[nodemaker]

Can the banking system learn from this and improve? For sure it can and that would benefit everyone. But we cant retroactively change the rules. In fact you can argue that people would vote more pro-legistation if something like this was allowed to fail like it should and that would protect more people in the long run.

And yes if an insurance fund pays for it then I am all for it. Someone other than the taxpayer has to foot this bill thats all.

[colinmorelli]

The only way taxpayers avoid footing the bill here is if the FDIC can sell assets to cover 100% of deposits in a very short timeframe, or if another bank comes in and agrees to cover the shortfall.

In any other scenario, if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods, and some companies will fail. All of these things negatively impact taxpayers.

It's not clear to me what the better outcome here is, but this is going to affect everyday people either way.

[yterdy]

Neither of the first two are happening, and in any case, would result in losses by another name (because the assets are likely not worth 100% of deposits, and any buyer would have to adjust their business to eat that shortfall).

There is no evidence that your doomsday set of "any other scenario"s would be any more destructive than bailing out companies that are evidently poor at managing their risk, and - as startups - are at a generally high risk of folding in the future anyway. Such a bailout constitutes a headfirst dive into the sunk cost fallacy. Are the people who lose their jobs more or less likely to have a network that will help them find a job, compared to those who will lose the taxpayer-funded services cut to pay for a bailout? Are the startups in question actually producing anything of material worth to the average American's budget? Frankly: do we care if these businesses fail? Maybe some of us would be happy to see them go away?

[colinmorelli]

I quite literally said in the message you're replying to "It's not clear what the better outcome is here" so I'm not really opining on what's preferable. It doesn't change the reality that this is going to impact "regular people" in the end whether it's intentional and direct in the form of a bailout, or indirect in the form of layoffs.

To your questions: The companies you'd prefer to see shut down almost certainly will outside of the zero interest rate environment we've recently excited. But there's quite a big difference between businesses running their course and dying, and them rapidly laying off employees alongside one another because they just lost much of their runway. Mass layoffs create a sudden oversupply of candidates and strain the system, making it more difficult for those laid off to find new jobs.

While I'd prefer businesses not die for "random chance" of having chosen the wrong bank, my concerns here are not for the companies themselves. I'm much more worried about the downstream impact of employees who will go without wages or systemic failures of other banks if we can't regain confidence quickly.

[yterdy]

I maintain that you're privileging the economic wellbeing of privileged tech workers, who have the resources to weather unemployment (and their communities and municipalities who are likewise situated, recognizing the effect of this mass layoff), over the workers that this bailout is now going to effect. There's a multi-hundred-billion-dollar hole in the Treasury balance sheet which is now, ultimately, going to be filled with SNAP cuts, and job skill development cuts, and public transit cuts, and cuts to all the other low-hanging discretionary fruit that help keep life in the bottom two quintiles of the American wealth ladder viable. They get hurt, because the people at the top are incompetent.

I've said (roughly) in another thread, I would rather have well-off people get hurt alone or alongside poor people, rather than poor people alone. When well-off people get hurt, problems are more likely to get fixed. What we've seen is proof positive of the assumption of influence and reach that underpins this notion, but in the most cynical way imaginable. They said: fuck you, got mine.

[colinmorelli]

If you think this created a multi hundred billion dollar hole, then I’m not sure you’re following what actually happened here.

SVB had assets to cover most deposits, if not all. FDIC needs time to sell those assets, but depositors need the security of their cash now. FDIC pledged a larger portion of their pool, which is funded by banks, to cover withdrawals while assets are sold.

By most reasonable estimates, FDIC will recover at least 80-90% of deposits at no cost to anyone. This means that, at most, there’s a 10-20B hole to plug, if any at all. If needed at all, that hole will be plugged by a special assessment on other banks. Given the relatively small dollar amount, it’s my personal opinion that banks wouldn’t bother trying to pass down the fee, be that’s the primary way this would impact regular people.

[tome]

> if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods

Why so necessarily? The first thing to happen is that their equity holders will take a hit. Only then will the other things you state happen. And if the equity holders take a hit, well, that's exactly why they're equity holders.

[colinmorelli]

Losing deposits means losing cash flow to fund runway. Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices.

Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing.

We're talking about operating cash for these companies. The hit to equity holders is not the problem right now.

Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.

[tome]

> Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices.

Or by raising earlier than expected, as a down round? I don't understand why a solid company would be in trouble (though I'm not convinced that a high proportion of SV companies are actually solid).

[colinmorelli]

> Or by raising earlier than expected, as a down round?

Raising down rounds will be lower on the priority list to layoffs. Most companies would vastly prefer to buy more time to grow into their next milestone than to admit they can't achieve it and raise at a lower valuation. We generally know this to be true, in part because we just watched it happen across the entire tech ecosystem over the last ~12 months or so.

Logically, it makes sense. VC backed startups operate on optics and momentum. Layoffs are recoverable, failing to hit goals is much less so (I'm speaking purely about optics here, not my personal preference).

> though I'm not convinced that a high proportion of SV companies are actually solid

This is likely accurate. But that's not necessarily criticism, most companies in their early days aren't "solid" (if by solid you mean default alive and/or having a path to profitability). SVB is overly exposed to these types of clients, which is why I think there stands to be a large impact here if depositors need to take a 10-20% haircut.

[tome]

Yes, you have convincing points. I guess I just don't like the way most of SV works.

[macintux]

Each time we learn new things, impose new regulations, and make new mistakes.