r/technology
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u/marketrent
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Mar 13 '23
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SVB shows that there are few libertarians in a financial foxhole — Like banking titans in 2008, tech tycoons favour the privatisation of profits and the socialisation of losses Business
https://www.ft.com/content/ebba73d9-d319-4634-aa09-bbf09ee4a03b330
u/TheProfoundDemon Mar 13 '23
Watching David Sacks cry like a bitch on Twitter the past few days has been really really funny
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u/Overhere_Overyonder Mar 14 '23
Oh my gosh the All In Podcast this weekend was so pathetic. Those guys have all shown who they are lately from this, to slobbering all over Elons shlong only to find out they have positions in new Twitter. It's almost become unlistenable.
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u/Zoesan
Mar 13 '23
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There's a bit more to this story. The bank was actually backed with very safe investments; US treasury bonds. But those massively tanked in value as interest rates rose. As they had to sell them off to cover withdrawals they essentially run into liquidity issues due to insufficient hedging.
Also, this is in large parts not covered by taxes, but by the emergy fund thingy that banks must pay into.
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u/towelrod Mar 13 '23
Also the government is only making depositors whole, they are not doing anything for the bank itself or investors in the bank. Seems like generally the right decision, isn't it?
I don't see why regular depositors in a bank should all go under just because the bank itself made some bad decisions.
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u/Fahqbyach Mar 13 '23
Exactly, stockholders are screwed but your cash should be safe in a bank. That or the govt needs to create a federal banking system regular people can stash they’re money into.
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u/anonsoldier Mar 13 '23
Your cash is safe up to 250k an amount of savings the vast majority of Americans will never see.
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u/Jewnadian Mar 13 '23
Up to a minimum of $250k. No depositor in the last 50yrs has lost actual deposited money in a bank the FDIC insured. Mostly because that's what caused the Great Depression and why we were able to keep the great recession from becoming a true depression. Putting your money in a bank account isn't supposed to be a risk. If it becomes one then pretty quickly the entire system grinds to a halt.
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u/InformationHorder Mar 14 '23 edited Mar 14 '23
If it becomes one then pretty quickly the entire system grinds to a halt.
This is the moment for why I saved this comment from years ago because it explains why a large amount of money being liquid is so goddamn important to the global economy as its currently constructed.
Basically, the economy needs liquidity; specifically the average person and/or business who has debt needs liquidity to pay their debts, because the banking system absolutely requires predictable, repeatable, liquidity to keep money moving to where it's needed because the banks all have debts and loans they're paying to each other.
And as you said, the moment you take away enough individuals' money that's needed to pay into this system, the system crumbles almost immediately.
I would say the danger and the pain the world is going through right now is partially the result of money being so cheap for so long because governments had their prime rates near zero since what feels like decades now means money isn't as cheap as it once was, meaning it makes money less liquid and less mobile, which is in part leading to these smaller banks getting pinched off by rising interest rates. The economy is coming off it's decade's long sugar-high and everyone is doing their absolute damnedest to prevent the mother of all sugar-crashes.
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u/digbybare Mar 13 '23
No depositor in the last 50yrs has lost actual deposited money in a bank the FDIC insured.
IndyMac depositors did (on balances over the FDIC limit). That’s extraordinary, though, and not something we want to see more of.
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u/robbzilla Mar 13 '23
Right. Suddenly a lot of gold is going to be stuffed under beds if that happens.
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u/KaydeeKaine Mar 13 '23
97.3% of SVB accounts have a balance over 250k
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u/stormdelta Mar 13 '23
You say that as if anything over 250K is gone, but that's not the case.
There's enough assets to make all depositors whole, it'll just take longer.
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u/yourmo4321 Mar 13 '23
That's because it was being used by start-up companies because it would offer better loan terms.
It wasn't a bank your average person was using as their main bank. That's why the average account was so large.
