Edit: I guess the point is that without the threat of depositor scrutiny, shareholders would have no reason to care about SVB's poor investment decisions, since they were only a problem in a bank run scenario caused by depositors. Failing that, the only risk to shareholders would be regulators, and regulators weren't doing anything about this problem, they were enabling it. I think you're right about that.
Obviously they were getting perks working with 'Silicon Valley Bank' that didn't exist at say, Wells Fargo. No farmer in America was banking there because, hey, that's obviously kind of a sketchy bank.
There was a reward being given to the wealthy depositors, and none bothered to investigate the associated risk. Well, actually, Thiel did, noticed the risk, and pulled out his companies. Why should we bail out the people who missed this?
Wtf are you talking about? It was the 20th largest bank in the country. It wasn’t some sketchy thing exclusively for startups.
And the depositors (VC or not) are at fault for putting their money in a risky bank.
The only people who are not at fault are the ones who are being forced to pay for the mistakes.
Yah. A "bailout" is any injection that makes whole any interested party facing losses. As in "The depositors were bailed out".
The hypocrisy around this is really disappointing.
Yes
It is the most basic of business tenets to do risk assessment on strategic company decisions to reduce exposure to risk
I am sorry you are offended by the fact that I look down on you for your lack of business competence. I used to expect better of people managing hundreds of millions of usd in capital, but I guess not
It is due time for Silicon Valley to face some financial discipline
This is such a weird thing to say, you know that right? I wasn't even talking to you.
The argument that the system should punish people for not risk averse enough to protect themselves against bank failures is like saying that languages with type checking are bad because they make soft programmers who can't protect themselves, even though the safer system is easier to use, and allows its users to focus on different, more important/business relevant problems.
Yes.
> Do you expect every startup to run their own little hedge fund to manage their cash?
I expect them not to trust banks.
Those are not the countries Americans are flocking to for good reason.
Don’t startups already follow the standard model of whatever the VCs say is the right way to do it? As in—there’s a tremendous amount of cargo culting, no? Or perhaps that the banks specifically require an exclusive deal. In either case, not an unsolvable problem.
It's funny how all these techies cant apply their own best development principles (e.g use sensible defaults) to real life.
IYI
That's how it is with everything. If a farmer plants some crops but it drops in price to the point it's completely unprofitable, is he being punished for growing food? Does the government bail him out?
If a drunk driver is doing 120 mph on a freeway and crashed into a normal motorist and sent him to the hospital. The right argument or response isn't that he should've seen it coming in the rare view mirror and moved a lane over.
They lent their money to the bank. They are absolutely responsible.
That social model also brings great depression as a feature, and we decided to moved away from it because great depression bad.
> The Great Depression/Peak global unemployment 24.9% 1933
> Great Recession/Peak global unemployment 10% Oct 2009
Not even closely comparable, thank you for nominating cases as to why the new model is superior.
It creates the precisely wrong incentives. If you run startup and spend any time, effort, or money to mitigate these risks, you're being irresponsible. The Fed will bail you out, stop wasting your precious runway on nonessential things.
Imagine if every company was responsible for making sure their catering services didn't poison their employees. Technically, every company could hire a food safety department to validate that every catered lunch wasn't toxic.
It would be a stupid waste of resources! Businesses should be able to just buy food that isn't toxic! Likewise, they should be able to simply put their money somewhere that isn't dangerous! So they can focus on the solving new problems that every isn't solving pointlessly in parallel.
Talk to anyone in the treasury function at any company of any reasonable size, most of them will be doing it.
You’re getting lost in the current context of what you assume to be SVB’s majority customer; the banger ‘unicorns’ we’ve all read about over the last decade, who would/should have this ‘treasury department’ you’re referencing.
Zoom tf out, remove SVB, and tell the guy who fixed your fucked plumbing last go around that his lack of a treasury department and/or insight into what his primary bank is doing with their deposits is a major problem and they deserve to eventually get fucked because of it. I’ll wait…
Good, because that is the message the public needs to hear right now, if you don't want a domino effect to destroy the banking industry because customers freak out.
