[mikekij]

The sentiment on Twitter seems to be “tough. You, Etsy seller, took a risk by selling on a platform that used a bank that made a bad investment. The tax payer shouldn’t bail out a bunch of rich pottery artists.”

These sorts of effects (Etsy sellers not getting paid) are going to show up all through the ecosystem if 25% of venture backed companies can’t make payroll next week.

SVB equity holders should go to zero. But it’s in our collective best interest to make sure that depositors have timely access to some meaningful portion of their deposits.

[swatcoder]

You’re mischaracterizing what’s happening at Etsy and at most responsibly managed businesses that worked with SVB. There’s an inevitable operational issue when a bank fails and this causes delays in normal process as funds, accounts, data, and workflows need to be shuffled around. These organizations will get some, but probably not all, of their money back out and were prepared to weather this sort of event regardless.

That’s a different issue than companies thinking they didn’t need to prepare for bank troubles. Some of those were naively managed by people who didn’t understand the scale of wealth they were tasked to manage and its risks, nor understood that they needed to hire someone who could manage it for them safely. And some of those were managed or advised by people intentionally betting that the government would bail them out of the tail risk that they did know about.

We need to be extremely wary of encouraging that latter group, even if it comes at the expense of burning a few inexperienced startup founders.

[qqqwerty]

The days of keeping you money under your mattress are long gone. The vast majority of modern day economic activity takes place electronically, and as such requires partnering with a number of different financial organizations to make that happen.

The government created this mess by lowering the regulations on community banks[1]. They should be the ones to clean it up. There are literally zero reasons why we can't have fully insured deposits. Even better, there are literally zero reasons why we can't have zero risk deposit accounts (hello fed), but they choose not to give it to us so that the bankers can make a profit on our money.

Small and medium size businesses are the life blood of our economy. And modern economies work on trust and specialization. You shouldn't need an advanced degree in financial engineering just to run a small cat sweater shop on etsy.

[1] https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...

[bigiain]

> The government created this mess by lowering the regulations on community banks[1]. They should be the ones to clean it up.

When the bank that just failed was one of the groups lobbying for that lowering of regulations, I’m kinda all for the government telling them “You got what you asked for.”

https://www.theguardian.com/business/2023/mar/11/silicon-val...

I feel a lot of sympathy for customers of SVB who’re wondering how the fuck they’re gonna make payroll next week, or even if they’re going to survive this at all. But I have zero sympathy for SVB and it’s leaders - I’d like to see them be required to pay out every account holder in full from whatever “protected” wealth or assets they have. If any single customer is not fully made right, and the company leaders and directors are not all destitute homeless, they should go to jail.

[darkerside]

SVB did a poor job managing risk with its overweight long term bond investments. That doesn't seem to merit personal property seizure and jail time to me, especially considering how much innovation they've helped create in the past few decades. But maybe I've just gone soft.

[muzz]

I doubt any company will miss payroll this week

FDIC Races to Return Some Uninsured SVB Deposits Monday https://www.bloomberg.com/news/articles/2023-03-11/fdic-race...

[xedrac]

Many companies missed payroll this week. But they'll likely all make up for it next week.

[bagels]

Many companies tried to do payroll on Friday though?

[muzz]

How many?

[chernevik]

Zero risk accounts already exist in the form of T-bill money market funds.

There are many reasons why we should not have zero risk bank deposit accounts.

[spywaregorilla]

> The vast majority of modern day economic activity takes place electronically, and as such requires partnering with a number of different financial organizations to make that happen.

Ideally though that number isn't 1. All they're saying is they should have multiple banks.

[qqqwerty]

How many FDIC insured bank accounts would the cat sweater business need to protect them from Etsy withholding their money? I am pretty sure more bank accounts isn't really going to help with that.

[spywaregorilla]

Obviously the problem is not that the cat sweater business needed more bank accounts. It's that Etsy needed more bank accounts. Etsy is the one that cannot get its own money.

The cat sweater business probably wasn't banking with SVB to begin with.

[not_a_shill]

And now the cat sweater people know they have to diversify where they sell their product. I've seen people sell the same stuff on multiple storefronts. (easy, Amazon, ebay) This wasn't even the #1 reason to do that anyways, so they should have already been doing so.

Sucks for them, but it's a life lesson in starting a business.

[bagels]

Right, the implication is that they shouldn't have started their business at all because there was a risk that Etsy would use a bank that might fail.

[ashwagary]

>the implication is that they shouldn't have started their business at all

Instead of passing the buck, the takeaway is that Etsy could be punished for inappropriately managing customer funds held on behalf of sellers. I expect US law has avenues for sellers to seek adequate compensation for damages Etsy has caused, especially if the TOS didnt cover this outcome.

