If the banking system collapses most businesses will fail.
So much of this is built on trust, it’s literally the government’s job to step in and fix this before this explodes. Luckily, it sounds like SVB has the assets to cover the losses but not liquid so it will take time. Also, nobody is getting a bail out. SVB is dead, period. Depositors money belongs to them and they should be made whole. This could have been so much worse.
They mean the risky, overleveraged and marginally valuable businesses fail, and the conservative, careful, and valuable businesses survive and buy up their assets.
It's precisely the interference with this process that's exacerbating economic booms and busts in the first place.
Let those who played it safe now have their reward, and those who played it risky have their comeuppance - not the other way around.
Equity holders of three banks just lost all of it - that is exactly what you're asking for.
In fact nobody recommends holding one bank account, under any circumstances. Banks can and do freeze accounts for any reason. You always have some backups standing by.
You also don't keep all your assets that way. Businesses can hold reserves in stocks or bonds or gold or cash in a safe just like everyone else.
The VCs didn’t concentrate their money like this for no reason. They got some benefit out of it, surely (easier access to loans for their portfolio companies, I suspect). And VCs are, or should be, sophisticated enough to be accountable for concentrating their capital without purchasing insurance.
There’s no clear way for VCs to pay the price they should pay without some startups being collateral damage. I think that’s the crux of the disagreement about what should have been done.
Founders used SVB because regular banks, if they see you have a failed startup in your history, won't give you a home loan.
Almost like some scam? Why should banks have such priviledge? Who gave them that?
I keep some of my money at the bank because I have to and because my employer is paying my salary through a bank account. The most of it is at some safer place.
Liquid deposits at low interest rates are useful. Home loans are useful. And banks can bridge the two successfully almost all the time. And even when banks can't, the biggest problem is probably panic.
In many countries, the solution has been to transfer the tail risk from bank depositors (not owners) to the state. The state then reduces this risk by regulating banks heavily, and by requiring them to pay into an insurance fund.
I am not a libertarian. I support the idea of government as a regulator and an insurer of last resort. I am 100% aware that banks can only exist because the government holds the tail risk.
I think that wiping out SVB's shareholders and unsecured creditors was the right move. If we can claw back some executive bonuses or recent insider stock sales, all the better. However, I also think that making depositors whole is the right move in this case, because lots of banks own long term T bills and mortgages locked in at low rates, making them vulnerable to bank runs. Our best chance of fixing the situation is to prevent short-term contagion and then to change the regulations on banks to eliminate this risk in the future.
But yeah, I think banks are a useful fiction created by state regulation and state-mandated insurance. If we no longer want to provide that particular economic fiction, then I would prefer voters to elect people who figure out an orderly plan to wind down banks, rather than just letting the system implode.
(Full disclosure: Neither me nor my employer has money in SVB. But my paycheck is handled by Rippling, which passed funds through SVB in the process. Had my paycheck been paid last Friday, it would have been held to at least Monday.)
No explanation other than "this is the way things are done".
They're saving customers to a large extent, who could have done more diligence when choosing a bank, you could argue. But they still feel pain going through this process. And not saving them would have worse consequences for the entire system.
No, they use taxpayer's money to save taxpayers.
I'm fine with that as soon as we save taxpayer's money and punish those who triggered the accident and replace them by people who are paid by taxpayers money, under direct control of the state.
There is no sensible reason to want the state to own every bank; that means you're accepting a silly amount of risk and not diversifying your investments. What you want is a social wealth fund, not owning a random industry you don't like.
SVB’s CFO was previously the CFO at Lehman, so whether he still has his job today seems to have no impact on whether the revolving door will continue to open for him or anyone else there.
Although in this case he did do it again.
Insiders file 10b5-1 plans with their brokers well in advance to automate the sale of their stock. It's very unlikely that the sales had anything to do with recent events.
The bankers sold most of the shares before it happened, because they knew it was coming.
Just shows that they knew even early SVB was fucked. I meant it was clear SVB was fucked since JPOW raised rates and SVB had dog shit assets on their HTM.
But instead of doing something they kept it afloat until they sold their shares which took about month to let it fail after they cashed out.
Right, that is the only reason why an insider would ever sell stock.
Here's the CEO's latest Form 4: https://www.sec.gov/Archives/edgar/data/719739/0001562180230...
He exercised stock options to keep his ownership roughly the same at about 26 Million USD. Wonder why he didn't cash that out.
> But instead of doing something they kept it afloat until they sold their shares which took about month to let it fail after they cashed
What should they have done? How did they manage to keep aflot? Why did they stop?
That’s not what’s happening here. The bankers — investors in SVB — are getting wiped out. The FDIC is protecting people and companies with accounts at the bank, not the bank itself.
Depositors are the absolute last group to lose money in a bankrupt bank. When a bank collapses its assets don't just disappear, and depositors (and paychecks) get first scoop from the pot.
It would be nice if everyone didn't have such hostility towards personal responsibility. You never put all your eggs in one basket. You diversify where you keep your money.
The government can best help by doing what it does best. Let it invest in making bankruptcy courts super efficient. Set up automated systems to drip feed payouts to depositors as assets are sold.
The "heads you win tails we lose" deal we give to bankers, which we don't give to anyone else, is fundamentally evil, and we have to stop bowing to their terroristic threats that if you don't give us this deal you're all doomed.