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I want to see this play out without government intervention. If banks need to take losses, so be it. This needs to be unfettered and not be an excuse to lower i

I want to see this play out without government intervention. If banks need to take losses, so be it. This needs to be unfettered and not be an excuse to lower interest rates. The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. Let them take the losses. Why on earth did we train banks that they can have all the upside but have the public eat the downside if a financial crisis ever arises out of their own behavior?

onlyrealcuzzo 3y ago
> If banks need to take losses, so be it. Then the government is bailing out with FDIC, plus the economy explodes. It's not as sexy as it sounds.
- Spivak 3y ago
  > Then the government is bailing out with FDIC. At least then it's bailing about depositors.
- deleted 3y ago
  [deleted]
- toomuchtodo 3y ago
  It’s not supposed to be sexy. It’s avoiding moral hazard. Eventually, you have to let poor risk management fail.
  - generic92034 3y ago
    Beware the domino effect, though.
    - toomuchtodo 3y ago
      Edit: What AnimalMuppet said. FDIC is backstopped by the Fed and participant banks. There is no hard limit anywhere. Make depositors whole, good luck to everyone else. If you’re exceeding FDIC insurance limits as a depositor, you should fix that, today. If you have exposure to at risk asset classes, you’re already exposed, you’re just waiting for prices to catch up to reality.
      - andersa 3y ago
        > you should fix that how do you fix it?
        toomuchtodo 3y ago
        As an individual, spread deposits across accounts or institutions to stay within limits [1]. There are account products that will sweep your deposits across other institutions in order to ensure full coverage. Fidelity's cash management account will cover up to $5M using sweeps [2], for example. Mercury has a similar product for business accounts [3]. If you're a larger business (>$5M cash equivalents on hand), treasury management in government money market funds instead of a demand deposit account. All roads lead to mostly US treasuries here. [1] https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/ https://www.fdic.gov/resources/deposit-insurance/brochures/i... [2] https://www.fidelity.com/why-fidelity/safeguarding-your-accounts https://www.fidelity.com/why-fidelity/safeguarding-your-acco... [3] https://mercury.com/vault https://mercury.com/vault (previous comment on the topic during SVB failure: https://news.ycombinator.com/item?id=35171289 https://news.ycombinator.com/item?id=35171289)
        initplus 3y ago
        Splitting assets between banks doesn’t change the insurance income collected by FDIC, and nor does it change the overall risk profile for FDIC - its artificial structuring behaviour. It’s a minimum, not a cap.
        toomuchtodo 3y ago
        Again, as my comment [1] mentioned, there are no hard limits. For FDIC to fail, the US government and it's largest member banks (including those considered globally systemic) would have to fail. There will be losses, but there will be no systemic failure. Properly titling and distributing deposits ensures you've met your obligation to meet deposit insurance requirements (although it might not matter such that happened with SVB depositors). You cannot control the regulatory mechanisms, but you can take somewhat straightforward, prudent measures to keep the paperwork you'll have to do and any interruptions to your finances to a minimum. If your risk model is the US government allowing FDIC to fail, we're well outside of reasonable discourse. Your currency would be food, fuel, and firearms. [1] https://news.ycombinator.com/item?id=39441532 https://news.ycombinator.com/item?id=39441532
  - ToucanLoucan 3y ago
    It's not poor risk management. The banks (correctly) have identified that the government cannot, without massive backlash both political and economic in nature, permit them to fail in the way they should. They are some of the largest trees in the financial forest, and even if they are rotten to the core, they're incredibly big trees and as one of them falls, it will shred it's neighbors.
  - AnimalMuppet 3y ago
    Fire the management. Destroy the stockholders. Protect the depositors.
    - JumpCrisscross 3y ago
      > Fire the management. Destroy the stockholders. Protect the depositors. TL; DR What we did in March 2023.
      - AnimalMuppet 3y ago
        That took me a minute. Silicon Valley Bank, I presume? I don't recall the details, but yes, there are historic examples of this being done well.
        JumpCrisscross 3y ago
        > took me a minute. Silicon Valley Bank, I presume First Republic, SVB, Signature—our nation’s second, third and fourth largest bank failures in its history [1]. (WaMu.) Resolved so smoothly we don’t even talk about it less than a year later. [1] https://en.m.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.m.wikipedia.org/wiki/List_of_largest_bank_failure...
        FireBeyond 3y ago
        > Resolved so smoothly we don’t even talk about it less than a year later. Except now with the banks understanding that FDIC will make depositors whole, above and beyond the $250K limits. The only thing this does is increase banks comfort with risk.
        AnimalMuppet 3y ago
        Not if the managers got fired. Not if the stockholders got wiped out. The stockholders care more about the stockholders than they do about the depositors. This is also true for most of the managers, maybe all of them.
  - oldpersonintx 3y ago
    [dead]
- pooper 3y ago
  > Then the government is bailing out with FDIC, plus the economy explodes. FDIC limits government losses to USD 250k per account or something like that, right? I think it is still preferable to outright bailing out the entire bank. This is what we should have done with Silicon Valley Bank.
  - onlyrealcuzzo 3y ago
    > This is what we should have done with Silicon Valley Bank. SVB deposits were businesses. You're ensuring every regional bank collapses and all businesses bank with Chase if you let SVB fail and don't bail out the depositors. Maybe that's what you want. It's not what the government wanted. So they bailed out SVB.
    - bigtunacan 3y ago
      I don't want businesses to fail because their bank took undue risk, but the reality is that sufficiently large businesses should have their money spread around multiple banks to reduce the risk to the business.
