There are two key things that I think you're misunderstanding:

1) the bank didn't lose the money. A lot of it is locked up in long-term securities that would have to be sold at a loss to access the money now. But, at maturity, all of the money would be paid back. The money is there, but it's illiquid. A bank with the same investment but more liquid assets would have no problem

2) The investors are going to get screwed, and the depositors will likely be made most of the way whole. This is without a government bailout. Given that the assets are there, I'd be surprised if a big bank didn't gobble them up for the goodwill of future tech unicorns.

I'd be upset if there was an investor bailout. I'd question why we needed a depositor bailout. I don't think either are necessary or going to happen

Also known as being literally insolvent. They can't pay back what they owe. People have bills to pay tomorrow, so nobody really cares that the money is gonna be there 10 years from now. Peopld want their money, and the bank can't pay it back. They might as well have taken the money and thrown it into a black hole.

> 2) The investors are going to get screwed, and the depositors will likely be made most of the way whole. This is without a government bailout. Given that the assets are there, I'd be surprised if a big bank didn't gobble them up for the goodwill of future tech unicorns.

I suppose it's moral as long as not one cent of public money is used to pay anyone off. That includes "backstopping" bank runs or whatever it is the Fed does. That also includes literally any measure that could conceivably increase inflation which is an indirect way of making us all pay for it.

It entirely depends on the circumstances, and those circumstances are extremely important to this discussion. A bank with sufficient liquidity wouldn't have a solvency issue holding these assets - they would exist and be paid out in time, and nobody would no the difference but the bank's accountants.

That is extremely important because it means the money exists - it was not lost. That makes purchasing SVB viable for a bank that can handle the securities' long maturity. That would not be the case if they head actually lost the money.

> That also includes literally any measure that could conceivably increase inflation which is an indirect way of making us all pay for it.

I would encourage you to read about Spain's economy during the late 1500s. Specifically, why they were advertising across Europe to convince Jews to move to Spain - you'll get to learn why the Jewish banker stereotype exists (racism meets fiscal policy meets religious doctrine) and see an interesting example of how a society changes with proto-moderm banking introduced.

In my experience, most proponents of "inflation is theft" propose financial systems that fail to account for critical problems that were addressed in modern finance so long ago that they've been mostly forgotten

Sounds interesting. Please elaborate on these problems. It's definitely gonna be a lot more interesting than discussing a failed bank.

As far as I'm concerned, the main problem solved by banks is the exponential growth problem. They solve it by providing credit, enabled by depositors. Entire nations and empires were developed by this scheme. Especially in the 1500s, the age of european colonialism.

Doesn't mean it's sustainable.

Lol, fair. In the 1500s, Christians and Muslim were barred from giving loans with usury (interest), so there was no financial incentive to give anyone but friends and family money. The European aristocracy was either Christian or Muslim (Portugal and Spain for a while). Essentially, if you weren't already well connected to the rich, you couldn't access capital.

Jews didn't face the same religious restrictions, and they were barred from many other jobs in society, so they often fell into the role of bankers where they lived (since they could charge interest and make money). These banks facilitated wealth transfers between the wealthy and people with few means and connections. It resulted in economic booms (and there are plenty of legitimate criticisms of exponential growth), but it spread the wealth to people who wouldn't have otherwise had access.

And that's the double edged sword: loans can facilitate wealth transfer from wealthy to folks with limited means, but doing that causes inflation.

Rich people have since found tons of ways to manipulate the system, and we've added layers of regulation that are supposed to make that harder. Some of that has worked, and some of that has failed. But, I do think that inflation is a necessary side effect of preventing capital from being hoarded in walled gardens

No, insolvency is a legal and accounting term indicating that liabilities exceed assets. If assets and liabilities are equal, but the liquidity of those assets did not match the term of the liabilities., that is illiquidity, not insolvency.

That being said, the CFPI said in its order shutting down SVB that the bank was both illiquid and insolvent so it appears that their assets, even adjusted for value at maturity, were not sufficient to cover liabilities. And that's probably why the banks they reached out to about taking over SVB Thursday night did not.

> It is obvious that if those rates are low investors will look elsewhere. Startups are one of those elsewheres.

I agree.

> Now that rates are on the way up, there's no need for investors to risk their money on startups anymore. So startups no longer have one of the pre-conditions for their existence. Namely, free investor money literally pouring in and paying for all their expenses.

Again, some investors won’t spend as much of their money investing in startups. You talk as if it’s just a single on/off switch. > Such is life in the free market. Looks like the US government disrupted you.

We’re talking about the startups here. The government “disrupted” the bank. And through no fault of their own, the startups get “disrupted” as a second order effect. My main point and the reason that I felt I should respond is this sense that I get from your comment that somehow startups deserved to lose their money because they kept it at the bank. As if that was the morally just conclusion.

> I thought stuff like this was going to happen the second I saw the Fed raising interest rates to combat inflation. Looks like time proved me right.

Yes. Everyone understood that “stuff like this” would happen. I’m positive that you didn’t know that specifically SVB would go under in such fashion. Without using hindsight bias, what should a startup have done with this knowledge that “stuff like this” would happen?

