Bailout by whom? Banks? They are already struggling, you even mention SVB.

The government? Sure... print more money.

economically, printing more money isn't inherently wrong. Money was destroyed by default. Printing money to counterbalance this ... works. In principle, this is why communist regimes can get away with ordering organizations to do X, for Y.

The problem is that if you do this every time, you are effectively entrenching the current power structures of society. This isn't a bad thing if those power structures are good - or necessary. But ... it's obvious that repeatedly doing this benefits a specific class of individuals (capital holders) by capping their downside. Capping the downside of existing capital holders also caps the upside of non-capital holders by creating an uneven playing field and eliminating opportunities available to those with "clean" balance sheets.

A chunk of the money created was by lenders, to charge borrowers for the risk of default. If you print more money then you remove the incentive to assess risk. I don't know if this is good or bad, but economics says risk assessment is how capital gets allocated to "good things". Here "good things" I guess means less wasted space in a city center.

They will be bailed out guaranteed. Can kicking is the only solution.

I don't think they will be salvaged actually. I think we'll have a combination of less city friendly states not assisting at all leading to companies wanting to force office work in some "spilled milk" style fallacy.

There's less than zero chance any of these downtowns will be covered to residential. Offices and homes have very different needs, you basically can't convert.

> Can kicking is the only solution.

Oh come on, we can do far more than can kicking. There is always war, revolution, and decades of economic hardship!

> decades of economic hardship

That one is can kicking.

But SVB didn't get bailed out though? At least not the investors. Only the depositors were given their money back.

Yes, and my understanding is that SVB's assets, which are still productive over the long term, were sold on to pay for this "bailout." So the narrative that there was a government bailout is not really true here. The real concern I've heard is that FDIC insurance paid out to a lot of depositors who had more than the statutory limit, but what's left out is that FDIC actually sold on SVB's assets to pay those depositors. It seems like they're taking an interpretation that the statutory limit only applies to banks which don't have any assets that can be traded on.

SVB’s bailout is estimated to have cost the FDIC 20B. The Fed also set up new lending programs to support the banks, which was essentially free* money.

The FDIC insurance fund is paid by banks, so ultimately depositors were "bailed out" by the broader banking industry.

I don’t really see how that’s relevant. Paying into the FDIC DIF is a legal requirement of the banks. It’s basically a tax. Somehow bankers have convinced everyone that they have impunity to mess up the financial system just because they pay a special tax.

And if the FDIC is really going to offer unlimited depositor protection, they’re going to need a lot more than the 100-200B in the DIF.

What would you propose as a system to replace the FDIC?

To be clear, that money comes from the Deposit Insurance Fund

Their assets were worth less than they owed depositors. An auction would have caused a 30 percent or so loss to many millionaires.

The SVB investors which were many millionaires, did lose 100% of their investment.

The depositors, regardless of wealth, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk. How is it a bailout to let them keep their money?

The depositors were bailed out. Also, I would say the banking sector as a whole was bailed out. Providing unlimited insurance is to SVB’s depositors allowed other banks to remain solvent, as did the Fed’s new lending programs.

> I would say the banking sector as a whole was bailed out

I disagree with that characterization.

The FDIC refunds depositors using money (assessments) they collect from member banks. So in essence, unless the government does something special to inject funds directly into the FDIC, the remaining FDIC member banks would likely see their assessment rates go up to cover the costs of these bank failures.

From https://www.fdic.gov/news/speeches/2023/spmar2723.pdf:

> "any losses to the FDIC’s Deposit Insurance Fund (DIF) as a result of uninsured deposit insurance coverage will be repaid by a special assessment on banks as required by law."

I don’t think “the government funds its operations via taxes” is a strong argument against this being bailout.

I'm not sure you understood what I'm saying.

My point is that the FDIC refunding more than 250k wasn't a bailout of the banks because FDIC insured banks are the ones who fund the FDIC.

The main point to take away is that healthy banks are on the hook for paying depositors through assessments charged by the FDIC.

