Not a fair comparison, Newsom has a substantial portion of his money directly tied to the fate of this bank. If this were a legal case a judge would have to recuse himself.
If he was a FDIC decisionmaker, then yes he would have needed to recuse.
He's the governor of CA and the FDIC just stopped major portions of california's economy from exploding. Of course he'd going to cheer that. It would be extremely odd and out of place for him not to cheer an action that likely prevented millions of californians from being out of work in a week or two.
Big surprise that he is also touched by something that has a direct or immediate but indirect effect on ALL californians.
Is that right? I wonder what proportion of voters have >$250k in a bank account, and if it's a very small proportion, whether it's fair to call such people "ordinary voters". For example, if I levy a tax on 50+ foot yachts, would it be fair to say that I'm just taxing ordinary voters?
They're still owed the money regardless of whether the company they work for has it in their bank account or not.
And wouldn't their employer, acting responsibly towards its employees, have used its advanced FDIC payout, as well as the certificate for the funds remaining, to cover the cost of making payroll?
Dean Baker explains how the process would have worked absent this bailout here:
How is it reaching for the media to report on a politician's conflicts of interest, as well as the politician's failure to mention said conflicts of interest?
This is exactly what the media is supposed to do.
The voters can judge for themselves, given the info. But let's give them the info, not hide it.
There were two groups that could receive a bailout - owners of the bank, so the bank could survive, and depositors who had deposits larger than the insured amount. Only the latter received a bailout and were made whole beyond their level of insurance.
SVB management cashed out millions in stock sales in the preceding months and days before the implosion, which is the closest thing you can get to a soft landing in this circumstance.
It's difficult to believe they top executives didn't know something was severely wrong in 2022 when they setup the sales.
It’s actually not difficult to believe at all in my opinion.
They had 105b plans prepared, filed and approved by outside entities. You can see in the SEC documents and company filings all of the sales were pursuant to those plans, which are also commonly done to cover tax obligations throughout the year due to the vesting of stock.
KPMG passed SVB’s audit and several top financial firms had SVB’s default risk at around 2.5%.
The executives didn’t expect a “run on the bank” and those longer-term assets had been underwater for awhile & the financial market knew but expected they would be fine when they came to maturity.
They booked a loss to shift funds into shorter-term securities with higher yields to hedge and hindsight is 20/20 but they should’ve hedged sooner.
Overall, I don’t believe there was anything nefarious here & if we dislike the 105b rules, as many do, that should be the outcome of this review - that they need to change.
Any rescue beyond the $250K insured limit is basically tempting other banks to take similar risks in the future. It is a bad omen for the American financial machinery.
And I sincerely hope I am wrong on this count, and this is just an outlier...
That said, the vast majority of people don’t need to worry about the $250k limit. But companies do.
Should there be a separate limit for business accounts? Or is every business just supposed to juggle dozens+ of accounts if they’re big enough to stay safe?
Roku had $500 million in SVB. That would need 2000 accounts. But even small local business may have to deal with $1-2 million just in savings and payroll and such right?
Sorry, but shit happens and so yes, we all need to learn and exercise some financial prudence. "Don't put all your eggs in one basket," is not a "weird financial hedging game," it's common sense.
> Or is every business just supposed to juggle dozens+ of accounts if they’re big enough to stay safe?
You don’t need dozens of accounts to diversify against short-term risk, and the long-term risk is pretty low since, while uninsured, even in failures a large fraction of uninsured deposits tend to be returned, and bank failure is still pretty rare (in terms of probability of hitting any given depositor per year.)
And, if you do, there are, in fact, businesses you can go to whose entire business is facilitating this.
Why would giving the depositors their money back tempt banks to take risks? SVB has totally folded. Its stock, and probably its bonds, are equally as worthless as they were before the government stepped in. I guess it could tempt other businesses to take risks like keeping all their money at one bank, but I’m not sure how big a deal that is.
Nobody pays out money for uninsured goods. Making the depositors whole is sending a signal that (a) FDIC insurance limits are worthless and can be ignored, (b) Depositors can continue to be callous in their financial behavior, and (c) Banks can take known-stupid risks, worst case the bank will collapse, but depositor money is rock solid safe.
While a company parking millions of dollars will require several accounts to meet that FDIC limit, having two to five accounts at separate banks is certainly not out of reach for almost all institutional depositors. Spreading risk, that simple.
