But by not bailing them out, you're punishing the depositors, which I wouldn't exactly characterize as "gambling with the house's money".
Let me be blunt. The last place I'd do my personal banking is the local bank of a region who's mantra includes: "move fast and break things".
[1] benefits include interest rates above average or offer to finance your start up.
>[1] benefits include interest rates above average or offer to finance your start up.
Can you be specific? Which parts of SVB's offerings were suspiciously generous? You mention interest rates, so I checked their archived page as of feb 23 and found that they were offering 4.5% for their money market account. This seems roughly consistent with market offerings[1]. You also mentioned "offer to finance your start up", but is that really supposed to be suspicious? That's literally one of a bank's primary functions.
[1] https://www.economy.com/united-states/money-market-rate
>Let me be blunt. The last place I'd do my personal banking is the local bank of a region who's mantra includes: "move fast and break things".
This feels like something that's only obvious because of hindsight. You could easily make an equally compelling case that you shouldn't bank with banks from new york, because that's the financial capital of the US, and it's the evil bankers that caused the 2008 financial crises.
I'd also be in favor of the feds helping to orchestrate a bailout by getting purchased by another bank/banks, or doing whatever it takes to get depositors access to as much of their money as quickly as possible.
But all this does is incentivize "if you're going to blow up, make sure you threaten the whole economy so you can use hostage tactics to get a payout." The feds wouldn't be doing shit if this were some small bank with no contagion risk.
And the political cronyism of this, on both sides, is nauseating. There was a tweet thread by a startup founder from Ohio, basically making the argument "I'm a small business owner from middle America Ohio, not some fat cat Silicon Valley tech bro." To be clear, absolutely nothing against her for posting this (on the contrary, she actually sounded pretty amazing with how she founded her business), but it sucks that she has to play this "Hey, I'm in your tribe too, I'm not a member of that evil other tribe" in order to curry favor with the political class to get a bailout.
I haven't come up with a way to do this [1], nor has anyone else. So, we're back at square one: I can't bail you out with out encouraging destabilizing destructive behavior.
[1] well I have, but public executions for economic crimes are unconstitutional.
the creditors then take a haircut. It's basic bankruptcy.
What people oppose is taxpayers absorbing the losses beyond $250 000 as promised, and there's a very good reason for this: its another example of privatizing profits and socializing losses. In other words, it encourages risky behavior because they're gambling with the house's money.
Some argue, and they have an excellent point that if SVB's creditors aren't bailed out it could trigger a contagion. Thats a formidable risk. However, we already did mass banking sector bailout less than 15 years ago and it turns out all it did was incentivize irresponsible behavior.