[celticninja]

This is a pure panic run on the bank though, irrational and counter-productive. The bank was not insolvent and could have been fine if everyone didn't withdraw all at once. The issue I have is that this was started by a group of VCs who told their startups to withdraw, that caused others to withdraw and the slowest are the losers. But they didn't have to be. It's a shame that the VCs that caused this will think they were forward thinking enough that they prevented a problem, when they actually caused it. It seems like the best thing SVB could have done was not sell their assets at a loss to make cash available, if everything went into the receivers then eventually everyone would have been made while. Right now there is at a minimum a $2.1bn loss that all remaining depositors will have to eat.

[jacquesm]

Prisoners dilemma. Do you wait until it is too late or do you cash out early to avoid being caught in a bank run, thereby making the bank run more of a reality?

There is no penalty for cashing out early and being wrong about the bank run but there is a huge penalty otherwise.

[PheonixPharts]

It wasn't pure panic. The withdrawals started because it was announced that SVB was liquidating some of its assets at a loss despite SVB having recently announced that they had no need for such actions and were perfectly fine liquidity wise.

Your bank is supposed to be zero risk, so it's is not irrational when your bank even hints at liquidity issues that you get out.

[rdubz]

> This is a pure panic run on the bank though, irrational and counter-productive. The bank was not insolvent and could have been fine if everyone didn't withdraw all at once.

This is incorrect. SVB converted deposits to risky paper that lost value. They were insolvent.

The fact that the risky paper would return its promised 1%/yr, if everyone just waited 10 years, is a canard. SVB's depositors could get 4% elsewhere, today. Asking them to sit tight at 1% is the same haircut as liquidating that paper at a loss today (which is what happened).

[halayli]

Your tone insinuates that you're a genius and everyone else is dumb. Hindsight is 20/20.

[chottocharaii]

'Hindsight is 20/20' is an odd way to respond to a regular financial occurrence since the ledger was invented. This stuff is in no sense outside the realm of a responsible CFO's imagination

[halayli]

You're simplifying the issue down to a CFO looking at a ledger?

[mlyle]

> There’s an inevitable operational issue when a bank fails and this causes delays in normal process as funds, accounts, data, and workflows need to be shuffled around.

Yup. But if the FDIC is reasonably sure that they'll get many cents on the dollar for depositors, they should free up more than the FDIC insurance limit for large depositors quickly (e.g. Monday). It's in everyone's interest to limit the amount of chaos, and acting relatively quickly and incurring some small amount of risk isn't exactly inviting moral hazard.

[urbanhole]

Given that it’s literally as simple and inconvenient as using various financial tools to avail oneself of FDIC insurance for one’s entire portfolio, what even is the difference?

[armchairhacker]

Look at this post on Reddit: "NO BAILOUTS for Silicon Valley Bank - which lent exclusively to the ultra rich" (https://www.reddit.com/r/WorkReform/comments/11om9o5/no_bail...)

Fortunately, some of the top commenters are pointing out that some of these "ultra-rich" are actually small business owners who don't live lavishly but whose income depends on having >$250k in the bank. And also that flat-out "no bailout" affects employees who aren't getting payed and Etsy sellers. Unfortunately, many others are openly saying things like "Maybe they should cut back on the avocado toast?" which is very ironic if you (perhaps mistakenly) consider "they" to be the lower guys.

OP actually makes an excellent reply in the comments:

> How about we setup a $150 billion bailout fund through Congress?

> The prioritization should be:

> - Priority 1: workers

> - Priority 2: pensions

> - Priority 3: small busineses

> Can we agree the way we bailed out the banks in 2008 was wrong? So many lost their jobs & their retirements while the banks lived to see another day.

> I think this plan helps correct the mistakes of 2008. The only way a bailout of any company is acceptable is if the bailout of workers is of equal or greater value.

But...you titled the post "NO BAILOUTS", not "Bailout WORKERS AND SMALL BUSINESSES ONLY". This is like "defund the police" and "dissolve ICE": the underlying motive is genuinely great, but the messaging is terrible.

[gruez]

>But...you titled the post "NO BAILOUTS", not "Bailout WORKERS AND SMALL BUSINESSES ONLY". This is like "defund the police" and "dissolve ICE": the underlying motive is genuinely great, but the messaging is terrible.

I'm convinced that the reason this stuff happens time and time again is that within activist circles, everyone is trying to outdo each other in terms of ideological fervor, leading to the most extremist policies being put out.