(Again, all this is hindsight, and I am not exactly privy to what forced startups to park their funds in a single bank, so take my commentary with that grain/rock of salt).
These aren't behaviors that add any value to society:
> Depositors can continue to be callous in their financial behavior
Depositors should be able to select a normal bank and put their money in without having to do a huge deep dive on the books of the bank. In this case the problem was with having too many treasuries or something? Why do we want a small business with $400k in the bank to have to figure out the bank's treasury holdings before they are able to start their ice cream store?
Do we want them to have to open multiple bank accounts each time they hit $250k? How is that not just 'busy work' for a business owner (and thus raises the bar to entry for new businesses in the market)?
With govt intervention.
- Shareholders suffer the exact same amount.
- Execs suffer the exact same amount.
- Depositors don’t suffer
So what exactly has changed in the personal fortunes of either execs or shareholders after the govt intervention to change their incentives even a little bit?
The only “moral hazard” being created here is that depositors are being told that it’s ok to deposit your money in a single bank account in smaller non systemically important banks.
If you think encouraging depositing money in banks outside the big banks is a moral hazard, then yes, this action has furthered that.
Otherwise I’m struggling to see what other moral hazard has been created relative to the govt not intervening.
The depositors in SVB were not only not normal depositors, but should have know about the insurance cap and behaved accordingly. Instead, we've emptied the FDIC insurance fund on a bunch of people who should have known better, so if shit goes south, normal depositors are unlikely to get the same consideration.
So once again, different treatment for different people, stratified by social class.
Rescuing depositors by ignoring FDIC limits is violating the law. From the FDIC page: "Depositors should note that federal law expressly limits the amount of insurance the FDIC can pay to depositors when an insured bank fails, and no representation made by any person or organization can either increase or modify that amount." [1]
Thanks for the pointer, and I confess I overlooked that part.
That said, I hope my faith in the people making this call is not misplaced, though at some level I feel tormented because this does not seem fair. Only time will tell.
I have issues with Newsom, but this is just unnecessarily conspiratorial. Newsom's pre-political career was in the Wine Trade and Charity/Non-Profit world - both industries that banked HEAVILY with SVB. Most charter schools in CA and MA also use SVB as their primary bank.
That's precisely the problem: "Newsom, a multimillionaire who was a businessman before becoming a politician, has been dogged for years with ethics questions about his corporate holdings."
Not to mention: "Newsom also recently came under fire in the California press for allegedly abusing what are called behested payments"
If it is about Newsom doing some black magic back room deal to protect SVB because of his deposits, he does not have that kind of pull among Banking Regulators. The extent of his power in Banking Regulation (as any other Governor except maybe Hochul) is pleading to Biden and Zeints about any impact SVB may have at a macro level.
If it's about a trust fund child who was groomed by the Pritzkers and Gettys from SF local politics to Sacramento, newsflash that's all politics as every level. Politics has always been impacted by money and fundraising. Name me a politician and I can point you to their benefactor.
I'm arguing that reporting the conflicts of interests of politicians is in fact the job of the news media, it's up to the voters to judge those conflicts of interests, given that information, and the information should not be ignored or suppressed by the media, so "this is just unnecessarily conspiratorial" doesn't make sense to me.
What exactly do you propose the media do instead?
> Name me a politician and I can point you to their benefactor.
That's what the submitted story was doing. What's wrong with that?
Newsom is not in a position to impact the FEDERAL response to the collapse of SVB.
If there was a scandal relating to SVB and the CA State Assembly then yeah this article is pointing out something nefarious, but that isn't what happened.
It's basically just complaining for the sake of complaining.
On a separate note, this is now the 2nd article I've seen written by writers funded directly by the Omidyar Network about SVB. If you want an influence related conspiracy to chase, go chase that (most likely spurious) allegation.
> Newsom is not in a position to impact the FEDERAL response to the collapse of SVB.
False:
"Biden eventually came around to the view that an emergency rescue was the only viable option after multiple briefings Friday through Sunday from chief of staff Jeff Zients and new National Economic Council Director Lael Brainard, who just joined the White House after serving as vice chair of the Fed and chair of the central bank’s Financial Stability Committee. He also spoke with California Gov. Gavin Newsom on Saturday about SVB’s failure and its impact on the state."
Yes. I posted that article on HN, and I have referenced that in my comment as well.
As this entire thread is not getting votes outside of us two, I'm just gunna stop responding and discussing because it's clearly not changing any minds and I have better stuff to do with my evening.
