Lots of normal people own stocks. You can save money and invest it for retirement, etc. It’s risky because… Well… Public companies you invest money in can go bankrupt.
It was trading at about $200 a share, you don't need a loan to be a shareholder. Besides, you can get fractional shares so even if $200 is too much you could still be a shareholder.
What did the depositors do wrong? You're saying in a just world, the individuals and businesses who just decided to open a checking account—at a top-20 US bank—deserve to lose everything? What did they do wrong?
I think it's fine if the new precedent we're setting is that the FDIC backs any amount of money on deposit for everyone going forward.
If that is not the new precedent, then this is a bailout of rich individuals and some specific corporations. That doesn't seem a problem to you? If the savings and loan of Bismarck North Dakota fails, is the government bailing out the car lot owner and the wheat farmer and the home builder?
> If the savings and loan of Bismarck North Dakota fails, is the government bailing out the car lot owner and the wheat farmer and the home builder?
Yes, the depositors would get bailed out, but the bank itself would be sold for parts. That might constrain the way that retail deposits are allowed to be managed.
A start would be undoing the Trump administration's rollback of Dodd-Frank stress testing requirements for smaller banks [1]. It will probably also mean the FDIC will require more insurance on deposits. This will all hurt profitability of banks, and reduce risk for depositors.
> Above the 250k limit, that is not normally the case. The joint statement is creating a special situation here.
Yes, the special situation will likely become the new normal. There will be pressure to reintroduce the Dodd-Frank stress tests that the Trump administration (with the help of many banking-industry-aligned Democrats) eliminated in 2018 for banks with < $250M in deposits, and there will be greater insurance required on deposits.
Just 4 years after that change, the lessons of 2008 will have to be relearned.
IANA-Economist, but I believe the reason that capitalization requirements aren't sufficient is because of the "Last Taxi Problem", described in this article:
Businesses should better manage their risks, and advisors such as VCs should be helping them do that. Bank runs aren't new and _shouldn't_ be surprising (in the sense that they are possible, not in the sense of any particular occurrence). It is well known how much the FDIC insures, so beyond that amount you are taking on a risk with the financial institution. I have family that uses multiple banks just for that reason, both to for insurance coverage and to address any short-term liquidity issues that might arise before the FDIC enabled repayment.
There probably should also be better services out there for outsourced corporate treasury functions. ICD exists, but probably is too costly and specialized for smaller firms.
Tech companies should understand the risks with banks the same way banks need to understand tech risks. If a bank got ransomwared because they left the password to their webserver root/root no one in tech would ask "what did they do wrong?".
Bankers? Absolutely. We can nit pick which bankers are the "good" ones vs the "bad" ones, but as a whole, there are useful functions they perform for society. Usury though? Possibly not.
I'm not saying they're useless, or evil. They're just playing their part. I'm saying that in a just world we'd have found a different way to solve the problems that they solve.
For instance, I can get a loan from a bank for a mining operation that will contaminate the ground water somewhere. Thanks to bankers, I can expect that the locals will accept the money I'm paying my employees--since they can't distinguish it from any other money--even though they'd be much better off refusing it and continuing to drink clean water.
The way we practice money involves a loss of agency to whoever has less of it. A just world would require the consent of the locals, our world only requires that I prove to a banker that the operation will be profitable.
EDIT: I just noticed another disappointing factual error, bordering on disinformation. They say:
> On October 14, 2022, Sacks tweeted, “The idea that the American government, the American taxpayer, or any American company is obligated to provide support is pre entitlement.” That was before the SVB collapse. On March 10, 2023, Sacks sang a different tune: “Where is Powell? Where is Yellen? Stop the crisis NOW. Announce that all depositors will be safe.”
I'm no Sacks apologist, but they took his first quote completely out-of-context, making it sound like he was saying the US government shouldn't support failing companies, when he was in fact talking about the US supporting Ukraine. See: https://twitter.com/DavidSacks/status/1634357137873969152
The point is how fascinating it was to see several otherwise loud Uber-libertarian SV VCs suddenly, and once again loudly, discover socialism and the necessity of government intervention when their own money was at risk.
If their response to this is that, maybe there is a balance to be struck and there is an important role for government regulation, in certain cases, fair enough. And maybe the fact that people they know, who did nothing wrong still suffered, and needed the government to step in to help them, might indicate that there are substantially poorer people who may also be in a bad shape either due to no fault of their own, or due to minor misjudgments becoming magnified due to circumstances who could also do with help from the govt, such as, maybe, the homeless.