[anigbrowl]

Not really. Policy doesn't make good headlines. Everyone understands that in 2008, investors received significant bailouts. 'Bailouts' are synonymous with people receiving help for investment losees. Depositors, workers, etc. are creditors who did not agree to shoulder investment risk.

'NO BAILOUTS' is an unsubtle slogan, but we're talking about a headline. Headlines are not meant to be nuanced case-switch statements, they serve the same role as function identifiers and need to be maximally concise to get attention. Your suggestion ignores the point above that the person who coined this headline made distinctly non-extremist policy suggestions.

You might say 'well people should never use inflammatory language to make their point.' But if so, you need to consider that all kinds of bad policies can be put onto the books while being couched in very bland-sounding terms to get past people's filters.

[armchairhacker]

> 'NO BAILOUTS' is an unsubtle slogan, but we're talking about a headline. Headlines are not meant to be nuanced case-switch statements, they serve the same role as function identifiers and need to be maximally concise to get attention.

Just want to say, I've had bugs caused by misleading function identifiers which do something very similar to what they say, but not quite. Developers take the name literally and won't even bother to read their documentation.

And it's the same thing with slogans like "no bailouts" or "defund the police". These slogans do get more attention, but your actual nuanced argument doesn't. That's a problem, because many people who would agree with the actual argument are immediately turned off by the slogan, including the people who need to hear your message the most: those who are unsure and who you're trying to convince to join your side. These unsure people will hear the most adversarial version of your words, like how a customer will read the critical reviews on a sponsored product (not the positive ones), or a jury will pick apart the testimony of the accused.

This is what people (read: Democrats and Republicans) do in today's society: they preach to those who are already on their side and will already vote for them and their proposals. They don't preach to the other side, and presumably think everyone there is a lost cause, because they themselves are hearing the other side's most radical voices. But despite what mass media would make you believe, most people are actually very rational and understanding: and I still believe that when you present your argument more nuanced and reasonable, even though less people hear it, more end up joining your cause.

[anigbrowl]

I agree with all of that. But the reality is that if you are the low-key, thoughtful nuanced person all the time, you will get ignored and/or steamrollered a lot, because humans are at least as emotional/instinctual as they are rational.

Intergroup conflict is a fact of social life, and resources coalesce around symbols, rallying cries, and so on as well as around negotiated policy, scientific methodology, and so on. If you are very patient or diligent, then you can help good ideas to succeed on their merits - but it's a slow and painstaking process. Strategic opportunism is how a lot of things 'go viral', and it's a skill that can be learned - and must be, if you wish to act as well to be acted upon. Distasteful in some ways, but such is life.

[gruez]

>'NO BAILOUTS' is an unsubtle slogan, but we're talking about a headline. Headlines are not meant to be nuanced case-switch statements, they serve the same role as function identifiers and need to be maximally concise to get attention.

Contrary to the adage, I don't think all attention is good attention. If you're drawing attention to your movement by making everyone think you're radical leftists, you're going to put off all of the moderates.

>You might say 'well people should never use inflammatory language to make their point.' But if so, you need to consider that all kinds of bad policies can be put onto the books while being couched in very bland-sounding terms to get past people's filters.

But you could do that right now. See: PATRIOT act.

[anigbrowl]

That is a risk, yes. But consider three things: moderates' differing reasons for moderation, how that has been working out, and what difference their agreement actually makes.

On the first, some moderates are prudent and thoughtful, looking at all sides of the problem, conscious of sustainability - conservative in the good (non-partisan) way. Certainly, those are people we'd like to persuade toward any big decisions by consensus, both because of their wisdom and the political and economic capital it has allowed them to amass. Many other moderates are just timorous; the more partisan conservatives are rather expert at stampeding them with culture war issues and so forth. That is definitely problematic; while individual sheep are mostly not threatening animals, a herd of them could be quite dangerous. As something of a radical leftist myself (albeit an ideologically agnostic one), I think the superior messaging and information warfare skills of rightists to move moderates around is a Big Problem.

But on the other hand, moderates can be appealed to very clearly. How has the deregulatory free-market ideology actually panned out for them, either across successive Administrations and Congresses (assuming they're older and in the US) or over the 15 year echo of the 2008 financial crisis, which includes the coming-of-age for millenials and affected most of the developed world? If you've been fairly solidly in favor of the status quo most of that time, you have to acknowledge that there have been massive concentrations of wealth in some sectors and widely distributed losses of purchasing power - eg the housing market. Likewise you have to observe that the pandemic and even the recent-current inflationary spiral has been absolute gangbusters for a lot of corporate profits. I was startled myself to observe a month or so ago that the egg industry profits went up ~600% over the last year. I know enough markets to think that some profit-taking and consolidation would be normal and even good following the shocks that hit that industry, but a 6-fold increase in profits suggests market failure rather than necessary correction.

