Not sure if “changed”, but I feel like a lot of what happened was nit really warranted and more of a self-fulfilling prophecy unfortunately. Just stay calm and keep on creating real value.
He makes the case that one factor of many in the success of SV was people played iterated games with the same people, which effectively built trust. Now the companies and stakes are so huge that it can be worth it to break that trust sometimes because the benefits of a single win (billions of dollars) can dwarf the downsides.
It’s an insight that makes sense to me and something I wouldn’t have considered otherwise.
How is the breakdown of trust a bad thing in this case? All that incestuous, unwarranted mutual trust and people helping each other only serves to shield the lazy and incompetent. What is that trust based on? It's based on nothing. For the most part, people in SV have no shared values aside from a desire to get rich at all costs (which is common, though maybe not universally shared). Such forms of trust should not exist. That kind of goal-oriented trust is the kind of trust you see in criminal organizations, not the kind of trust which drives a functioning society.
Relationships should be founded on shared values, not shared goals. Because once most members of the group have reached their goals, what's left to bind them to the rest of the group? Nothing. Of course they will (and should) throw the rest of the group under the bus as soon as they are able. It's not the same group which initially signed up for anyway, it changed.
That's one interpretation but many people are incapable of separating the two so they have a different definition of trust. For example, if one has blackmail on someone else and both parties know it, the one who knows the dirt may feel that they 'trust' the other because of the fear that they instill in the other.
E.g. I may say that I trust my bank with my money but, in fact, I have no shared values with them. I only trust them to the extent that I know that their executives are well off and they don't want to go to jail. I assume that they will do everything they can within the law to screw me over though, so my trust is limited.
I’m sorry but if you think someone won’t harm you only because you have dirt on them, then neither of you really trust each other. Trust means you are confident that other person will not harm you regardless of what you have.
Unless I am missing some important context, that paragraph makes no sense and gives no insight. What are the benefits of breaking a trust? Did someone make billions of dollars from the SVB collapse?
In game theory, there's a big difference between a so-called "iterated prisoner's dilemma" and a one-shot prisoner's dilemma. Call these IPD and OPD.
Basically under the conditions of the past couple of decades, you could model Silicon Valley as an IPD. Under an IPD it always makes most sense to remain loyal.
But because of macroeconomic and technological changes (what author calls 'The End of the Beginning'), Silicon Valley models more like an OPD these days.
But under an OPD the winning strategy is to be self-interested.
Anyone who has noticed the shift from IPD to OPD ahead of their peers is able to make big bucks -- if only at the cost of their reputations. (But again, we don't care about 'next time', this is a one-shot, so reputations are now next to worthless.)
Specifically, with regard to SVB, depositors could have HODLed (if you will) as investors did for e.g. the run-up in GameStop.
The article insinuates that in the past, under historic/IPD conditions in Silicon Valley, they probably would have.
However, under contemporary conditions, OPD makes most sense, and most VCs, being savvy, sort of intuited this, and everyone tried to be the first out the door.
There's a broader point as well, alluded to near the end of the article -- that even more broadly speaking, our whole civ is edging closer to being best modelled as an OPD, which in turn pushes more systems towards collapse, and in doing so, invites more regulations, which in turn tamp down on growth.
So this article, if correct, comes with a gloomy forecast, and suggests that 'die fatten Jahre sind forbei' (the years of plenty are over) -- and not just for the Valley.
The "titans" you speak of are Jerome Powell, and Janet Yellen. Not the schmucks that put Taxis on the internet, or effectively stole billions of dollars from SoftBank to build a rental company. These types of extremely competent people are far and few between in important parts of our society. So idk what the fuck you're talking about Yosemite? (from NewsRoom Intro https://www.youtube.com/watch?v=wTjMqda19wk&ab_channel=tprat...).
This is an American sentiment. Please look abroad.
Nobody anywhere would argue with "people do bad things", but people where I am would be puzzled if that was your only assessment.
We do things here for the betterment of society not just because it's "the right thing" morally, but because it's the right thing practically. It benefits _us_. We're part of society.
This kind of pragmatic morality is smeared as socialism by the USA, by the people who stand to lose their near total control of the country.