Obviously some regulations need to change but it's not worth sacrificing the economy and hurting everyone to make that point.
Uhh.. isn’t that FDIC’s raison d’tere? (Aside from the ‘every size’ part)
Bank runs are caused by low confidence. FDIC makes depositors confident.
It’s also interesting that failure is socialized among banks- who are equipped to judge the risk their peers are taking.
One argument against deposit insurance was that it would lead to complacency and businesses offloading their responsibility to the government. And, here we are.
100% deposit insurance sounds great until you realize it leads to government regulation of 100% of the lending. TANSTAAFL. That is a very very bad outcome, there's very little room in it for a model like the Silicon Valley Bank, but that's where we are headed.
It makes sense that someone with $1.000 shouldn't have to worry about T-bills, interest rates or splitting his risk across multiple banks. The $250k more than covers that.
But someone that has $250m should be able to understand that money is not really the same at such scale and that storing it is not possible without exposure) to interest rates. He can buy T-bills, sweep accounts, or take the risk. But when your wealth is a few millions or you are managing a few hundred millions, you should know (or your money managers) better.
Welcome to the new old world. Crypto is pumping 10% this morning on this news.
An alternative could have been for this group of already closely connected individuals to call an emergency meeting and agreeing to send the opposite message to their portfolio companies to avoid the crisis. Given SVBs issue was really about profitability and not solvency without the bank run.
I'm skeptical a real lesson will be learned here, and we lose the opportunity to build scar tissue. Instead, we wake up from a nightmare, brush it off, and move on.
Please think about the payoff matrix and the fiduciary responsibility of the actors.
Replace the words "VC firm" with "Sequoia" in the previous statement and see if it rings true that Sequoia's reputation would be destroyed forever.
To add, now banks will have no incentive to be careful about who they lend to. In fact they will in all probability begin making riskier and riskier loans knowing fully well that if they make enough loans to become a "systemic risk" they will be bailed out by future tax payers.
What would be a better alternative? Asking a top 20 bank for their data room whenever I need to deposit something over $250k?
At some point, there needs to be some level of trust with simply putting money in a place and not a single cent disappearing. That should be a reasonable expectation in any functional society.
Anything otherwise would be highly inefficient, creating unnecessary work that produces little to no value.
You don't have to study plumbing, electricity, medicine, etc - you can buy all this stuff as a service. If something breaks, a person comes and fixes it.
This allows you to specialize on whatever you want to do - say, build a startup. Software. Painting.
This is absolutely, definitely more efficient than forcing everyone to learn plumbing.
Financial system is basically plumbing for money. It should be easier than plumbing, as in plumbing requires us to deal with unpredictable forces of nature. Money is completely in our minds, so controlling it should be trivial in comparison.
But it's not as reliable as plumbing. Which means it's poorly designed. People intentionally made it convoluted to make it possibly to fish in troubled waters.
If you claim that only people with "the wit" deserve their savings to be safe, you're disgusting.
The government is responsible for fiat money, by definition. They should make it safe. SVB problems were caused by insane interest rate jerk by the Fed. They caused the problem, they should fix it.
How it should work: government money is safe, but inflationary. If you have "the wit" you can escape from inflation. Last time I checked, the government does not prevent anyone from offering inflation-hedged products. Financial institutions can use the entirety of math to offer whatever they want.
They're putting the cost, presently unknown and probably not huge, on the other banks. But the message to depositors everywhere, of every size, is "don't worry about your bank's solvency, we'll protect you".
So market scrutiny is removed as a discipline on bank asset strategy. That leaves regulation as the only control. That politicizes and bureaucratizes bank lending. And the general presumption that Big Government will protect you from yourself is extended just another smidge.
If you had the wit to think "hey, maybe I should be careful with $5 million" and bothered to put it in T-bills or an insured sweep, you're just a nerd who should know the Government will take care of such things.
It isn't the end of the world, but it's a sign of how corrupt and complacent we've become.