My point is that the FDIC DIF premiums and assessments are mandated by law and are thus a tax levied on banks. So the you’re trying to make it seem like the banks are managing the risk themselves but another way of looking at it is that all FDIC operations are funded via tax revenue, just like everything else the government does. Ultimately, the FDIC is backed by the full faith and credit of the US.

> funded via tax revenue, just like everything else the government does

FDIC assessments and taxes are different. You can over-simplify mentally to a tax, but that doesn't make it true.

The FDIC runs more like an insurance provider than a run-of-the-mill government agency.

Social security and Medicare are also a form of insurance. Are you not paying a social security and Medicare tax?

The depositors, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk.

How is it a bailout to let them keep their money? At best its an "internal banking restructuring in favor of the depositors".

It's indirect. Softbank gave money to startups. Startups put the money in SVB. If the startups hadn't been made whole then softbank would have seen many of it's investments fold.

That doesn't really hold water.

Its an argument that creates a bailout of whoever we want, as long as they're within 6 degrees of SVB. [^1]

A huge rhetoric win, a loss for understanding.

[^1]: https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon

If startups couldn't make payroll, what do you think would happen here?

Does asking this advance the discussion, or is it a passive-aggressive way to continue signalling you believe “seized the bank and sold it, keeping deposits whole” means “SoftBank bailout”?

If you really think about it, it was a bailout of the American people. And that's why it was good and an example of socialist praxis.

After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour.

Marx would be proud of the FDIC for their work.

Who were the depositors?

SVB's depositors were primarily businesses with more than $250,000 in an account. Over 90% of depositors(google for exact percenatge) had more than 250,000 in the account.

So who was the bailout for? Not the average guy on the street...

The depositors were payroll accounts.

> So who was the bailout for? Not the average guy on the street...

The "bailout" (badly named) was for the average people working at these companies. Their families that wouldn't have gotten a paycheck. The grocery stores they couldn't have bought from.

Payroll accounts should be 100% FDIC insured the same why it works in many other countries.

"Payroll accounts should be 100% FDIC insured the same why it works in many other countries."

Perhaps, but they are not so it is a bailout.

"The "bailout" (badly named) was for the average people working at these companies."

That jumps to a conclusion and fails to recognize the business owes a debt required to be paid by law to the employee for the work they have performed in the previous weeks.

I don't want to see banks fail like any of you folks, but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance. Business management is just as culpable as the banking staff in maximizing profit and maintaining proper liquidity and insuring working capital is secure.

> but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance.

Yes, and this is why $20 BB from SVB investors, hit $0. The bank management and investors were did have to live up to that responsibility.

Should they have to do more? Yes. There should be compensation clawbacks from the C-suite over the last 5 years or something. Lets see where this goes.

I for one am glad that SVB depositors were made whole and thus I was able to continue to get a paycheck.

Getting a Slack from the CEO on Saturday night saying basically "we *should* be able to pay you this week, I think" is fairly nerve wracking.

That’s simplistic thinking. The majority of those businesses would not have been able to pay staff and there would have been many redundant “average guys on the street”.

Perhaps, but perhaps the simplistic thinking is that the bailout changes anything. Are businesses which are trying to meet payroll now running a buffer in multiple banks? Are they securing the future of their employees by making sure they can meet payroll in an emergency? Probably not and as a result they didn't learn anything from the experience.

The truth is, this is the tip of the iceberg. Don't be sailing on the Titanic since you have been warned.

I don't understand this "SVB bailout" meme. If a company manufacturing lifesaving medication goes under and the government takes over its factories to keep manufacturing the medicine and prevent shortages, did all the patients get "bailed out"? Should they have known better than to buy their medication from only one manufacturer?

Comments like this distract from real bailouts and moral hazards.

We had a longstanding regime and precedent for how bank defaults would be handled. Anyone with treasury experience knows about insurance limits and accordant risks.

Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank.

Then they were made whole at 100 cents on the dollar, when it probably would have ended up at 85 cents on the dollar on the amount over $250k the other way. This is pretty much the definition of moral hazard: why diversify banking now?

(Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty).

My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.