> Yeah sure. A "minor implementation detail" of the bank... Honestly, this isn't even the real issue at play here.

I said “internal” not “minor”. And I mean, yes it is the real issue at play? It’s what caused them to go under? And was absolutely not something that any reasonable person would expect to know about their financial institution…

> It's really simple to me. People put their money in the bank. The bank couldn't bear to watch the pile of money just sitting there. So it "invested" the money. Then it lost the money. Then they went under. Now everybody is losing their minds and the bank is getting liquidated in an attempt to make everybody whole again.

Missing nuance that they invested in something that is seen as about the most safe thing you can invest in, but they DID mess up with the duration. Again, this is something that the bank messed up that no reasonable(non-financial industry) person could have seen coming. Sure, the bank deserves some blame for this, but the people that kept their money there could not have reasonably seen the risk.

> I'm sorry but I just don't feel any sympathy at all. It's not the first time a bank fails but people never learn not to trust them.

“Don’t trust banks”. Ok. Got it. Now what? Without using hindsight bias, what should a startup have done with $10million? Keep it under their mattress? Invest it in something more risky than treasuries?

> Nope. I say the exact same thing every single time some bank-like institution fails: we warned you.

Noted. Now what?

> When it's some crypto exchange, everybody here on HN gets a kick out of it. Now that it's some startup's bank, I'm supposed to feel sorry for them? No.

You’re comparing losing your money by gambling on something with no intrinsic value, in an unregulated market, that was built primarily as a means of subverting oversight, with keeping your money in a highly respected, highly regulated, FDIC insured bank.

That said, I hope people weren’t HAPPY that crypto HOLDERS lost their money.

Same thing. It's still disruption even when it's indirect. Perhaps they should have chosen to minimize their exposure to that risk. For whatever reason, they didn't. Now these are the consequences.

I don't want to hear that they're getting any government help whatsoever. By all means liquidate the bank and then distribute the money. If that's not enough to pay them back... Tough luck.

> My main point and the reason that I felt I should respond is this sense that I get from your comment that somehow startups deserved to lose their money because they kept it at the bank. As if that was the morally just conclusion.

Let me make it clear then: that's exactly what I belive.

Banks are not the "risk free safe haven" people make them out to be. People treating banks like that are a huge problem that I wish would be fixed. One way to fix it is by destroying the illusion that you're "safe" despite all the risks the banks are exposing you to. The easiest way to destroy that illusion is to have people actually lose their money when their bank fails.

Therefore, that's what I wish would happen.

> I’m positive that you didn’t know that specifically SVB would go under in such fashion.

I know with absolute certainty that any given bank could literally flop at any given moment if enough people tried to withdraw their cash at the same time. The only reason why it doesn't happen often in practice is the government will literally print money and "inject liquidity" into them to stop a total economic meltdown from happening. I'd rather they didn't and just allowed banks to fail.

> Without using hindsight bias, what should a startup have done with this knowledge that “stuff like this” would happen?

Not keeping money at the bank would be a start. At least use many independent banks so you're not exposed to the stupidity of any one bank.

> And I mean, yes it is the real issue at play? It’s what caused them to go under?

If we're talking about the bank's failure, yes. It's not relevant at all if we're talking about the startup that relied on the bank to hold their money for them.

> And was absolutely not something that any reasonable person would expect to know about their financial institution…

Well, I sure as hell do expect to know everything my bank is doing. After all, I'm putting my money in there and they're "managing" it. One of my banks sends all clients a detailed written report about their accounts and investments every year. Others don't so I ask the manager what they're doing with my money instead. I will literally pull my money out if I don't like the answer. I've done it more than once.

> Missing nuance that they invested in something that is seen as about the most safe thing you can invest in

That's intentional on my part. What they "thought" or "intended" to happen doesn't matter at all. "Everybody thought" mortgage backed securities were a safe investment back then too and that common sense doesn't count for shit when everyone is getting wiped out.

> no reasonable(non-financial industry) person could have seen coming

> but the people that kept their money there could not have reasonably seen the risk

Sure they could. Literally every bank exposes you to the risk of their fractional reserve banking. The problem is they don't because they don't understand the nature of banks and what they do. People think it's just "their money at the bank".

That's ultimately what I want: for people to start seeing government and bank screwups coming. Telling them does nothing so maybe losing money will.

I think this is the sort of stuff that should be taught to everyone in schools.

> what should a startup have done with $10million?

> Invest it in something more risky than treasuries?

What do you think banks do when deposit $10M in them?

> You’re comparing losing your money by gambling on something with no intrinsic value, in an unregulated market, that was built primarily as a means of subverting oversight, with keeping your money in a highly respected, highly regulated, FDIC insured bank.

Those two things are pretty much the same scam to me. One is "respected and government backed", the other isn't. Maybe the government should start backing the proto-banks we call exchanges too. Wouldn't that be funny?

> That said, I hope people weren’t HAPPY that crypto HOLDERS lost their money.

Sorry to disappoint you. If you think this comments section is bad, you should see how gleefully the HN folks cheers when the "crypto bros" get fucked by some whale dumping on the market or something.