      - mywittyname 3y ago
        > I don't want businesses to fail because their bank took undue risk, SVB didn't even take undue risk. They merely bought long-term bonds which lost book value due to rate hikes. What crushed them was high-profile people with insider knowledge of their bond holdings spooking the market. Hindsight is 20/20, but what SVB was doing wasn't irresponsible with the knowledge they had at the time. I don't think any expected rates to climb as fast as they did. They were 80% unlucky.
        mrguyorama 3y ago
        >SVB didn't even take undue risk. Not hedging in ANY way against interest rates going up was explicitly undue risk. EVERY bet must be hedged. SVB said "well surely the government will never raise rates, so we can lock in money for 10 years to gain a small amount of extra profit", ignoring that their depositors were all highly aligned and literally friends that would act in concert. You don't have every dollar you own locked up in a 7 year CD right? Because you're smart enough to know liquidity has non-trivial value! SVB purposefully ignored that in search of a slightly higher profit. It was trivially stupid. >but what SVB was doing wasn't irresponsible with the knowledge they had at the time. If you're a bank, and you think you've found a magic money glitch that requires no hedging, you are wrong. They weren't doing arbitrage, they were gambling.
- marcosdumay 3y ago
  Hum, or the government takes the worthless banks for free, make good on their obligations, and sell them later to the highest bidder.
  - onlyrealcuzzo 3y ago
    > Hum, or the government takes the worthless banks for free, make good on their obligations, So bail out the customers / depositors and wipe out the equity investors? That's what they did with SVB...
yowlingcat 3y ago
Then you'll get a bank run and your savings are gone and we get a repeat of the Great Depression. Doesn't feel like a great alternative to me.
lm28469 3y ago
afaik the problem isn't the (2008) bailout itself, it's that we continued playing the same exact game with the same exact people. > Why on earth did we train banks that they can have all the upside but have the public eat the downside if a financial crisis ever arises out of their own behavior? Deregulation and lobbies did it, it's been documented over and over again. Deep down greed is the culprit but it could have been somewhat tamed.
tekla 3y ago
> The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. TARP prevented the economy from collapsing. I was unaware the average citizen didn't need loans or a functioning economy.
brightball 3y ago
While I agree with you in principle, I'd want to know more about which loans were at risk that passed all of the banks risk assessment criteria compared to which ones did not that they may have been required to allow due to regulations.
londons_explore 3y ago
I think the point is that the banks do not have enough cash to take the losses. Nearly all money is someone else's debt, $1 of bad debt can lead to a chain of hundreds of people - each losing $1. And if the government steps in with FDIC or other protections to prevent hundreds of people losing $1, then the government has to print more money, and inflation happens. There is no good solution.
- AnimalMuppet 3y ago
  I would argue that the inflation has already happened, in the loans without adequate reserves. That creates money. The government would be printing money to prevent a deflation happening from the money disappearing.
- kyrra 3y ago
  When the government takes over a bank, they get that all the assets that go with it. Yes, at first the FDIC will pay out of its own coffers. But then the FED will liquidate all assets at the bank and recoup much of their payouts. And the fdic does not fill its coffers from tax revenue. It is funded entirely by required payments from Banks. The FDIC will raise its required fees from banks, and the consumers want paying through their banks, not through taxes or printing. Though it does hurt consumers in the end.
  - londons_explore 3y ago
    > at first the FDIC will pay out of its own coffers But if its coffers run dry, the US treasury pays out.
- deleted 3y ago
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- no_wizard 3y ago
  I don't think its that simple. Even if we have a cascading failure, the FDIC coverage backstops at $250,000, and it only recovers depositors, and we are talking about loans here, not deposits. If banks fail, they fail. It may short term feel very painful for people, that I can agree with. My point is, as both a society and as a market place, need to eat the fruits of which grew from what we have sewn. If that means a lot of people get hurt, maybe finally we'll learn a lesson this time that allowing banks to act with impunity is a terrible idea and distorts the overall marketplace. Ending those distortions will net win when the dust settles, allowing new players and new ideas to grow. Keeping depositors whole isn't the same thing as backstopping terrible loans or other bad financial activity. They used to be largely separate entities until the "reforms" of the 1980s and 1990s. Perhaps there is something to be said for separation of concerns here
megaman821 3y ago
The bailout part of TARP worked (even though I disagreed with it at the time). The biggest problem is there was no stick. They need to have a system where they can claw back bonus, cancel golden parachutes, fire the c-suite and start investigations for criminality.
- bradley13 3y ago
  This. A couple of years after the 2008 mess, I looked up the names of some of the bigwigs who helped cause the collapse. A few had retired with golden parachutes. Most had just changed jobs and were leading other financial institutions. None of them suffered any sort of consequences.
- mywittyname 3y ago
  > The biggest problem is there was no stick. We have a system that publicizes risk and privatizes losses. I don't think that's going away any time soon. Trying to create a "stick" will be met with complaints of government overreach. Those same complainers will put on a show of holding their noses while filling the feedbag with as much carrots as will fit. There are enough people in Congress that want to carve some sticks. But when it comes down to it, they don't have the guts to watch the herd starve just to make a point. If I were a member of Congress, I'd probably cave too. It would be nice if we could have a system that punishes those who destroy our economy, but it's not worth letting innocent people suffer to make that happen (IMHO).