If someone is among the few select people that the POTUS consults in the hours during which a crucial, urgent decision is made, I would say that person has more power than most people on Earth. Biden certainly didn't call me and ask my opinion. Hence, I consider the notion bizarre that Newsom had little or no power in this case. We obviously have very different perceptions of the situation.
I'm still unclear about what you think the news media ought to be doing. I get the feeling from several comments on this submission that the media should have just censored stories and facts that are potentially embarrassing to the Governor?
Or let me put it another way: if this is no big deal, a nothing burger as it were, then why do you object to the publication of the article? Not every story needs to be Watergate.
I'm going to start flagging articles that call this a "bailout". It is not a bailout, and that term is being used in an emotionally manipulative way to get people riled up and ignoring the facts of the matter.
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[ 4.2 ms ] story [ 91.2 ms ] threadHe's the governor of CA and the FDIC just stopped major portions of california's economy from exploding. Of course he'd going to cheer that. It would be extremely odd and out of place for him not to cheer an action that likely prevented millions of californians from being out of work in a week or two.
Big surprise that he is also touched by something that has a direct or immediate but indirect effect on ALL californians.
Newsom was always going to be supportive of the bailout of any bank's depositors. They are largely ordinary voters.
Let alone a bank that dealt with an integral part of the California economy.
Is that right? I wonder what proportion of voters have >$250k in a bank account, and if it's a very small proportion, whether it's fair to call such people "ordinary voters". For example, if I levy a tax on 50+ foot yachts, would it be fair to say that I'm just taxing ordinary voters?
Not many, but some larger number may have been expecting paychecks cut from those deposits.
And wouldn't their employer, acting responsibly towards its employees, have used its advanced FDIC payout, as well as the certificate for the funds remaining, to cover the cost of making payroll?
Dean Baker explains how the process would have worked absent this bailout here:
https://twitter.com/DeanBaker13/status/1635598421037043712
How is it reaching for the media to report on a politician's conflicts of interest, as well as the politician's failure to mention said conflicts of interest?
This is exactly what the media is supposed to do.
The voters can judge for themselves, given the info. But let's give them the info, not hide it.
Investors may lose almost everything. The management is sacked. The bank is dead, not bailed out.
It's difficult to believe they top executives didn't know something was severely wrong in 2022 when they setup the sales.
If they knew this was coming, and that seems very likely, I wonder if there’s a law that could be used to claw that back/punish them.
They had 105b plans prepared, filed and approved by outside entities. You can see in the SEC documents and company filings all of the sales were pursuant to those plans, which are also commonly done to cover tax obligations throughout the year due to the vesting of stock.
KPMG passed SVB’s audit and several top financial firms had SVB’s default risk at around 2.5%.
The executives didn’t expect a “run on the bank” and those longer-term assets had been underwater for awhile & the financial market knew but expected they would be fine when they came to maturity.
They booked a loss to shift funds into shorter-term securities with higher yields to hedge and hindsight is 20/20 but they should’ve hedged sooner.
Overall, I don’t believe there was anything nefarious here & if we dislike the 105b rules, as many do, that should be the outcome of this review - that they need to change.
And I sincerely hope I am wrong on this count, and this is just an outlier...
That said, the vast majority of people don’t need to worry about the $250k limit. But companies do.
Should there be a separate limit for business accounts? Or is every business just supposed to juggle dozens+ of accounts if they’re big enough to stay safe?
Roku had $500 million in SVB. That would need 2000 accounts. But even small local business may have to deal with $1-2 million just in savings and payroll and such right?
But when basically the entire sector you focus on decides to run, you’re in deep trouble.
They just weren’t diversified enough.
Does anyone think to themselves, gee, I'm glad Roku, the company that made my TV, is financially prudent enough to open 3 separate bank accounts.
TV companies should compete on making the best TV. Not playing some sort of weird financial hedging game on the risk of a bank run.
You don’t need dozens of accounts to diversify against short-term risk, and the long-term risk is pretty low since, while uninsured, even in failures a large fraction of uninsured deposits tend to be returned, and bank failure is still pretty rare (in terms of probability of hitting any given depositor per year.)
And, if you do, there are, in fact, businesses you can go to whose entire business is facilitating this.
While a company parking millions of dollars will require several accounts to meet that FDIC limit, having two to five accounts at separate banks is certainly not out of reach for almost all institutional depositors. Spreading risk, that simple.
