[koolba]

> But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out.

If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.

> But moreso, when we invest in companies, we deep down know there is a possibility of the investment going to 0. We often don't think when I put money in a bank it can go belly up, this would obviously hurt the trust in our banking environment if depositors not made whole.

FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.

And who knows what perks, direct or indirect, those depositors were getting for having that cash at SVB?

Whether it’s stupidity or greed doesn’t matter. No hand outs.

[rib3ye]

Don’t you think there is a huge difference between the bank shareholders getting bailed out and depositors getting bailed out?

Let’s think about the risk of “morale hazard” in these case: Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up! Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business and pay vendors/employees, I can keep doing my job without interruption.

Bailing out one group makes them greedy, bailing out the other makes them productive.

This is not old testament judgement, this is a financial war and our gov has to use every appropriate tool to fight it.

[koolba]

> Don’t you think there is a huge difference between the bank shareholders getting bailed out and depositors getting bailed out?

Of course they're different. But they're both bail outs.

If my house burns down and I have $250K of home owners insurance, do I get the rest covered by the Feds?

> Let’s think about the risk of “morale hazard” in these case: Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up! Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business and pay vendors/employees, I can keep doing my job without interruption.

SVB, and banks in general, offer incentives for people to deposit money. It can be anything from account bonuses to non-monetary perks like access to other sources of capital. To say that depositors had nothing to do with the losses is extremely naive.

> Bailing out one group makes them greedy, bailing out the other makes them productive.

They're both greedy. Or stupid. Or both. Either way, no hand outs.

> This is not old testament judgement, this is a financial war and our gov has to use every appropriate tool to fight it.

The government does work solely for the depositors or investors of SVB. It works for all of us and we've established rules for when it is authorized to step in and provide both liquidity and direct bail outs.

Romanticizing a specific customer base does not earn them special treatment.

[rib3ye]

> If my house burns down and I have $250K of home owners insurance, do I get the rest covered by the Feds?

Not on your home, no.

But if it were your factory and you were responsible for a respectable percentage of the workforce being able to put food on their tables, I would hope a gov entity step in and try to reduce friction for getting the factory back on its feet.

And again, that reduced friction doesn’t need to be a check to you, it could simply be forced asset sale.

[nodemaker]

There is not much difference if you look at it from the point of view that one of those parties was just underestimating the risk they were taking (which is true of all bad decisions in life). I see no reason to bail out depositors over 250k

[rib3ye]

When you capitalize a bank with deposits, are you really an “investor” with expected risk/reward?

I am not for totally punishing someone who expects a near-zero return on a loan, especially when they made the loan with the expectation the borrower would help other businesses be productive.

[nodemaker]

We should not take for granted that value can be transferred through time for free and without any risks. When you give another party control of your money (including a bank) they make decisions on your behalf for which there are consequences.

[rtpg]

> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.

I think we should really not forget that SVB hit duration risk on their assets that is almost definitionally not an issue for the FDIC. This isn’t “bank fell apart due to bad loans” this is “bank fell apart because money is locked away for 10 years but is basically guaranteed”.

Basically no risk to taxpayers!

[koolba]

> This isn’t “bank fell apart due to bad loans” this is “bank fell apart because money is locked away for 10 years but is basically guaranteed”.

They fell apart due to greed. Not being satisfied with low short term rates that matched their short term liabilities.

They gambled on longer durations and got burned. It’s not the tax payers responsibility to cover their gambling losses.

[stanleydrew]

> If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout.

I think this is naive. The FDIC or some government entity is in a pretty reasonable position to take on the longer duration assets that appear to have brought down SVB. If they hold those assets to maturity then everything is fine, and they can return deposits today if necessary because they don't need to sell assets to generate cash.

[tome]

> If they hold those assets to maturity then everything is fine, and they can return deposits today if necessary because they don't need to sell assets to generate cash.

The federal government will be out of pocket by the interest rate spread if it does that. That is a bailout.

[skwirl]

> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society.

I hope you realize FDIC insurance isn’t even guaranteed to be $250k. The FDIC is funded by member fees and can only cover a very small amount of “insured” losses. If it goes beyond that, depositors would need a bailout.

[ericmay]

It’s practically infinite precisely because if a bank goes under and you lose your checking account the entire banking system immediately collapses and there is a real bank run 1920s style.

I look at the FDIC and its ability to either pay or be bailed out to pay as an existential function of the State (US specific) and the inability to do so threatens its existence.

[skwirl]

You are making the same kind of argument that people asking for SVB depositors to be made whole are making.

[ericmay]

It’s not because the FDIC insurance is for the masses - everyday workers and waiters and taxi drivers and teachers. Lack of it can cause a revolution and actually destroy the economy whereas SVB will bring some companies down with it (unless investors take care of their portfolio companies) and VCs will send lots of Tweets and stuff.

The scale is extremely important.

But also we didn’t bail out Enron shareholders including regular folks who lost their life savings - this is more akin to that or something similar. VCs are professionals and sometimes shit happens and this time some of them got screwed (undeservedly) but screwed nonetheless. But it’s no different than the employees losing their jobs or when someone up and moves a factory - we don’t bail them out either and they also get screwed.

[bagels]

We shouldn't accept that bank deposits should be as risky as investments. Functioning low risk bank deposits benefit all of us.

[ericmay]

Low risk is not the same as no-risk. FDIC amounts will be returned and bank assets will be sold to cover deposits as much as possible. Outside of an investigation into any wrongdoing that should be the end of the involvement of taxpayers. VC firms should protect their investments or the government should get an equity stake or favorable loan terms for remaining balances. It’s really bad for the free market to signal that all banking is risk free for any corporation. If we are going to do that then just nationalize the banks and cut out the middle person.

[rib3ye]

Additionally, it sounds like a total depositor “bailout” is just float until the receivership can unload the banks assets