JumpCrisscross 3y ago
> want to see this play out without government intervention. If banks need to take losses, so be it We’re less than a year from the last set of bank failures. Shareholders were wiped. Foreign affiliate depositors were wiped [1]. If you’re arguing for limiting depositor protection, sure, but we’re well past TARP as precedent at this point. [1] https://www.wsj.com/articles/the-pain-of-silicon-valley-banks-collapse-is-being-felt-by-these-depositors-f18c0bd4?page=1 https://www.wsj.com/articles/the-pain-of-silicon-valley-bank...
jedrek 3y ago
How about we give them an offer: we can bail out your company, but you have to leave the financial services industry for 10 years.
westurner 3y ago
Because not helping those folks had systemic risk, they were deemed "Too Big to Fail" and given interest free loans after they cut taxes to pay for their surprise necessary multi-trillion dollar war. And Geithner saved us all as he was asked to do. Is it the same people tasked with getting inflation down and whethering the induced bubbles this time? They have gotten inflation down, but they can't hide the unpaid expenses of "scorched earth" and "starve the beast" experts at this.
- JumpCrisscross 3y ago
  > Geithner saved us all as he was asked to do Geithner had nothing to do with TARP; the SEC was barely involved. This article has practically nothing to do with the SEC outside reporting requirements. We’ve also gone through a round of bank failures, largely due to risk managers who couldn’t contemplate America raising rates, without moral hazard.
- oldpersonintx 3y ago
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RandomLensman 3y ago
This is, if I read it correctly, banks reserving on average 90c against $1 of commercial real estate loans 30 days late - 10% recovery would be quite low.
deleted 3y ago
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deleted 3y ago
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brvsft 3y ago
I do as well, but part of this means depositors are going to lose some money (past FDIC insurance, if there is 'enough' of that).
- JumpCrisscross 3y ago
  > past FDIC insurance, if there is 'enough' of that The FDIC’s balance sheet is unlimited. It’s an explicit full faith and credit agency. It has, to date, never pulled on that credit by managing its risk through fees on member banks.
  - pgwhalen 3y ago
    Does this mean it would take out “loans” from member banks if its insurance fund was exhausted? If so, interesting, I always sort of assumed the money would just come from the treasury at that point.
    - JumpCrisscross 3y ago
      > Does this mean it would take out “loans” from member banks if its insurance fund was exhausted? Last year's failures in March caused an assessment in December [1]. In a crisis, that isn't enough time. The way the system is designed, the Treasury would write a cheque. Full faith and credit means those FDIC claims would have the same legal standing as e.g. Social Security payments or tax refunds. Treasury would probably structure it as a loan to be paid back by future assessments, again, for political reasons. But they'd have discretion on the specifics at that point. [1] https://www.fdic.gov/deposit/insurance/assessments/specialassessment-psrd.html https://www.fdic.gov/deposit/insurance/assessments/specialas...
abeppu 3y ago
I think we should aim for _fairer_ government intervention. What if this time, the government invests enough cash in banks to keep them standing and then retains ownership of a meaningful fraction of all participating banks? In however many years it takes for the banks to start paying dividends, a meaningful fraction of those are received by the government. That cash stream can be used to pay down debts or make green new deal investments, or fill a rainy-day fund for future crises. If share prices ever rise meanignfully, the government retains the ability to sell back to public markets. An intervention can aim at stabilizing things today without being a _giveaway_.
KWxIUElW8Xt0tD9 3y ago
It is not well-appreciated that the whole dollar system is destined for implosion because of the way dollars are created. The dollar is a debt instrument, there is always more owed than there are dollars in existence. It's an exponential and that only goes on so long. I suggest episodes 1 (difference between currency and money) and 4 (how dollars are created) from the following series by Mike Maloney. https://www.youtube.com/playlist?list=PLE88E9ICdipidHkTehs1VbFzgwrq1jkUJ https://www.youtube.com/playlist?list=PLE88E9ICdipidHkTehs1V...
- JumpCrisscross 3y ago
  > dollar is a debt instrument, there is always more owed than there are dollars in existence This is wrong. Debt is regularly asymmetrically destroyed, we call it restructuring. And when a debt is destroyed we don’t destroy the correspondingly-created money. (Money is destroyed via separate mechanisms.) That said, I suppose it’s neat seeing the gold bugs coming back on the crypto promoters [1]. [1] https://goldsilver.com/about-mike-maloney/ https://goldsilver.com/about-mike-maloney/
- netcruiser 3y ago
  The non-existent money to pay the interest is cancelled out by bankruptcies.
  - KWxIUElW8Xt0tD9 3y ago
    bingo -- the whole system is bankrupt -- they have been papering it over with more and more printing since 2008 but check out curves of M2, national debt, etc. -- isn't going to work, something is going to break
- Dylan16807 3y ago
  Loans can multiply any kind of money, even if you're basing everything on gold coins. It's not exponential.
mountainriver 3y ago
Yeah this sounds fun till the banking system collapses and we are in a depression. The real answer is that ZIRP was a a bad idea
- ahnick 3y ago
  The real answer is that the ongoing 50 year old, fiat money system experiment is a bad idea.
  - JumpCrisscross 3y ago
    > the ongoing 50 year old, fiat money system experiment is a bad idea We're still talking about the largest era of wealth generated across any territory or time in human history, the American post-War ascendancy, right?
    - 6figurelenins 3y ago