Because rhetoric is just rhetoric. The only rule is rule #1: look out for number #1, and a dose of hypocrisy with a whole lotta bluster is the antidote to ever having to deal with the consequences of your actions or that darned hard-knock life comin' a knockin.
Frustrating. Depositor insurance is not socialism, and it's a somewhat shockingly stupid thing to suggest that it is. And even the suggestion that depositor insurance is what's at play here is a stretch; the word from the fed is "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".
That is not what the word "taxpayers" means. Let's say that somehow the Fed managed to do what they are doing now not by sourcing their funds from banks, but from the top 10 billionaires in this country. Since these 10 guys are also taxpayers, would you decry this as a "taxpayer funded bailout"?
Most people would indeed decry it because the people complaining about tax payer funded bailouts would be wondering why we were willing to tax 10 billionaires more money to make whole people with more than $250k, instead of using that money to prevent the discontinuation of a program that say, reduced child poverty by 46% in the US.
For the record, I don’t consider this a bailout. Making whole people’s deposits isn’t what I would consider a bailout because I look at a bailout as protecting entities from the negative consequences of bad decisions, whereas I don’t see depositing money in a bank as a bad decision. This is the equivalent of the govt using its vast assets and reputations to make while the victims of Madoff, for example, which without govt intervention would have meant that the fund’s assets were disposed in a fire sale, so the victims get less money than they would have if the govt intervened and provides short term liquidity allowing those assets to be disposed off at a higher market value.
But it’s still socialistic, and it strongly indicates the need for government regulation and intervention, because no private entity could do this, and basically undermines strong economic libertarianism.
But then why stop there? Let's say that only the equity shareholders lost money. Would you say that the loss was borne by the taxpayers because the shareholders are taxpayers?
The special assessment on banks will be cash-flowed through charging regular people for more financial services. They have their ways, remember "8 is great"?
> "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer"
Technically, this is of course correct. If there are $100 of deposits backed by $100 of bonds which will mature in 5 years, the treasury can of course satisfy all withdrawal demands on that $100 because it has infinite money, and the treasury will with 99% certainty get back all $100 because these are AAA bonds which will almost never default.
Unless they do.
But regardless, even if they DON'T default, the treasury will be made full and the taxpayer will bear no cost, technically.
But this par $100 bond is actually worth $87 today, so the treasury could have actually bought it up on the open markets instead for $87 and pocketed the $13 difference as profit for the taxpayer. That that are foregoing this possible profit is omitted in the quote above... I'm not saying they should do this, I just think that the fed is being a bit abusive with terms here.
In any case, buying up distressed assets to provide liquidity is just Quantitative Easing. Which we all know doesn't have any weird secondary or tertiary effects, right?
The joint statement has made it clear they are not paying for this through FED/Treasury muckery. It will be paid for by a "special assessment" of the FDIC on banks "which is required by law".
And what of this BTFP facility? The fed is willing to lend out full par value against high quality assets. Because AAA high quality assets never default and always return full par value, right?
How is this not kicking the can down the road?
This is like a new almost-QE product. For now, it’s just a collateralized loan. But if there is some system shock and a lot of these high quality bonds start defaulting, you bet your ass the fed will buy up these distressed assets and then we’ll have QE again.
I do hope we don’t have such a shock. But they’re like a once in a lifetime event, and we already got one in 2008, so we’re probably fine.
Except depositors above $250k did not have depositors insurance. How is the government stepping in to provide insurance for people who didn’t have insurance not socialism?
Or put it another way, there was absolutely no capitalistic private market solution to this. VCs weren’t on Twitter demanding Chase to come in and save the SVB depositors. They were asking the government. If this was a simple non socialist, capitalist intervention, how was it that only the government was willing to do it?
The funny part is that there are free market solutions. Many in fact. These people were simply neglecting to avail themselves of those solutions and now want bailed out.
You're missing the important fact that SVB did not have zero assets. The difference between the value of assets on their books and the amount they owed depositors is, AFAIK, not a public number outside of speculation. It might be as small as a 5% split, which they've said will not fall on the taxpayers.
The government acting as a backstop and regulator to the banking system is one of the fundamental features of the United States, and was one of the most important decisions the framers made. I'm not trying to defend the fed here, but these words have meaning. Socialism is not just the government taking any action whatsoever.
Also, I'm not sure who was begging for the government to save SVB, and I'm loath to defend a straw-crowd, but that doesn't seem a fair characterization of what happened.
The US government lets a lot of unconscionable things happen. How can we move things like Medicaid reimbursing enough (or even as much as Medicare) so that more healthcare providers accept it so more poor people get healthcare up the priority list, to near where “not letting startups collapse” might be?