I'm handwaving a lot here, in the interests of brevity. But my basic point is that while moderates have good reason to uphold the status quo, they also have good reasons to notice that has in many ways become a constrictive ceiling, and to question how well The Very Serious People have actually delivered for the economy as a whole.

Lastly, you would generally want the support of the moderate majority (or at least plurality) in a conventional political context. But we are not in such a time. Part of why we bounce from one phenomenon of polarization to another, and so much energy is poured into culture war that are of little inherent importance, is because we are at a tipping point, or rather a confluence of them; and when a system is unstable, a relatively small push can result in a disproportionately large tilt. That's why the more radical types are constantly jockeying for position, hoping to be well-situated to tilt things in a direction that's favorable to them and exploit an availability cascade. In very rapidly unfolding situations, it doesn't matter too much what the moderates want, because they are inclined deliberate (if they're wise) or dither (if they're timorous) while strategists and hotheads act.

Moderates ultimately want everything to go back to normal (most of the time for eminently good reasons). But while some some shocks are transitory, others are transitional. I anticipate that the next ~12 months will basically be a period of about-quarterly dislocations and dampings, and that 2024 is going to look like 2020 on steroids.

[bombcar]

Pensions were mentioned.

But almost all pensions just are investors.

[krapp]

>I'm convinced that the reason this stuff happens time and time again is that within activist circles, everyone is trying to outdo each other in terms of ideological fervor, leading to the most extremist policies being put out. T he people who originally professed this messaging legitimately believed these systems (ICE, the police) to be irreparably corrupt and that mere reform was impossible, and their message was coming from a place of rage, alienation and frustration.

That message inevitably got co-opted by the mainstream and watered down into something palatable, and thus ineffectual and easily ignored, but its adherents were (and remain) sincere. Not everyone is LARPing or trying to out virtue-signal each other.

[flangola7]

"Defund the police" and "dissolve ICE" are literal expressions. They are literally what we want. We didn't burn down an entire police station for fun - it is a primary objective.

[sithlord]

I think that there is misconceptions on what most people think as "bailouts". I think what a lot mean is that the usgov should just buy up all the deposit assets, and fund out the money, since its fairly certain that the assets are pretty close to deposits, but just wont mature for a long time, and in turn the bank is still dead, no more SVB.

A true, "bailout" would basically be that the bank survives, they are given moneys to make it through and then all the workers/deposits are screwed. ie. 2008

[bagels]

Right, they should bail out the depositors, not the bank. The bank doesn't deserve to exist anymore.

[tedunangst]

Why in the world would anyone think SVB needs $150 billion?

[jasonlotito]

> But...you titled the post "NO BAILOUTS"

"NO BAILOUTS for Silicon Valley Bank..."

It wasn't "NO BAILOUTS"

> but the messaging is terrible.

If your point was the messaging is terrible because people can just make stuff up about the message, sure. But no amount of messaging can people willing to just make stuff up. I mean...

> the underlying motive is terrible

Why do you think bailing out workers and small businesses is terrible????

[makestuff]

Another thing people aren’t realizing is all of these SAAS companies just sell their tools to each other. No one will be paying the bills (that includes their cloud bills too). IMO it is going to put a huge damper in any tech recovery this year.

[UncleOxidant]

> if 25% of venture backed companies can’t make payroll next week.

That percentage seems really high. Is it likely that 25% of all venture backed companies had all of their money in SVB? Of the ones that did, many of the smaller ones could still meet payroll next week and possibly for a few weeks based on $250K that they'd still have access to.

We found out that Roku, for example, had a large amount of money in SVB, but it was only about 25% of their cash meaning they had cash in other banks as well that are still liquid. Will Roku even lose all of that 25%? Probably not. They won't be able to access it for a while, but in the end they'll probably end up getting at least some of that back.

[Beaver117]

>Will Roku even lose all of that 25%? Probably not. They won't be able to access it for a while, but in the end they'll probably end up getting at least some of that back.

How will they get it back? The bank is gone. FDIC will only give them $250k right?

[thephyber]

> How will they get it back? The bank is gone. FDIC will only give them $250k right?

The FDIC opened up a new bank with a different name. On Monday, the insured $250k of deposits will be available and some modest amount above that will also be available. The FDIC announced a dividend will be paid next week to uninsured deposits. The remaining balances depend on how much of the assets are needed to be liquid short term versus long term.[1]

The bank has a massive amount of assets and deposits. They just aren’t liquid and the run on the bank snowballed the illiquidity. They need something like a massive insurance company to offer them an annuity backed by their own treasuries — something to unlock short term liquidity of their assets.