And P.S. we're all the same, there's nothing special about Europe. You can have this too, without losing your freedoms (which by the way, we also have!). And we also have bad people, it's just that we see them as the exceptions, not the norm.
Sounds like idealism to me. I think you'd have a hard time quantifying your perspective. It's not the only assessment. Just statistically likely that it's the majority.
I hear this a lot from Americans that haven't been here. But I'm talking about Europe _right now_, not some imaginary fairy tale land.
> I think you'd have a hard time quantifying your perspective
I can only talk of my own experiences of course, but the majority of Americans I've talked to who have stayed for more than a month (more than just a holiday) are amazed at how high the quality of life is here, and how friendly people are.
> It's not the only assessment. Just statistically likely that it's the majority.
Perhaps in America — and I'd believe it, I've visited a few times — but not here. Unfortunately, it's also a self-fulfilling prophecy; the more you believe it, the truer it becomes.
I didn’t say the quality of life was worse or equivalent to America. The improvements to quality of life in Europe are likely largely driven by government policy not for-profit organizations.
Anyone who knows a thing or two about history would know that boom and bust is baked into SVs DNA. People were asking the same questions 20 years ago when the dot-com bubble went bust.
No. I already thought SV has a greater than average concentration of irresponsible “move fast and break things” types. Eventually the adults adults will always have to take over to avoid a disaster.
We're talking about a 40 year old bank that bankrupted itself with a 1.5% 10-year mortgage backed security. I don't think "moving fast and breaking stuff" is what got us here.
I feel like the 10 year MBS investment might actually have been a case of excess risk. In a world of zero interest rates (which I presume is when they invested in the MBS), 1.5%-2% yield makes SVB quite a bit of extra profit.
Their investment may have been a case of greed and poorly controlled risk.
Go back to 2021 before rates go up and tell me what you’d do. Kinda damned either way. The bank had to make profit to survive btw. They dont pay for their services on good will.
I understand that they needed to put the money to work somewhere, but they really chose a bad way to do it. Hence the 'poorly controlled risk' that I mentioned.
I think it was quite fair to think they could have sold 10 year treasuries at cost at least. An invert yield curve for this long is not normal. But yes maybe they should have laddered better.
>An invert yield curve for this long is not normal.
Risk management at financial institutions isnt meant to be an exercise of expecting or planning for the normal. Any way we slice it, they failed to adequately assess risk.
You understand that’s the silliness of risk management. Anyone who failed is always accused of not managing it. It’s a truism.
You can’t prepare for all outcomes and this was not one a bank expects. A 3 day 40 billion dollar draw down maybe a first ever event for any bank in all of history. Should they also have risk managed for a nuclear bomb going off in their lobby?
Get real man. Recognize that you are Monday morning quarterbacking here.
Just gonna Google some stuff and read some articles and put important facts and sources here to try to answer the burning question I have: Why did they choose to realize that loss now?
> Last week, depositors started pulling out their money and to meet that demand, the bank had to sell its investment in bonds whose value had declined due to rising interest rates.
> SVB Bank had last week sold its $21-billion bond portfolio consisting of US Treasuries and mortgage-backed securities at a loss of $1.8 billion.
> Over 95 percent of these mortgage-backed securities were over 10 years in duration, with a weighted average yield of 1.56 per cent.
> The bank had invested heavily in Mortgage-backed securities and US Treasuries last year through deposit money to earn higher returns. The bank had seen a huge influx of deposits but struggled to find enough credit demand to deploy that money at desired yields.
> As per reports, SVB had over $80 billion worth of investments in mortgage-backed securities.
> Investors and depositors tried to pull $42 billion from Silicon Valley Bank on Thursday in one of the biggest US bank runs in more than a decade, according to a Friday regulatory filing.
> At the close of business on March 9, the bank had a negative cash balance of $958 million, according to an order taking possession of the bank filed Friday by California’s bank regulator, the Department of Financial Protection and Innovation.
> The scale of attempted withdrawals was so large that the bank ran out of cash and ways to get it.
> The run was sparked by a letter that Silicon Valley Bank Chief Executive Officer Greg Becker sent to shareholders Wednesday. The bank had suffered a $1.8 billion loss on the sale of US treasuries and mortgage-backed securities and outlined a plan to raise $2.25 billion of capital to shore up its finances.
> But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.