      Not really. "Post-war" means 1945. "Fiat money" means 1971. "Largest era" means 1981. Grandparent said "collapse," which is what Jenga towers do. Here's the era, in two charts: [1] https://tradingeconomics.com/united-states/government-bond-yield https://tradingeconomics.com/united-states/government-bond-y... [2] https://www.cbpp.org/income-concentration-at-the-top-has-risen-sharply-since-the-1970s-4 https://www.cbpp.org/income-concentration-at-the-top-has-ris...
      - JumpCrisscross 3y ago
        > Here's the era, in two charts Out of curiosity, what are you seeing? Rates going down is bad? Here's the last millenia [1]. You'll notice a long-term trend of decreasing rates. [1] https://www.businessinsider.com/chart-5000-years-of-interest-rates-history-2016-6?r=MX&IR=T https://www.businessinsider.com/chart-5000-years-of-interest...
CamperBob2 3y ago
The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. Sort of like Y2K mitigations, then, right?
freitzkriesler2 3y ago
America's power is primarily financial and TPTB will see to it that this pillar of power never collapses. They will let 1 bank fail to send a message but paper over the losses for everyone else. If you hold cash and aren't invested in something, you're a fool. Stocks, real estate, hell even crypto is better than fiat.
User23 3y ago
Because the banking sector in aggregate holds the payment system hostage. The issue isn’t that the bank will lose money, it’s that you won’t be able to buy things and pay for utilities if banks can’t clear payments.
pgwhalen 3y ago
> The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. I'm not sure how one can make this conclusion without having known what would have happened if there was no TARP.
- mywittyname 3y ago
  Best case: another country steps in and buys up those assets at a steep discount. 2010-2020 plays out pretty much like it did before, but a foreign national bank is now a major player in the US mortgage market. Worst case: the contents of individual bank accounts poof out of existence. Riots and untold calamity ensues (it is difficult to say how bad this gets). Then another country steps in to buy up those assets at an even more steep discount. The subsequent housing crush the country is currently experiencing is worsened.
Workaccount2 3y ago
Contrary to popular belief, the government actually made a profit on TARP loans. They were loans and were paid back.[1] [1]https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
- bugbuddy 3y ago
  What about moral hazard? People have forgotten about responsibility because the nanny state comes to the rescue every time anyone cries momma.
  - deleted 3y ago
    [deleted]
  - FrustratedMonky 3y ago
    We should be able to have both. Government that smooths out the bumps. Provides some 'smoothing' to society so it doesn't crater and fall apart. While also holding people accountable and criminally charging corporate executives. It does seem like there is some reductionism to just crying 'nanny', since the same people that dislike the 'nanny' state also complain when the 'nanny' wants to hold people accountable, since they should be free to cheat. Yelling 'Freedom' anytime the state steps in. You can't have both, complain when the state is a 'nanny' and helping, and then complain when the state disciplines people, the 'nanny' when stopping the child from doing things that will hurt itself.
  - Aunche 3y ago
    Most banks saw their valuation drop by 90+% during the recession. Is that enough responsibility considering that banks employed millions of people, the majority of which and nothing to do with mortgages?
    - no_wizard 3y ago
      In a word, no. Why weren't executives and boardrooms held liable? That would have been a great start. Actually putting teeth behind regulations, clawing back bonuses and invalidating golden parachutes and culpable executives going to prison, preferably for a long time. None of the executives involved should legally be allowed to work in finance again. If I as an individual pulled the stunts they did, or a smaller organization did, they'd be labeled fraudsters and prosecuted to the fullest extent of the law. What TARP and its aftermath proves is that if you're big enough, you escape all real liability for your actions, and the public and your employees get to suffer the consequences. Why should executives and boardrooms be left off the hook while the American public pays the price?
lr4444lr 3y ago
Probably because the interlinking of deposits and debts across these institutions would lead to a near if not total collapse of the financial system. Quite a number of large banks DID fail in 2008-9 at first, before congress stepped in. Dodd-Frank was supposed to prevent this from happening again, but a disturbing number of relatively trustworthy advocates have suggested it is too weak to do so.
tareqak 3y ago
The TARP bailouts should have have been conditional on allowing the affected to borrowers stay in their homes. Those borrowers could have paid a monthly amount corresponding to fraction of their loan that the US government ending up taking over as part of the TARP program. Staying in those homes would have allowed those borrowers the possibility to continue to work and pay property and income taxes. Over time, this government intervention would have paid for itself instead of just paying the banks.
newaccount7g 3y ago
[flagged]
wnevets 3y ago
> I want to see this play out without government intervention. If banks need to take losses, so be it. Did you also feel the same way when SVB needed a bailout?
HillRat 3y ago
CRE risks are disproportionately concentrated in smaller bank holding companies, who saw CRE as safer debt prior to the pandemic, and who are more exposed to a small number of high-value deals gone bad. (Leverage was already rising in that market from 2017 on, so it's questionable in retrospect whether that was true even then, but in general smaller banks thought they were cleaning up their balance sheets with high-quality debt.) The end result of any systemic crisis is likely to be regulator-mandated buyouts of smaller banks and CUs and even more aggressive concentration of banking power amongst the top twenty or so BHCs, similar to SVB ending up part of First Citizens.
lamontcg 3y ago
> The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. Yeah, having money markets lock up, half the businesses in the company unable to pay their payroll (because everyone depends on short term lending to smooth out yearly cycles) and ATMs stop delivering cash sounds like it would be much better for the average citizen. Don't stop until unemployment hits 25%+.

