank run; but whose to say it wouldn't've gone bankrupt 5 months from now (it's not like 2% mortgages are worth any more now than then!)? 2) It's not like the Fed didn't warn them quarters ahead of time that SVB wasn't hedged against rising interest rates. The Fed does not need to give banks advanced notice of what they're doing; the bank should be hedged for w/e the Fed does so that they don't become insolvent triggering a bank run. Sure it would be much better if the VCs had gotten together and agreed to either loan SVB money or etc so it would be paper solvent. But my original point is, don't be blaming the Fed for SVB's collapse. SVB had a duty to manage their risks and they did not.
- epistasis 3y ago
  If it were not for the bank run, the bank wouldn't have gone under. There was no need to loan SVB any money! The only thing that causes this run was a coordinated withdrawal of lots of accounts all at once, and without that, with norma behavior everything would have been fine with SVB. The biggest critique of SVB isn't that they needed money (they didn't) or that they didn't hedge properly (it was pretty standard stuff) it was that they had correlated clients that were far less diverse than one would guess by looking at the number of accounts. That was the risk that SVB "did not manage" in that a lot of the money was actually controlled by a very tiny number of people, even if it was in the account of a startup, that startup was going to follow the advice of they major financial backers.