> When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.
I may not be fully informed (please comment if that's the case), but it seems like there were really only a couple of instigating factors:
1) SVB invested too heavily in long-term bonds, which reduced their ability to maintain liquidity. In particular, with the inverted yield curve, the recent increase in interest rates seems to me to have made it more likely that these long-term bonds were going to be underwater either way
2) Peter Thiel (allegedly?) instigated a run on the bank by advising people to pull money, partially(?) due to reports that they lacked sufficient liquidity
I don't see the depositors being at fault here. In so far as the depositors had accounts in excess of the FDIC insured limits, first, it seems really difficult for companies to have a sufficient pool of liquid cash in an account somewhere such that they can pay payroll from it. Second, I have read accounts of startups being lent funds from SVB, but with the requirement that the funds be kept in SVB as well. SVB was the de facto choice, from how it sounds, so I don't blame the startups for going with what was a proven good solution... even if it was later proven not so good.
Also, it seems like the FDIC is doing the right thing. All of the insured funds are covered, and it seems like they're also covering all of the deposits in excess by liquidating the assets at a loss, which the bank's shareholders will eat.
Overall, it doesn't seem like a good situation, but we seem to have avoided a train wreck, at least from where I'm sitting. I may be missing things, and I don't have much experience in finance.
>Also, it seems like the FDIC is doing the right thing. All of the insured funds are covered, and it seems like they're also covering all of the deposits in excess by liquidating the assets at a loss, which the bank's shareholders will eat.
My understanding is that assets wont cover the deposits. The FDIC is making the entire banking system pick up the tab with what amounts to a fine on all banks. This will either come out of the profits at other banks or get passed on to account holders of those banks as higher fees/lower interest.
>Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
No, and Im not sure why it would unless you are willing to paint broad swaths of people with the same brush. IMHO, there are still a bunch of ambitious and talented people. Most of them with good intentions, many of them smart, but all human.
To be honest, I didn't even see that many examples of bad behavior. Some bank managers took some big risks and an unlikely event blew up in their face. Some CEOs and VCs panicked, but I would too.
I dont particularly care for the account holder bailout, but I get it. Whisper "contagion" and people panic after 2008.
If anything, what I learned over the last 72 hours is how much resentment and bitterness has been brewing. It is a pretty amazing level of outrage for something with so little relevance for most people.
Everyone knew FDIC limited to $250k an account. They put more in anyway and got bailed TF out. It's a bailout of depositors who didn't hedge risk among multiple accounts. Make no mistake, it's a bailout. I'd be more OK with it if regular citizens didn't get shafted at every opportunity but the wealthy always get a pass.
Steal a $2 bag of chips, get a year in jail. Take a stupid risk on overfunding your account over FDIC insurance, the taxpayers have your back, whether they want to or not.
I have no idea what you’re commenting in response to, but the parent comment had a typo that said shareholder bailout, and regardless of your opinion as to whether this was a bailout for depositors or not, it most certainly wasn’t one for shareholders. That’s all I was saying.
I know, I wasn't fussing at you, I was just ranting in general. I've been in tech since I was a little kid in 1983, and it's all gone to pot, taken over by money men corrupting the hope that it once was.
I wonder whether part of the problem is that technology has a tendency to concentrate and amplify power. For instance, I wouldn't consider Mark Zuckerberg or Bill Gates or Larry Page (to name a few) money men... and these men all have very very large egos.
If depositors split $1 million across multiple accounts, then they would be made whole with FDIC insurance for each account. If they have the same $1 million in one account, they’re still being made whole for the same amount. There’s literally no difference in the amount of money being paid back to them in either scenario.
If they had split the $1m over 4 accounts and only 1 failed, there would be no need for a bailout. It's redundancy, something every tech person learns about pretty early on. It's hedging risk, something every finance person learns about pretty early on. It's basic, fundamental stuff in two disciplines.
Fine it's an error, take your medicine. My problem is when the average Joe makes an error, they get the full force of the justice system coming down on them. Walk around the area, you'll see a bunch of them living in tents.
Is it accurate to say that you are mad the system, and not tech specifically? Afterall, VCs and tech workers aren't the ones locking people up. If anything, it seems like they are softer than average on crime. When I walk the streets in the bay area I see stolen cars and when I go shopping I see people flagrantly robbing stores.