[1] https://www.axios.com/2023/03/10/silicon-valley-bank-governm...

[loeg]

The bank had assets worth something like 90-100% of deposits. Deposits beyond the 250k insurance limit will get paid back at 90-100 cents on the dollar (hopefully 100) based on what the FDIC can sell the bank or its assets for. Absolute worst case, uninsured depositors take a single digit percent haircut. They don't lose 100% beyond $250k, like you're suggesting.

[thephyber]

I think the most likely scenario is almost all deposits returned (or retained), as you describe.

But I think you are also underestimating the risk and the complexity of how the new bank management gets to that place. Who valued the “assets”? What accounting method did they use? Are the current day valuations based on assumptions about the economy in the near future and the liquidity of money in the finance system? That could become a self-fulfilling death spiral.

The impact of SVB being unable to raise short term funds this week despite being the 16th largest bank in the US and having plenty of deposits is what scared the stock market away from the banking sector Thursday.

> based on what the FDIC can sell the bank or its assets for This is the big question. SVB had plenty of assets, but couldn’t sell anything large in the market this week. FDIC most likely can’t do it either.

I think the assets are only attractive to someone who plans on holding it for years, and even then this may not be the most attractive bank to buy if other banks have similar issues in the next few weeks/months.

[bombcar]

Iirc Indymac was 50% recovery above the $250k line.

[loeg]

Why would that be relevant here? The worst case depends on the failed bank's assets vs deposits. SVB's assets are worth significantly more than 50% of deposits above $250k, so depositors will get a bigger percent of deposits back.

[thephyber]

I wouldn’t be so quick to write off the mention of other fire sales.

SVB’s assets may look good on paper, but they couldn’t sell those assets in the past few months or weeks, which is the prelude to Thurs/Fri.

I think the more important questions are: (a) are the assets actually there and fairly valued? (b) can anyone actually sell the assets quickly for near their current states value in the open market?

I think people underestimate how much prices swing when the assets are that large, there are few possible buyers, and everyone in every investment company is re-running their models this weekend with the assumption that SVB’s woes might also be independently happening in other larger banks.

[hoofhearted]

No. FDIC will initially write checks to everyone with an account for up to $250,000.. Once the dust has settled, they will return whatever they recover back to the account holders accordingly.

[ceejayoz]

$250k is the absolute minimum cap, if the bank managed to set literally every dollar they were supposed to be holding on fire in the parking lot.

SVB was only a little (relatively speaking) underwater, so people over $250k are likely to take only a little haircut. Bad for the bank, not particularly disastrous for the individual accounts, even the big ones.

[bpicolo]

Etsy's statement makes it seem like this is just a payment rails issue, not a funds issue

[tedivm]

Yeah same thing happened with Rippling- they had to push through some changes so they could handle payroll through another company, but ultimately got it all out.

I remember Gusto having an issue a year or two ago, but since they already had code in place to use a backup they ended up making all payments on time.

[dannyw]

Rippling used their corporate reserves to do so.

[bigiain]

That might be true.

But they never explicitly said that, so I’m unconvinced that they’re not just buying time, and hoping that on Monday FDIC will release a pile of now-locked-up-funds that are an existential risk to Etsy.

[chernevik]

> make sure that depositors have timely access to some meaningful portion of their deposits.

The FDIC has said they will do exactly this, as expected by anyone familiar with prior bank failures.

This will ultimately a hassle to manage and perhaps a very modest loss on deposited funds. Some companies will find their runway to the next equity event shortened by 5% or 10%.

[shkkmo]

There is no reason companies can't make payroll next week besides incompetence. The insured balanced will be available Monday and additional dividends on uninsured balances will land by the end of the week.

There is not indication in this article that sellers will not get paid, but those payments be delayed by a week or two as things get sorted.

It SVB causes some companies to go bankrupt, they were in a precarious financial position already and did a bad job of managing their risks.

While I would support some legislative effort to support customers of tech companies that ate hurt by this collapse, bailing those tech companies out is not the way to do that.

[mikekij]

Incorrect. I have friends with $500k payroll deposits due at noon Monday. Fdic has made no guarantees that they’ll have access to a sufficiently large amount to cover.

[shkkmo]

And they can't get a bridge loan from Brex or some other financial institution? They also can't delay part of those payroll deposits a couple of days until later in the week when the uninsured partial dividends get paid?

[mediasavvy]

Did I miss Etsy declaring bankruptcy?