Counter-point: SVB's funds were in treasury bonds. Their losses were entirely paper losses caused by the Fed's decision to aggressively raise interest rates.

The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds.

T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.

That’s entirely absurd. This is essentially saying there should be a special, perpetual class of government-backed securities with a guaranteed return in excess of all other market performance or conditions. If this was true, everyone would just invest in the special government stocks where you get 10% ROI forever and almost nothing in anything else. At that point, you’d have insane inflation or be better off with a state-run command economy.

It's not absurd at all when you consider that T-Bonds are the foundation of our banking system. Plus, there's no fundamental reason we price bonds the way we do.

The risk of this exact scenario playing out across the banking sector is likely the reason why the Fed took so long to raise rates (and the drastic, reversal of course when they tried in 2018).

> Plus, there's no fundamental reason we price bonds the way we do.

Discounted cash flow analysis / net present value is the one thing that we have in finance that's really a fundamental/intrinsic thing.

> The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused.

No. You don't just get to get the government to subsidize all your duration risk. You need to properly run a bank. You can buy shorter duration bonds in order to mitigate the risk from interest rate changes.

> Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank.

Call me silly but opening a bank account with the 17th largest bank in the US is not risky or reckless behavior in my book. It's nothing like Wall Street in 2008. They're bank accounts ffs. People use them to run businesses to earn their money. They don't become rich off bank deposits. At best SVB might have given some discounts on other products for keeping large balances. If they did, they should also have advised splitting the deposits into $250k accounts or done it automatically.

> why diversify banking now?

Why do it at all? Is any value produced by doing that? If I have $25m in 100 accounts at one bank, it's unconditionally insured. But if I put it all in one account at that same bank, it's not. It's the same amount of money, and the same level of risk as I'm the only owner of all that money. How is that logical?

Public sentiment has colored this situation differently because SVB account holders are largely wealthy individuals and companies.

Bank accounts are a utility. They should just work.

> If I have $25m in 100 accounts at one bank, it's unconditionally insured.

Insurance is by ownership group, not by account.

I stand corrected. Even so, what's the point of all this money splitting? Increase the FDIC premiums for larger account balances going forward. Apply those increased premiums retroactively to all the banks that failed recently, if feasible. Let account holders get on with more useful work.

> Even so, what's the point of all this money splitting?

It eliminates the most proximal cause to the SVB collapse: strongly correlated behavior by large account holders. If banks have many account holders that are diverse, it's hard enough to get a panic that causes illiquidity.

The duration risk would have still been an issue, but a far smaller issue without the need for panicked liquidation. (Even with a healthier balance sheet, most banks would struggle to endure a bank run like SVB).

> Let account holders get on with more useful work.

If you have a massive amount of money, there's a little bit more work to do than dumping it in a random bank.

Ages ago, when my firm had a $15M bank balance, it was close to trivial to work with a vendor to spread the balance among 20 banks. We were still not fully insured, but we had significant insurance and limited exposure to any individual bank failing. 20x the risk of failure, but 1/30th the cost should one happen. We could have also bought some treasuries directly.

> Apply those increased premiums retroactively to all the banks that failed recently, if feasible.

How do you charge a bank that failed and doesn't have the money to pay its depositors money?

I'm in favor of a small increase in the insurance coverage. Maybe $500k or $750k. But I don't think it's good to make bank accounts equivalent in safety to treasuries up to any amount but more liquid.

> How do you charge a bank that failed and doesn't have the money to pay its depositors money?

At least in the most recent cases, they have the assets but not the liquid cash.

> it was close to trivial to work with a vendor to spread the balance among 20 banks

Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.

> At least in the most recent cases, they have the assets but not the liquid cash.

Yes, but those assets need to be sold for less money to pay current account holders.

Or if you issue a loan based on receiving the value of the assets in a few years, you'll need to account for time value of money, which has the same effect.

> Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.

Many banks do. Comerica set us up with this product, but we had to ask-- because otherwise they'd rather have had all of our money.

(And even though Comerica got equivalent amounts incoming, for various reasons brokered deposits are less desirable to a bank than direct accountholder deposits).