onlyrealcuzzo 3y ago

> If banks need to take losses, so be it. Then the government is bailing out with FDIC, plus the economy explodes. It's not as sexy as it sounds.

Spivak 3y ago
> Then the government is bailing out with FDIC. At least then it's bailing about depositors.
deleted 3y ago
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toomuchtodo 3y ago
It’s not supposed to be sexy. It’s avoiding moral hazard. Eventually, you have to let poor risk management fail.
- generic92034 3y ago
  Beware the domino effect, though.
  - toomuchtodo 3y ago
    Edit: What AnimalMuppet said. FDIC is backstopped by the Fed and participant banks. There is no hard limit anywhere. Make depositors whole, good luck to everyone else. If you’re exceeding FDIC insurance limits as a depositor, you should fix that, today. If you have exposure to at risk asset classes, you’re already exposed, you’re just waiting for prices to catch up to reality.
    - andersa 3y ago
      > you should fix that how do you fix it?
      - toomuchtodo 3y ago
        As an individual, spread deposits across accounts or institutions to stay within limits [1]. There are account products that will sweep your deposits across other institutions in order to ensure full coverage. Fidelity's cash management account will cover up to $5M using sweeps [2], for example. Mercury has a similar product for business accounts [3]. If you're a larger business (>$5M cash equivalents on hand), treasury management in government money market funds instead of a demand deposit account. All roads lead to mostly US treasuries here. [1] https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/ https://www.fdic.gov/resources/deposit-insurance/brochures/i... [2] https://www.fidelity.com/why-fidelity/safeguarding-your-accounts https://www.fidelity.com/why-fidelity/safeguarding-your-acco... [3] https://mercury.com/vault https://mercury.com/vault (previous comment on the topic during SVB failure: https://news.ycombinator.com/item?id=35171289 https://news.ycombinator.com/item?id=35171289)
        initplus 3y ago
        Splitting assets between banks doesn’t change the insurance income collected by FDIC, and nor does it change the overall risk profile for FDIC - its artificial structuring behaviour. It’s a minimum, not a cap.
        toomuchtodo 3y ago
        Again, as my comment [1] mentioned, there are no hard limits. For FDIC to fail, the US government and it's largest member banks (including those considered globally systemic) would have to fail. There will be losses, but there will be no systemic failure. Properly titling and distributing deposits ensures you've met your obligation to meet deposit insurance requirements (although it might not matter such that happened with SVB depositors). You cannot control the regulatory mechanisms, but you can take somewhat straightforward, prudent measures to keep the paperwork you'll have to do and any interruptions to your finances to a minimum. If your risk model is the US government allowing FDIC to fail, we're well outside of reasonable discourse. Your currency would be food, fuel, and firearms. [1] https://news.ycombinator.com/item?id=39441532 https://news.ycombinator.com/item?id=39441532
- ToucanLoucan 3y ago
  It's not poor risk management. The banks (correctly) have identified that the government cannot, without massive backlash both political and economic in nature, permit them to fail in the way they should. They are some of the largest trees in the financial forest, and even if they are rotten to the core, they're incredibly big trees and as one of them falls, it will shred it's neighbors.
- AnimalMuppet 3y ago
  Fire the management. Destroy the stockholders. Protect the depositors.
  - JumpCrisscross 3y ago
    > Fire the management. Destroy the stockholders. Protect the depositors. TL; DR What we did in March 2023.
    - AnimalMuppet 3y ago
      That took me a minute. Silicon Valley Bank, I presume? I don't recall the details, but yes, there are historic examples of this being done well.
      - JumpCrisscross 3y ago
        > took me a minute. Silicon Valley Bank, I presume First Republic, SVB, Signature—our nation’s second, third and fourth largest bank failures in its history [1]. (WaMu.) Resolved so smoothly we don’t even talk about it less than a year later. [1] https://en.m.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.m.wikipedia.org/wiki/List_of_largest_bank_failure...
        FireBeyond 3y ago
        > Resolved so smoothly we don’t even talk about it less than a year later. Except now with the banks understanding that FDIC will make depositors whole, above and beyond the $250K limits. The only thing this does is increase banks comfort with risk.
        AnimalMuppet 3y ago
        Not if the managers got fired. Not if the stockholders got wiped out. The stockholders care more about the stockholders than they do about the depositors. This is also true for most of the managers, maybe all of them.
- oldpersonintx 3y ago
  [dead]
pooper 3y ago
> Then the government is bailing out with FDIC, plus the economy explodes. FDIC limits government losses to USD 250k per account or something like that, right? I think it is still preferable to outright bailing out the entire bank. This is what we should have done with Silicon Valley Bank.
- onlyrealcuzzo 3y ago
  > This is what we should have done with Silicon Valley Bank. SVB deposits were businesses. You're ensuring every regional bank collapses and all businesses bank with Chase if you let SVB fail and don't bail out the depositors. Maybe that's what you want. It's not what the government wanted. So they bailed out SVB.
  - bigtunacan 3y ago
    I don't want businesses to fail because their bank took undue risk, but the reality is that sufficiently large businesses should have their money spread around multiple banks to reduce the risk to the business.
    - mywittyname 3y ago
      > I don't want businesses to fail because their bank took undue risk, SVB didn't even take undue risk. They merely bought long-term bonds which lost book value due to rate hikes. What crushed them was high-profile people with insider knowledge of their bond holdings spooking the market. Hindsight is 20/20, but what SVB was doing wasn't irresponsible with the knowledge they had at the time. I don't think any expected rates to climb as fast as they did. They were 80% unlucky.
      - mrguyorama 3y ago
        >SVB didn't even take undue risk. Not hedging in ANY way against interest rates going up was explicitly undue risk. EVERY bet must be hedged. SVB said "well surely the government will never raise rates, so we can lock in money for 10 years to gain a small amount of extra profit", ignoring that their depositors were all highly aligned and literally friends that would act in concert. You don't have every dollar you own locked up in a 7 year CD right? Because you're smart enough to know liquidity has non-trivial value! SVB purposefully ignored that in search of a slightly higher profit. It was trivially stupid. >but what SVB was doing wasn't irresponsible with the knowledge they had at the time. If you're a bank, and you think you've found a magic money glitch that requires no hedging, you are wrong. They weren't doing arbitrage, they were gambling.
marcosdumay 3y ago
Hum, or the government takes the worthless banks for free, make good on their obligations, and sell them later to the highest bidder.
- onlyrealcuzzo 3y ago
  > Hum, or the government takes the worthless banks for free, make good on their obligations, So bail out the customers / depositors and wipe out the equity investors? That's what they did with SVB...