(Again, all this is hindsight, and I am not exactly privy to what forced startups to park their funds in a single bank, so take my commentary with that grain/rock of salt).
> Depositors can continue to be callous in their financial behavior
Depositors should be able to select a normal bank and put their money in without having to do a huge deep dive on the books of the bank. In this case the problem was with having too many treasuries or something? Why do we want a small business with $400k in the bank to have to figure out the bank's treasury holdings before they are able to start their ice cream store?
Do we want them to have to open multiple bank accounts each time they hit $250k? How is that not just 'busy work' for a business owner (and thus raises the bar to entry for new businesses in the market)?
Without govt intervention. - Shareholders suffer. - Execs suffer. - Depositors suffer.
With govt intervention. - Shareholders suffer the exact same amount. - Execs suffer the exact same amount. - Depositors don’t suffer
So what exactly has changed in the personal fortunes of either execs or shareholders after the govt intervention to change their incentives even a little bit?
The only “moral hazard” being created here is that depositors are being told that it’s ok to deposit your money in a single bank account in smaller non systemically important banks.
If you think encouraging depositing money in banks outside the big banks is a moral hazard, then yes, this action has furthered that.
Otherwise I’m struggling to see what other moral hazard has been created relative to the govt not intervening.
So once again, different treatment for different people, stratified by social class.
Rescuing depositors by ignoring FDIC limits is violating the law. From the FDIC page: "Depositors should note that federal law expressly limits the amount of insurance the FDIC can pay to depositors when an insured bank fails, and no representation made by any person or organization can either increase or modify that amount." [1]
[1] https://www.fdic.gov/resources/deposit-insurance/brochures/i...
No, invoking the systemic risk exception in the law is not violating the law.
Because the exception is part of the law.
That said, I hope my faith in the people making this call is not misplaced, though at some level I feel tormented because this does not seem fair. Only time will tell.
Silicon Valley Bank “Behested” $100,000 Gift To Newsom’s Nonprofit etc etc
That's precisely the problem: "Newsom, a multimillionaire who was a businessman before becoming a politician, has been dogged for years with ethics questions about his corporate holdings."
Not to mention: "Newsom also recently came under fire in the California press for allegedly abusing what are called behested payments"
If it is about Newsom doing some black magic back room deal to protect SVB because of his deposits, he does not have that kind of pull among Banking Regulators. The extent of his power in Banking Regulation (as any other Governor except maybe Hochul) is pleading to Biden and Zeints about any impact SVB may have at a macro level.
If it's about a trust fund child who was groomed by the Pritzkers and Gettys from SF local politics to Sacramento, newsflash that's all politics as every level. Politics has always been impacted by money and fundraising. Name me a politician and I can point you to their benefactor.
I'm arguing that reporting the conflicts of interests of politicians is in fact the job of the news media, it's up to the voters to judge those conflicts of interests, given that information, and the information should not be ignored or suppressed by the media, so "this is just unnecessarily conspiratorial" doesn't make sense to me.
What exactly do you propose the media do instead?
> Name me a politician and I can point you to their benefactor.
That's what the submitted story was doing. What's wrong with that?
If there was a scandal relating to SVB and the CA State Assembly then yeah this article is pointing out something nefarious, but that isn't what happened.
It's basically just complaining for the sake of complaining.
On a separate note, this is now the 2nd article I've seen written by writers funded directly by the Omidyar Network about SVB. If you want an influence related conspiracy to chase, go chase that (most likely spurious) allegation.
False:
"Biden eventually came around to the view that an emergency rescue was the only viable option after multiple briefings Friday through Sunday from chief of staff Jeff Zients and new National Economic Council Director Lael Brainard, who just joined the White House after serving as vice chair of the Fed and chair of the central bank’s Financial Stability Committee. He also spoke with California Gov. Gavin Newsom on Saturday about SVB’s failure and its impact on the state."
https://www.politico.com/news/2023/03/13/the-emergency-bank-...
As this entire thread is not getting votes outside of us two, I'm just gunna stop responding and discussing because it's clearly not changing any minds and I have better stuff to do with my evening.
I'm still unclear about what you think the news media ought to be doing. I get the feeling from several comments on this submission that the media should have just censored stories and facts that are potentially embarrassing to the Governor?
Or let me put it another way: if this is no big deal, a nothing burger as it were, then why do you object to the publication of the article? Not every story needs to be Watergate.