Absolutely. What's surprising to me is the absolute lack of that nuance on HN. It's all just BURN IT ALL TO THE GROUND over the last few days.
People love tearing others down. This is the rule.
The true reality of the situation is that these people lent their money to the bank. To bail them out is equivalent to bailing out shareholders.
Not to mention that depositors can get their money back without taxpayer money being used. That’s the whole point of the FDIC stepping in. SVB’s assets have value and can be used to give money back; if another bank buys SVB, odds are depositors will get the vast majority of their money back. It’s not a bailout if the government is not spending money and I don’t know why even a positive, non-bailout outcome seems to be viewed unfavorably.
Absolute bullshit. If that was the goal, banks would be 100% solvent at all times. Every single dollar people ever deposited in the bank would be sitting there in the bank's safe.
That's NOT what happens in practice. Banks simply cannot bear to watch a huge pile of money just sitting there safely doing nothing. So they do fractional reserve banking. People deposit 100 dollars at the bank, the bank stores like 10 dollars only and then loans out 90 dollars to anyone in need of cash. Then the bank literally lies to people's faces when they provide a statement saying they have $100 in their "account" when in fact they only have 10 dollars with $90 being tied up in outstanding liabilities.
Anyone who "deposits" money at a bank without expecting profits in return has been fooled twice. Thrice if they tolerate "administrative fees" for the "service".
> And do you really expect, and want to live in a world where there is such an expectation (due to unreliable financial institutions), the average startup founder to spend time hedging bank risk?
Looks like we live in such a world already.
But perhaps this is a learning opportunity for me. I’m sure you have a stash of money somewhere for paying bills; obviously you need relatively quick access to this stash. You probably also have a larger stash as an emergency fund, which doesn’t need to be as immediately accessible but still needs relatively quick access (so a CD won’t cut it). Where are you putting these stashes? (I guess your personal stashes might be small enough to be FDIC insured, so maybe pretend to be a small startup with a couple millions in cash.)
And regarding your point on banks hating to sit on money - they have to make money somehow as they have bills to pay. They can either charge a fee to hold your money or try to make money off deposits. The latter is obviously riskier, but the former is on average worse for consumers (they lose money by having money..?). If you would rather not pay money to have someone hold it for you, fractional reserves are a necessary construct.
Edit: > Looks like we live in such a world already
Not if the FDIC successfully makes everyone whole without spending taxpayer money! Which, again, seems like a positive outcome no one should be rooting against.
> If you ask someone why they have a bank account, odds are the answer is not “to make money”
> They do it because it’s commonly held financial advice that this is better than putting cash in a box under their mattress (not just for returns, but for safety and ease of access).
Well, that's the problem. People actually believe this "your money is safe at the bank" common sense. Tell them otherwise and they treat you like you're one of those tinfoil hat crazies. Maybe they'll believe otherwise when the banks fail and their money is lost.
> It is not fair to lump these people in with shareholders, in terms of profit expectation, and say they have just as little right to their money back.
Sure it is. They loaned their money to the bank. They exposed themselves to the risk that the loan would not be paid back. That they were ignorant of what they were doing does not somehow excuse them of their culpability.
> I’m sure you have a stash of money somewhere for paying bills
I have exactly $0 in my personal checking account. All expenses are paid with credit. Then I pay the bank off in full the second money enters my account. Any and all remainders are immediately invested until $0 remains.
> You probably also have a larger stash as an emergency fund, which doesn’t need to be as immediately accessible but still needs relatively quick access (so a CD won’t cut it).
My emergency fund is about the only thing I keep in a bank account long term. In several liquid investment accounts in different banks. With full knowledge these banks could flop at any moment.
> I guess your personal stashes might be small enough to be FDIC insured, so maybe pretend to be a small startup with a couple millions in cash.
In my country, bank accounts are insured up to some amount per bank per our social security number equivalent. Therefore, when that amount is exceeded, I spread them over multiple banks. If money accumulates to the point I can buy real property, I immediately do so instead of leaving it at the bank.