I don't like the account holder bailout either, but in reality, it has much less impact on me. The other banks will pick up the tab and I will probably see another nickel or dime in fees on my checking account.
I don't know that "bailout" is quite an accurate description of what is happening. AFAIK it isn't as if the money was/is lost; it is more of a timing issue that is being bridged.
> regular citizens didn't get shafted at every opportunity but the wealthy always get a pass.
Not in this case in my view, but generally I would agree with you. Unfortunately, this is how power works... and I don't know that any society, bar perhaps an authoritarian one with a benevolent dictator (but that is destined to fail too over time), has solved it fully or even acceptably. If we think back to the French Revolution, I think as long as the populace is mostly happy, then the powerful are able to get away with things; it is when the population is more down and out that the pitchforks are sharpened and the torches readied with fire - so the powerful have to keep that in mind, always.
>I don't know that "bailout" is quite an accurate description of what is happening. AFAIK it isn't as if the money was/is lost; it is more of a timing issue that is being bridged.
Bridging that timing issue will cost a few billion dollars in real cash, and other banks are being fined to make up the difference.
I should've realized as I wrote that that there is a real cost (time == money).
Do you know whether the other banks are being compelled? Or are they doing it willingly to shoulder their own kind?
This is basically how the 250k FDIC money is covered as well. All banks have to pay insurance fees to the FDIC, and when one goes belly up, the Federal Deposit Insurance Corporation pays out. The only difference is the 250k is prepaid
The last 72 hours validate the view that Silicon Valley isn’t capable of taking leadership in fixing the problems it creates, and that we’ll have to rely on Washington to set the rules.
I didn’t say that Washington setting the rules was a good thing — but who else will step in where there has been a complete vacuum of any leadership in Silicon Valley in the last few days?
Hopeful: maybe a chapter has closed in terms of the shenanigans from recent years like "crypto" and not-very-meaningful "disruption". Tech is good when it's building cool things that end up making the world better, not BS stuff.
Pre-SVB: SV was full of some really smart people, many of whom didn't realize their skills and experience don't translate to other areas (eg pretty much anything to do with crypto) combined with some salesmen, some of whom are snake oil salesmen. Together they are more and more resembling the rest of Corporate America with performative cultures, privatizing their own luck, often having unearned bravado and increasingly perverting government to rig the game.
Post-SVB: Not much has changed.
There is a ton of misunderstanding about SVB. Some think we're bailing out billionaires. We're not. There's a lot you can criticize the governemnt for. This isn't one of those situations. SVB didn't manage its risk and fell out of compliance with its debt ratios. The government stepped in, dissolved the bank, paid out the depositors and the shareholders are at the back of the line. And it cost the taxpayers nothing.
I've long been convinced Peter Thiel is awful in pretty much every way. I hope this gets investigated because there's a reasonable suspicion that Thiel created a run on SVB, either intentionally or just accidentally. Why? Who knows.
"Cost the taxpayers nothing" - well not in "taxes", but I'm not sure we can really say nothing. Clearly the banks paying for it won't just eat that cost.
SVB had more assets than depositor liabilities. IIRC the last estimate I saw claimed there was ~$30B in excess assets to depositor liabilities.
The problem that SVB faced was falling out of compliance with debt ratios. The modern banking system works on fractional reserves. The US requires IIRC 10%. A run of withdrawals still meant they were asset positive but didn't have enough cash on hand. That's what forced the sale of their liquid assets at a discount.
So, no, this probably won't cost the taxpayers anything, directly or indirectly.
SVB was not the only bank involved and was at a $25B deficit (from the latest I have heard) due to the fact it was having to sell those bonds at a loss to try and provide liquidity to depositors. Also, that completely ignores the time value of money. Even if those bonds will be worth enough at maturity, holding money for 10 years isn't free. They are getting 1.5%, but the risk free rate is much higher than that atm.
Yes, the panic was pretty crazy. I realized that much of these people are actually anxious, insecure personalities who are scared of losing their significance.
