It is possible that it'll make some kind of realpolitik sense to stabilize the startup scene, but I sort of doubt it. During the housing crisis, the federal government bought up sufficient stock to stabilize American auto manufacturing not because they particularly cared about the jobs that would be lost or the ecosystem of supporting industries that would be damaged as a result of loss of major manufacturing, but because automanufacturing is one of America's national security concerns... The factories and skill sets that create Ford trucks can create APCs, jeeps, and tanks if a hot War breaks out.

I'm not exactly sure off the top of my head what the similar defense necessity story is for Silicon Valley.

Agreed. Especially for the bits of it that are at risk here, which are mainly small, unprofitable players.

Are you for real? There is an AI arms race with China, for one. There is critical innovation across all segments happening in Silicon Valley, including defense.

That would be a good argument for bailing out a Raytheon or a Microsoft, companies that have a record of success in delivering on complicated software technologies, but not the average Silicon Valley startup.

You can't throw the baby out with the bathwater. If the entire ecosystem is hurt it will affect the next Raytheon/Microsoft as well.

Framed another way, we're asking for the government to take some ownership of their stewardship of banks. The Treasury, the Fed, the CA gov, and the ratings agencies all gave svb passing grades. svb appears not to have done crypto speculation.

The svb ceo asked congress to weaken Dodd-Frank. If that's a bad idea, then congress should say no; that's their job.

Apparently banking over trivial amounts of money ($250k isn't even one month's cash use -- ie payroll and health insurance -- for a 15-ish person sfbay company) requiring significant work to make that cash unlikely to just disappear is no way to run a country.

The cash was always unlikely to disappear. It's just that even unlikely things happen sometimes.

If doing decent treasury management is too darned hard for rich people to do, I don't think that's a problem for the government to manage. Beyond the obvious expedient of using two or three banks, which would have solved most problems for most companies here, there are a number of obvious market-driven solutions. E.g., https://www.difxs.com/ or https://www.g2.com/categories/treasury-management

> too darned hard for rich people to do

Yeah, this is some ideologically driven smearing of people who are literally like I want to stick my seed round in a checking account and not have that disappear. For what it's worth, I'm not rich; I'm like a hundred-thousandaire. (And not affected, though friends are.)

Disappointing to see someone like you gloating that a bank screwed a bunch of small business customers. From reading your writing, I doubt you'd cosign "basic economic services like a checking account are use at your own risk" in almost any other area.

Ah yes, my crazy ideology of "people should generally experience the consequences of their actions, especially when they're doing very well".

I get that you want to be able to be handed millions of dollars and have somebody else take care of that for you. Who doesn't want that? I just don't understand why you think it's the job of poorer people to subsidize you if you take a risk with those millions and it doesn't pan out.

> "basic economic services like a checking account are use at your own risk"

I in fact don't cosign that; I've been very clear that I support mandatory FDIC insurance with its current very generous limit. I also support the FDIC's resolution process where they immediately pay out the $250k and then work hard to quickly pay a large portion of the remainder. That's a giant level of risk reduction.

But if somebody is rich enough that they have millions in cash and haven't bothered to take basic precautions like "use two banks", I don't think that's a problem such that (much poorer) taxpayers should be obliged to make it all better. If it happened to a friend I would feel bad for them personally, of course. But not so much that I would be calling for a government bailout. Capitalism works because risks yield both gains and losses. People who don't like that should manage their risks.

Taxpayers are not on the hook for any deposit losses here. From the statement: “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

That is now the conclusion, but plenty of people were proposing a government bailout of depositors.

We can absolutely be a society in which checking accounts are a pit of snakes which must be navigated by executive savvy and wit. It’s just going to be a much poorer one. The point is not to “protect jobs in Silicon Valley” per se, it is to maintain banking infrastructure as the sort of thing that just works (or gets urgently fixed) so that the entire economy can continue to rely on it, vs. entering a lower-trust regime where a checking account may as well be a stock portfolio.

The FDIC already exists to make sure checking accounts aren't a pit of snakes for 99% of the population. The entire economy can continue to rely on it just as it always has.

Does this mean that rich people have to be more careful managing gobs of cash? Yes, but that has always been the case. Treasury management is a thing that exists both as a thing people do professionally and as a service you can buy.

I understand that some people are young enough that they have either not heard about bank failures or did not feel like it applied to them due to being in a period that was very good for banks. But they are and they do: https://www.fdic.gov/bank/historical/bank/

You mean, personal savers and very small businesses can continue to rely on the banking system. That’s not 99% of the economy.

Young people hear plenty about bank failures - specifically as a success story for big government, a problem we solved, such that depositors are secure these days.

I recognize that startups are in a bit of a weird place where they might have a lot of money to manage before they are sophisticated enough to have a big finance team. If only there were some sort of entity specialized in dealing with their unique needs… oh wait.

Yes, that's why I said "99% of the population", not "99% of the economy".