It's a pretty simple algorithm.
> And regarding your point on banks hating to sit on money - they have to make money somehow as they have bills to pay.
Or they could charge you for the storage service instead. Maybe if banks were in the storage business it'd actually make sense to pay them a single cent in fees. They're not, so it doesn't.
> Not if the FDIC successfully makes everyone whole without spending taxpayer money! Which, again, seems like a positive outcome no one should be rooting against.
Yeah, and everyone just keeps on believing in banks. Positive outcome for them, not for society as a whole.
I think from your POV that banks are horrible, thinking that even depositors should lose their money is in fact a defensible argument. So I concede that your view is one I can respect despite disagreeing.
But in my view, banks are a useful fiction because of the utility they provide (specifically easy storage of and convenient access to money). Even if a person can buy property to reduce bank risk (again, a super inconvenient workaround!), I’m not sure I want _businesses_ to be doing so, especially in light of the likely resulting impact on property values. I acknowledge a system relying on banks indeed has risks, but to me that’s a stronger argument for better regulations and protections to mitigate the risks than it is an argument to dissolve the system and lose its benefits.
Real property solves that problem best. The criminal can't take you to the government office with a gun to your head and force you to sign over the property to him. Property is also what capitalism is all about: actually owning stuff. Engaging in it keeps the fabled "you'll own nothing" dystopia at bay.
And it's not clear to me that other banks would be excited to pay higher insurance premiums to bail out Silicon Valley Bank's customers here. If you see something otherwise, please let me know.
I make it a point not to differentiate between the two. Bailing out a bank's customers is bailing out the bank. By all means, liquidate the bank and distribute that cash. People are already commenting down below that it might not be enough. If it's not enough, tough. They made a bet and they lost. Consider not using a bank next time.
People are reaching their limits.
This one, AFAICT, happened because the government greatly restricted what banks could do with their funds. One of the only options available in large volumes is a government instrument subject to risk from the Fed raising rates rapidly.
> Why are executives not being put in prison for ruining so many lives ?
I hope people only get put in prison for breaking actual laws. And if the SVB execs broke laws then yes, they should go to prison. But I haven't heard it alleged by anyone that they have.
So the solution to just let banks do whatever they want? A bank that is prevented from taking excessively risky action becomes insolvent, and your answer is to allow them to take even more risk? The Fed has been signaling for a year that rates are going to keep rising, it is eminently predicable what that means to professionals in the industry. Hubris at its best. Have you even heard of Glass–Steagall, or have a basic understanding of the last 100 years of economic theory?
> I hope people only get put in prison for breaking actual laws. And if the SVB execs broke laws then yes, they should go to prison. But I haven't heard it alleged by anyone that they have.
A laughably naïve thing to say in more than a few ways.
If startups were going under because it turns out that they were pointless and there was no market, and they ran out of runway… then sure.
But this is their house catching on fire and all of their money just vanishing through no fault of their own.
It doesn’t distinguish between good startups and dumb ones, real businesses and nonsense — how could you root for this beyond pettiness?
You can choose to hold money in multiple banks. There are services that will happily set up laddered CDs across many institutions for you to diversify exposure and maximize insurance.
To use your tortured analogy: if my neighbor's house burned down, and he didn't buy fire insurance... I would be sad, but I don't exactly think it's my problem (or the government's) to pay to make him whole.
> If startups were going under because it turns out that they were pointless and there was no market, and they ran out of runway… then sure.
I know we all like to believe we control our own destiny. Tiny little inconsequential-seeming choices wobble startups between success and failure every single day. Having a good product is such a tiny piece of it all.
Edit: And the people saying the “CFO” should have done better…at that point, one person is probably still founder, CTO, CHRO, CFO, snack buyer, and janitor combined (been there).
You just ask your bank to place the money using IntraFi. You can get a little more interest by locking up some of the money on a 9-12mo ladder, which makes sense if you have 18 mos of runway.