Yes. I learned that the VC industry, at the company management level and even at the venture capital management level, had a very poor understanding of banking. Some crazy percentage of VCs used one particular small regional bank for their funds, they told their portfolio companies to do the same, and everyone even banked their personal accounts with the same bank. Somehow, an entire industry was unaware that you need to manage and diversify counterparty credit risk - even when you are dealing with banks. It's amazing to me that this could happen. I can understand why startup founders might not be aware of banking risks, since banking is not expected to be their expertise and they might have been children the last time a major bank went under. But how did the VCs miss this? This would have been the equivalent of a nuclear detonation in their industry, had the government not bailed them out. I guess we could charitably think of this as part of the process of the VC industry maturing and become a larger part of the economy. Now they'll hopefully better diversify their banking relationships, and the banking industry and regulators also got a much needed shot in the arm regarding the obvious uselessness of the "250k FDIC insurance" backstop during even a minor banking crisis.
The weirdest part is how many people think depositors should actually take a haircut, or that is should be on the depositor to prove the financials of their chosen bank for bankruptcy risk.
Not really a view of Silicon Valley though, unless people making said comments are from Silicon Valley.
How bank runs were historically handled in the US is that the depositors lost all of their money. Banks runs are a recurring problem that have a history going back hundreds of years. That's changing now though, the SVB depositors will be made whole by the government in order to avoid a wider banking crisis and what that means for everyone else is TBD but it looks like some form of insurance that's better than $250k.
"Historically" meaning "before the FDIC"; that is, before 1933.
Post FDIC, bank runs were historically handled by the FDIC either merging the bank with a solvent one, or taking it over. Depositors below a certain amount lost exactly $0, amounts above that were at risk. That amount was currently at $250,000.
What's new is that depositors above the threshold have been made whole.
I think that a lot of societal ills can be chalked up to "low interest rate phenomena." Silicon Valley has had a decade to play with free money. What do they have to show for it? Smartphone CRUD apps, subsidized gig workers, influencers and child consumers. Let's keep raising interest rates.
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[ 3.1 ms ] story [ 134 ms ] threadHe makes the case that one factor of many in the success of SV was people played iterated games with the same people, which effectively built trust. Now the companies and stakes are so huge that it can be worth it to break that trust sometimes because the benefits of a single win (billions of dollars) can dwarf the downsides.
It’s an insight that makes sense to me and something I wouldn’t have considered otherwise.
Relationships should be founded on shared values, not shared goals. Because once most members of the group have reached their goals, what's left to bind them to the rest of the group? Nothing. Of course they will (and should) throw the rest of the group under the bus as soon as they are able. It's not the same group which initially signed up for anyway, it changed.
E.g. I may say that I trust my bank with my money but, in fact, I have no shared values with them. I only trust them to the extent that I know that their executives are well off and they don't want to go to jail. I assume that they will do everything they can within the law to screw me over though, so my trust is limited.
In game theory, there's a big difference between a so-called "iterated prisoner's dilemma" and a one-shot prisoner's dilemma. Call these IPD and OPD.
Basically under the conditions of the past couple of decades, you could model Silicon Valley as an IPD. Under an IPD it always makes most sense to remain loyal.
But because of macroeconomic and technological changes (what author calls 'The End of the Beginning'), Silicon Valley models more like an OPD these days.
But under an OPD the winning strategy is to be self-interested.
Anyone who has noticed the shift from IPD to OPD ahead of their peers is able to make big bucks -- if only at the cost of their reputations. (But again, we don't care about 'next time', this is a one-shot, so reputations are now next to worthless.)
Specifically, with regard to SVB, depositors could have HODLed (if you will) as investors did for e.g. the run-up in GameStop.
The article insinuates that in the past, under historic/IPD conditions in Silicon Valley, they probably would have.
However, under contemporary conditions, OPD makes most sense, and most VCs, being savvy, sort of intuited this, and everyone tried to be the first out the door.
There's a broader point as well, alluded to near the end of the article -- that even more broadly speaking, our whole civ is edging closer to being best modelled as an OPD, which in turn pushes more systems towards collapse, and in doing so, invites more regulations, which in turn tamp down on growth.
So this article, if correct, comes with a gloomy forecast, and suggests that 'die fatten Jahre sind forbei' (the years of plenty are over) -- and not just for the Valley.
Great article. Prescient and uncomfortable.
Well played.