Why? They took on direct financial risk. They are "sophisticated" financial actors unlike the general public, with access to professional advice on managing their risk profile.
I think it would be better for the economy and the long-term prospect for American innovation to ensure a robust start-up sector, and thus support the current plan to cover the banks deposits (and probably make a profit at doing so, so won't even cost taxpayers). But I don't think these companies have any sort of "moral right" to their deposits against the interests of the rest of society.
I'm so confused because if I understand correctly the employees of the company were not given board positions or any sort of ownership over the means of production, which would be socialism. We live in a capitalist economic system, and using the tools that capitalism provides the government stepped in using capitalist tools to fix the problem. This isn't socialism, this is capitalism protecting itself from failing.
I think you're generally trying to refer to communism where everyone's the generally assumed to be equally "owning" a thing, so if we all own it, anyone can be the boss.
Socialization is often the act of governments taking responsibility or ownership of production in order to satisfy the needs of the greater populace.
Although the general act is similar, materially they are very different. The bank was a for profit entity made to put money in the pockets of their owners. It failed. If you let the thing fail in capitalism, the losses incurred are put upon the limited liability owners until their investment is zero, then the money is gone, forever. Nobody gets a dime. That's capitalism. If depositors paid for insurance above 250k and ended up reaping those insurance wins, THAT is capitalism.
Inversely, if a (quasi) government agency swoops in to bail out said failing business, it's "socializing" the liabilities left by the company. This is why you often hear the bailout credo, "private profits, socialized losses". The losses that would be incurred are paid directly or indirectly by the entire population. In this case there's a one-degree of separation extra from the federal government bailing out the depositors, vs. the federal reserve. The net outcome is that a bank that acts poorly and loses a bunch of their customers money can expect governments to prop up their mistakes. So fuck it, live fast and break shit because gov'ment going to bail me out!
I think its overplaying your hand to call this "socialism for the rich". It's just regulation.
That being said, I do think its hilarious how many people who were promoting crypto as a way to destroy the regulatory state have now had their asses saved by the regulatory state.
It's ironic how Silicon Valley played a significant role in the current administration's rise to power.
I'm not even referring to the peculiar moderation strategies employed by Twitter, YouTube, and Facebook. What's truly fascinating to me is the extent of donations from billionaires and high-earning employees to get these politicians elected. The sheer amount of money involved is mind-boggling.
To be honest, a part of me was against the idea of backstopping (bailouts). I wanted these people (you guys) to see the consequences of the monster they have created.
And just to be clear, this is your making and its just the beginning. It's a result of a chain of events that can be traced back to the lockdowns and MMT economics. While it's easy to blame individual actors for the collapse of SVB, the truth is that all of this could have been predicted. It's not sustainable to continuously pump money into the system, creating an extreme level of fragility, only to drain it out later without any consequences.
To elaborate, I'm convinced that Jerome Powell knew something like this was bound to happen.
However, in my opinion, the decision was made that it would be more feasible to address any issues that arose from rate hikes than attempting to address the potential consequences of inflation runoff.
«Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries (such as the U.S., U.K., Japan, and Canada) which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.
Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.
- Modern monetary theory (MMT) challenges conventional beliefs about how the government interacts with the economy, the nature of money, the use of taxes, and the significance of budget deficits.
- These beliefs, critics say, are a hangover from the gold standard era and are no longer accurate, useful, or necessary.
- MMT is used in policy debates to argue for such progressive legislation as universal healthcare and other public programs for which governments claim to not have enough money to fund.»
Weird how people said the very same shit about Trump in 2016 (that it was all a byproduct of astroturfing and social media). At this point I think social media is just what pundits defer to when they're being sore losers because the black box they run as is an easy scapegoat for a lot of things.
Also Biden's cabinet is full of old school Keynesians, so I really have no idea what you are on about when referencing MMT. You can tell he's no true proponent of MMT because he actually cares about defecits and talks about his impact on them fairly often in speeches.
The funniest part of the Trump era is people convincing themselves that Trump is somehow their ally in working against the billionaire class. He's just supported by different billionaires.
69 comments
[ 3.2 ms ] story [ 139 ms ] threadhttps://www.google.com/finance/quote/SIVB:NASDAQ
And maybe you're thinking "Who would've thought.."
Probably people who work in finance, like VCs, that can do risk analyses.
If that is not the new precedent, then this is a bailout of rich individuals and some specific corporations. That doesn't seem a problem to you? If the savings and loan of Bismarck North Dakota fails, is the government bailing out the car lot owner and the wheat farmer and the home builder?