If you have an unanticipated expense or opportunity and need to spend some early, it's a small penalty to get the money out-- usually 6 months of interest, so as long as the probability of having to spend a bunch more is low you're ahead.
If it's so easy to get it right, why so many companies got it wrong?
Could it be because startups don't usually start by hiring people with a lot of expertise in finance?
Venture capitalists provide banking advice to the companies they fund, and this isn't on the list of things most mention. Now we're reminded why it's a best practice.
I think it's hubris to think that you can have tens of millions of dollars and can ignore vital things with it (account security, systemic risk from counterparties, etc).
If you still think the risk is too high, pay the premium for CDARs or insurance.
It is not about removing all risks. It is about making it acceptable. If your primary bank fails, you can manage it like any other strategic business risk.
It would be great if VCs would provide simple cash management services to their fledgling investments, though.
It was dirt simple to just use IntraFi. You just say you want it, and sign the form. If you want a little more interest income, you do some cash flow planning and check the box for laddering.
Thus, an easy prudent solution is to have a second bank, likely a "too big to fail bank", with emergency funds to cover the day-to-day until you can roll over to money locked into time-based investments or the system has worked its course on the first bank.
In my personal finances, I have done that in housing deals going above the insured limit by immediately moving money into government-based financial instruments. Then as appropriate, I transferred that to my preferred investments and risk profile. If I, as a layman doing a once-in-a-decade housing deal, can manage it, then a startup can.
Its small, but also easy to at least partially mitigate.
Your first priority should be to assure the safety of wherever you put it. Whether that is diversification to the point where all the funds are insured or inquiry into the finances of the institution where you plan on putting all the eggs, or a mixture of lesser diversification and diligence, it should be done.
> my job is to spend that money in the next 18-24 months, not save it.
Well, your first job is to make sure that money is still there when you need to spend it, otherwise, you aren’t going to be spending it.
And it's OK even to incur a little bit of risk/uncertainty when doing so.
But this is different from bailing out all the depositors 100%.
The prudent thing to do right now is to pull your money out of your regional bank and move it to a GSIB and call it a day. This endangers regional banks and concentrates deposits into the large players.
If you use multiple banks, you have a higher risk of experiencing a bank failure, but it has less of a consequence on your operations, liquidity, and viability if it should happen.
So if you use IntraFi to place across 10 banks, and you have $10M, maybe you lose $300k.
It is a risk... but there's plenty of ways to lose a few percent of your working capital that are out of your control.
If you want to further reduce the risk, you could do additional things (e.g. buy some T-bills).
And there are many others in the same boat.
Maybe building an entire society on a drastically slanted gap between the wealthiest and the least wealthy is actually super unstable and prone to failure?
Making bad treasury management decisions is not "no fault of their own". If people want to make the case for a taxpayer bailout, they should start with something like, "Look, we know we fucked up by [not paying attention to something important|taking a risk we thought we could get away with|getting high on our own supply], but we're humbly asking for help."
If somebody's house catches fire because they cheaped out on the furnace and the didn't get homeowner's insurance, I'm going to feel bad for them. They have some Kubler-Ross time ahead for sure. But unless they're family, I'm not taking them in.
Inquiry into bank finances, diversification across banks, etc., are all available options. Maintaining large uninsured balances at a single bank without doing those things (or doing the first, but not taking appropriate actions thereafter) is a choice.
I am not opposed to reasonable government action to mitigate ripple-effect harms given the externalities, but the idea that the startups involved have no responsibility here is misguided.
If only we could centralize the investigation of bank finances and judgement of whether they are healthy enough to use into some sort of agency, staffed by domain experts, with the power to demand relevant documents and shut down unhealthy banks. Nah, that would never work, let's just make it the depositors' responsibility.
I would also like to point out that it's perfectly okay to simultaneously take pleasure in an industry being culled of precisely what you described, while also feeling bad for some of those who may lose their jobs as a result. Ain't nuance neat?