yowlingcat 3y ago

Then you'll get a bank run and your savings are gone and we get a repeat of the Great Depression. Doesn't feel like a great alternative to me.

lm28469 3y ago

afaik the problem isn't the (2008) bailout itself, it's that we continued playing the same exact game with the same exact people. > Why on earth did we train banks that they can have all the upside but have the public eat the downside if a financial crisis ever arises out of their own behavior? Deregulation and lobbies did it, it's been documented over and over again. Deep down greed is the culprit but it could have been somewhat tamed.

tekla 3y ago

> The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. TARP prevented the economy from collapsing. I was unaware the average citizen didn't need loans or a functioning economy.

brightball 3y ago

While I agree with you in principle, I'd want to know more about which loans were at risk that passed all of the banks risk assessment criteria compared to which ones did not that they may have been required to allow due to regulations.

londons_explore 3y ago

I think the point is that the banks do not have enough cash to take the losses. Nearly all money is someone else's debt, $1 of bad debt can lead to a chain of hundreds of people - each losing $1. And if the government steps in with FDIC or other protections to prevent hundreds of people losing $1, then the government has to print more money, and inflation happens. There is no good solution.

AnimalMuppet 3y ago
I would argue that the inflation has already happened, in the loans without adequate reserves. That creates money. The government would be printing money to prevent a deflation happening from the money disappearing.
kyrra 3y ago
When the government takes over a bank, they get that all the assets that go with it. Yes, at first the FDIC will pay out of its own coffers. But then the FED will liquidate all assets at the bank and recoup much of their payouts. And the fdic does not fill its coffers from tax revenue. It is funded entirely by required payments from Banks. The FDIC will raise its required fees from banks, and the consumers want paying through their banks, not through taxes or printing. Though it does hurt consumers in the end.
- londons_explore 3y ago
  > at first the FDIC will pay out of its own coffers But if its coffers run dry, the US treasury pays out.
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no_wizard 3y ago
I don't think its that simple. Even if we have a cascading failure, the FDIC coverage backstops at $250,000, and it only recovers depositors, and we are talking about loans here, not deposits. If banks fail, they fail. It may short term feel very painful for people, that I can agree with. My point is, as both a society and as a market place, need to eat the fruits of which grew from what we have sewn. If that means a lot of people get hurt, maybe finally we'll learn a lesson this time that allowing banks to act with impunity is a terrible idea and distorts the overall marketplace. Ending those distortions will net win when the dust settles, allowing new players and new ideas to grow. Keeping depositors whole isn't the same thing as backstopping terrible loans or other bad financial activity. They used to be largely separate entities until the "reforms" of the 1980s and 1990s. Perhaps there is something to be said for separation of concerns here

megaman821 3y ago

The bailout part of TARP worked (even though I disagreed with it at the time). The biggest problem is there was no stick. They need to have a system where they can claw back bonus, cancel golden parachutes, fire the c-suite and start investigations for criminality.

bradley13 3y ago
This. A couple of years after the 2008 mess, I looked up the names of some of the bigwigs who helped cause the collapse. A few had retired with golden parachutes. Most had just changed jobs and were leading other financial institutions. None of them suffered any sort of consequences.
mywittyname 3y ago
> The biggest problem is there was no stick. We have a system that publicizes risk and privatizes losses. I don't think that's going away any time soon. Trying to create a "stick" will be met with complaints of government overreach. Those same complainers will put on a show of holding their noses while filling the feedbag with as much carrots as will fit. There are enough people in Congress that want to carve some sticks. But when it comes down to it, they don't have the guts to watch the herd starve just to make a point. If I were a member of Congress, I'd probably cave too. It would be nice if we could have a system that punishes those who destroy our economy, but it's not worth letting innocent people suffer to make that happen (IMHO).