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u/Bangkok_Dangeresque Mar 13 '23
That just means that (typically) they can't access those excess funs immediately. The deposits aren't gone, they're tied up, and are made available as the government unwinds the bank's operations.
Which is fine if the depositors are patient, but not so fine when they are thousands of companies that need to make payroll this week or the lights get turned off.
So the fed agreed to make loans against the tied up assets in the short term so the cash is available now. Instead of distributing it as it becomes available, they'll just keep it if the loans don't get paid back.
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u/Deathpacito-01 Mar 13 '23
It's Silicon Valley, money numbers there big
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u/investmentscience Mar 13 '23
These were not individual/retail customers but the corporate accounts of start ups and other businesses.
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u/TheCuriousDude Mar 13 '23 edited Mar 13 '23
There is even more to this story. It's an illustration of how absurdly tight-knit Silicon Valley is and the disproportionate power the rich have.
You have the Paypal Mafia, Facebook's early employees, Google's early employees, etc.
Peter Thiel's Founders Fund became uneasy and advised every company they invested in to withdraw their funds. Union Square Ventures and Coatue Management did the same around the same time. Because venture capitalists are lemmings, the smaller firms mimicked the bigger firms. By the end of Thursday, hundreds (?) of VC firms and their portfolio companies tried to withdraw $42 billion in one fucking day.
*Virtually no bank survives a bank run.
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u/pusillanimouslist Mar 13 '23
SVB peaked at $200B in assets. I would be shocked if any bank could survive 21% of deposits being withdrawn in one day, and certainly most wouldn’t.
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u/thewileyone Mar 13 '23
The liquidity issues came about due to the bank run by the VC mafia. SVB could have worked out a solution to the treasury bond issue but not with a bank run on.
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u/hardolaf Mar 13 '23
SVB could have worked out a solution to the treasury bond issue
SVB was working out the treasury bond issue actively but the bank run hit them hard and ended them.
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u/RuairiSpain Mar 13 '23
Would be good if the FBI and SaeC investigate Peter's message pattern for the last month. Follow the trail of co-conspirators on their WhatsApp/Telegram/Signal.
Don't forget that Peter is heavily invested in a competitor to SVB, so it's in his interest to find an excuse for a bank run on SVB. And he has leverage on the startups to recommend which bank to move their money.
Peter should be in the limelight until it's probably investigated. Don't let the fast news-cycle forget this moment.
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u/SHAYDEDmusic Mar 13 '23
Is there any way a case could be made against him for market manipulation or something?
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u/Glittering-Cellist34 Mar 13 '23
Complimented by inadequate hedging of risk, poor risk management. And they should have sold stock for capital months ago, not during abject crisis.
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u/sicklyslick Mar 13 '23
CEO also successfully lobbied for deregulation of cash on hand limit on banks under 200b in asset.
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u/ScowlEasy Mar 13 '23
The current reserve rate is 0.1%
Yeah, less than one percent.
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u/blbrd30 Mar 13 '23
Very safe when federal lending rate is high, but not very safe when federal lending rate is nearly 0. No investment is always a safe investment, and they didn't bother to understand the instrument they were trading and it screwed them.
So they're accountable in the way that they just did something that was really stupid, but doesn't look like there's anything inherently criminal going on.
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u/Stonewall_Gary Mar 13 '23
So they're accountable in the way that they just did something that was really stupid, but doesn't look like there's anything inherently criminal going on.
With the caveat that SVB, like many banks, lobbied to remove the regulations that would have made these actions illegal. So pretty much, it's not illegal, because we bribed the
copscity council. Right?4
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u/limitless__ Mar 13 '23
It's important to recognize though that putting your deposits in treasury bonds at a time when the rates were at a historical low and locking you into those rates for 10 years was unbelievably stupid. That's something not even a first year analyst would do. Words cannot express how short-sighted and just plain dumb that decision was. I cannot fathom how a group of supposed professionals could do something like that. It's certainly ineptitude and negligence, I don't know if it'll end up being criminally so.