Yes, the depositors would get bailed out, but the bank itself would be sold for parts. That might constrain the way that retail deposits are allowed to be managed.
A start would be undoing the Trump administration's rollback of Dodd-Frank stress testing requirements for smaller banks [1]. It will probably also mean the FDIC will require more insurance on deposits. This will all hurt profitability of banks, and reduce risk for depositors.
1. https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...
Above the 250k limit, that is not normally the case. The joint statement is creating a special situation here.
Yes, the special situation will likely become the new normal. There will be pressure to reintroduce the Dodd-Frank stress tests that the Trump administration (with the help of many banking-industry-aligned Democrats) eliminated in 2018 for banks with < $250M in deposits, and there will be greater insurance required on deposits.
Just 4 years after that change, the lessons of 2008 will have to be relearned.
Can't they just up the capitalization requirements and get the same effect with far less red tape and billable hours for consultants and lawyers?
https://www.clevelandfed.org/publications/economic-commentar...
There probably should also be better services out there for outsourced corporate treasury functions. ICD exists, but probably is too costly and specialized for smaller firms.
For instance, I can get a loan from a bank for a mining operation that will contaminate the ground water somewhere. Thanks to bankers, I can expect that the locals will accept the money I'm paying my employees--since they can't distinguish it from any other money--even though they'd be much better off refusing it and continuing to drink clean water.
The way we practice money involves a loss of agency to whoever has less of it. A just world would require the consent of the locals, our world only requires that I prove to a banker that the operation will be profitable.
Not impressed by the basic factual errors in this article. $487 billion ≠ $487 million. https://variety.com/2023/digital/news/roku-svb-failed-silico...
EDIT: I just noticed another disappointing factual error, bordering on disinformation. They say:
> On October 14, 2022, Sacks tweeted, “The idea that the American government, the American taxpayer, or any American company is obligated to provide support is pre entitlement.” That was before the SVB collapse. On March 10, 2023, Sacks sang a different tune: “Where is Powell? Where is Yellen? Stop the crisis NOW. Announce that all depositors will be safe.”
I'm no Sacks apologist, but they took his first quote completely out-of-context, making it sound like he was saying the US government shouldn't support failing companies, when he was in fact talking about the US supporting Ukraine. See: https://twitter.com/DavidSacks/status/1634357137873969152
Edit: we're currently at 1200feet going 30 000 miles per hour.
The point is how fascinating it was to see several otherwise loud Uber-libertarian SV VCs suddenly, and once again loudly, discover socialism and the necessity of government intervention when their own money was at risk.
If their response to this is that, maybe there is a balance to be struck and there is an important role for government regulation, in certain cases, fair enough. And maybe the fact that people they know, who did nothing wrong still suffered, and needed the government to step in to help them, might indicate that there are substantially poorer people who may also be in a bad shape either due to no fault of their own, or due to minor misjudgments becoming magnified due to circumstances who could also do with help from the govt, such as, maybe, the homeless.
But I’m not optimistic that will be the case.
But if companies knew that no such bailout is incoming, they would act differently.
Strictly speaking, the loss of the depositors money is being socialized across bank customers.
Most people would indeed decry it because the people complaining about tax payer funded bailouts would be wondering why we were willing to tax 10 billionaires more money to make whole people with more than $250k, instead of using that money to prevent the discontinuation of a program that say, reduced child poverty by 46% in the US.
For the record, I don’t consider this a bailout. Making whole people’s deposits isn’t what I would consider a bailout because I look at a bailout as protecting entities from the negative consequences of bad decisions, whereas I don’t see depositing money in a bank as a bad decision. This is the equivalent of the govt using its vast assets and reputations to make while the victims of Madoff, for example, which without govt intervention would have meant that the fund’s assets were disposed in a fire sale, so the victims get less money than they would have if the govt intervened and provides short term liquidity allowing those assets to be disposed off at a higher market value.
But it’s still socialistic, and it strongly indicates the need for government regulation and intervention, because no private entity could do this, and basically undermines strong economic libertarianism.
What loss? Their assets were higher than their liabilities.
https://www.forbes.com/pictures/fkmm45eegei/eight-is-great/a...
Technically, this is of course correct. If there are $100 of deposits backed by $100 of bonds which will mature in 5 years, the treasury can of course satisfy all withdrawal demands on that $100 because it has infinite money, and the treasury will with 99% certainty get back all $100 because these are AAA bonds which will almost never default.
Unless they do.