Imho it'll take very slowly for it, as the impacts are really distributed across the entire country: accelerated its inflation and hyperinflation
Post-SVB: Same.
Nobody anywhere would argue with "people do bad things", but people where I am would be puzzled if that was your only assessment.
We do things here for the betterment of society not just because it's "the right thing" morally, but because it's the right thing practically. It benefits _us_. We're part of society.
This kind of pragmatic morality is smeared as socialism by the USA, by the people who stand to lose their near total control of the country.
And P.S. we're all the same, there's nothing special about Europe. You can have this too, without losing your freedoms (which by the way, we also have!). And we also have bad people, it's just that we see them as the exceptions, not the norm.
I hear this a lot from Americans that haven't been here. But I'm talking about Europe _right now_, not some imaginary fairy tale land.
> I think you'd have a hard time quantifying your perspective
I can only talk of my own experiences of course, but the majority of Americans I've talked to who have stayed for more than a month (more than just a holiday) are amazed at how high the quality of life is here, and how friendly people are.
> It's not the only assessment. Just statistically likely that it's the majority.
Perhaps in America — and I'd believe it, I've visited a few times — but not here. Unfortunately, it's also a self-fulfilling prophecy; the more you believe it, the truer it becomes.
Their investment may have been a case of greed and poorly controlled risk.
Risk management at financial institutions isnt meant to be an exercise of expecting or planning for the normal. Any way we slice it, they failed to adequately assess risk.
You can’t prepare for all outcomes and this was not one a bank expects. A 3 day 40 billion dollar draw down maybe a first ever event for any bank in all of history. Should they also have risk managed for a nuclear bomb going off in their lobby?
Get real man. Recognize that you are Monday morning quarterbacking here.
> Last week, depositors started pulling out their money and to meet that demand, the bank had to sell its investment in bonds whose value had declined due to rising interest rates.
> SVB Bank had last week sold its $21-billion bond portfolio consisting of US Treasuries and mortgage-backed securities at a loss of $1.8 billion.
> Over 95 percent of these mortgage-backed securities were over 10 years in duration, with a weighted average yield of 1.56 per cent.
> The bank had invested heavily in Mortgage-backed securities and US Treasuries last year through deposit money to earn higher returns. The bank had seen a huge influx of deposits but struggled to find enough credit demand to deploy that money at desired yields.
> As per reports, SVB had over $80 billion worth of investments in mortgage-backed securities.
https://www.moneycontrol.com/news/business/mc-explains-what-...
> Investors and depositors tried to pull $42 billion from Silicon Valley Bank on Thursday in one of the biggest US bank runs in more than a decade, according to a Friday regulatory filing.
> At the close of business on March 9, the bank had a negative cash balance of $958 million, according to an order taking possession of the bank filed Friday by California’s bank regulator, the Department of Financial Protection and Innovation.
> The scale of attempted withdrawals was so large that the bank ran out of cash and ways to get it.
https://webcache.googleusercontent.com/search?q=cache:O_auqz...
> The run was sparked by a letter that Silicon Valley Bank Chief Executive Officer Greg Becker sent to shareholders Wednesday. The bank had suffered a $1.8 billion loss on the sale of US treasuries and mortgage-backed securities and outlined a plan to raise $2.25 billion of capital to shore up its finances.
> But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.
> When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.
https://www.cnn.com/2023/03/13/investing/silicon-valley-bank....
Post-SVB Peter Thiel: Dark and selfish example of the worst of the hacker mindset.
1) SVB invested too heavily in long-term bonds, which reduced their ability to maintain liquidity. In particular, with the inverted yield curve, the recent increase in interest rates seems to me to have made it more likely that these long-term bonds were going to be underwater either way
2) Peter Thiel (allegedly?) instigated a run on the bank by advising people to pull money, partially(?) due to reports that they lacked sufficient liquidity
I don't see the depositors being at fault here. In so far as the depositors had accounts in excess of the FDIC insured limits, first, it seems really difficult for companies to have a sufficient pool of liquid cash in an account somewhere such that they can pay payroll from it. Second, I have read accounts of startups being lent funds from SVB, but with the requirement that the funds be kept in SVB as well. SVB was the de facto choice, from how it sounds, so I don't blame the startups for going with what was a proven good solution... even if it was later proven not so good.