But the economy's also going to be fine here. Most businesses with a lot of money understand that bank failure risk is just one of the many financial risks to manage. To the extent a startup wants to have millions of dollars but not hire somebody competent to manage that money, them's the breaks.

The same thing would be true for startups that don't take security seriously, for example. I feel bad for the founders here, but no worse than I would for one who experienced hackers getting in and stealing the data. Even if they had hired "sort of entity specialized in dealing with their" security needs. Picking a bad vendor happens, and if you bet your company on a vendor choice in a vital area, well, sometimes those bets don't come out like you hoped.

> Most businesses with a lot of money understand that bank failure risk is just one of the many financial risks to manage.

This is a poorer world than the one where it’s not, is my point.

What are you even supposed to do here, open accounts at 40 different banks when you get a $10 million check? That’s pointless silliness. Is this really what we want entrepreneurs to be spending their time on?

Oh no! A person with $10m in cash might have to put forth a little effort to take care of a vast amount of money! Such horrors have rarely been contemplated.

I understand that some see startup founders as delicate smol beans who are too uwu soft to have to actually do some work. But I have been told repeatedly that these people are genius future titans of industry, backed by the most financially savvy people on the planet. So I think maybe they can handle it?

If somebody is in the incredibly privileged position of being handed $10m in one go, but is also uninterested in managing the money, then I would expect them to hire a part-time CFO. Or at the very least to split the money up and put it into two different banks, which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money.

It is totally possible to have an economy and public policy based on seething contempt for entrepreneurs. It's probably the case that a majority of voters would prefer to be a little worse off as long as the tech-bros they hate are a lot worse off. I just think this is an ugly, self-defeating basis on which to run a society.

>which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money.

Why would it have resulted in that? We've already established that any amount above $250k in one bank may as as well be vaporized already, you just don't know it yet.

I am an entrepreneur from a family of entrepreneurs. I have started multiple companies, one of which was venture backed. I like entrepreneurs just fine, so peddle that nonsense elsewhere.

> Why would it have resulted in that?

Because our modern regulatory regime is pretty good.

If you have your money in two bank accounts and have reasonable capital reserves, you'll be able to make payroll from one of them. So the short-term problem is solved. In your example, you've got $5m to work with.

For the failed bank, the FDIC will give you $250k right away, and in short order a large percentage gets paid out as they liquidate assets. For SVB, that starts within a week: https://www.fdic.gov/resources/resolutions/bank-failures/fai...

The expectations I'm seeing for that are on the order of 50%. So a week later, you're back up to $7.75 million to work with, with more to come in as assets are sold. Maybe you get everything back, maybe you take a haircut. The estimates I'm seeing are in the 0-20% range, so you end up with $9-10 million back over time.

And that's just the FDIC. Functioning businesses have income that they can use to pay salaries or as justification for loans or selling equity. They can also pursue acquisition by somebody who was lucky or smart enough not to have high egg/basket ratios.

So in the end, maybe we end up with a few failed companies, but it's not a systemic risk, and it's the sort of object lesson that helps people understand why they need to take cash management seriously beyond a certain level. That surely will suck for some people, but that's how capitalism works.

> Because our modern regulatory regime is pretty good.

It really isn't. The republican party has spent the last 50 years dismantling regulation. Thats why shit like this happens.

I feel like you're conflating "a person" with businesses, who have a number of people downstream of their bank accounts. They really aren't very similar to wealthy individuals with large bank accounts.

Having said that, as I've been reading about this for the first time over the past couple days, I have become a bit less sympathetic to companies with very large deposits at a single bank. It does seem that there are mechanisms, like "insured cash sweep", that good financial officers should have been taking advantage of. But I still have uncertainty about this and want to read more about it.

But I think the general point of the other commenter in this thread is a good one: a company with, say $2M to $10M in cash deposits should ideally be able to access banking services easily and with negligible risk. This is not an enormous business size! It's better for society for it to be possible to run businesses like that without having to fear big surprises in the financial system killing you on a random Friday.

The "person" here is the founding CEO with a $10m check I was being asked to have empathy for. To the extent that we are instead talking about proper businesses, you have a point, but I have a different response. A real business that just keeps $10m in cash sitting around in one spot like some teen's first checking account is grossly lacking in treasury management.

> should ideally

Sure. Ideally, we should all live in the Big Rock Candy Mountains. [1] But back here in reality, companies have to manage all sorts of risks. If they don't want to hire a professional finance person and don't want to avail themselves of services that solve their problems, then that is a choice they can make. It's just not the taxpayer's job to kiss their boo-boos and make it all better when their gamble doesn't turn out so well.

[1] https://en.wikipedia.org/wiki/The_Big_Rock_Candy_Mountains

> Especially for the startup end of things, where we are aiming to disrupt other businesses.

By lighting large piles of nearly-free Saudi money on fire to undercut sustainable businesses on price.