I’ve had plenty of debates about SVB where a key argument is “the bank’s depositors should have known better!”
This kid is now a billionaire(?). I think this is a good example of the financial acumen of a typical SVB customer.
I don’t say this to promote or defend a bail out. To me it says that if we are regulating the system to protect deposits, we should come up with rules that actually work. For better or for worse, a bank is a bank is a bank is how most people see it.
> I think this is a good example of the financial acumen of a typical SVB customer.
While I totally wouldn't expect startup founders to behave hardly any different than Hashimoto, I would expect VCs to have done a much better job helping their startups do cash management. I mean, isn't that a pitch so many VCs give, in that it's not just "we give you money", but we also help connect you with experts for different parts of the business?
Even for pure self interest, if VCs are going to write a "kid" a check for $10 million, wouldn't they want to ensure it was properly safeguarded?
Regardless of the above, I 100% agree with your "we should come up with rules that actually work" statement.
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I don’t say this to promote or defend a bail out. To me it says that if we are regulating the system to protect deposits, we should come up with rules that actually work.
For the most part, they do. The government made it very clear last weekend that deposits are sacred, but the executives and the shareholders will be taken out back and shot if they are caught doing risky things. (Signature bank was seized, and it wasn't even insolvent.)
People are angry because bank executives and shareholders ate all the losses, and the depositors were rescued at no net cost to the taxpayer?
What would make those people happy, exactly, and why should anyone care about their happiness? I rather like living in a world where from the perspective of the end user, my money doesn't disappear because some moron five steps removed from me decided to YOLO the bank on 10-year treasuries.
I also, for similar reasons, like living in a world where I don't need to personally test all my produce for e.coli contamination, or my food coloring for cadmium.
Your metaphor isn’t very good but you’d be upset if someone was found to be circumventing food safety rules and poisoning food, and the government changed the rules to avoid them going out of business.
The government put them out of business for poisoning my food. That's exactly what happened to SVB and Signature. They are gone. Dead. Wiped out. Seized. All the people responsible for mismanaging those banks are now broke. [1][2]
And made me, the depositors, the people impacted by that bad behaviour whole.
Again, what exactly is the problem, here? Which bad outcomes have the changes to the rules produced?
[1] Well, the C-suite isn't, but they are all going to be sued by the investors that lost money due to their bad management.
[2] Once the FDIC finishes picking through their carcass, if there's any value left (Possible for Silvergate), those groups might get pennies on the dollar.
Time will tell. I suspect banks will be more reckless because of this. There’s less incentive to protect deposits if they are all guaranteed, and more incentive to make risky bets.
But it’s also a principled point. If you believe that rules don’t matter as long as you like the outcome, that’s a bad way to run a society.
> I suspect banks will be more reckless because of this.
Could you outline under what mechanism other banks will look at what happened to Signature and SVB, and conclude that they should engage in behavior that's likely to get them seized, and their equity zeroed out?
> If you believe that rules don’t matter as long as you like the outcome, that’s a bad way to run a society.
There was no rule that capped recoupable deposits at $250,000. There was simply a rule that guaranteed them up to $250,000.
Also, if your rules result in puppies being regularly pushed into the puppy-shredder, and depositors routinely losing their money through no fault of their own, that's also a bad way to run a society.
You know what's a good way to run a society? Retail banks being a boring, dumb, stable, reliable service.
Consumer protection is part of the FDIC mission; not holding some imaginary, sacred 250k line. The 250k dollar insurance is a means to an end and not a traditional insurance business.
People are angry because (they are being convinced) somebody is getting a hand-out that isn't them and they haven't personally deemed worthy. Just like people get angry over the idea of free healthcare going to immigrants and college loan forgiveness going to.. Whoever.
That's not even what's happening because the FDIC, now in control of SVBs assets, are going to use those assets to balance the books. They have the liquidity to guarantee depositors funds while they wait for the loans and bonds to reach maturity.
We actually don’t know if the rules changed. The rules are that the FDIC covers up to 250k in losses for each account. The SVB that the FDIC now controls still has valuable assets which likely cover the accounts as designed. Or at least get close enough that the the difference is marginal.
Historically, the FDIC was intended to protect consumer banking. $250k was enough coverage for most consumers, and consumers with more than that (back then) probably had an accountant savvy enough to know better than to keep all the eggs in one basket. The same goes for businesses (including startups). The SVB crash was a wake-up call for businesses that were careless with their finances, and they were lucky to get a (unprecedented) bail-out from an administration with an interest in their success.
It's possible, just like it's possible to do a detailed food safety inspection on every single thing you bring home from the grocery, but why would anyone want to live in a buyer-beware world where that is expected?
This kid is now a billionaire(?). I think this is a good example of the financial acumen of a typical SVB customer.
I don’t say this to promote or defend a bail out. To me it says that if we are regulating the system to protect deposits, we should come up with rules that actually work. For better or for worse, a bank is a bank is a bank is how most people see it.