Also, it seems like the FDIC is doing the right thing. All of the insured funds are covered, and it seems like they're also covering all of the deposits in excess by liquidating the assets at a loss, which the bank's shareholders will eat.
Overall, it doesn't seem like a good situation, but we seem to have avoided a train wreck, at least from where I'm sitting. I may be missing things, and I don't have much experience in finance.
My understanding is that assets wont cover the deposits. The FDIC is making the entire banking system pick up the tab with what amounts to a fine on all banks. This will either come out of the profits at other banks or get passed on to account holders of those banks as higher fees/lower interest.
>Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
https://home.treasury.gov/news/press-releases/jy1337
To be honest, I didn't even see that many examples of bad behavior. Some bank managers took some big risks and an unlikely event blew up in their face. Some CEOs and VCs panicked, but I would too.
I dont particularly care for the account holder bailout, but I get it. Whisper "contagion" and people panic after 2008.
If anything, what I learned over the last 72 hours is how much resentment and bitterness has been brewing. It is a pretty amazing level of outrage for something with so little relevance for most people.
Steal a $2 bag of chips, get a year in jail. Take a stupid risk on overfunding your account over FDIC insurance, the taxpayers have your back, whether they want to or not.
It's garbage.
Fine it's an error, take your medicine. My problem is when the average Joe makes an error, they get the full force of the justice system coming down on them. Walk around the area, you'll see a bunch of them living in tents.
Is it accurate to say that you are mad the system, and not tech specifically? Afterall, VCs and tech workers aren't the ones locking people up. If anything, it seems like they are softer than average on crime. When I walk the streets in the bay area I see stolen cars and when I go shopping I see people flagrantly robbing stores.
I don't like the account holder bailout either, but in reality, it has much less impact on me. The other banks will pick up the tab and I will probably see another nickel or dime in fees on my checking account.
> regular citizens didn't get shafted at every opportunity but the wealthy always get a pass.
Not in this case in my view, but generally I would agree with you. Unfortunately, this is how power works... and I don't know that any society, bar perhaps an authoritarian one with a benevolent dictator (but that is destined to fail too over time), has solved it fully or even acceptably. If we think back to the French Revolution, I think as long as the populace is mostly happy, then the powerful are able to get away with things; it is when the population is more down and out that the pitchforks are sharpened and the torches readied with fire - so the powerful have to keep that in mind, always.
Bridging that timing issue will cost a few billion dollars in real cash, and other banks are being fined to make up the difference.
>Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
I'm assuming it is all banks and the fine will be proportional to their size.
https://home.treasury.gov/news/press-releases/jy1337
This is basically how the 250k FDIC money is covered as well. All banks have to pay insurance fees to the FDIC, and when one goes belly up, the Federal Deposit Insurance Corporation pays out. The only difference is the 250k is prepaid
The rules didn't change recently, the rules just got executed as planned, which prescribed the FDIC takeover.
Since the idea of banks began as long ago as 1,800 BC in Babylon.
Post-SVB: Not much has changed.
There is a ton of misunderstanding about SVB. Some think we're bailing out billionaires. We're not. There's a lot you can criticize the governemnt for. This isn't one of those situations. SVB didn't manage its risk and fell out of compliance with its debt ratios. The government stepped in, dissolved the bank, paid out the depositors and the shareholders are at the back of the line. And it cost the taxpayers nothing.
I've long been convinced Peter Thiel is awful in pretty much every way. I hope this gets investigated because there's a reasonable suspicion that Thiel created a run on SVB, either intentionally or just accidentally. Why? Who knows.
The problem that SVB faced was falling out of compliance with debt ratios. The modern banking system works on fractional reserves. The US requires IIRC 10%. A run of withdrawals still meant they were asset positive but didn't have enough cash on hand. That's what forced the sale of their liquid assets at a discount.
So, no, this probably won't cost the taxpayers anything, directly or indirectly.
The petition here on HN sealed that view.
Not really a view of Silicon Valley though, unless people making said comments are from Silicon Valley.
Post FDIC, bank runs were historically handled by the FDIC either merging the bank with a solvent one, or taking it over. Depositors below a certain amount lost exactly $0, amounts above that were at risk. That amount was currently at $250,000.
What's new is that depositors above the threshold have been made whole.