JumpCrisscross 3y ago

> want to see this play out without government intervention. If banks need to take losses, so be it We’re less than a year from the last set of bank failures. Shareholders were wiped. Foreign affiliate depositors were wiped [1]. If you’re arguing for limiting depositor protection, sure, but we’re well past TARP as precedent at this point. [1] https://www.wsj.com/articles/the-pain-of-silicon-valley-banks-collapse-is-being-felt-by-these-depositors-f18c0bd4?page=1 https://www.wsj.com/articles/the-pain-of-silicon-valley-bank...

jedrek 3y ago

How about we give them an offer: we can bail out your company, but you have to leave the financial services industry for 10 years.

westurner 3y ago

Because not helping those folks had systemic risk, they were deemed "Too Big to Fail" and given interest free loans after they cut taxes to pay for their surprise necessary multi-trillion dollar war. And Geithner saved us all as he was asked to do. Is it the same people tasked with getting inflation down and whethering the induced bubbles this time? They have gotten inflation down, but they can't hide the unpaid expenses of "scorched earth" and "starve the beast" experts at this.

JumpCrisscross 3y ago
> Geithner saved us all as he was asked to do Geithner had nothing to do with TARP; the SEC was barely involved. This article has practically nothing to do with the SEC outside reporting requirements. We’ve also gone through a round of bank failures, largely due to risk managers who couldn’t contemplate America raising rates, without moral hazard.
oldpersonintx 3y ago
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RandomLensman 3y ago

This is, if I read it correctly, banks reserving on average 90c against $1 of commercial real estate loans 30 days late - 10% recovery would be quite low.

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brvsft 3y ago

I do as well, but part of this means depositors are going to lose some money (past FDIC insurance, if there is 'enough' of that).

JumpCrisscross 3y ago
> past FDIC insurance, if there is 'enough' of that The FDIC’s balance sheet is unlimited. It’s an explicit full faith and credit agency. It has, to date, never pulled on that credit by managing its risk through fees on member banks.
- pgwhalen 3y ago
  Does this mean it would take out “loans” from member banks if its insurance fund was exhausted? If so, interesting, I always sort of assumed the money would just come from the treasury at that point.
  - JumpCrisscross 3y ago
    > Does this mean it would take out “loans” from member banks if its insurance fund was exhausted? Last year's failures in March caused an assessment in December [1]. In a crisis, that isn't enough time. The way the system is designed, the Treasury would write a cheque. Full faith and credit means those FDIC claims would have the same legal standing as e.g. Social Security payments or tax refunds. Treasury would probably structure it as a loan to be paid back by future assessments, again, for political reasons. But they'd have discretion on the specifics at that point. [1] https://www.fdic.gov/deposit/insurance/assessments/specialassessment-psrd.html https://www.fdic.gov/deposit/insurance/assessments/specialas...

abeppu 3y ago

I think we should aim for _fairer_ government intervention. What if this time, the government invests enough cash in banks to keep them standing and then retains ownership of a meaningful fraction of all participating banks? In however many years it takes for the banks to start paying dividends, a meaningful fraction of those are received by the government. That cash stream can be used to pay down debts or make green new deal investments, or fill a rainy-day fund for future crises. If share prices ever rise meanignfully, the government retains the ability to sell back to public markets. An intervention can aim at stabilizing things today without being a _giveaway_.

KWxIUElW8Xt0tD9 3y ago

It is not well-appreciated that the whole dollar system is destined for implosion because of the way dollars are created. The dollar is a debt instrument, there is always more owed than there are dollars in existence. It's an exponential and that only goes on so long. I suggest episodes 1 (difference between currency and money) and 4 (how dollars are created) from the following series by Mike Maloney. https://www.youtube.com/playlist?list=PLE88E9ICdipidHkTehs1VbFzgwrq1jkUJ https://www.youtube.com/playlist?list=PLE88E9ICdipidHkTehs1V...

JumpCrisscross 3y ago
> dollar is a debt instrument, there is always more owed than there are dollars in existence This is wrong. Debt is regularly asymmetrically destroyed, we call it restructuring. And when a debt is destroyed we don’t destroy the correspondingly-created money. (Money is destroyed via separate mechanisms.) That said, I suppose it’s neat seeing the gold bugs coming back on the crypto promoters [1]. [1] https://goldsilver.com/about-mike-maloney/ https://goldsilver.com/about-mike-maloney/
netcruiser 3y ago
The non-existent money to pay the interest is cancelled out by bankruptcies.
- KWxIUElW8Xt0tD9 3y ago
  bingo -- the whole system is bankrupt -- they have been papering it over with more and more printing since 2008 but check out curves of M2, national debt, etc. -- isn't going to work, something is going to break
Dylan16807 3y ago
Loans can multiply any kind of money, even if you're basing everything on gold coins. It's not exponential.

mountainriver 3y ago

Yeah this sounds fun till the banking system collapses and we are in a depression. The real answer is that ZIRP was a a bad idea

ahnick 3y ago
The real answer is that the ongoing 50 year old, fiat money system experiment is a bad idea.
- JumpCrisscross 3y ago
  > the ongoing 50 year old, fiat money system experiment is a bad idea We're still talking about the largest era of wealth generated across any territory or time in human history, the American post-War ascendancy, right?
  - 6figurelenins 3y ago
    Not really. "Post-war" means 1945. "Fiat money" means 1971. "Largest era" means 1981. Grandparent said "collapse," which is what Jenga towers do. Here's the era, in two charts: [1] https://tradingeconomics.com/united-states/government-bond-yield https://tradingeconomics.com/united-states/government-bond-y... [2] https://www.cbpp.org/income-concentration-at-the-top-has-risen-sharply-since-the-1970s-4 https://www.cbpp.org/income-concentration-at-the-top-has-ris...
    - JumpCrisscross 3y ago
      > Here's the era, in two charts Out of curiosity, what are you seeing? Rates going down is bad? Here's the last millenia [1]. You'll notice a long-term trend of decreasing rates. [1] https://www.businessinsider.com/chart-5000-years-of-interest-rates-history-2016-6?r=MX&IR=T https://www.businessinsider.com/chart-5000-years-of-interest...

