[frgtpsswrdlame]

I think the article misses the real dilemma. Think about all the firms who do payroll through Rippling, should those employees and firms suffer because of something they essentially knew nothing about? We want to avoid moral hazard but we also want to avoid firms going bust for no reason. I think the issue is that big economic players (in this case some billionaires and VCs) point to all the small players that will by wiped out and it feels a bit like a hostage scenario. And in that hostage scenario we're basically always going to choose to socialize the risk. IMO the problem comes when we make decisions to socialize risk without socializing reward. When the two are tied together we eliminate the hostage feeling, now big players know there is a big cost to being saved by the government.

[falcolas]

> those employees suffer because of something they essentially knew nothing about

Just like the tens of thousands of layoffs before and since? Employees at those companies were really at no more risk than employees at even the most profitable of companies (a’la Google).

[chernevik]

You're entirely right about the hostage scenario.

Ultimately the VCs that guided their portfolio companies to use SVB and neglect obvious cash management are responsible for the anxiety. I suspect they would have stepped up to fill any gaps, which would have been less serious than claimed; making payroll was never seriously threatened.

But before then they were happy to let some useful idiots clamor for a depositor bailout that would absolve them of that responsibility.

[twblalock]

The systemic risk to the entire banking system was real and still is, and VCs banding together to save a single bank would not have helped.

The systemic risk became real simply because a lot of people realized that SVB was not the only bank with problematic assets. The result would have been an outflow of deposits to the "too big to fail" banks because those banks effectively have infinite deposit insurance (because everyone already knew they would not be allowed to fail).

[chernevik]

I think the VCs would have helped not SVB but their own portfolio companies. The amounts involved would have been small and the VCs would not want to admit to their own investors they were idiots.

Failure of a number of regional banks does not threaten the whole system but the handful with sketchy solvency / liquidity.

[twblalock]

All banks that were not in the “too big to fail” category were at risk as panicked depositors would have flown to safety in the arms of Chase and the other big banks. They would have done that even if their own smaller banks were just fine, because of a fear that other people would do it first. Once the panic begins it becomes a self-fulfilling prophecy.

Also, many other small banks are not fine. SVB is not the only one with concerning duration risk in their assets.

[twblalock]

The rewards are socialized, because the small players would not have existed in the first place if not for the big players. All these small companies that were impacted by SVB only existed in the first place because VCs invested in them. The same story plays out in many other industries.

The losses aren't really socialized either -- not this time, and not in 2008. In 2008 the government made money on the bailouts, effectively getting an investment return on taxpayer money. So far in the rescue of SVB no taxpayer money has been spent either.

[jjoonathan]

Nope. QE is a fig leaf over a money printer. The Fed is the bagholder of last resort. They haven't made money in any real sense until they sell those assets (or roll them off) and they never will because every time they try the market throws a shitfit and they go back to printing.

https://fred.stlouisfed.org/series/WALCL

[imtringued]

QE transforms treasuries into their liquid equivalent. You can call this money printing if you want to but then money printing is a meaningless term that means everything and nothing. My clock is printing time. My car is printing miles.

[jjoonathan]

In theory, these are all just loans and they get paid back. In practice, the Fed's balance sheet just keeps increasing. A loan that always gets covered by a bigger loan is never really repaid, and a loan that is never repaid isn't a loan, it's a payment. These are payments disguised as loans. A fig leaf over a money printer.

Look, I understand that you don't want to base your opinion on speculation about the trajectory of the Fed's balance sheet, but do you see how this refusal would give the Fed license to print money in exactly the manner I describe, by perpetually growing the balance sheet?

Let's be concrete: would you be willing to bet me $10k that in 10 years the Fed's balance sheet is under $10T? If not, I rest my case: this is money printing, not liquidity provision, and the smart part of you not willing to take my bet understands this.