But regardless, even if they DON'T default, the treasury will be made full and the taxpayer will bear no cost, technically.
But this par $100 bond is actually worth $87 today, so the treasury could have actually bought it up on the open markets instead for $87 and pocketed the $13 difference as profit for the taxpayer. That that are foregoing this possible profit is omitted in the quote above... I'm not saying they should do this, I just think that the fed is being a bit abusive with terms here.
In any case, buying up distressed assets to provide liquidity is just Quantitative Easing. Which we all know doesn't have any weird secondary or tertiary effects, right?
How is this not kicking the can down the road?
This is like a new almost-QE product. For now, it’s just a collateralized loan. But if there is some system shock and a lot of these high quality bonds start defaulting, you bet your ass the fed will buy up these distressed assets and then we’ll have QE again.
I do hope we don’t have such a shock. But they’re like a once in a lifetime event, and we already got one in 2008, so we’re probably fine.
My understanding is that the government actually made a lot of money off the toxic assets it bought post 2008. Maybe they can pull off the same trick?
I was sceptical that this was indeed systemic before but I'm reassessing that opinion.
Or put it another way, there was absolutely no capitalistic private market solution to this. VCs weren’t on Twitter demanding Chase to come in and save the SVB depositors. They were asking the government. If this was a simple non socialist, capitalist intervention, how was it that only the government was willing to do it?
The government acting as a backstop and regulator to the banking system is one of the fundamental features of the United States, and was one of the most important decisions the framers made. I'm not trying to defend the fed here, but these words have meaning. Socialism is not just the government taking any action whatsoever.
Also, I'm not sure who was begging for the government to save SVB, and I'm loath to defend a straw-crowd, but that doesn't seem a fair characterization of what happened.
I think it would be better for the economy and the long-term prospect for American innovation to ensure a robust start-up sector, and thus support the current plan to cover the banks deposits (and probably make a profit at doing so, so won't even cost taxpayers). But I don't think these companies have any sort of "moral right" to their deposits against the interests of the rest of society.
They are asking for an extraordinary extension of this program to recover losses incured by bad market behavior.
Socialization is often the act of governments taking responsibility or ownership of production in order to satisfy the needs of the greater populace.
Although the general act is similar, materially they are very different. The bank was a for profit entity made to put money in the pockets of their owners. It failed. If you let the thing fail in capitalism, the losses incurred are put upon the limited liability owners until their investment is zero, then the money is gone, forever. Nobody gets a dime. That's capitalism. If depositors paid for insurance above 250k and ended up reaping those insurance wins, THAT is capitalism.
Inversely, if a (quasi) government agency swoops in to bail out said failing business, it's "socializing" the liabilities left by the company. This is why you often hear the bailout credo, "private profits, socialized losses". The losses that would be incurred are paid directly or indirectly by the entire population. In this case there's a one-degree of separation extra from the federal government bailing out the depositors, vs. the federal reserve. The net outcome is that a bank that acts poorly and loses a bunch of their customers money can expect governments to prop up their mistakes. So fuck it, live fast and break shit because gov'ment going to bail me out!
That being said, I do think its hilarious how many people who were promoting crypto as a way to destroy the regulatory state have now had their asses saved by the regulatory state.
I'm not even referring to the peculiar moderation strategies employed by Twitter, YouTube, and Facebook. What's truly fascinating to me is the extent of donations from billionaires and high-earning employees to get these politicians elected. The sheer amount of money involved is mind-boggling.
To be honest, a part of me was against the idea of backstopping (bailouts). I wanted these people (you guys) to see the consequences of the monster they have created.
And just to be clear, this is your making and its just the beginning. It's a result of a chain of events that can be traced back to the lockdowns and MMT economics. While it's easy to blame individual actors for the collapse of SVB, the truth is that all of this could have been predicted. It's not sustainable to continuously pump money into the system, creating an extreme level of fragility, only to drain it out later without any consequences.
However, in my opinion, the decision was made that it would be more feasible to address any issues that arose from rate hikes than attempting to address the potential consequences of inflation runoff.
https://www.investopedia.com/modern-monetary-theory-mmt-4588...
«Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries (such as the U.S., U.K., Japan, and Canada) which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.
Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.
- Modern monetary theory (MMT) challenges conventional beliefs about how the government interacts with the economy, the nature of money, the use of taxes, and the significance of budget deficits.
- These beliefs, critics say, are a hangover from the gold standard era and are no longer accurate, useful, or necessary.
- MMT is used in policy debates to argue for such progressive legislation as universal healthcare and other public programs for which governments claim to not have enough money to fund.»