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u/Zoesan Mar 13 '23
It's important to recognize though that putting your deposits in treasury bonds at a time when the rates were at a historical low and locking you into those rates for 10 years was unbelievably stupid.
Not quite. Doing that and not hedging is stupid
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u/bilyl Mar 13 '23
The amount of ignorance on what actually happened in this situation is alarming. People are just jumping to conclusions thinking that it’s a repeat of 2008.
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u/Arkhaine_kupo Mar 13 '23
I mean in 2008 we added protections to stop this, and somehow they got ruled back in 2018.
With the old regulation of capitalisation at 50B the bank would have been flagged last year. They spent over a year without a Risk officer. And they decided to buy 10 year bonds with no short term diversification.
It was a disaster waiting to happen, and reason to bring back the full text of 2008
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u/pandazerg Mar 13 '23
Don’t you know? Seeing The Big Short one time makes you an expert on the subject.
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u/bilyl Mar 13 '23
I think the crazy thing is people thinking “fuck any business or individual with more than 250k cash in the bank” is a good take. Just because their name is “Silicon Valley Bank” doesn’t mean regular ass customers are immune from the effects.
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u/No-Scholar4854
Mar 13 '23
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The shareholders and employees of SVB are losing their money/jobs. Those are the people who made the loss.
The depositors at SVB are not to blame for this, there’s no value in destroying those companies, investments and jobs.
They probably didn’t even have access to the information they would have needed to do a detailed risk assessment, and do we really want every depositor to have to independently make that decision? Much better if the regulator does that and covers deposits when they get it wrong (as they did here).
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u/applepy3 Mar 13 '23
The rank and file employees just got an email - they’re still employed to help out with the unwinding of SVB, they just work for the government regulators now. The upper management and executives have been sacked though.
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u/No-Scholar4854 Mar 13 '23
Yeah I guess I was thinking more of the CEO who lobbied to have them excluded from the stress testing that would have prevented their collapse.
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u/towelrod Mar 13 '23
Don't worry about him, he cashed out before the collapse
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u/PlayingTheWrongGame Mar 13 '23
“Million dollars a second flowing out the drain? Hey, ChatGPT, help me write a letter of resignation VERY quickly!”
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u/16semesters Mar 13 '23
This is how the fed handles these things:
https://www.youtube.com/watch?v=TAE8i40A5uI
Here's a video of the step by step that happens. Fed takes over the bank, fires management, rank and file employees stay on for 45 days or so, unless the fed sells the bank to someone else.
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u/Scyhaz Mar 13 '23
Makes sense. Can the upper management who made the decisions that helped lead to the bank failing, but throw the every day workers a bone to help the transition since they understand how the innards of the bank work and buys them some time to find a new job.
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u/BillW87 Mar 13 '23 •
It's worth emphasizing that there is no "bailout" here beyond the government fronting the depositors money now that they otherwise would've had returned to them over time. There's no "too big to fail" or "golden parachute" here. The FDIC did the right thing and stepped in while the bank was on a path to failure but while assets still exceeded deposits. The bank is going to fail and the shareholders are getting mostly if not entirely wiped on their value in exchange for investing in a failed company. Investors DO have the benefit of risk evaluation and the ability to set guardrails for the companies that they back, and shouldn't be rewarded for backing companies that take stupid risks. Depositors in a bank did nothing wrong other than putting money in a bank, and shouldn't be punished if that bank is mismanaged.
IMO this is what a mismanaged bank's failure should look like: The FDIC steps in before the bank's assets fall below the value of their deposits, the bank is allowed to fail, the shareholders get minimal if any value out for backing a mismanaged company, the depositors are not on the hook for the failure of their bank, and the taxpayers aren't on the hook either.
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u/cowvin Mar 13 '23
Yes, this is exactly it. This is actually being handled very well. The government is letting other banks have a crack at buying SVB. If nobody wants it whole they will dismantle it to get back the money for the depositors.