CamperBob2 3y ago

The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. Sort of like Y2K mitigations, then, right?

freitzkriesler2 3y ago

America's power is primarily financial and TPTB will see to it that this pillar of power never collapses. They will let 1 bank fail to send a message but paper over the losses for everyone else. If you hold cash and aren't invested in something, you're a fool. Stocks, real estate, hell even crypto is better than fiat.

User23 3y ago

Because the banking sector in aggregate holds the payment system hostage. The issue isn’t that the bank will lose money, it’s that you won’t be able to buy things and pay for utilities if banks can’t clear payments.

pgwhalen 3y ago

> The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. I'm not sure how one can make this conclusion without having known what would have happened if there was no TARP.

mywittyname 3y ago
Best case: another country steps in and buys up those assets at a steep discount. 2010-2020 plays out pretty much like it did before, but a foreign national bank is now a major player in the US mortgage market. Worst case: the contents of individual bank accounts poof out of existence. Riots and untold calamity ensues (it is difficult to say how bad this gets). Then another country steps in to buy up those assets at an even more steep discount. The subsequent housing crush the country is currently experiencing is worsened.

Workaccount2 3y ago

Contrary to popular belief, the government actually made a profit on TARP loans. They were loans and were paid back.[1] [1]https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program

bugbuddy 3y ago
What about moral hazard? People have forgotten about responsibility because the nanny state comes to the rescue every time anyone cries momma.
- deleted 3y ago
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- FrustratedMonky 3y ago
  We should be able to have both. Government that smooths out the bumps. Provides some 'smoothing' to society so it doesn't crater and fall apart. While also holding people accountable and criminally charging corporate executives. It does seem like there is some reductionism to just crying 'nanny', since the same people that dislike the 'nanny' state also complain when the 'nanny' wants to hold people accountable, since they should be free to cheat. Yelling 'Freedom' anytime the state steps in. You can't have both, complain when the state is a 'nanny' and helping, and then complain when the state disciplines people, the 'nanny' when stopping the child from doing things that will hurt itself.
- Aunche 3y ago
  Most banks saw their valuation drop by 90+% during the recession. Is that enough responsibility considering that banks employed millions of people, the majority of which and nothing to do with mortgages?
  - no_wizard 3y ago
    In a word, no. Why weren't executives and boardrooms held liable? That would have been a great start. Actually putting teeth behind regulations, clawing back bonuses and invalidating golden parachutes and culpable executives going to prison, preferably for a long time. None of the executives involved should legally be allowed to work in finance again. If I as an individual pulled the stunts they did, or a smaller organization did, they'd be labeled fraudsters and prosecuted to the fullest extent of the law. What TARP and its aftermath proves is that if you're big enough, you escape all real liability for your actions, and the public and your employees get to suffer the consequences. Why should executives and boardrooms be left off the hook while the American public pays the price?

lr4444lr 3y ago

Probably because the interlinking of deposits and debts across these institutions would lead to a near if not total collapse of the financial system. Quite a number of large banks DID fail in 2008-9 at first, before congress stepped in. Dodd-Frank was supposed to prevent this from happening again, but a disturbing number of relatively trustworthy advocates have suggested it is too weak to do so.

tareqak 3y ago

The TARP bailouts should have have been conditional on allowing the affected to borrowers stay in their homes. Those borrowers could have paid a monthly amount corresponding to fraction of their loan that the US government ending up taking over as part of the TARP program. Staying in those homes would have allowed those borrowers the possibility to continue to work and pay property and income taxes. Over time, this government intervention would have paid for itself instead of just paying the banks.

newaccount7g 3y ago

[flagged]

wnevets 3y ago

> I want to see this play out without government intervention. If banks need to take losses, so be it. Did you also feel the same way when SVB needed a bailout?

HillRat 3y ago

CRE risks are disproportionately concentrated in smaller bank holding companies, who saw CRE as safer debt prior to the pandemic, and who are more exposed to a small number of high-value deals gone bad. (Leverage was already rising in that market from 2017 on, so it's questionable in retrospect whether that was true even then, but in general smaller banks thought they were cleaning up their balance sheets with high-quality debt.) The end result of any systemic crisis is likely to be regulator-mandated buyouts of smaller banks and CUs and even more aggressive concentration of banking power amongst the top twenty or so BHCs, similar to SVB ending up part of First Citizens.

lamontcg 3y ago

> The TARP bailouts showed all of us that bailing out banks in bad situations does little to help the average citizen anyway. Yeah, having money markets lock up, half the businesses in the company unable to pay their payroll (because everyone depends on short term lending to smooth out yearly cycles) and ATMs stop delivering cash sounds like it would be much better for the average citizen. Don't stop until unemployment hits 25%+.