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u/MrOfficialCandy Mar 13 '23
Don't worry - Reddit will remember this as a gov't bailout - no matter what facts you say.
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u/Exadory Mar 13 '23
guy I used to work with when Obamacare came in. Refused to have health insurance. Hated being forced by the government to do something. Hated that he had to pay for insurance. Then his appendix exploded. He freaked out because he was gonna either die or be in debt thousands of dollars. Company we worked for back dated his insurance to cover him.
Dude shoulda died or been broke. Have the courage of your convictions.
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u/Bob_Sconce
Mar 13 '23
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No losses are being socialized. SVB shareholders and bondholders are being wiped out, which a libertarian would say is as it should be. Depositors are being made whole and, if there are any losses from doing so, then that's being paid by a special assessment on all banks, all of whom benefit by not being subject to bank runs.
And, it's not at all clear that there will be losses.
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u/way2lazy2care Mar 13 '23 edited Mar 13 '23
If anything they've privatized the losses.
edit: The only people losing money here are the owners and employees. The only way for it to be more privatized is if they weren't a publicly traded company.
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u/darkness1685 Mar 13 '23 •
This article is worse than click bait. It's just using a story in the news to make a political statement that has no actual factual basis.
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u/EloquentSyntax
Mar 13 '23
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Disingenuous and clickbait title, really unfortunate this is the state of our media, fostering political divide rather than promoting truth. Here’s the facts:
- There is no “bailout”, there is ZERO taxpayer dollars being used.
- Only DEPOSITORS are being rescued, which is the right thing to do, otherwise runs on other regional banks will be a systemic risk to the banking system if people’s deposits in banks are no longer safe
- Shareholders and management of the bank are being WIPED OUT, there is no socialization of losses
- The FDIC is guaranteeing depositors, which are primarily startups and small SMEs, and this money is paid by the BANKS, through an assessment done on a quarterly basis, called the Deposit Insurance Fund
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u/a_can_of_solo Mar 13 '23
As much as I hate to say it, banking at the cash level kinda had to work, it's like the internet or electricity. If it's not there you gonna have problems.
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u/claimTheVictory Mar 13 '23
It didn't work until FDR cleaned up after the Great Depression.
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u/PicardTangoAlpha Mar 13 '23
They may, but shareholders won't see red cent in this case.
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u/whatis47 Mar 13 '23
Shareholder and investors are not being bailed out. They lose everything. Customers are simply getting their deposits back. This is not a bailout. Can we correct this narrative.
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u/medievalmachine Mar 13 '23
This is a reminder that the United States figured this all out the hard way 90s years ago and it was the Republicans watering down regulations that created issues. The bank failed because it stored its money in illiquid debt, and it didn't have to. The regulation was removed so they could be recklessly greedy. Rich Republicans benefited and now will get bailed out while still enjoying their massive tax cuts from the last 40 years of Republican greed and immorality.
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u/bigflamingtaco Mar 13 '23
The story I've seen elsewhere is that only depositors are being protected by the feds, not the rich investors. Deposits are being made available today, to be eventually covered by proceeds from the sale of SVB. Only then will any remaining funds from the sale be distributed amongst stakeholders.
They may WANT society to cover their losses, but it doesn't appear the feds are going to permit that?
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u/phloopy Mar 13 '23
Yes, it’s only depositors, but only ~3% of the banks deposits were FDIC insured, meaning ~97% were from balances above $250,000. This bank’s clientele were mostly startups / venture capalists. That’s where the claim that this benefits the wealthy comes from.
However, it’s not a bailout. The company is in receivership, which is the opposite of a bailout. Taxpayers aren’t on the hook for even a penny of this.
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u/_tx Mar 13 '23
And SVB's assets are worth less not worthless. That space makes for a huge difference
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u/bobapple Mar 13 '23
To be fair, Bill Clinton helped kill the Glass Steagall Act....
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u/[deleted] Mar 13 '23 •
Well duh, nobody is as socialist as a capitalist that just lost all their money.